FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 2004
OR
o 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 incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| 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) 528‑2700
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 o No x |
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.
| o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
| Yes o No x |
The aggregate market value of the voting stock of the registrant held by non‑affiliates as of January 7, 2005, was $16,879,748 of Common Stock, $1.00 par value. The outstanding common stock of the Registrant at the close of business on January 7, 2005 consisted of 9,733,913 shares of Common Stock, $1.00 par value.
Total number of pages including cover page 130.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registration statement on Form S‑2/A No. 333‑47585, filed on March 16, 1998, are incorporated by reference into Part IV, Item 15. Portions of the Registrant’s definitive proxy statement dated February 18, 2005 with respect to its Annual Meeting of Shareholders to be held on March 21, 2005 are incorporated by reference into Part III, Items 10-13. Exhibit Index located in Part IV Item 15.
Certain statements contained in this Annual Report or in documents incorporated herein by reference, including without limitation statements including the word “believes,” “anticipates,” “intends,” “expects” or words of similar import, constitute “forward-looking statements” within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, general economic and business conditions, changes in business strategy or development plans, and other factors referenced in this Annual Report, including without limitations under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
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PART I
ITEM 1 - 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, Clarksburg, Wheeling and Morgantown, West Virginia; Lexington and Owensboro, Kentucky; Baton Rouge and New Orleans, Louisiana; Cincinnati, Ohio; Jackson, Mississippi; Kingsport and Knoxville, Tennessee; Evansville, Indiana; Bridgeville and Altoona, Pennsylvania; and Asheville, North Carolina. The Company's sales force of approximately 140 salespeople sells printing services, business forms management services, 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 pre‑press departments, 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, as well as sales and customer service operations.
3
The Company acquired Stationers, Inc. (“Stationers”), an office product, 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, Stationers expanded through acquisition and began operations in Marietta, Ohio, under the name “Garrison Brewer.” The Company’s Garrison Brewer operation was relocated across the Ohio river to the nearby Chapman Printing Parkersburg location in 2002.
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 pressroom 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, through the acquisition of the assets of E. S. Upton Printing Company, Inc. in New Orleans in 1996 and through the acquisition of Transdata Systems, Inc. in Baton Rouge and New Orleans in 2001.
The Dallas Printing division (“Dallas” or “Champion Jackson”) 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, 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. Carolina Cut Sheets was relocated to Huntington, West Virginia in 2001.
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. The operations of U.S. Tag were moved to Huntington, West Virginia in August 2003 and they were consolidated into an existing facility.
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.
4
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. Smith & Butterfield is operated as a division of Stationers, Inc. 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.
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 in cash which was financed by a bank.
On May 21, 1997, the Company acquired all 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.
On February 2, 1998, the Company acquired all outstanding common shares of Rose City Press (“Rose City”) of Charleston, West Virginia, in exchange for 75,722 shares of the Company’s common stock valued at $1,250,000.
On May 18, 1998, the Company acquired all outstanding common shares of Capitol Business Equipment, Inc. (“Capitol”), doing business as Capitol Business Interiors, of Charleston, West Virginia, in exchange for 72,202 shares of the Company’s common stock valued at $1,000,000.
On May 29, 1998, the Company acquired all outstanding common shares of Thompson’s of Morgantown, Inc. and Thompson’s of Barbour County, Inc. (collectively, “Thompson’s” or “Champion Morgantown”) of Morgantown, West Virginia, in exchange for 45,473 shares of the Company’s common stock valued at $600,000.
Rose City, Capitol and Thompson’s are operated as divisions of Stationers.
On June 1, 1999, the Company acquired all of the issued and outstanding common stock of Independent Printing Service, Inc. (“IPS”) of Evansville, Indiana. IPS is operated as a division of Smith & Butterfield.
On July 16, 1999, the Company’s Blue Ridge subsidiary acquired certain assets and assumed certain liabilities of AIM Printing (“AIM”) of Knoxville, Tennessee.
