<PAGE>
AMENDMENT NO. 1
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended October 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
2450 First Avenue
P. O. Box 2968
Huntington, West Virginia 25728
- ----------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (304) 528-2791
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of Act: Common Stock, $1.00 par
value
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
--- ---
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
------
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of January 15, 1998 was $52,650,572 of Common Stock, $1.00
par value. The outstanding common stock of the Registrant at the close of
business on January 15, 1998 consisted of 8,388,445 shares of Common Stock,
$1.00 par value.
Total number of pages including cover page - 64.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registration statement on
Form S-1 No. 33-54454, filed on November 10, 1992 are incorporated by reference
into Part IV, Item 14.
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
HISTORY
Champion Industries, Inc. ("Champion" or the "Company") is a major
commercial printer, business forms manufacturer and office products and
office furniture supplier in regional markets east of the Mississippi River.
The Company's sales offices and production facilities are located in
Huntington, Charleston, Parkersburg and Clarksburg, West Virginia; Lexington
and Owensboro, Kentucky; Baton Rouge and New Orleans, Louisiana; Cincinnati
and Belpre, Ohio; Jackson, Mississippi; Baltimore, Maryland; Kingsport and
Knoxville, Tennessee; Timmonsville, South Carolina; Evansville, Indiana;
Bridgeville, Pennsylvania; and Asheville, North Carolina. The Company's sales
force of approximately 100 salespeople sells printing services, business
forms, office products and office furniture.
The Company was chartered as a West Virginia corporation on July 1, 1992.
Prior to the public offering of the Company's Common Stock, on January 28,
1993 (the "Offering"), the Company's business was operated by The Harrah and
Reynolds Corporation ("Harrah and Reynolds") doing business as Chapman
Printing Company, together with its wholly-owned subsidiaries, The Chapman
Printing Company, Inc. and Stationers, Inc. Incident to the Offering, Harrah
and Reynolds and the Company entered into an Exchange Agreement, pursuant to
which, upon the closing date of the Offering: (i) Harrah and Reynolds
contributed to the Company substantially all of the operating assets of its
printing division, including all inventory and equipment (but excluding any
real estate and vehicles) and all issued and outstanding capital stock of its
subsidiaries, The Chapman Printing Company, Inc. and Stationers, Inc.;
(ii) the Company assumed certain of the liabilities relating to the operations
of the printing divisions of Harrah and Reynolds and its subsidiaries The
Chapman Printing Company, Inc. and Stationers, Inc., excluding debts
associated with real estate, certain accounts payable to affiliates and
certain other liabilities; and (iii) Harrah and Reynolds was issued 2,000,000
shares of Common Stock of the Company.
The Company and its predecessors have been headquartered in Huntington
since 1922. Full scale printing facilities, including web presses for
manufacturing business forms, and sales and customer service operations are
located in Huntington. The Company's Charleston division was established in
1974 through the acquisition of the printing operations of Rose City Press.
Sales and customer service operations, as well as the Company's largest
pre-press department, are located in Charleston. The Parkersburg division
opened in 1977 and was expanded by the acquisitions of Park Press and
McGlothlin Printing Company. In addition to sales and customer service
operations, this division houses a large full-color printing facility and a
state-of-the-art studio, with scanners, electronic color retouching equipment
and 4-, 5- and 6-color presses.
The Lexington division commenced operations in 1983 upon the acquisition
of the Transylvania Company. This location includes a pre-press department,
computerized composition facilities, a press room and bindery department, as
well as sales and customer service operations.
The Company acquired Stationers, Inc. ("Stationers"), an office products,
office furniture and retail bookstore operation located in Huntington in 1987,
and consolidated its own office products and office furniture operations with
Stationers. On August 30, 1991, Stationers, Inc. sold the assets, primarily
inventory and fixtures, of its retail bookstore operation. In July, 1993,
Stationer's expanded through acquisition and began operations in Marietta,
Ohio, under the name "Garrison Brewer."
The Bourque Printing division ("Bourque") commenced operations in June,
1993, upon the acquisition of Bourque Printing, Inc. in Baton Rouge, Louisiana.
This location includes a pre-press department, computerized composition
facilities, a press room with up to 4-color presses and a bindery department
as well as sales and customer service operations. Bourque was expanded through
the acquisition of Strother Forms/Printing in Baton Rouge in 1993 and through
the acquisition of the assets of E. S. Upton Printing Company, Inc. in New
Orleans in 1996.
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The Dallas Printing division ("Dallas") commenced operations in September,
1993 upon the acquisition of Dallas Printing Company, Inc. in Jackson,
Mississippi. This location includes a pre-press department, computerized
composition facilities, a press room with up to 4-color presses and a bindery
department as well as sales and customer service operations.
On November 2, 1993, a wholly-owned subsidiary of the Company chartered
to effect such acquisition purchased selected assets of Tri-Star Printing,
Inc., a Delaware corporation doing business as "Carolina Cut Sheets" in the
manufacture and sale of business forms in Timmonsville, South Carolina. The
Company's subsidiary has changed its name to "Carolina Cut Sheets, Inc."
Carolina Cut Sheets manufactures single-part business forms for sale to
dealers and through the Company's other divisions.
On February 25, 1994, Bourque acquired certain assets of Spectrum Press
Inc. ("Spectrum"), a commercial printer located in Baton Rouge, Louisiana.
On June 1, 1994, the Company acquired certain assets of Premier Data
Graphics, a distributor of business forms and data supplies located in
Clarksburg, West Virginia.
On August 30, 1994, Dallas acquired certain assets of Premier Printing
Company, Inc. ("Premier Printing") of Jackson, Mississippi.
On June 1, 1995, in exchange for issuance of 52,383 shares of its Common
Stock, the Company acquired U.S. Tag & Ticket Company, Inc. ("U.S. Tag"), a
Baltimore, Maryland based manufacturer of tags used in the manufacturing,
shipping, postal, airline and cruise industries.
On November 13, 1995, in exchange for $950,000 cash and the issuance of
66,768 shares of its Common Stock, the Company acquired Donihe Graphics, Inc.
("Donihe"), a high-volume color printer based in Kingsport, Tennessee. The
Company issued the shares without registration under the Securities Act of
1933 based on exemption from registration pursuant to Section 4(2) of said act
and Rule 505 promulgated thereunder, there being four purchasers and all other
provisions of such rule being satisfied.
On February 2, 1996, Bourque purchased various assets and assumed certain
liabilities of E.S. Upton Printing Company, Inc. ("Upton"), for approximately
$750,000 in cash.
On July 1, 1996, the Company acquired Smith & Butterfield Co., Inc.
("Smith & Butterfield"), an office products company located in Evansville,
Indiana and Owensboro, Kentucky. The Company issued 66,666 shares of Common
Stock valued at $1,200,000 in exchange for all of the issued and outstanding
shares of common stock of Smith & Butterfield. The Company issued the shares
without registration under the Securities Act of 1933 based on exemption from
registration pursuant to Section 4(2) of said act and Rule 505 promulgated
thereunder, there being one purchaser and all other provisions of such rule
being satisfied.
On August 21, 1996, the Company purchased the assets of The Merten Company
("Merten") a commercial printer headquartered in Cincinnati, Ohio, for cash
and assumption of liabilities aggregating $2,535,295.
On December 31, 1996, the Company acquired all outstanding capital stock
of Interform Corporation ("Interform"), a business form manufacturer in
Bridgeville, Pennsylvania, for $2,500,000 cash which was financed by a bank.
On May 21, 1997, the Company acquired all the issued and outstanding
common shares of Blue Ridge Printing Co., Inc. of Asheville, North Carolina
and Knoxville, Tennessee ("Blue Ridge"), in exchange for 277,775 shares of
the Company's Common Stock. The transaction has been accounted for as a
pooling of interests. The Company issued the shares without registration
under the Securities Act of 1933 based on exemption from
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registration pursuant to Section 4(2) of said Act and Rule 506 promulgated
thereunder, there being five purchasers and all other provisions of said Rule
being satisfied.
BUSINESS
Champion is a major commercial printer, business forms manufacturer and
office products and office furniture supplier in regional markets east of the
Mississippi River. The Company's sales force sells a full range of printing
services, business forms, office products and office furniture. Management
views these sales activities as complementary since frequent customer sales
calls required for one of its products or services provide opportunities to
cross-sell other products and services. The Company believes it benefits from
significant customer loyalty and customer referrals because it provides
personal service, quality products, convenience and selection with a one-stop
shopping approach.
The Company's printing services range from the simplest to the most
complex jobs, including business cards, books, tags, brochures, posters, tags,
4- to 6- color process printing and multi-part, continuous and snap-out
business forms. The Company's state-of-the-art equipment enables it to provide
computerized composition, art design, paste-up, stripping, film assembly and
color scanner separations. The Company also offers complete bindery and
letterpress services. The Company's segmented gross sales of printing services
in fiscal 1997 consisted of approximately 41% sheet and tag printing, 29%
business forms printing, and 30% process color printing. The printing
operations contributed $88 million, or 81.2% of the Company's total revenues
for the fiscal year ended October 31, 1997.
The Company provides a full range of office products and office furniture
primarily in the budget and middle price ranges. The Company publishes a
catalog of high volume, frequently ordered items purchased directly from
manufacturers. These catalog sales account for the bulk of sales volume and
afford sales personnel flexibility in product selection and pricing. Medium
to large volume customers are offered levels of pricing discounts. In
addition, the Company offers a broad line of general office products through
major wholesalers' national catalogs. The Company recently introduced an
on-line ordering system through software available on a CD-ROM designed and
published by the Company. The Company is a member of a major office products
purchasing organization. Members benefit from volume discounts, which permit
them to offer competitive prices and improve margins. The Company's office
furniture business focuses on the budget to middle price range lines, although
upscale lines are offered as well. Office products and office furniture
operations contributed $20.4 million, or 18.8% of the Company's total revenues,
for the fiscal year ended October 31, 1997.
ORGANIZATION
Champion is organized into sixteen divisions, twelve of which are
wholly-owned subsidiaries. The Huntington headquarters provides centralized
financial management and administrative services to all divisions. Each
division is managed by a division manager who has profit responsibility for
the sales and production operations of the division. Division managers report
directly to the President of the Company. Their compensation depends primarily
on the volume and profit results of their individual operations.
Commercial Printing
-------------------
Ten commercial printing divisions are located in Huntington, Charleston
and Parkersburg, West Virginia; Lexington, Kentucky; Baton Rouge and New
Orleans, Louisiana; Jackson, Mississippi; Cincinnati, Ohio; Kingsport,
Tennessee and Asheville, North Carolina. Each has a sales force, a customer
service operation and a pre-press department that serve the customers in their
respective geographic areas. Although each customer's interface is solely
with its local division's personnel, its printing job may be produced in
another division using the equipment most suited to the quality and volume
requirements of the job. In this way, for example, Champion
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can effectively compete for high quality process color jobs in Lexington by
selling in Lexington, printing in Cincinnati and binding in Huntington. The
full range of printing resources is available to customers in the entire
market area without Champion having to duplicate equipment in each area.
Business Forms
--------------
Interform Corporation, doing business as Interform Solutions and located
in Bridgeville, Pennsylvania, manufactures business forms and related products
which it sells through a network of independent distributors concentrated in
Eastern Pennsylvania, New Jersey and metropolitan New York, and directly
through its own distributor, the Consolidated Graphics Communications division
in Pittsburgh, Pennsylvania.
Carolina Cut Sheets, Inc., located in Timmonsville, South Carolina,
manufactures single sheet business forms which are sold to other commercial
printers and dealers and through the Company's other divisions.
The Huntington, West Virginia division of Chapman Printing Company
manufactures single sheet and multi-part, snap-out and continuous business
forms for sale through many of the Company's commercial printing divisions.
Tags
----
U.S. Tag, located in Baltimore, Maryland, manufactures and sells tags
used in the manufacturing, shipping, postal, airline and cruise industries
throughout the United States through dealers and the Company's other divisions.
Office Products and Office Furniture
------------------------------------
Stationers, Inc., located in Huntington and Clarksburg (doing business as
"Champion Clarksburg"), West Virginia and Belpre, Ohio (doing business as
"Garrison Brewer"), provides office products and office furniture primarily
to customers in the Company's West Virginia, Ohio and Kentucky market areas.
Products are sold by printing division salespeople and delivered in bulk
daily to each division, or shipped directly to customers.
Smith & Butterfield, located in Evansville, Indiana and Owensboro,
Kentucky, provides office products and office furniture primarily to customers
in the Company's Indiana and Kentucky market areas. Products are sold by Smith
& Butterfield sales personnel and delivered to customers daily.
PRODUCTS AND SERVICES
Printing Services
- -----------------
Champion's primary business is commercial printing and business forms
manufacturing. The Company, unlike most of its regional competitors, offers
the full range of printing production processes, enabling the Company to
provide customers a one-stop, one-vendor source without the time and service
constraints of subcontracting one or more aspects of production. Major
production areas include: (i) printing of business cards, letterhead,
envelopes, and one, two, or three color brochures; (ii) process color
manufacturing of brochures, posters, advertising sheets and catalogues;
(iii) die cutting and foil stamping; (iv) bindery services, including
trimming, collating, folding and stitching the final product; (v) forms
printing, encompassing roll-to-roll computer forms, checks, invoices, purchase
orders and similar forms in single-part, multi-part, continuous and snap-out
formats; (vi) tag manufacturing; and (vii) high volume process color web
printing of brochures and catalogs.
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The capabilities of the Company's various printing divisions are stated
below.
<TABLE>
<CAPTION>
High
Sales & Volume Continuous Cut
Customer Sheet Full Full and Snap- Sheet
Division Service Pre-Press Printing Color Color out Forms Forms Tags
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Huntington * * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Charleston * *
- ----------------------------------------------------------------------------------------------------------------------------
Parkersburg * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Lexington * * *
- ----------------------------------------------------------------------------------------------------------------------------
Borque Printing, Inc. * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Dallas Printing Company, Inc. * * *
- ----------------------------------------------------------------------------------------------------------------------------
Carolina Cut Sheets, Inc. * * *
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Tag & Ticket Company, Inc. * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Donihe Graphics, Inc. * * *
- ----------------------------------------------------------------------------------------------------------------------------
Upton Printing * * * *
- ----------------------------------------------------------------------------------------------------------------------------
The Merten Company * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Interform Corporation * * * * *
- ----------------------------------------------------------------------------------------------------------------------------
Blue Ridge Printing Co., Inc. * * * *
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Office Products and Office Furniture
- ------------------------------------
Champion provides its customers with a wide range of product offerings
in two major categories: supplies, such as file folders, paper products, pens
and pencils, computer paper and laser cartridges; and furniture, including
budget and middle price range desks, chairs, file cabinets and computer
furniture. Office supplies are sold primarily by Company salespeople through
the Company's own catalogs. Most office furniture is sold from catalogs and
supplied from in-house stock. Special orders and design projects constitute
a small portion of sales.
MANUFACTURING AND DISTRIBUTION
The Company's pre-press facilities have desktop publishing, typesetting,
laser imagesetting and scanning/retouching equipment, and complete layout,
design, stripping and plate processing operations. Sheet printing equipment
(for printing onto pre-cut, individual sheets) includes single color
duplicators, single to six color presses and envelope presses. Rotary
equipment (for printing onto continuous rolls of paper) includes multi-color
business form web presses, carbon and multi-part collators, and a high speed
5-color half-web press.
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Binding equipment consists of hot-foil, embossing and die cutting equipment,
perforators, folders, folder-gluers, scoring machines, collator/stitcher/
trimmers for saddle stitching, automatic and manual perfect binders, numbering
machines and mailing equipment.
Each of the Company's offices is linked with overnight distribution of
products and on-line electronic telecommunications permitting timely transfer
of various production work from facility to facility as required. While the
Company maintains a fleet of delivery vehicles for intracompany and customer
deliveries, it utilizes the most cost effective and expeditious means of
delivery, including common carriers.
Requirements for the Company's press runs are determined shortly before
the runs are made and, therefore, backlog is not a meaningful measure in
connection with the Company's printing business.
The Company's inventory goal is to have approximately 60% of the office
products items the Company sells in stock. Another 30% are ordered on a daily
basis and received overnight. The remaining 10% are items that come direct
from manufacturers and may take one week from placement of order to delivery
to customer. Office furniture sales are made primarily from the Company's
in-house stock. However, special orders from manufacturers may require up to
90 days for delivery.
CUSTOMERS
The Company believes that its reputation for quality, service,
convenience and selection allows it to enjoy significant loyalty from its
customers. Champion's marketing strategy is to focus on manufacturers,
institutions, financial services companies and professional firms. Consistent
with customary practice in the commercial printing and office products
industries, the Company ordinarily does not have long-term contracts with its
customers, although a number of high volume customers issue yearly purchase
orders. These purchase orders, which are typically for office products but
may include printing services, are for firm prices adjustable for paper price
changes. Depending upon customer satisfaction with price and service, these
purchase orders may be renewed for another year or up to three years without
repeating the full bidding process.
During the fiscal year ended October 31, 1997, no single customer
accounted for more than 1% of total revenues. Due to the project-oriented
nature of customers' printing requirements, sales to particular customers may
vary significantly from year to year depending upon the number and size of
their projects.
SUPPLIERS
The Company has not experienced difficulties in obtaining materials in
the past and does not consider itself dependent on any particular supplier for
supplies. The Company has negotiated Company-wide paper purchasing agreements
directly with paper manufacturers and is a member of a major office products
buying group, which management believes provide the Company with a competitive
advantage.
COMPETITION
The markets for the Company's printing services and office products are
highly competitive, with success based primarily on price, quality, production
capability, capacity for prompt delivery and personal service.
Champion's printing competitors are numerous and range in size from very
large national companies with substantially greater resources than the Company
to many smaller local companies. In recent years, despite consolidation within
the printing industry, there has been a substantial increase in technological
advances in new equipment, resulting in excess capacity and highly competitive
pricing. The Company has remained competitive by maintaining its printing
equipment at state-of-the-art levels and emphasizing personal attention to
customers.
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Large national and regional mail order discount operations provide
significant competition in the office products and office furniture business.
The economics afforded by membership in a national purchasing association and
by purchasing directly from manufacturers, and the high level of personal
services to customers contribute substantially to the Company's ability to
compete in the office supply and office furniture market segments.
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 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
condition of the Company.
GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS
The Company's operations and the majority of its customers are located
east of the Mississippi River. The Company and its profitability may be more
susceptible to the effects of unfavorable or adverse local or regional
economic factors and conditions than a company with a more geographically
diverse customer base.
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.
EMPLOYEES
On October 31, 1997, the Company had 897 full-time employees.
The Company's subsidiary, Interform Corporation is party to a collective
bargaining agreement with the United Steelworkers of America, AFL-CIO-CLC on
behalf of its Local Union 8263 covering all production and maintenance
employees (currently numbering 96) at its Bridgeville, Pennsylvania facility.
The Company believes relations with the union and covered employees are good.
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EXECUTIVE OFFICERS OF CHAMPION
Position and offices with Champion;
Name Age Principal occupation or employment last five years
- ------------------------------------------------------------------------------
Marshall T. Reynolds 61 President, Chief Executive Officer and Chairman of
the Board of Directors of Company from December
1992 to present; President and general manager of
Harrah and Reynolds, predecessor of the Company
from 1964 (and sole shareholder from 1972) to
1993; Director (from 1983 to November 1993) and
Chairman of the Board of Directors (from 1983 to
November 1993) of Banc One West Virginia
Corporation (formerly Key Centurion Bancshares,
Inc.)
Michael D. McKinney 44 Vice President and General Sales Manager of
Company since September 1995; Vice President and
Division Manager - Huntington, of Company from
December 1992 to September 1995; Division Manager
- Huntington, of Harrah and Reynolds from October
1991 to 1992; Division Manager - Lexington, of
Harrah and Reynolds from August 1982 to October
1991.
William M. Campbell 62 Vice President and Division Manager - Parkersburg,
of Company from December 1992 to present; Division
Manager - Parkersburg, of Harrah and Reynolds from
June 1977 to 1992.
Ronald W. Taylor 40 Vice President and Division Manager - Lexington,
of Company from December 1992 to present; Division
Manager - Lexington, of Harrah and Reynolds from
January 1992 to December 1992; Sales
Representative, Lexington Division of Harrah and
Reynolds from 1986 to January 1992.
J. Mac Aldridge 56 Vice President of Company and Division Manager -
Huntington since September 1995; Vice President
and Division Manager - Stationers, of Company
since December 1992; President and General Manager
of Stationers since November 1989; Sales
Representative of Huntington Division of Harrah
and Reynolds from July 1983 to October 1989.
Gary A. Blackshire 45 Vice President and Division Manager - Charleston,
of Company since December 1992; Division Manager -
Charleston, of Harrah and Reynolds from April 1992
to December 1992; Sales Representative of
Charleston Division of Harrah and Reynolds from
1975 until April 1992.
R. Douglas McElwain 50 Vice President and Division Manager - Bourque
Printing, of Company since December 1993; General
Manager of Bourque Printing from June 1993 to
December 1993; Sales Representative of Charleston
Division of Harrah and Reynolds and Company from
1986 until June 1993.
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Position and offices with Champion;
Name Age Principal occupation or employment last five years
- ------------------------------------------------------------------------------
David G. Pilcher 55 Vice President of Company since April, 1997;
President of Interform Corporation since January,
1995; President of Printing Center Media (Fort
Worth, Texas) from 1989 to 1995.
L. David Brumfield 60 Vice President and Division Manager - Dallas
Printing since May, 1997; President and General
Manager, Radisson Hotel, Huntington, from 1992 to
1997.
Joseph C. Worth, III 48 Vice President and Chief Financial Officer of
Company since June 1992.
Toney K. Adkins 48 Vice President of Company since November, 1995;
President, KYOWVA Corrugated Container Company,
Inc. from 1991 to 1996.
Walter R. Sansom 68 Secretary of Company since December 1992;
Production Coordinator of Company since December
1992 and of Harrah and Reynolds from August 1968
to December 1992.
ITEM 2 - PROPERTIES
The Company conducts its operations from 20 different physical locations,
14 of which are leased, and 6 of which are owned in fee simple by Company
subsidiaries. The properties leased, and certain of the lease terms, are set
forth below:
<TABLE>
<CAPTION>
Division occupying Square Expiration
Property property feet Annual rental of term
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2450 1st Avenue Champion headquarters 85,000 $116,400 2008
Huntington, West Virginia(1) and Chapman Printing -
Huntington
1945 5th Avenue Stationers 37,025 60,000 2007
Huntington, West Virginia(1)
615-619 4th Avenue Stationers 59,641 21,600 2003
Huntington, West Virginia(1)
405 Ann Street Chapman Printing - 36,614 57,600 2003
Parkersburg, West Virginia(1) Parkersburg
1563 Hansford Street Chapman Printing - 21,360 49,920 2003
Charleston, West Virginia(1) Charleston
</TABLE>
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<TABLE>
<CAPTION>
Division occupying Square Expiration
Property property feet Annual rental of term
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
890 Russell Cave Road Chapman Printing - 20,135 57,600 2000
Lexington, Kentucky(1) Lexington
214 Stone Road Stationers - Garrison 15,146 42,000 1999
Belpre, Ohio(1) Brewer
2800 Lynch Road Smith & Butterfield 42,375 116,640 1999
Evansville, Indiana(1)
113-117 East Third St. Smith & Butterfield 8,500 14,400 2002
Owensboro, Kentucky(1)
1901 Mayview Road Interform Corporation 120,000 316,000 2003
Bridgeville, Pennsylvania(1)
736 Carondelet Street Upton Printing 15,000 62,700 2000
New Orleans, Louisiana
1515 Central Parkway The Merten Company 40,000 97,200 2001
Cincinnati, Ohio(1)
2217 Robb Street U.S. Tag 26,000 52,000 2000
Baltimore, Maryland(1)
Palmetto Industrial Park Carolina Cut Sheets 16,200 35,724 monthly
Timmonsville, S. Carolina
</TABLE>
(1) Lease is "triple net", whereby Company pays for all utilities, insurance,
taxes, repairs and maintenance, and all other costs associated with
properties.
The Dallas Printing Division owns, and operates from, a single-story
masonry structure of approximately 19,600 square feet at 321-323 East Hamilton
Street, Jackson, Mississippi.
The Bourque Printing Division owns, and operates from, a single-story
building of approximately 18,501 square feet at 13112 South Choctaw Drive,
Baton Rouge, Louisiana.
Stationers' Clarksburg operation is conducted from a single-story masonry
building of approximately 20,800 square feet owned by the Company at 700 N.
Fourth Street, Clarksburg, West Virginia.
Donihe owns, and operates from, a single-story steel building of
approximately 38,500 square feet situated on roughly 14.5 acres at 766
Brookside Drive, Kingsport, Tennessee.
Blue Ridge owns, and operates from (i) a two-story masonry building of
approximately 9,066 square feet and a contiguous 1,692 square foot former
residential structure at 544 and 560 Haywood Road, Asheville, North Carolina,
and (ii) a two-story steel building of approximately 12,500 square feet on
approximately 3 acres at 1485 Amherst Road, Knoxville, Tennessee.
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ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Champion common stock has traded in the over-the-counter market on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") National Market System since the Offering under the symbol "CHMP".
The following table sets forth the high and low closing prices for
Champion common stock for the period indicated. The range of high and low
closing prices are based on data from NASDAQ, and do not include retail
mark-up, mark-down or commission.
Fiscal 1996 Fiscal 1997
----------------- -----------------
High Low High Low
First Quarter $15.52 $13.12 $19.40 $17.00
Second quarter 16.60 12.80 19.75 17.00
Third quarter 15.40 13.60 19.50 16.13
Fourth quarter 18.00 13.60 19.25 18.00
At the close of business on January 15, 1998, there were 541 shareholders
of record of Champion Common Stock.
The following table sets forth the quarterly dividends per share declared
on Champion common stock.
Fiscal 1996 Fiscal 1997 Fiscal 1998
-------------------------------------------
First quarter $.032 $.040 $.050
Second quarter .040 .050 --
Third quarter .040 .050 --
Fourth quarter .040 .050 --
-12-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Consolidated Income Statement and Balance Sheet Data of the Company
set forth below at and for the years ended October 31, 1993 through 1997 have
been derived from the audited Consolidated Financial Statements of the
Company. The information set forth below should be read in conjunction with
the Consolidated Financial Statements of the Company (and notes thereto)
appearing elsewhere herein and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In 1997, the Company acquired all the outstanding common stock of Blue Ridge.