5
On November 30, 1999, the Company acquired all of the issued and outstanding common stock of Diez Business Machines (“Diez”) of Gonzales, Louisiana. Diez was operated as a subsidiary of Stationers until 2004 when it was relocated to the Bourque facility.
On November 6, 2000, the Company acquired certain assets of the Huntington, West Virginia paper distribution division of the Cincinnati Cordage Paper Company (“Cordage”). On April 30, 2001, the Company entered into a strategic alliance with Xpedx resulting in the assumption by Xpedx of the Cordage customer list and the sale of certain inventory items.
On October 10, 2001, the Company acquired Transdata Systems, Inc. (“Transdata”) of Baton Rouge and New Orleans, Louisiana.
On June 18, 2003, the Company acquired certain assets of Contract Business Interiors (CBI) of Wheeling, West Virginia pursuant to acceptance by the U.S. Bankruptcy Court for the Northern District of West Virginia. As a result of this transaction, the Company also assumed certain customer deposit liabilities in the ordinary course of business.
On July 1, 2003, the Company acquired certain assets of Pittsburgh based Integrated Marketing Solutions, the direct sales division and distributorship of Datatel Resources Corporation.
On May 13, 2004, the Company acquired certain assets of Cincinnati, Ohio Westerman Print Company “Westerman”. The assets of Westerman were moved to the Company’s Merten operation in Cincinnati, Ohio.
On September 7, 2004, the Company acquired all the issued and outstanding capital stock of Syscan Corporation (“Syscan”), a West Virginia corporation, for a gross cash price of $3,500,000 and a contingent purchase price, dependent upon satisfaction of certain conditions, not to exceed the amount of $1,500,000. After considering the cash received in the transaction, the acquisition of a building and acquisition costs the net assets acquired totaled approximately $2,688,000.
All acquisitions have been accounted for using the purchase method of accounting except for U.S. Tag, Blue Ridge, Capitol and Thompson’s, which utilized the “pooling-of-interest” method of accounting.
BUSINESS
Champion is engaged in the commercial printing and office products and furniture supply business 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 one‑stop shopping.
6
The Company's printing services range from the simplest to the most complex jobs, including business cards, books, tags, brochures, posters, 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. Included within our print segment are fulfillment services to our customers which encompass warehousing, distribution, and reporting services. The Company also offers complete bindery and letterpress services. The printing operations contributed $95.3 million, $96.5 million and $95.2 million or 76.6%, 79.0% and 77.5% of the Company's total revenues for the fiscal years ended October 31, 2004, 2003 and 2002.
The Company provides a full range of office products and office furniture primarily in the budget and middle price ranges, and also offers office design services. 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 has implemented Internet e-commerce sites, which allow customers to order office products, furniture and forms online. The e-commerce sites include the office products and office furniture catalog, which is customized specifically for each customer requesting Internet e-commerce access. In addition, the Company offers customized on-line forms management solutions through www.cgc1.com. The Company believes that its e-commerce sites will allow customers to access data concerning their company’s purchase habits so as to better control expenditures for office products and business forms and eliminate large in-house inventories. 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, office furniture and office design operations contributed $29.1 million, $25.6 million and $27.7 million, or 23.4%, 21.0% and 22.5% of the Company's total revenues for the fiscal years ended October 31, 2004, 2003 and 2002.
Champion’s two lines of business are comprised of nineteen operating divisions. The Huntington headquarters provides centralized financial management and administrative services to each of its two business segments.
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 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.
7
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.
Consolidated Graphic Communications division in Bridgeville, Pennsylvania operates as a full line printing and printing services distributor. The division offers complete print management, fulfillment services and B2B e-commerce solutions.
Carolina Cut Sheets, Inc., located in Huntington, West Virginia, 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.
U.S. Tag, located in Huntington, West Virginia, 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.
Transdata, located in Baton Rouge and New Orleans, Louisiana, operates as a subsidiary of Bourque Printing performing sales and customer service functions including fulfillment services and operates out of the Upton and Bourque facilities.
Syscan headquartered in Charleston, West Virginia operates as a full line printing, printing services distributor and office products and office furniture distributor. Syscan offers complete print management, fulfillment, mail, digital print, office furniture and print and office products B2B e-commerce solutions.
Office Products, Office Furniture and Office Design
Stationers, located in Huntington, Clarksburg (doing business as “Champion Clarksburg”), Morgantown (through its Champion Morgantown division) and Parkersburg, West Virginia (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.
8
Stationers, through its Capitol division, offers office design services throughout West Virginia and eastern Kentucky.
Champion Jackson located in Jackson, Mississippi functions as both a printing sales headquarters with full digital prepress and an office products sales center.
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 webprinting of brochures and catalogs. The capabilities of the Company's various printing divisions are stated below.
| Division |
Sales & Customer Service |
Pre-Press |
Sheet Printing |
Rotary Printing |
Full Color |
High Volume Full Color |
||||||
Huntington |
* |
* |
* |
* |
||||||||
Charleston |
* |
* |
||||||||||
Parkersburg |
* |
* |
* |
* |
||||||||
Lexington |
* |
* |
||||||||||
Bourque Printing, Inc. |
* |
* |
* |
* |
||||||||
Dallas Printing Company, Inc. (Champion Jackson) |
* |
* |
||||||||||
Carolina Cut Sheets, Inc. |
* |
|||||||||||
U.S. Tag & Ticket Company, Inc. |
* |
* |
||||||||||
Donihe Graphics, Inc. |
* |
* |
* |
* |
* |
* |
||||||
| Upton Printing | * |
* |
* |
* |
||||||||
| The Merten Company | * |
* |
* |
* |
||||||||
Interform Corporation |
* |
* |
* |
* |
||||||||
| Consolidated Graphic Communications | * |
* |
||||||||||
| Blue Ridge Printing Co., Inc. | * |
* |
* |
* |
||||||||
| Transdata | * |
|||||||||||
| Syscan | * |
* |
* |
j |
* - Services Provided
9
Office Products, Office Furniture and Office Design
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. Office furniture is primarily sold from catalogs and supplied from in‑house stock. Special orders constitute a small portion of sales. The Capitol division of Stationers provides interior design services to commercial customers. The design services include space planning, purchasing and installation of office furniture, and management of design projects.
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.
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.
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The Company's inventory goal is to have approximately 85% of the office product items the Company sells in stock. Another 12% are ordered on a daily basis and received overnight. The remaining 3% are items that come direct from manufacturers and may take one week or more from placement of order to delivery to customer. Office furniture sales for mid-line and budget are made primarily from the Company's in‑house stock. However, special orders from manufacturers and project furniture may require 30 to 90 days for delivery.
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 years ended October 31, 2004, 2003 and 2002, no single customer accounted for more than 2% of the Company’s 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.
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 provides the Company with a competitive advantage.
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.
11
Large national and regional mail order discount operations provide significant competition in the office products and office furniture business. The economies 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.
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 and are included in normal operating expenses. 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.
The Company's operations and the majority of its customers are located in the United States of America, 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.
Historically, the Company has experienced a greater portion of its profitability in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post‑Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter.