This combination has been accounted for as a pooling of interests.
Accordingly, all financial information has been restated as though Blue Ridge
and the Company had always been combined.
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Printing....................................... $ 22,899 $ 30,001 $ 35,371 $ 49,242 $ 87,979
Office products and office furniture........... 10,691 13,229 14,532 17,115 20,406
--------- --------- --------- --------- ---------
Total revenues............................ 33,590 43,230 49,903 66,357 108,385
Cost of sales:
Printing....................................... 13,478 17,755 22,251 33,015 59,850
Office products and office furniture........... 6,836 8,605 9,670 11,077 13,289
--------- --------- --------- --------- ---------
Total cost of sales....................... 20,314 26,360 31,921 44,092 73,139
Selling, general and administrative expense...... 10,155 12,486 12,788 16,197 28,079
--------- --------- --------- --------- ---------
Income from operations........................... 3,121 4,384 5,194 6,068 7,167
Interest income................................ 129 67 11 25 20
Interest expense............................... (140) (132) (252) (693) (1,586)
Other income................................... 69 212 113 224 737
--------- --------- --------- --------- ---------
Income before income taxes....................... 3,179 4,531 5,066 5,624 6,338
Income taxes................................... (1,278) (1,859) (2,060) (2,252) (2,571)
--------- --------- --------- --------- ---------
Net income....................................... $ 1,901 $ 2,672 $ 3,006 $ 3,372 $ 3,767
========= ========= ========= ========= =========
Earnings per share(1):
Basic.......................................... $ 0.26 $ 0.33 $ 0.37 $ 0.41 $ 0.45
Diluted........................................ $ 0.26 $ 0.33 $ 0.37 $ 0.40 $ 0.45
Dividends per share.............................. $ 0.041 $ 0.098 $ 0.122 $ 0.152 $ 0.190
Weighted average common shares
outstanding(1):
Basic.......................................... 7,299,035 8,084,088 8,147,389 8,323,518 8,383,391
Diluted........................................ 7,299,035 8,098,799 8,176,716 8,356,032 8,441,083
</TABLE>
<TABLE>
<CAPTION>
At October 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 9,603 $ 10,040 $ 11,148 $ 13,579 $ 18,935
Total assets..................................... 21,050 25,690 28,643 44,063 60,346
Current portion of long term debt................ 484 538 1,077 2,437 4,244
Long-term debt, net of current portion........... 1,131 1,124 2,405 7,561 15,156
Shareholders' equity............................. 15,027 17,739 19,794 24,641 26,850
</TABLE>
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a commercial printer, business form manufacturer and
office products and office furniture supplier in regional markets east of the
Mississippi River. The Company has grown through strategic acquisitions and
internal growth. Through such growth, the Company has realized regional
economies of scale and operational efficiencies.
The Company's largest acquisition since the Offering was the purchase of
Interform on December 31, 1996. The addition of Interform's sales in the
business forms segment has increased the printing component of the Company's
revenue mix. Through sales to independent distributors, and through its own
distributor, Consolidated Graphic Communications, Interform provides the
Company's manufacturing divisions access to the large northeastern markets of
Pennsylvania, New Jersey and New York.
The Company's 1997 acquisition of Blue Ridge, located in Asheville, North
Carolina and Knoxville, Tennessee added a premier commercial color printer
specializing in sales to and through advertising agencies. A portion of its
sales utilize the proprietary QuadRaster [trademark symbol] technology which
creates color printing of significantly higher resolution and impact than
traditional color imaging methods. This technology provides the opportunity
for increased sales of high-end color jobs throughout the Company.
The Company's net revenues consist primarily of sales of commercial
printing, business forms, tags, other printed products, office supplies,
office furniture, data products and office design services. Revenues are
recognized by the Company when products are shipped or services are rendered
to the customer. The Company's revenues are subject to quarterly fluctuations
caused by variations in demand for its products.
The Company's cost of sales primarily consist of raw materials, including
paper, ink, pre-press supplies and purchased office supplies, furniture and
data products, and manufacturing costs including direct labor, indirect labor
and overhead. Significant factors affecting the Company's cost of sales include
the costs of paper in both printing and office supplies, the costs of labor
and other raw materials.
The Company's operating costs consist of selling, general and
administrative expenses. These costs include salaries, commissions and wages
for sales, customer service, accounting, administrative and executive
personnel, rent, utilities, and equipment maintenance.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the Company's Consolidated Income Statements, including certain
information presented as a percentage of total revenues. In 1997, the Company
acquired all the outstanding common stock of Blue Ridge. This combination has
been accounted for as a pooling of interests. Accordingly, all prior period
financial information has been restated as though Blue Ridge and the Company
had always been combined.
-14-
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
($ in thousands)
-------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Printing...................................... $ 87,979 81.2% $ 49,242 74.2% $ 35,371 70.9%
Office products and office furniture.......... 20,406 18.8 17,115 25.8 14,532 29.1
-------- ----- -------- ----- -------- -----
Total revenues.......................... 108,385 100.0 66,357 100.0 49,903 100.0
Cost of sales:
Printing...................................... 59,850 55.2 33,015 49.8 22,251 44.6
Office products and office furniture.......... 13,289 12.3 11,077 16.7 9,670 19.4
-------- ----- -------- ----- -------- -----
Total cost of sales...................... 73,139 67.5 44,092 66.5 31,921 64.0
Selling, general and administrative expenses.... 28,079 25.9 16,197 24.4 12,788 25.6
-------- ----- -------- ----- -------- -----
Income from operations.......................... 7,167 6.6 6,068 9.1 5,194 10.4
Other income (expense):
Interest income............................. 20 0.0 25 0.0 11 0.0
Interest expense............................ (1,586) (1.4) (693) (1.0) (252) (0.5)
Other income................................ 737 0.7 224 0.4 113 0.2
-------- ----- -------- ----- -------- -----
Income before income taxes...................... 6,338 5.9 5,624 8.5 5,066 10.1
Income taxes.................................. (2,571) (2.4) (2,252) (3.4) (2,060) (4.1)
-------- ----- -------- ----- -------- -----
Net income...................................... $ 3,767 3.5% $ 3,372 5.1% $ 3,006 6.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following discussion and analysis presents the significant changes in the
financial position and results of operations of the Company and should be read
in conjunction with the audited consolidated financial statements and notes
thereto included elsewhere herein.
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
- -------------------------------------------------------------------
Revenues
- --------
Total revenues increased 63.3% in fiscal 1997 to $108.4 million from
$66.4 in fiscal 1996. Printing revenue increased 78.7% in fiscal 1997 to $88.0
million from $49.2 million in 1996. Office products and office furniture
revenue increased 19.2 % in fiscal 1997 to $20.4 million from $17.1 million
in fiscal 1996. This was achieved through new acquisitions which accounted for
increased printing sales of $35.5 million and increased office products and
office furniture sales of $3.6 million. The office products and office
furniture change in sales was also impacted by a one-time furniture sale
totaling $500,000 in 1996.
-15-
<PAGE>
Cost of Sales
- -------------
Total cost of sales increased 65.9% in fiscal 1997 to $73.1 million from
$44.1 million in fiscal 1996. Printing cost of sales increased 81.3% in fiscal
1997 to $59.9 million from $33.0 million in fiscal 1996, due primarily to
sales volume and the impact of newly acquired divisions with lower sales
margins. Office products and office furniture cost of sales increased 20.0%
in fiscal 1997 to $13.3 million from $11.1 million in fiscal 1996, primarily
due to increased sales volume.
Operating Expenses and Income
- -----------------------------
Selling, general and administrative expenses increased as a percentage of
sales in fiscal 1997 to 25.9% from 24.4% in fiscal 1996 due to increased costs
associated with acquisitions. For the reasons stated above, income from
operations increased 18.1% in fiscal 1997 to $7.2 million from $6.1 million
in fiscal 1996.
Other Income/Expense
- --------------------
Interest expense increased $893,000 from $693,000 in fiscal 1996 to
$1.6 million in fiscal 1997 as a result of the debt assumed in the Interform
acquisition. Other income increased from $224,000 in fiscal 1996 to $737,000
in fiscal 1997 due to a $330,000 one-time recognition of deferred gain from
the previous sale of Stationers' bookstore operations.
Net Income
- ----------
Income taxes in fiscal 1997 increased slightly to 40.6% from 40.0% in
fiscal 1996 due to the Company's expansion into states with higher tax rates.
For the reasons stated above, net income for fiscal 1997 increased 11.7% to
$3.8 million, or $0.45 per share (diluted), from $3.4 million, or $0.40 per
share (diluted), in fiscal 1996.
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
- -------------------------------------------------------------------
Revenues
- --------
Total revenues increased 33.0% in fiscal 1996 to $66.4 million from $49.9
million in fiscal 1995. Printing revenue increased 39.2% in fiscal 1996 to
$49.2 million from $35.4 million in 1995. Office products and office furniture
revenue increased 17.8 % in fiscal 1996 to $17.1 million from $14.5 million in
fiscal 1995. This was achieved through new acquisitions which accounted for
increased printing sales of $5.5 million and increased office products and
office furniture sales of $1.6 million. The office products and office
furniture divisions also experienced $1.0 million of sales growth due to
increased sales efforts and a one-time furniture sale totaling $500,000.
Cost of Sales
- -------------
Total cost of sales increased 38.1% in fiscal 1996 to $44.1 million from
$31.9 million in fiscal 1995. Printing cost of sales increased 48.4% in fiscal
1996 to $33.0 million from $22.3 million in fiscal 1995, due primarily to
sales volume and the addition of newly acquired divisions with lower sales
margins. Office products and office furniture cost of sales increased 14.5% in
fiscal 1996 to $11.1 million from $9.7 million in fiscal 1995, primarily due
to sales volume.
-16-
<PAGE>
Operating Expenses and Income
- -----------------------------
Selling, general and administrative expenses declined as a percentage of
sales in fiscal 1996 to 24.4% from 25.6% in fiscal 1995 due to cost controls
implemented by management and spreading overhead expenses over increasing
revenues. For the reasons stated above, income from operations increased
16.8% in fiscal 1996 to $6.1 million from $5.2 million in fiscal 1995.
Other Income/Expense
- --------------------
Interest expense on a comparative basis increased $441,000 as a result of
increased debt.
Net Income
- ----------
Income taxes remained relatively constant at about 40%. For the reasons
stated above, net income increased 12.2% to $3.4 million, or $0.40 per share
(diluted), for fiscal 1996, from $3.0 million, or $0.37 per share (diluted),
in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its acquisitions, capital
expenditures and working capital through cash generated from operating
activities and debt. At October 31, 1997 working capital was $19.0 million
compared to $13.6 million at October 31, 1996. Working capital was increased
by the addition of positive working capital of acquired businesses. At
October 31, 1996, working capital was $13.6 million compared to $11.1 million
at October 31, 1995. Working capital was positively impacted by acquired
businesses in 1997 and 1996. Management plans to continue making significant
investments in equipment and expects total capital expenditures to approximate
$3 million in 1998. Included in these capital expenditures for 1998 is the
initial phase of upgrading the Company's information systems. Management
plans to develop and implement a centralized information system
infrastructure. However, to fund the Company's plans to continue to expand
its operations internally and through acquisitions and to upgrade its
information systems, additional financing is necessary. The Company is
currently evaluating financing alternatives such as the issuance of stock,
obtaining additional debt or a combination thereof. These financing
arrangements should be in place within the next three months.
Cash Flows from Operating Activities
- ------------------------------------
Cash flows from operations for the years ended October 31, 1997, 1996
and 1995 were $2.0 million , $3.3 million, and $500,000. The 1997 cash flows
from operations decreased primrily as a result of investment in inventories
to support increased sales. The 1996 cash flows from operations increased as
a result of increased net income, depreciation expense, deferred income taxes,
accrued income taxes and accounts receivable and decreased accounts payable.
Cash Flows from Investing and Financing Activities
- --------------------------------------------------
Cash flows (used in)/provided by financing activities for the years ended
October 31, 1997, 1996, 1995 were ($1.5 million), $1.5 million and ($600,000).
Cash flows used in investing activities for the years ended October 31, 1997,
1996 and 1995 were ($2.0 million), ($3.8 million) and ($3.5 million).
Acquisitions of businesses and capital equipment in 1997 were funded from
working capital, long-term debt and the issuance of common stock.
Acquisitions of businesses and capital equipment in 1996 were funded from
working capital, long-term debt and issuance of common stock. The primary
source of funding in 1995 was working capital and long-term debt. Equipment
and vehicles have generally been financed through leases. During the past
three years, capital equipment has been financed through long term debt and
capital leases. Dividends paid in fiscal years 1997, 1996 and 1995 were
$1.6 million, $1.2 million and $1.0 million.
-17-
<PAGE>
INFLATION AND ECONOMIC CONDITIONS
Management believes that the effect of inflation on the Company's
operations has not been material and will continue to be immaterial for the
foreseeable future. The Company does not have long term contracts; therefore,
to the extent permitted by competition, it has the ability to pass through to
its customers most cost increases resulting from inflation, if any.
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.
YEAR 2000 ASSESSMENT
Management has initiated a Company-wide program to assess the need to
modify or replace portions of its information systems enabling the proper
processing of transactions relating to the Year 2000 and beyond. The Company
primarily utilizes purchased software and management believes that there are
adequate sources of Year 2000 compliant software available from vendors that
will meet its needs. Management continues to evaluate appropriate courses of
corrective action, including the cost/benefit of modifying existing software
versus purchasing new software and hardware. However, until a complete cost/
benefit analysis of the various alternatives available to the Company is
completed, an estimate of the total cost of its Year 2000 project cannot be
made at this time. Management does not expect the Year 2000 project to
materially impact results of operations based on the current status of the
analysis.
The Year 2000 project is expected to be completed no later than
December 31, 1998. Management believes that with modifications to existing
software and/or conversions to new software, the Year 2000 problem will not
pose significant operational problems to the Company. However, if such
modifications and/or conversions are not made, or are not completed timely,
this issue could have a material impact on the Company's operations. The
Company has initiated discussions with its significant suppliers, large
customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company
is assessing the extent to which its operations are vulnerable should those
organizations fail to properly remediate their computer systems. While
management believes its planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be converted on a timely
basis and will not have a material effect on the Company.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other information required by this item are
contained in the financial statements and footnotes thereto listed in the
index on page F-1 of this report, infra.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name, Age, Position and Offices
with Company and Year Became Director Principal Occupations for Past Five Years
- ------------------------------------- ---------------------------------------------------------
<S> <C>
Robert H. Beymer - 70 President of First Sentry Bank, Huntington, West Virginia
Director - 1992 from 1996 to present; General Partner, Eastern Heights
Shopping Center, Ltd., from 1976 to present; Consultant
to One Valley Bank of Huntington (Huntington, West
Virginia) from 1986 to 1993; President of First Guaranty
Bank (Hammond, Louisiana) from December 1992 to June
1994; Director of Stationers, Inc. (a Company subsidiary)
from 1990 to present.
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Name, Age, Position and Offices
with Company and Year Became Director Principal Occupations for Past Five Years
- ------------------------------------- ---------------------------------------------------------
<S> <C>
Philip E. Cline - 64 Since January 1, 1997; President, Chief Executive Officer
Director - 1992 and Director, Broughton Foods Company, Interim President
and Chief Executive Officer, Broughton Foods Company from
November, 1996 to January 1, 1997; Consultant from
January, 1996 to November, 1996; Executive Vice President
(1995 to 1996), Vice President and Treasurer (1968 to
1995) of J. H. Fletcher & Co. (manufacturer of
underground mining equipment); Director of Banc One West
Virginia Corporation (formerly Key Centurion Bancshares,
Inc.) from 1983 to present.
Harley F. Mooney, Jr. - 69 Brig. Gen. U.S. Army (Ret.), Managing Partner, Mooney-
Director - 1992 Osborne & Associates (management consulting) from 1985 to
present; Director of Stationers, Inc. (a Company
subsidiary) from 1989 to present; consultant to
Stationers, Inc. from 1988 to 1990; consultant to The
Harrah and Reynolds Corporation since 1988; Director of
Ohio River Bank, Ironton, Ohio from 1995 to present.
Todd L. Parchman - 43 Partner, Parchman, Vaughan & Company (investment bankers)
Director - 1993 since May, 1996; Senior Vice President (from 1990 to May,
1996) and Director (from 1994 until May, 1996), Ferris,
Baker Watts, Incorporated.
A. Michael Perry - 61 President (from 1983 to December 1993), Chief
Director - 1992 Executive Officer (from 1983 to present) and Chairman
of Board from November 1993 to present of Banc One West
Virginia Corporation (formerly Key Centurion Bancshares,
Inc.).
Marshall T. Reynolds - 61 President, Chief Executive Officer and Chairman of the
President and Chief Executive Officer, Board of Directors of Company from 1992 to present;
Director and Chairman of the Board of President and general manager of The Harrah and Reynolds
Directors - 1992 Reynolds Corporation, predecessor of the Company from
1964 (and sole shareholder from 1972) to 1993; Chairman
of the Board of Directors, Broughton Foods Company since
November 1996; Director (from 1983 to November 1993) and
Chairman of the Board of Directors (from 1983 to November
1993) of Banc One West Virginia Corporation (formerly Key
Centurion Bancshares, Inc.).
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Name, Age, Position and Offices with
with Company and Year Became Director Principal Occupations for Past Five Years
- ------------------------------------- ---------------------------------------------------------
<S> <C>
Neal W. Scaggs - 61 President, Baisden Brothers, Inc. (retail and wholesale
Director - 1992 hardware) from 1963 to present; Director of Banc One West
Virginia Corporation (formerly Key Centurion Bancshares,
Inc.) from 1984 to present.
Glenn W. Wilcox, Sr. - 66 Chairman of the Board of Directors of Wilcox Travel
Director - 1997 Agency, Inc. since 1953; Chairman of the Board of
Directors (since 1974) and President (from 1974 to 1977)
of Blue Ridge Printing Co., Inc.
</TABLE>
Mr. Reynolds is chairman of the board of directors of Premier Financial
Bancorp, Inc., of Georgetown, Kentucky, which has a class of securities
registered pursuant to the Securities Exchange Act of 1934. Mr. Reynolds is a
director of Abigail Adams National Bancorp, Inc., of Washington, DC, which has
a class of securities registered pursuant to the Securities Exchange Act of
1934.
Mr. Reynolds is chairman of the board of directors, Mr. Cline is
president, chief executive officer and a director and Mr. Scaggs is a director
of Broughton Foods Company, of Marietta, Ohio, which has a class of securities
registered pursuant to the Securities Exchange Act of 1934.
Mr. Reynolds and Mr. Beymer are directors of First Guaranty Bank of
Hammond, Louisiana, which has a class of securities registered pursuant to the
Securities Exchange Act of 1934.
Mr. Parchman is a director of Morgan Group, Inc., which has a class of
securities registered pursuant to the Securities Exchange Act of 1934. Ferris,
Baker Watts, Incorporated, of which Mr. Parchman was an officer and director
until May, 1996, served as representative of the several underwriters involved
in the January 1993 public offering of Company Common Stock. Pursuant to
agreement among Mr. Reynolds, the Company and Ferris, Baker Watts,
Incorporated, Mr. Parchman was appointed to the Company's Board of Directors
at the closing of such offering.
DIRECTOR MEETINGS, COMMITTEES AND ATTENDANCE
The Board of Directors has two standing committees, a Compensation
Committee and an Audit Committee.
The Compensation Committee reviews and recommends to the Board the
compensation and employee benefits of officers of the Company and administers
the 1993 Stock Option Plan. The Compensation Committee did not meet during
fiscal 1997, and currently consists of Messrs. Beymer, Mooney and Perry.
The Audit Committee meets with the Company's management, independent
auditors and internal accountants, reviews the accounting principles and the
scope and control of the Company's financial reporting practices, and makes
reports and recommendations to the Board with respect to audit matters. The
Audit Committee met 2 times during fiscal 1997, and currently consists of
Messrs. Cline, Parchman and Scaggs.
The Board does not have a nominating committee, as nominations are made
by the Board as a whole.
During fiscal 1997, there were 10 meetings of the Company Board of
Directors. All directors attended 75% or more of the aggregate of meetings of
the Board and their committees held during their respective terms.
-20-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal year 1997
all filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
-21-
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
Company directors who are not employees of the Company are paid a
director's fee of $500 per Company Board meeting attended and $100 per
committee meeting attended. In addition, Company directors Robert H. Beymer
and Harley F. Mooney, Jr. were each paid directors' fees of $500 per
Stationers, Inc. Board meeting attended, for total Stationers, Inc. directors'
fees of $6,000 each in fiscal year 1997. The Company reimbursed directors Todd
L. Parchman and Glenn W. Wilcox, Sr. for their travel expenses incurred in
attendance at monthly Board meetings, aggregating $4,977 and $162,
respectively, in fiscal year ended October 31, 1997.
The Company's Blue Ridge Printing Co., Inc. subsidiary ("Blue Ridge") is
party to a Deferred Compensation Agreement dated July 1, 1993 and a
Split-Dollar Life Insurance Agreement dated July 1, 1992 with Company director
Glenn W. Wilcox, Sr., who was the principal shareholder and chairman of the
board of directors of Blue Ridge prior to the Company's acquisition of Blue
Ridge in May of 1997. Pursuant to the Deferred Compensation Agreement, if
Mr. Wilcox is employed by Blue Ridge upon attaining age 69, Blue Ridge has
agreed to pay him (or his designated beneficiary in the event of his death
after retirement prior to receiving all benefits) an annual retirement benefit
of $50,000 for ten years. Blue Ridge may prepay its obligations in whole or
part at a discounted rate.
In the event Mr. Wilcox dies while employed by Blue Ridge prior to
commencement of payments under the Deferred Compensation Agreement, no
benefits will be payable thereunder, but death benefits will be paid under
the Split-Dollar Life Insurance Agreement. Pursuant to that Agreement, Blue
Ridge pays annual premiums on a policy of life insurance owned by Mr. Wilcox.
At Mr. Wilcox's death, or termination of the Agreement, as therein provided,
Blue Ridge is entitled to receive from the proceeds of such policy the
aggregate premiums paid by it less that portion of the annual premium taxable
to Mr. Wilcox, with Mr. Wilcox or his beneficiaries being entitled to the
balance of proceeds.
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Cash and Certain Other Compensation
----------------------------------------------
The following table shows, for the fiscal years ended October 31, 1995,
1996 and 1997, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid or accrued for those years, to each
of the five most highly compensated executive officers of the Company in all
capacities in which they served:
-22-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
Awards
(a) (b) (c) (d) (g) (i)
<S> <C> <C> <C> <C> <C>
All other
Name and Principal Position Year Salary Bonus Options(1) Compensation(2)
($) ($) (#) ($)
Marshall T. Reynolds 1997 150,000 -0- -0- 78
President and Chief 1996 150,000 -0- -0- 134
Executive Officer, Chairman 1995 150,000 -0- -0- 134
of the Board of Directors
Gary A. Blackshire 1997 50,016 131,608 2,500 150
Vice President, Division Manager 1996 50,016 108,006 3,125 150
1995 50,016 92,540 3,906 150
David G. Pilcher,(3) 1997 160,000 -0- -0- -0-
Vice President, Division Manager
J. Mac Aldridge, 1997 50,016 104,913 2,500 150
Vice President, Division Manager 1996 50,016 102,909 3,125 150
1995 50,016 101,440 3,906 150
R. Douglas McElwain, 1997 50,016 94,581 2,500 150
Vice President, Division Manager 1996 50,467 80,000 3,125 150
1995 50,016 99,402 3,906 150
</TABLE>
(1) All options are granted at the market price of Company common stock on
the date of the grant. Pursuant to the anti-dilution provisions of the
Company's 1993 Stock Option Plan, all share amounts and exercise prices
have been adjusted, as appropriate, for stock dividends and stock
splits paid on Company common stock through October 31, 1997.
(2) This item consists of matching contributions by the Company to its
401(k) Plan on behalf of each of the named executives to match pre-tax
elective deferral contributions (included under Salary) made by each to
such plan. Participation in the 401(k) Plan is open to any employee of
the Company on the first day of the thirteenth month following
employment. Participants may contribute 2% of their annual
compensation, up to a maximum of $300 per year.
(3) Mr. Pilcher's employment with the Company commenced on December 31,
1996.
-23-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR - 1997
<TABLE>
<CAPTION>
Number of % of total Potential realizable value
securities options at assumed annual rates
underlying granted to Exercise of stock price
options granted employees price Expiration appreciation for option
Name Type(1) # in fiscal year ($/share) date term(2)
0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marshall T. Reynolds ISO -0-
President and Chief NQSO -0-
Executive Officer, ---- -----
Chairman of the TOTAL -0- N/A N/A N/A N/A N/A N/A
Board of Directors
Gary A. Blackshire ISO 2,500
Vice President, NQSO -0-
Division Manager ---- -----
TOTAL 2,500 7.1% $17.90 12/16/2001 -0- 12,364 27,320
David G. Pilcher ISO -0-
Vice President, NQSO -0-
Division Manager ---- -----
TOTAL -0- N/A N/A N/A N/A N/A N/A
J. Mac Aldridge ISO 2,500
Vice President, NQSO -0-
Division Manager ---- -----
TOTAL 2,500 7.1% $17.90 12/16/2001 -0- 12,364 27,320
R. Douglas McElwain ISO 2,500
Vice President, NQSO -0-
Division Manager ---- -----
TOTAL 2,500 7.1% $17.90 12/16/2001 -0- 12,364 27,320
</TABLE>
(1) Incentive Stock Option (ISO) or Non-qualified Stock Option (NQSO). These
options were granted on December 16, 1996, and vested immediately. Options
have a term of five years and are exercisable at any time during such
five years as to any or all options, conditioned upon optionee's employment
by Company at time of exercise (or exercise within 90 days following
termination of employment due to death or disability). As a result of the
Company's 25% stock dividend, treated as a 5 for 4 stock split, paid on
January 27, 1997, the number of shares subject to option and exercise
price were adjusted from 2,000 shares and $22.38 to 2,500 shares and
$17.90, respectively.