On October 31, 2004, the Company had approximately 830 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 (totaling 78 employees at October 31, 2004) at its Bridgeville, Pennsylvania facility. This contract expires May 31, 2006. 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 | 68 | Chief Executive Officer and Chairman of the Board of Directors of the Company from December 1992 to present; President of the Company December 1992 to September 2000; President and General Manager of Harrah and Reynolds, predecessor of the Company from 1964 (and sole shareholder from 1972 to present) to 1993; Chairman of the Board of Directors of River City Associates Inc. (owner of the Radisson Hotel Huntington) since 1989; Chairman of the Board of Directors of Broughton Foods Company from November 1996 to June 1999; 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.). |
| Kirby J. Taylor | 59 | President and Chief Operating Officer of the Company since September 2000; President and Chief Executive Officer of Action Business Consulting from November 1997 to September 2000 (management consulting firm); President and Chief Executive Officer of Nexquest, Inc. from January 1996 to November 1997; President and Chief Operating Officer of Addington Resources, Inc. from July 1994 to January 1996 (mining and waste management company); Vice President and Chief Financial Officer of Outboard Marine Corp. from April 1993 to July 1994 (manufacturer and distributor of boats and motors); Vice President and Chief Financial Officer of Tenneco Automotive from August 1990 to April 1993 (manufacturer of auto parts); Senior Vice President and Chief Financial Officer of Tenneco Minerals from August 1988 to August 1990; Vice President and Chief Financial Officer of Tenneco Minerals from February 1984 to August 1988; President of |
13
| Tenneco International Finance from November 1980 to February 1984. | ||
| J. Mac Aldridge | 63 | Vice President and Division Manager - Stationers since December 1992; Vice President of Company and Division Manager – Huntington from September 1995 to October 1997; 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 | 52 | Vice President of the Company since December 1992; Division Manager - Merten September 1998 to April 2001; Division Manager Charleston December 1992 to April 2001; 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 | 57 | Vice President and Division Manager Bourque Printing division of the 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. |
| Toney K. Adkins | 55 | Vice President-Administration of the Company since November 1995; President, KYOWVA Corrugated Container Company, Inc. from 1991 to 1996. |
| Todd R. Fry | 39 | Chief Financial Officer of the Company since November 1999; Treasurer and Chief Financial Officer of Broughton Foods Company from September 1997 to June 1999; Coopers & Lybrand L.L.P. from 1991 to September 1997. |
| Walter R. Sansom | 75 | Secretary of the Company since December 1992; Production Coordinator of the Company since December 1992 and of Harrah and Reynolds from August 1968 to December 1992. |
14
| James A. Rhodes | 48 | Vice President of the Company since March 1999; President of Consolidated Graphic Communications Division of Interform since February 1999; Vice President of Sales of Consolidated Graphic Communications from 1996 to 1999; General Sales Manager – Eastern Division of Consolidated Graphic Communications from 1995 to 1996. |
| William G. Williams, Jr. | 48 | Vice President of the Company since September 2004; President of Syscan Corporation since December 1984. |
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ITEM 2 ‑ PROPERTIES
The Company conducts its operations from twenty-six (26) different physical locations, eighteen (18) of which are leased, and eight (8) of which are owned in fee simple by Company subsidiaries. The Company does not anticipate any issues in regards to the renewal of certain leases when the terms expire. The properties leased, and certain of the lease terms are set forth below:
Property |
Division Occupying Property |
Square Feet |
Annual Rental |
Expiration Of Term |
||||
2450
1st Avenue |
Chapman Printing- Huntington |
85,000 |
$116,400 |
2008 |
||||
1945
5th Avenue |
Stationers |
37,025 |
60,000 |
2007 |
||||
615-619
4th Avenue |
Stationers |
59,641 |
21,600 |
2008 |
||||
405
Ann Street |
Chapman Printing - Parkersburg |
36,614 |
57,600 |
2008 |
||||
890
Russell Cave Road |
Chapman Printing - Lexington |
20,135 |
57,600 |
2007 |
||||
2800
Lynch Road |
Smith & Butterfield |
42,375 |
116,640 |
2009 |
||||
113-117
East Third St. |
Smith & Butterfield |
8,500 |
14,400 |
2007 |
||||
1901
Mayview Road |
Interform Corporation |
120,000 |
293,503 |
2008 |
||||
736
Carondelet Street |
Upton Printing |
15,000 |
71,400 |
2008 |
||||
5600
Jefferson Highway |
Upton Printing |
11,250 |
65,248 |
2005 |
||||
1515
Central Parkway |
The Merten Company |
40,000 |
102,060 |
2006 |
||||
217
Robb Street |
U.S. Tag |
26,000 |
39,996 |
2005 |
||||
2569
University Avenue |
Stationers-Thompson’s |
9,000 |
8,400 |
2006 |
||||
1214
Main Street |
CBI - Wheeling |
22,000 |
36,000 |
2009 |
||||
3000
Washington St. |
Syscan |
37,710 |
150,840 |
2009 |
16
2800
Seventh Avenue |
Syscan |
15,000 |
90,000 |
2006 |
||||
1704-A
Mileground |
Syscan |
4,500 |
32,400 |
Monthly |
||||
Kirk
and Chestnut Streets |
Syscan |
6,000 |
5,400 |
Monthly |
(1) Lease is “triple net”, whereby the Company pays for all utilities, insurance, taxes, repairs and maintenance and all other costs associated with properties.