(2) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent assumed annual rates of
appreciation, at 0%, 5% and 10%, for the 5 year option term, based on
Securities and
-24-
<PAGE>
Exchange Commission rules, and do not represent the Company's estimate
or projection of the price of the Company's Common Stock in the future.
Additionally, these values do not take into account certain provisions
of the options providing for termination of the options following
termination of employment. Actual gains, if any, on stock option
exercises depend upon the actual future performance of the Company's
Common Stock. Accordingly, the potential realizable values set forth in
this table may not be achieved.
The following table shows the number of shares covered by both exercisable
and non-exercisable stock options as of October 31, 1997. Also reported are
the values for "in-the-money" options which represent the positive spread
between the exercise price of any such existing stock options and the fiscal
year-end price of Company Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)(2)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($)(1) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Marshall T. Reynolds
President and Chief
Executive Officer,
Chairman of the
Board of Directors -0- -0- -0- -0-
Gary A. Blackshire
Vice President,
Division Manager -0- -0- 14,414/0 $97,974/0
David G. Pilcher
Vice President,
Division Manager -0- -0- -0- -0-
J. Mac Aldridge
Vice President,
Division Manager -0- -0- 14,414/0 $97,974/0
R. Douglas McElwain
Vice President,
Division Manager -0- -0- 14,414/0 $97,974/0
</TABLE>
-25-
<PAGE>
(1) Aggregate market value of the shares covered by the option less the
aggregate price paid by the executive.
(2) Market value of shares covered by in-the-money options on October 31, 1997
(based on $18.63 per share, the closing price of Company Common Stock on
the NASDAQ Stock Market on October 31, 1997), less option exercise prices.
Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. All options are granted at the
market price of Company common stock on the date of the grant. Pursuant to
the anti-dilution provisions of the Company's 1993 Stock Option Plan, all
share amounts and exercise prices have been adjusted, as appropriate, for
stock dividends and stock splits paid on Company common stock through
October 31, 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Mr. Reynolds' $150,000 salary for fiscal year 1997 was equal to the base
salary established in his former employment agreement with the Company. This
salary was based upon Mr. Reynolds' extensive experience in the commercial
printing industry and the desirability of maintaining the availability of his
services for the Company. It is not tied to any objective standards of
Company's stock performance or earnings in fiscal year 1997. The Compensation
Committee believes the base salary is appropriate in light of, among other
factors, the Company's revenue growth of approximately 63%, net income growth
of approximately 12%, and return on equity of approximately 14% for the year
as well as Mr. Reynolds' efforts in successfully leading the Company and in
directing its acquisition program in 1997. Mr. Reynolds' employment agreement
provided that he will receive such annual bonus as may be determined by the
Compensation Committee. He requested that the Compensation Committee not
consider or grant any such bonus for fiscal year 1997, and no bonus was
granted.
With respect to the salaries and other compensation of the Company's
executive officers (other than Mr. Reynolds), the Compensation Committee
believes that Mr. Reynolds, as Chief Executive Officer, is in the best
position to establish such compensation and acts upon his recommendations.
The Company's compensation package for executive officers consists of base
salary plus the opportunity to earn a cash bonus and discretionary stock
options. The base salaries are set at levels Mr. Reynolds believes sufficient
to attract and retain qualified executives. Cash bonuses are based upon net
profit of each of the Company's divisions for which each executive officer is
responsible, as well as Mr. Reynolds' assessment of the executive's individual
performance and level of responsibility. Stock options are intended to attract
and retain executive management by affording them an opportunity to receive
additional compensation based upon performance of the Company=s Common Stock,
and are based upon Mr. Reynolds' assessment of each executive officer's
overall performance.
Members of the Compensation Committee:
Robert H. Beymer
Harley F. Mooney, Jr.
A. Michael Perry
STOCK PERFORMANCE GRAPH
The following line graph compares, from January 29, 1993, the first full
trading day on which the Company's Common Stock was publicly traded, through
October 31, 1997, the cumulative total return among
-26-
<PAGE>
the Company, the Russell 2000 Index and a peer group index, based on an
investment of $100 on January 29, 1993, in the Company's Common Stock and each
index, and assuming reinvestment of all dividends, if any, paid on such
securities. The 8 companies in the peer group index are: American Business
Products, Inc., Banta Corporation, Cadmus Communications Corp., Graphic
Industries, Inc., New England Business Service, Outlook Graphics Corp.,
Standard Register Company and United Stationers, Inc. Duplex Products, Inc.,
and Paris Business Forms, Inc. have been removed from the peer group because
they were acquired by Reynolds and Reynolds in 1996 and 1997, respectively.
COMPARISON OF CUMULATIVE TOTAL RETURN
Champion Industries, Inc., Russell 2000 Index and Peer Group Index
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
01/29/93 10/29/93 10/31/94 10/31/95 10/31/96 10/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Champion Industries, Inc. $100 $151 $318 $407 $404 $416
Russell 2000 Index 100 114 112 130 147 187
Peer Index 100 95 102 152 182 185
</TABLE>
-27-
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF SHARES
PRINCIPAL SHAREHOLDER
No person is known to the Company to be the beneficial owner of more than
5% of the Company Common Stock at January 15, 1998 except as follows:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
<S> <C> <C> <C>
Common Stock Marshall T. Reynolds 4,775,877 shares(1) 57%
2450 1st Avenue
Huntington, West Virginia
25728
</TABLE>
(1) 4,773,437 shares through a controlled corporation, The Harrah and
Reynolds Corporation, of which Mr. Reynolds is the sole shareholder;
2,440 shares are held by Mr. Reynolds' wife. 1,561,797 shares are
pledged as collateral to secure loans made to Mr. Reynolds in the
ordinary course of business by several commercial banks. Any
disposition of such pledged shares upon a default by Mr. Reynolds
under such loans could result in a change of control of the Company.
The Company has no reason to believe that any such default will occur.
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth certain information concerning ownership
Of Company Common Stock as of January 15, 1998 by (i) each of the directors
and nominees, (ii) each executive officer named in the Summary Compensation
table contained herein, and (iii) all directors and executive officers as a
group. Except as otherwise noted, each beneficial owner listed below has sole
voting and investment power with respect to the shares listed next to the
owner's name.
Percentage
Name of Beneficial Owner Shares Beneficially Owned of Class
Robert H. Beymer 5,244(1) *
Philip E. Cline 7,593 *
Harley F. Mooney, Jr. 13,190 *
Todd L. Parchman 1,267 *
A. Michael Perry 12,206 *
Marshall T. Reynolds 4,775,877(2) 57%
Neal W. Scaggs 48,827(3) *
Glenn W. Wilcox, Sr. 125,000 *
J. Mac Aldridge 40,827(4)(8) *
Gary A. Blackshire 29,313(5)(8) *
David G. Pilcher 2,000(6) *
R. Douglas McElwain 28,870(7)(8) *
All directors and executive officers
as a group (19 persons)(9) 5,270,630 61%
-28-
<PAGE>
* The percentage of shares of Company Common Stock beneficially owned by
each person listed above (other than Marshall T. Reynolds, who
beneficially owns 57%) is less than 1%.
(1) Includes 2,316 shares owned by wife; reporting person has no voting or
investment power with respect to those 2,316 shares.
(2) Includes 4,773,437 shares owned by a controlled corporation; 2,440 shares
owned by wife; reporting person has no voting or investment power with
respect to these 2,440 shares.
(3) Shares joint voting and investment power with wife.
(4) Joint voting and investment power shared with wife with respect to 24,413
shares.
(5) Includes 303 shares held by wife as custodian for minor child, with
respect to which reporting person has no voting or investment power;
joint voting and investment power shared with wife with respect to 12,596
shares.
(6) Includes presently exercisable options to purchase 2,000 shares of Common
Stock pursuant to 1993 Stock Option Plan.
(7) Joint voting and investment power shared with wife with respect to 12,456
shares.
(8) Includes presently exercisable options to purchase 16,414 shares of Common
Stock pursuant to 1993 Stock Option Plan.
(9) Includes presently exercisable options to purchase an aggregate of 134,730
shares of Common Stock pursuant to 1993 Stock Option Plan. These shares
are not included for purposes of computing the percentage of Common Stock
held by all directors and executive officers as a group.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTONS
TRANSACTIONS WITH DIRECTORS, OFFICERS, AND PRINCIPAL SHAREHOLDERS
INTERCOMPANY TRANSACTIONS
The Company has certain relationships and transactions with Harrah and
Reynolds and its affiliated entities. Management believes that all existing
agreements and transactions described herein between the Company and Harrah
and Reynolds and its affiliates are on terms no less favorable to the Company
than those available from unaffiliated parties. Management's belief is
premised upon (i) its review of real estate appraisals obtained from unrelated
third parties and of market rentals of properties comparable to those leased
by the Company; and (ii) its review of the terms of vehicle leases offered by
unrelated third parties with respect to vehicles comparable to those leased by
the Company. The transactions described below have been approved in accordance
with the Company's disinterested director voting policy.
-29-
<PAGE>
Realty Leases
Harrah and Reynolds, Marshall T. Reynolds or affiliated entities and
Company officers own the fee interest in certain real estate used by the
Company in its business, and lease this real estate to the Company. All
realty leases are "triple net," whereby the Company pays for all utilities,
insurance, taxes, repairs and maintenance, and all other costs associated with
the properties. The properties leased, and certain of the lease terms, are set
forth below.
<TABLE>
<CAPTION>
ANNUAL EXPIRATION
PROPERTY LESSOR SQUARE FEET RENTAL OF TERM
<S> <C> <C> <C> <C>
2450 1st Avenue ADJ Corp.(1) 85,000 $116,400 2008
Huntington, West Virginia
1945 5th Avenue Harrah and Reynolds 37,025 60,000 2007
Huntington, West Virginia
615-619 4th Avenue ADJ Corp.(1) and 59,641 21,600 2003
Huntington, West Virginia Harrah and Reynolds
405 Ann Street Printing Property Corp.(2) 36,614 57,600 2003
Parkersburg, West Virginia
1563 Hansford Street BCM Company, Ltd.(3) 21,360 49,920 2003
Charleston, West Virginia
890 Russell Cave Road Printing Property Corp.(2) 20,135 57,600 2000
Lexington, Kentucky
</TABLE>
-30-
<PAGE>
(1) ADJ Corp. is a West Virginia corporation. Two-thirds of the outstanding
capital stock of ADJ Corp. is owned by Marshall T. Reynolds' two sons,
one of whom resides with Mr. Reynolds. One-third of the outstanding
capital stock is owned by the son of director A. Michael Perry.
(2) Printing Property Corp. is a West Virginia corporation wholly-owned by
Mr. Reynolds.
(3) BCM Company, Ltd. is a general partnership owned by Michael D. McKinney,
William M. Campbell (both executive officers of the Company) and David
Brumfield, former Charleston Division Manager of Harrah and Reynolds.
Vehicle Lease
-------------
Champion Leasing Corp., a wholly-owned subsidiary of Harrah and Reynolds,
leases to the Company and its subsidiaries, pursuant to a master vehicle lease,
11 motor vehicles, which include automobiles and delivery vehicles for use by
the Company's employees. Each vehicle is leased for a term of 24 months from
the date it was first placed in service, and thereafter on a month-to-month
basis, with monthly rental commitments averaging from $10 to $760 per month.
All operating expenses, including taxes, insurance and fuel are paid by the
Company. The leases are accounted for as operating leases in the financial
statements.
ADDITIONAL RELATED PARTY TRANSACTIONS
Marshall T. Reynolds is the Chairman of the Board of Directors and a
significant shareholder of River City Associates, Inc., a West Virginia
corporation which owns and operates the Radisson Hotel Huntington, in
Huntington, West Virginia. Harley F. Mooney, Jr. and A. Michael Perry,
directors of the Company, serve as directors of River City Associates, Inc.
River City Associates, Inc. in the ordinary course of business purchases
stationery, office products, office furniture, forms and various other
printed products from the Company. Such purchases aggregated $45,385, and
constituted 0.04% of total revenues, in the Company's fiscal year ended
October 31, 1996.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed for this part of the report are filed as a separate
section following the signature page. Reference is made to the
Consolidated Financial Statements and Schedule B Table of Contents on
Page F-1.
1. See Page No. F-1.
2. Schedules, other than those listed on page F-1, are omitted because of
the absence of conditions under which they are required or because the
information required is included in the consolidated financial statements
and notes thereto.
-31-
<PAGE>
3. EXHIBITS
Number Description Reference
- -------------------------------------------------------------------------------
(2) Plan of acquisition, Agreement of Merger dated March 24,
reorganization, arrangement, 1997 between Company and Blue Ridge
liquidation or succession Printing Co., Inc., filed as
Exhibit 2.1 to Form 8-K dated
April 3, 1997 filed April 3, 1997
is incorporated herein by
reference.
(3) 3.1 Articles of Incorporation Filed as Exhibit 3.1 to Form 10-Q
dated June 16, 1997, filed on
June 16, 1997, incorporated herein
by reference.
3.2 Bylaws Filed as Exhibit 3.2 to
Registration Statement on Form
S-1, File No. 33-54454, filed on
November 10, 1992, incorporated
herein by reference.
(4) Instruments defining the See Exhibit 3.1 above.
rights of security holders,
including debentures.
(10) Material Contracts Realty Lease dated January 28, 1993
between ADJ Corp. and Company
regarding 2450 1st Avenue,
Huntington, West Virginia, filed as
Exhibit 10.1 to Form 10-K dated
January 27, 1994, filed January 31,
1994, is incorporated herein by
reference.
-32-
<PAGE>
3. EXHIBITS (continued)
Realty Lease dated January 28, 1993
between The Harrah and Reynolds
Corporation and Company regarding
615 4th Avenue, Huntington, West
Virginia, filed as Exhibit 10.2 to
Form 10-K dated January 27, 1994,
filed January 31, 1994, is
incorporated herein by reference.
Realty Lease dated January 28, 1993
between ADJ Corp. and Company
regarding 617-619 4th Avenue,
Huntington, West Virginia, filed as
Exhibit 10.3 to Form 10-K dated
January 27, 1994, filed January 31,
1994, is incorporated herein by
reference.
Realty Lease dated January 28, 1993
between The Harrah and Reynolds
Corporation and Company regarding
1945 5th Avenue, Huntington, West
Virginia, filed as Exhibit 10.4 to
Form 10-K dated January 27, 1994,
filed January 31, 1994, is
incorporated herein by reference.
Realty Lease dated January 28, 1993
between Printing Property Corp. and
Company regarding 405 Ann Street,
Parkersburg, West Virginia, filed
as Exhibit 10.5 to Form 10-K dated
January 27, 1994, filed January 31,
1994, is incorporated herein by
reference.
Realty Lease dated January 28, 1993
between Printing Property Corp. and
Company regarding 890 Russell Cave
Road, Lexington, Kentucky, filed as
Exhibit 10.6 to Form 10-K dated
January 27, 1994, filed January 31,
1994, is incorporated herein by
reference.
Realty Lease dated January 28, 1993
between BCM Company, Ltd. and
Company regarding 1563 Hansford
Street, Charleston, West Virginia,
filed as Exhibit 10.7 to Form 10-K
dated January 27, 1994, filed
January 31, 1994, is incorporated
herein by reference.
-33-
<PAGE>
3. EXHIBITS (continued)
Master Vehicle Lease dated January
28, 1993 between Champion Leasing
Corp. and Company, filed as Exhibit
10.8 to Form 10-K dated January 27,
1994, filed January 31, 1994, is
incorporated herein by reference.
Line of credit pursuant to Note of
Stationers, Inc. in principal
amount of $500,000, payable to The
Twentieth Street Bank, filed as
Exhibit 10.5 to Registration
Statement on Form S-1, File No.
33-54454, filed on November 10,
1992, is incorporated herein by
reference.
$2,000,000 line of credit pursuant
to Letter Agreement, Loan
Agreement, Commercial Promissory
Note and Guaranty Agreement dated
September 24, 1993 with Bank One,
West Virginia, Huntington, N.A.,
filed as Exhibit 10.11 to Form 10-K
dated January 27, 1994, filed
January 31, 1994, is incorporated
herein by reference.
Lease dated April 11, 1994 between
Terry and Anis Wyatt and Stationers
Inc. regarding 214 Stone Road,
Belpre, Ohio, filed as Exhibit 10.1
to Form 10-K dated January 26,
1995, filed January 27, 1995, is
incorporated herein by reference.
Form of Indemnification Agreement
between Company and all directors
and executive officers, filed as
Exhibit 10.4 to Registration
Statement on Form S-1, File No.
33-54454, filed on November 10,
1992, is incorporated herein by
reference.
Lease Agreement dated June 1, 1995
between Owl Investors Joint Venture
and U.S. Tag & Ticket Company, Inc.
regarding 2217 Robb Street,
Baltimore, Maryland filed as
Exhibit 10.1 to Form 10-K dated
January 26, 1996, filed January 26,
1996, is incorporated herein by
reference.
-34-
<PAGE>
3. EXHIBITS (continued)
Lease Agreement dated November 1,
1991 between Randall M. Schulz,
successor trustee of The
Butterfield Family Trust No. 2 and
Smith & Butterfield Co., Inc.
regarding 2800 Lynch Road,
Evansville, Indiana, filed as
Exhibit 10.2 to Form 10-K dated
January 28, 1997, filed January
28, 1997, is incorporated herein
by reference.
Lease Agreement dated June 1, 1972
between Earl H. and Elaine D.
Seibert and Smith & Butterfield
Co., Inc. regarding 113-117 East
Third Street, Owensboro, Kentucky,
filed as Exhibit 10.3 to Form 10-K
dated January 28, 1997, filed
January 28, 1997, is incorporated
herein by reference.
Agreement of Lease dated August 21,
1996 between Marion B. and Harold
A. Merten, Jr. and CM Acquisition
Corp. (now The Merten Company)
regarding 1515 Central Parkway,
Cincinnati, Ohio, filed as
Exhibit 10.4 to Form 10-K dated
January 28, 1997, filed January
28, 1997, is incorporated herein
by reference.
Agreement of Lease dated October 1,
1988 between Ronald H. Scott and
Frank J. Scott t/d/b/a St. Clair
Leasing Co. and Interform
Corporation, regarding 1901 Mayview
Road, Bridgeville, Pennsylvania, as
amended by Amendment No. 1 dated
November 30, 1989, as amended by
Amendment No. 2 dated April 24,
1992, and as amended by Stipulation
and Order of Court (United States
Bankruptcy Court for the Western
District of Pennsylvania in the
matter of Interform Corporation v.
Ronald H. Scott and Frank J. Scott
t/d/b/a St. Clair Leasing Company,
Bankruptcy No. 94-20094-JLC)
entered August 17, 1994, filed as
Exhibit 10.5 to Form 10-K dated
January 28, 1997, filed January
28, 1997, is incorporated herein
by reference.
-35-
<PAGE>
3. EXHIBITS (continued)
(10.1) $12,500,000 Term Loan Credit
Agreement by and among Champion
Industries, Inc. and the Banks
Party Thereto and PNC Bank,
National Association, as Agent,
dated as of March 31, 1997, as
amended by Amendment No. 1 to
Credit Agreement dated August 1,
1997. Page 64
(10.2) Business Loan Agreement between
Stationer's Inc. and First Sentry
Bank dated March 11, 1997 in
original principal amount of
$800,000, with attendant
Promissory Note. Page 145
(10.3) Commercial Gross Lease between M.
Field Gomila et al and Bourque
Printing dba Upton Printing dated
October 29, 1997, regarding 740
and 746 Carondolet Street, New
Orleans, Louisiana. Page 159
Executive Compensation Plans Company's 1993 Stock Option Plan,
and Arrangements effective March 22, 1994, filed as
Exhibit 10.14 to Form 10-K dated
January 27, 1994, filed January 31,
1994, is incorporated herein by
reference.
(10.4) Deferred Compensation Agreement
dated July 1, 1993 between Blue
Ridge Printing Co., Inc. and
Glenn W. Wilcox, Sr. Page 179
(10.5) Split Dollar Life Insurance
Agreement dated July 1, 1993
between Blue Ridge Printing Co.,
Inc. and Glenn W. Wilcox, Sr.
Page 186
(21) Subsidiaries of the Registrant Exhibit 21 Page 192
(23) Consent of Ernst & Young LLP Exhibit 23 Page 193
(24) Power of Attorney Filed as Exhibit 24.1 to
Registration Statement on Form S-2,
File No. 333-47585, filed on
March 9, 1998
Page 194
(27) Amended Financial Data Schedule Exhibit 27 Page 197
-36-
<PAGE>
(b) Champion filed the following reports on Form 8-K during the last quarter
of the period covered by this report:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Marshall T. Reynolds
-------------------------------------
Marshall T. Reynolds
President and Chief Executive Officer
By /s/ Joseph C. Worth, III
-------------------------------------
Joseph C. Worth, III
Vice President and Chief Financial
Officer
Date: March 23, 1998
-37-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ Robert H. Beymer * March 23, 1998
- ------------------------------------------
Robert H. Beymer, Director
/s/ Philip E. Cline * March 23, 1998
- ------------------------------------------
Philip E. Cline, Director
/s/ Harley F. Mooney, Jr. * March 23, 1998
- ------------------------------------------
Harley F. Mooney, Jr., Director
/s/ Todd L. Parchman * March 23, 1998
- ------------------------------------------
Todd L. Parchman, Director
/s/ A. Michael Perry * March 23, 1998
- ------------------------------------------
A. Michael Perry, Director
/s/ Marshall T. Reynolds * March 23, 1998
- ------------------------------------------
Marshall T. Reynolds, Director
/s/ Neal W. Scaggs * March 23, 1998
- ------------------------------------------
Neal W. Scaggs, Director
/s/ Glenn W. Wilcox, Sr. * March 23, 1998
- ------------------------------------------
Glenn W. Wilcox, Sr., Director
* By Marshall T. Reynolds, attorney in fact
-38-
<PAGE>
CHAMPION INDUSTRIES, INC.
Audited Consolidated Financial Statements
and Schedule
October 31, 1997
CONTENTS
Report of Independent Auditors (Item 8).....................................F-2
Audited Consolidated Financial Statements and Schedule (Item 8)
Consolidated Balance Sheet...............................................F-3
Consolidated Income Statements...........................................F-5
Consolidated Statements of Shareholders' Equity..........................F-6
Consolidated Statements of Cash Flows....................................F-7
Notes to Consolidated Financial Statements...............................F-8
Schedule II--Valuation and Qualifying Accounts (Item 14).................F-20
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Champion Industries, Inc.
We have audited the accompanying consolidated balance sheets of Champion
Industries, Inc. and Subsidiaries as of October 31, 1997 and 1996, and the
related consolidated income statements, statements of shareholders' equity,
and cash flows for each of the three years in the period ended October 31,
1997. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule based upon our
audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Champion Industries, Inc. and Subsidiaries at October 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 23, 1998, except for
Note 10, as to which the date
is March 2, 1998
F-2
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31,
1997 1996
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 912,290 $ 2,460,879
Accounts receivable, net of allowance of $1,140,000 and $548,000 19,075,180 11,683,573
Inventories 11,576,651 7,446,025
Property held for sale 300,000 -
Other current assets 283,642 410,706
Deferred income tax assets 981,619 560,511
-------------------------------
Total current assets 33,129,382 22,561,694
Property and equipment, at cost:
Land 784,889 795,336
Buildings and improvements 4,144,472 4,124,217
Machinery and equipment 22,852,103 16,716,660
Equipment under capital leases 5,720,594 4,401,928
Furniture and fixtures 1,684,275 1,329,459
Vehicles 1,914,362 1,318,437
-------------------------------
37,100,695 28,686,037
Less accumulated depreciation (13,825,053) (10,852,764)
-------------------------------
23,275,642 17,833,273
Cash surrender value of officers' life insurance 921,213 784,089
Goodwill, net of accumulated amortization 2,558,356 2,565,287
Other assets 461,120 318,233
-------------------------------
3,940,689 3,667,609
-------------------------------
Total assets $60,345,713 $44,062,576
===============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
OCTOBER 31,
1997 1996
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,657,365 $ 1,667,705
Notes payable 2,425,000 1,300,000
Accrued payroll and commissions 2,052,130 1,065,721
Taxes accrued and withheld 571,477 806,638
Accrued income taxes 450,027 1,311,437
Accrued expenses 793,848 394,617
Current portion of long-term debt:
Notes payable 2,842,844 1,690,078
Capital lease obligations 1,401,519 746,708
------------------------------
Total current liabilities 14,194,210 8,982,904
Long-term debt, net of current portion:
Notes payable 11,328,588 4,447,934
Capital lease obligations 3,827,368 3,113,083
Deferred income tax liability 3,589,889 2,073,891
Deferred compensation 555,886 473,601
Deferred gain - 330,443
------------------------------
Total liabilities 33,495,941 19,421,856
Commitments and contingencies - -
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized; 8,384,930 and 8,382,682
shares issued and outstanding 8,384,930 8,382,682
Additional paid-in capital 7,450,328 7,442,502
Retained earnings 11,014,514 8,815,536
------------------------------
Total shareholders' equity 26,849,772 24,640,720
------------------------------
Total liabilities and shareholders' equity $60,345,713 $44,062,576
==============================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Printing $ 87,978,709 $ 49,242,232 $ 35,370,827
Office products and office furniture 20,405,929 17,114,644 14,532,229
-----------------------------------------------------
Total revenues 108,384,638 66,356,876 49,903,056
Cost of sales:
Printing 59,849,596 33,014,938 22,250,920
Office products and office furniture 13,289,403 11,076,854 9,670,370
-----------------------------------------------------
Total cost of sales 73,138,999 44,091,792 31,921,290
Selling, general and administrative expenses 28,079,009 16,197,359 12,787,876
-----------------------------------------------------
Income from operations 7,166,630 6,067,725 5,193,890
Other income (expense):
Interest income 20,116 25,287 10,705
Interest expense (1,586,418) (692,914) (252,368)
Other 737,097 223,589 113,505
-----------------------------------------------------
(829,205) (444,038) (128,158)
-----------------------------------------------------
Income before income taxes 6,337,425 5,623,687 5,065,732
Income taxes (2,570,644) (2,251,319) (2,059,447)
-----------------------------------------------------
Net income $ 3,766,781 $ 3,372,368 $ 3,006,285
=====================================================
Earnings per share:
Basic $ 0.45 $ 0.41 $ 0.37
Diluted $ 0.45 $ 0.40 $ 0.37
Weighted-average shares outstanding:
Basic 8,383,391 8,323,518 8,147,389
Diluted 8,441,083 8,356,032 8,176,716
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1994 5,292,717 $5,292,717 $7,829,209 $ 4,617,564 $17,739,490
Net income for 1995 - - - 3,006,285 3,006,285
Dividends ($0.122 per share) - - - (958,060) (958,060)
Stock issued in acquisitions 52,383 52,383 (42,808) - 9,575
Cash paid in lieu of fractional shares (168) (168) (3,413) - (3,581)
Stock split (five shares for four) 1,266,789 1,266,789 (1,266,789) - -
--------------------------------------------------------------------------
Balance, October 31, 1995 6,611,721 6,611,721 6,516,199 6,665,789 19,793,709
Net income for 1996 - - - 3,372,368 3,372,368
Dividends ($0.152 per share) - - - (1,222,621) (1,222,621)
Stock issued in acquisition 150,126 150,126 2,549,874 - 2,700,000
Cash paid in lieu of fractional shares (146) (146) (2,590) - (2,736)
Stock split (five shares for four) 1,620,981 1,620,981 (1,620,981) - -
--------------------------------------------------------------------------
Balance, October 31, 1996 8,382,682 8,382,682 7,442,502 8,815,536 24,640,720
Net income for 1997 - - - 3,766,781 3,766,781
Dividends ($0.19 per share) - - - (1,567,803) (1,567,803)
Stock options exercised (2,441 shares) 2,441 2,441 11,310 - 13,751
Cash paid in lieu of fractional shares (193) (193) (3,484) - (3,677)
--------------------------------------------------------------------------
Balance, October 31, 1997 8,384,930 $8,384,930 $7,450,328 $11,014,514 $26,849,772
==========================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,766,781 $ 3,372,368 $ 3,006,285
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, amortization and accretion 3,179,515 2,002,480 1,314,937
Deferred gain on sale of assets (371,041) (23,260) (19,128)
Deferred income taxes (benefit) 334,409 236,860 (65,135)
Deferred compensation 82,285 92,933 109,911
Changes in assets and liabilities:
Accounts receivable (1,690,650) (1,579,298) (923,706)
Inventories (1,758,510) (88,812) (1,487,066)
Other current assets 152,345 (232,237) (35,769)
Accounts payable 236,195 (902,376) (85,317)
Accrued payroll 616,772 (222,450) 71,751
Taxes accrued and withheld (235,161) 255,134 (44,280)
Accrued income taxes (946,031) 650,031 (1,298,839)
Accrued expenses (1,383,537) (255,416) (24,119)
----------------------------------------------------
Net cash provided by operating activities 1,983,372 3,305,957 519,525
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,163,775) (2,538,459) (3,409,124)
Proceeds from sales of assets 163,103 34,745 -
Businesses acquired, net of cash received 254,676 (1,118,792) 18,206
Increase in other assets (297,364) (137,655) (88,796)
----------------------------------------------------
Net cash (used in) investing activities (2,043,360) (3,760,161) (3,479,714)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable 1,575,000 1,300,000 -
Proceeds from long-term debt and capital leases 1,306,919 3,122,343 2,393,559
Principal payments on long-term debt and capital leases (2,812,791) (1,672,249) (815,506)
Dividends paid (1,567,803) (1,222,621) (958,060)
Proceeds from exercise of stock options 13,751 - -
Cash paid in lieu of fractional shares (3,677) (2,736) (3,581)
----------------------------------------------------
Net cash (used in) provided by financing activities (1,488,601) 1,524,737 616,412
----------------------------------------------------
Net (decrease) increase in cash (1,548,589) 1,070,533 (2,343,777)
Cash and cash equivalents at beginning of year 2,460,879 1,390,346 3,734,123
----------------------------------------------------
Cash and cash equivalents at end of year $ 912,290 $2,460,879 $1,390,346
====================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Champion conform to generally
accepted accounting principles. The preparation of the financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from these estimates. The following is a summary of the more
significant accounting and reporting policies.
PRINCIPLES OF CONSOLIDATION
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., Stationers, Inc., Carolina Cut Sheets, Inc., U.S. Tag & Ticket Company,
Inc., Donihe Graphics, Inc., Smith and Butterfield Co., Inc., The Merten
Company, Interform Corporation, and Blue Ridge Printing Company, Inc.
Significant intercompany transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments, with an original maturity
of three months or less, to be cash equivalents.
Cash and cash equivalents consist principally of cash on deposit with banks
and repurchase agreements for government securities held in one bank. At
October 31, 1997 and 1996, the Company held overnight repurchase agreements
for $50,621 and $119,393 of Federal National Mortgage Association securities
with stated interest rates of 4.0% and 4.06%.
INVENTORIES
Inventories are principally stated at the lower of first-in, first-out cost
or market. Manufactured finished goods and work-in-process inventories include
material, direct labor and overhead based on standard costs, which approximate
actual costs.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment and amortization of leasehold
improvements and equipment under capital leases are recognized primarily on
the straight-line and declining-balance methods in amounts adequate to
amortize costs over the estimated useful lives of the assets as follows:
Buildings and improvements 5-40 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Vehicles 3-5 years
F-8
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company leases certain equipment under financing agreements which are
classified as capital leases. These leases are for a term of five years and
contain purchase options at the end of the original lease term. Amortization
of assets recorded under capital lease agreements is included in depreciation
expense.
Major renewals, betterments, and replacements are capitalized while
maintenance and repair costs are charged to operations as incurred. Upon the
sale or disposition of assets, the cost and related accumulated depreciation
are removed from the accounts with the resulting gains or losses reflected
in income. Depreciation expense approximated $3,021,000, $1,905,000 and
$1,183,000 for the years ended October 31, 1997, 1996, and 1995.
GOODWILL
The excess cost over fair value of net assets of acquired businesses, goodwill,
is being amortized by the straight-line method over 10 to 30 years. The
carrying value of goodwill is evaluated periodically for impairment. This
evaluation includes the review of operating performance and future
undiscounted cash flows of the underlying businesses. Any impairment loss is
recognized in the period when it is determined that the carrying value of the
goodwill may not be recoverable. Accumulated amortization at October 31, 1997
and 1996, approximated $956,000 and $824,000. Amortization expense approximated
$132,000, $98,000 and $132,000 for the years ended October 31, 1997, 1996, and
1995.
INCOME TAXES
Provisions for income taxes currently payable and deferred income taxes are
based on the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expene for the years
ended October 31, 1997, 1996, and 1995 approximated $646,000, $378,000 and
$346,000.
2. INVENTORIES
Inventories consisted of the following:
OCTOBER 31,
1997 1996
-------------------------
Printing:
Raw materials $ 3,030,425 $2,507,717
Work in process 2,867,270 1,530,933
Finished goods 2,806,475 572,228
Office products and office furniture 2,872,481 2,835,147
-------------------------
$11,576,651 $7,446,025
=========================
F-9
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
3. CREDIT ARRANGEMENTS
The Company has an unsecured line of credit with a bank for borrowings to a
maximum of $2,000,000 with interest payable quarterly at the prime rate plus
0.5%. This line of credit, which expires on May 31, 1998, contains certain
restrictive financial covenants. There was $2,000,000 outstanding under this
facility at October 31, 1997 and $1,100,000 outstanding at October 31, 1996.
The Company also has an unsecured line of credit with a bank for borrowings
to a maximum of $800,000 with interest payable quarterly at the bank's
prime rate. This line of credit expires on March 11, 1998, and is guaranteed
by the President of the Company. There was $425,000 outstanding under this
facility at October 31, 1997 and 1996.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1997 1996
-----------------------------
<S> <C> <C>
Unsecured term note payable to a bank, due in
monthly principal installments of $149,000 plus
interest at the prime rate with the note maturing
April 2004 $11,600,431 $ -
Installment notes payable to banks, due in monthly
installments totaling $103,000 with interest rates
approximating the bank's prime rate and the last
note maturing October 2002, collateralized by
equipment, vehicles, inventory, accounts receivable,
and, on certain notes, the personal guarantee of
the President of the Company 2,122,215 3,987,464
Unsecured installment notes payable to banks, due in
monthly installments totaling $27,000, with interest
rates approximating the bank's prime rate, with the
last note maturing August 1999 448,786 2,150,548
Capital lease obligations, due in monthly installments
totaling $177,000, including interest at the bank's
prime rate, less .50% to 1%, through March 2004 5,228,887 3,859,791
-----------------------------
19,400,319 9,997,803
Less current portion 4,244,363 2,436,786
-----------------------------
Long-term debt, net of current portion $15,155,956 $7,561,017
==============================
</TABLE>
The unsecured term note agreement contains restrictive financial covenants
requiring the Company to maintain certain financial ratios.
F-10
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Maturities of long-term debt for each of the next five years follows:
NOTES CAPITAL
PAYABLE LEASES TOTAL
----------------------------------------
1998 $2,842,844 $1,401,519 $4,244,363
1999 2,368,790 1,346,313 3,715,103
2000 2,174,840 1,004,298 3,179,138
2001 2,065,791 836,592 2,902,383
2002 1,963,494 435,668 2,399,162
Thereafter 2,755,673 204,497 2,960,170
----------------------------------------
$14,171,432 $5,228,887 $19,400,319
=========================================
The prime rate, the base interest rate on the above loans, approximated 8.0%
and 8.25% at October 31, 1997 and 1996. Interest paid during the years ended
October 31, 1997, 1996, and 1995 approximated $1,511,000, $632,000 and
$240,000.
The Company's non-cash activities included equipment purchases of approximately
$1,733,000, which were financed by a bank.
5. INCOME TAXES
Income taxes consisted of the following:
Year Ended October 31,
1997 1996 1995
----------------------------------------
Current expense:
Federal $1,783,878 $1,620,319 $1,709,746
State 452,357 394,000 415,000
Deferred expense (benefit) 334,409 237,000 (65,299)
----------------------------------------
$2,570,644 $2,251,319 $2,059,447
========================================
F-11
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Deferred tax assets and liabilities are as follows:
October 31,
1997 1996
------------------------
Assets:
Allowance for doubtful accounts $ 455,940 $ 218,977
Deferred compensation 222,354 184,704
Net operating loss carryforward of acquired companies 307,035 198,663
Accrued vacation 217,980 -
Other accrued liabilities 238,244 156,829
------------------------
Gross deferred tax assets 1,441,553 759,173
Liabilities:
Property and equipment 4,049,824 2,272,554
------------------------
Gross deferred liability 4,049,824 2,272,554
------------------------
Net deferred tax liabilities $2,608,271 $1,513,381
========================
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
Year Ended October 31,
1997 1996 1995
-------------------------------
Statutory federal income tax rate 34% 34% 34%
State taxes, net of federal benefit 5 5 6
Other 2 1 1
------------------------------
Effective tax rate 41% 40% 41%
==============================
Income taxes paid during the years ended October 31, 1997, 1996 and 1995
approximated $3,024,000, $1,437,000 and $3,414,000.
The Company has available, for income tax purposes, net operating loss
carryforward from acquired companies of approximately $464,000, of which
$122,000 expires in 2010 and $342,000 expires in 2011.
6. RELATED PARTY TRANSACTIONS AND OPERATING LEASE COMMITMENTS
The Company leases operating facilities from entities controlled by its
President, his family and affiliates. The terms of these leases, which are
accounted for as operating leases, range from five to fifteen years.
The Company also leases vehicles from an entity controlled by its President.
Vehicle leases are for an initial term of twenty-four months and month-to-
month thereafter. Lease payments average $350 per month.
F-12
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
A summary of significant related party transactions follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Rent expense paid to affiliated entities for:
Vehicles $ 7,920 $ 13,130 $ 86,559
Operating facilities 363,100 363,100 363,100
Purchases of materials and supplies from
affiliated entities 95,616 181,113 197,963
Sales of office products, office furniture and
printing services to affiliated entities 461,674 840,482 984,132
</TABLE>
When a new vehicle is required, the Company either purchases a new vehicle or
enters into a new vehicle lease with unrelated entities. These leases are on a
month-to-month basis. Other vehicle rent expense to unrelated entities totaled
$334,000, $265,000 and $368,000 for the years ended October 31, 1997, 1996 and
1995.
In addition, the Company leases property and equipment from unrelated entities
under operating leases. Rent expense amounted to $489,000, $321,000 and
$125,000 for the years ended October 31, 1997, 1996, and 1995.
Under the terms and conditions of the above-mentioned leases, the Company pays
all taxes, assessments, maintenance, repairs or replacements, utilities and
insurance.
Future minimum rental commitments for all noncancelable operating leases with
initial terms of one year or more consisted of the following at October 31,
1997:
1997 $738,000
1998 718,000
1999 502,000
2000 379,000
2001 292,000
Thereafter 893,000
----------
$3,522,000
==========
Accounts receivable from affiliated entities resulting from sales transactions
approximated $32,000 and $54,000 at October 31, 1997 and 1996.
In order to minimize premium costs, the Company participates in a
self-insurance program for employee health care benefits with affiliates
controlled by its President. The Company is allocated costs based on its
proportionate share to provide such benefits to its employees. The Company's
expense related to this program for the years ended October 31, 1997, 1996
and 1995 was approximately $1,456,000, $733,000 and $652,000.
F-13
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS
The Company has a Profit Sharing Plan (the "Plan") which covers all eligible
employees and qualifies as a Savings Plan under Section 401(k) of the Internal
Revenue Code. The Company may make discretionary contributions to the Plan. In
addition to the Company's contribution, the participants may make voluntary
contributions up to 2% of their salary not to exceed $300. The Company's
expense under the Plan was approximately $158,000, $97,000 and $66,000 for
the years ended October 31, 1997, 1996 and 1995.
The Company's 1993 Stock Option Plan provides for the granting of both
incentive stock options and non-qualified stock options to management
personnel for up to up to 610,351 shares of the Company's common stock. The
option price per share for incentive stock options shall not be lower than the
fair market value of the common stock at the date of the grant. The option
price per share for non-qualified stock options shall be at such price as the
Compensation Committee of the Board of Directors may determine at its sole
discretion. All options to date are incentive stock options. Options vest
immediately and may be exercised within five years from the date of grant.
The weighted average remaining contractual life of those options is 2.4 years.
A summary of the Company's stock option activity and related information for
the years ended October 31 follows:
Weighted Weighted
Average Average
Exercise Exercise
1997 Price 1996 Price
-------------------------------------------
Outstanding-beginning of year 146,973 $11.12 100,098 $ 9.28
Granted 35,000 17.90 46,875 15.04
Exercises (2,441) 5.63 - -
-------- --------
Outstanding-end of year 179,532 12.52 146,973 11.12
======== ========
Weighted average fair value of
options granted during the year $4.63 $3.62
======== ========
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
F-14
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997 and
1996, respectively: risk-free interest rates of 6.04% and 5.63%; dividend
yields of 1.10% and 1.37%; volatility factors of the expected market price
of the Company's common stock of .236 and .230; and a weighted-average
expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is expensed in the year granted since the options vest immediately. The
Company's pro forma information for the years ended October 31 follows:
1997 1996
--------------------------------------
Pro forma net income $3,605,000 $3,203,000
======================================
Pro forma basic and diluted
earnings per share $0.41 $0.38
======================================
The Company has deferred compensation agreements with two employees of Blue
Ridge Printing Co., Inc. providing for payments totaling approximately
$1,000,000 over a ten year period after retirement. The Company had accrued
approximately $556,000 and $474,000 at October 31, 1997 and 1996, relating
to these agreements. The amount expensed for these agreements for the years
ended October 31, 1997, 1996, and 1995 approximated $82,000, $93,000, and
$110,000. To assist in funding the deferred compensation agreements, the
Company has invested in life insurance policies which had cash surrender
values of $404,000 and $359,000 at October 31, 1997 and 1996.
8. DEFERRED GAIN
On August 30, 1991, Stationers, Inc. sold assets of its retail bookstore
consisting primarily of inventory and fixtures. The assets sold represented
a separate area of Stationer's retail location and thus the transaction was
considered to be a disposal of a portion of a product line incident to the
evolution of its overall business. Stationers, Inc. unconditionally guaranteed
a bank loan of the purchaser amounting to $600,000. Accordingly, the gain from
the sale of $591,835 was deferred and recognized as the purchaser made payments
on the purchaser's bank loan and the note receivable. In 1997, Stationer's
was released
F-15
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
from this guarantee, and the remaining gain was recognized. The gain
recognized for the years ended October 31, 1997, 1996, and 1995 amounted to
$330,000, $23,000 and $19,000.
9. COMMITMENTS AND CONTINGENCIES
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.
10. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued statement No. 128,
"Earnings Per Share," which requires the reporting of basic and diluted
earnings per share. Earnings per share and weighted average shares
outstanding for all periods presented have been restated to conform to
Statement 128. Basic earnings per share is calculated by dividing net income
by the weighted average number of shares outstanding for the respective
period. Diluted earnings per share is computed by dividing net income by
weighted average number of shares outstanding for the respective period plus
the number of shares which would be issued assuming the exercise of dilutive
stock options. The dilutive effect of stock options approximated 57,692,
32,514 and 29,327 shares in 1997, 1996 and 1995, respectively.
11. ACQUISITIONS
On December 31, 1996, the Company acquired all of the outstanding common
stock of Interform Corporation in exchange for cash of $2,500,000, obtained
through bank financing. This acquisition was accounted for under the
purchase method. At December 31, 1996, Interform held for sale one its
former facilities which was recorded at its estimated fair value. This
facility was sold in December 1997 for its estimated fair market value.
On August 21, 1996, the Company acquired various assets with a fair value
of approximately $2,500,000 and assumed certain liabilities of approximately
$2,500,000 of The Merten Company. The Company refinanced $2,000,000 of the
assumed liabilities through a loan from a bank.
On July 1, 1996, the Company acquired all of the outstanding common stock of
Smith and Butterfield Co., Inc. in exchange for 66,666 shares of its common
stock with a fair value of $1,200,000.
F-16
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
On February 2, 1996, the Company acquired various assets and assumed certain
liabilities of E.S. Upton Printing Company, Inc. for approximately $750,000
in cash. The Company obtained a loan from a bank of $750,000 to finance
this acquisition.
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase prices have been allocated to the
assets acquired and liabilities assumed based upon their fair values at the
respective acquisition date. The operating results of these businesses are
included in the Consolidated Income Statements since their respective
acquisition dates.
The following summarizes the unaudited consolidated pro forma results of
operations for the years ended October 31, 1997 and 1996, assuming all of
the acquisitions, including Interform Corporation, accounted for under the
purchase method had been consummated at the beginning of each year presented.
1997 1996
------------ ------------
Revenues $113,710,000 $104,054,000
Net income $3,661,000 $2,410,000
Diluted earnings per share $0.43 $0.29
Diluted weighted average
shares outstanding 8,441,083 8,414,548
In April 1997, the Company acquired all of the outstanding common stock of
Blue Ridge Printing Co., Inc. (Blue Ridge) in exchange for 277,775 shares of
the Company's common stock. This combination has been accounted for as a
pooling of interests. Accordingly, all prior period financial information
has been restated as though they had always been combined. Following is an
analysis presenting the results of operations for 1997 and 1996 of the
separate companies.
Diluted
Net Earnings
Revenues Income Per Share
--------------- --------------- ------------
1997
----
Champion $101,233,702 $3,400,266 $0.42
Blue Ridge 7,150,936 366,515
-----------------------------
Consolidated $108,384,638 $3,766,781 $0.45
============================
1996
----
Champion $ 59,884,599 $3,252,476 $0.40
Blue Ridge 6,472,277 119,892
-----------------------------
Consolidated $ 66,356,876 $3,372,368 $0.40
============================
F-17
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
12. INDUSTRY SEGMENT INFORMATION
The Company operates principally in two industry segments: the production,
printing and sale, principally to commercial customers, of printed materials
including brochures, pamphlets, reports, tags, continuous and other forms;
and the sale of office products and office furniture. The Company employs
approximately 900 people, approximately 100 of whom are covered by a
collective bargaining agreement which expires on May 31, 2004. The Company
believes its relations with employees is satisfactory.
The Company operates entirely in the United States. Inter-segment sales
are not significant.
Revenues and operating income for the years ended October 31, 1997,
1996, and 1995, and identifiable assets at the end of each of those years,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
Revenues:
<S> <C> <C> <C>
Printing $87,978,709 $49,242,232 $35,370,827
Office products and office furniture 20,405,929 17,114,644 14,532,229
Operating income:
Printing 6,065,034 4,768,676 3,991,652
Office products and office furniture 1,101,596 1,299,049 1,202,238
Depreciation and amortization:
Printing 2,955,739 1,843,309 1,203,135
Office products and office furniture 223,776 159,171 111,802
Capital expenditures:
Printing 1,812,896 2,375,301 3,322,984
Office products and office furniture 350,879 163,158 86,140
Identifiable assets:
Printing 52,577,247 36,498,504 23,863,639
Office products and office furniture 7,768,466 7,564,072 4,779,198
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value. The fair value of short-term
revolving credit agreements and long-term debt was estimated using discounted
cash flows and it approximates their carrying value.
F-18
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended October 31, 1997 and 1996. Earnings per share and weighted
average shares outstanding amounts have been restated to comply with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------
REVENUES
1997 $21,116,000 $29,260,000 $27,867,000 $30,142,000
1996 15,718,000 15,941,000 15,664,000 19,034,000
COST OF SALES
1997 15,111,000 19,331,000 19,129,000 19,568,000
1996 10,904,000 10,412,000 10,177,000 12,599,000
NET INCOME
1997 869,000 971,000 781,000 1,146,000
1996 630,000 895,000 776,000 1,071,000
BASIC AND DILUTED
EARNINGS PER SHARE
1997 .10 .12 .09 .14
1996 .08 .11 .09 .13
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic
1997 8,382,489 8,382,489 8,383,656 8,384,930
1996 8,284,608 8,299,350 8,327,429 8,382,683
Diluted:
1997 8,438,879 8,442,243 8,435,827 8,447,106
1996 8,317,269 8,329,445 8,360,283 8,417,132
</TABLE>
F-19
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years Ended October 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT BALANCES OF CHARGED TO BALANCE
BEGINNING ACQUIRED COSTS AND AT END
DESCRIPTION OF PERIOD COMPANIES EXPENSES DEDUCTIONS(1) OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Allowance for doubtful accounts $548,284 $314,313 $373,165 $(95,777) $1,139,985
1996
- ----
Allowance for doubtful accounts 422,377 - 191,094 (65,187) 548,284
1995
- ----
Allowance for doubtful accounts 342,514 - 108,349 (28,486) 422,377
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-20
<PAGE>
EXHIBIT INDEX
Number Description Reference
- -------------------------------------------------------------------------------
(23) Consent of Ernst & Young LLP Exhibit 23 Page 193
(27) Amended Financial Data Schedule Exhibit 27 Page 194
-59-
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Annual Report (Form 10-K/A) of Champion
Industries, Inc. of our report dated January 23, 1998, except for Note 10, as
to which the date is March 2, 1998, with respect to the consolidated financial
statements of Champion Industries, Inc. and Subsidiaries for the year ended
October 31, 1997.
We also consent to the incorporation by reference in the Registration
Statement pertaining to the 1993 Stock Option Plan (Form S-8, No. 33-76790) of
Champion Industries, Inc. of our report dated January 23, 1998, except for
Note 10, as to which the date is March 2, 1998, with respect to the
consolidated financial statements of Champion Industries, Inc. and
Subsidiaries included in the Annual Report (Form 10-K/A) for the year ended
October 31, 1997.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1997
<PERIOD-END> OCT-31-1996 OCT-31-1997
<CASH> 2460879 912290
<SECURITIES> 0 0
<RECEIVABLES> 12231573 20215180
<ALLOWANCES> 548000 1140000
<INVENTORY> 7446025 11576651
<CURRENT-ASSETS> 22561694 33129382
<PP&E> 28686037 37100695
<DEPRECIATION> 10852764 13825053
<TOTAL-ASSETS> 44062576 60345713
<CURRENT-LIABILITIES> 8982904 14194210
<BONDS> 0 0
0 0
0 0
<COMMON> 8382682 8384930
<OTHER-SE> 16258038 18464842
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<CGS> 44091792 73138999
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<OTHER-EXPENSES> 16197359 28079009
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 692914 1586418
<INCOME-PRETAX> 5623687 6337425
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<INCOME-CONTINUING> 3372368 3766781
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3372368 3766781
<EPS-PRIMARY> 0.41 0.45
<EPS-DILUTED> 0.40 0.45
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<INCOME-PRETAX> 1534463 1644992 1337835 1820135
<INCOME-TAX> 665466 673681 557194 674303
<INCOME-CONTINUING> 868997 971311 780641 1145832
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 868997 971311 780641 1145832
<EPS-PRIMARY> 0.10 0.12 0.09 0.14
<EPS-DILUTED> 0.10 0.12 0.09 0.14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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<PP&E> 24019404 24988607 26353455 28686037
<DEPRECIATION> 9433229 9888881 10284328 10852764
<TOTAL-ASSETS> 35002187 36164858 39909864 44062576
<CURRENT-LIABILITIES> 5863264 6197967 7226687 8982904
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 8299350 8299350 8382683 8382682
<OTHER-SE> 13330008 13907675 15506339 16258038
<TOTAL-LIABILITY-AND-EQUITY> 35002187 36164858 39909864 44062576
<SALES> 15717809 15941054 15664373 19033640
<TOTAL-REVENUES> 15717809 15941054 15664373 19033640
<CGS> 10903995 10411858 10176555 12599384
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<INCOME-CONTINUING> 630324 895154 776190 1070700
<DISCONTINUED> 0 0 0 0
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<NET-INCOME> 630324 895154 776190 1070700
<EPS-PRIMARY> 0.08 0.11 0.09 0.13
<EPS-DILUTED> 0.08 0.11 0.09 0.13
</TABLE>