(2) The U.S. Tag operation was relocated to Huntington, West Virginia in August 2003.
(3) Champion has an option to purchase building at end of lease term and Williams Land Corporation has an option to put the building to Champion at end of lease term.
(4) The Company has contractually committed to rent 2800 Seventh Avenue for not more than two years of which the second year rent expense is $60,000.
The Dallas Printing subsidiary owns, and operates from, a single‑story masonry structure of approximately 19,600 square feet at 321‑323 East Hamilton Street, Jackson, Mississippi.
The Chapman Printing Charleston operation is conducted from a single story masonry building of approximately 21,360 square feet owned by the Company at 1563 Hansford Street, Charleston, West Virginia.
The Bourque Printing subsidiary owns, and operates from, a single‑story building of approximately 42,693 square feet building at 10848 Airline Highway, Baton Rouge , Louisiana. The Company also owns a facility 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 and steel building of approximately 28,000 square feet and a contiguous 1,692 square foot former residential structure at 544 and 560 Haywood Road, Asheville, North Carolina.
17
The Capitol subsidiary of Stationers owns and operates from a 22,000 square foot building at 711 Indiana Avenue, Charleston, West Virginia.
The Company continually reviews its production facilities and has and continues to consolidate facilities as deemed economically feasible. The company believes its production facilities are suitable and adequate to meet current production needs.
ITEM 3 ‑ LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions, other than the claim discussed below, that arise in the ordinary course of business. In the opinion of management, after consulting with legal counsel, the Company believes that the ultimate resolution of these claims and legal actions will not have a material effect on the consolidated financial statements of the Company.
On February 16, 2002, a jury verdict was rendered against the Company in a civil action brought against the Company in state court in Jackson, Mississippi. The plaintiff in this civil action asserted that the Company and its Dallas Printing Company, Inc. subsidiary had engaged in unfair competition and other wrongful acts in hiring certain of its employees. The jury awarded the plaintiff $1,745,000 in actual damages and $750,000 in punitive damages.
On March 1, 2002, the plaintiff filed a motion for attorney’s fees and costs in the amount of $889,401. On July 16, 2002, the court entered an order granting plaintiff $645,119 in attorney fees and expenses, and ordered that interest on the amount of the jury award accrue from February 22, 2002.
The Company appealed both the jury award and the attorney fee and expense award.
The Company was advised on February 3, 2004 that the Court of Appeals of the State of Mississippi had reversed the aforementioned judgment and jury verdict rendered against the Company and had remanded the case for new trial. The plaintiff petitioned the appeals court for rehearing of its ruling on February 17, 2004. The Company’s response was filed on February 24, 2004.
On June 22, 2004 the Company was advised that the Court of Appeals of the State of Mississippi had upheld its February 3, 2004 reversal of the judgment and jury verdict and its remand of the case for new trial and had denied plaintiff’s petition for rehearing of that decision. Plaintiff filed a petition for writ of certiorari with the Mississippi Supreme Court to contest the ruling of the Court of Appeals on July 6, 2004. The Company filed a response to such petition on July 27, 2004.
The Company was advised on September 16, 2004 that the Supreme Court of Mississippi had upheld the Court of Appeals of the State of Mississippi’s February 3, 2004 reversal of the judgment and jury verdict rendered February 16, 2002 against the Company and had upheld the reversal and remand of the case for new trial.
18
The effect of the appeals courts orders of February 3, 2004 and June 22, 2004 and the Mississippi Supreme Court’s denial of plaintiff’s petition for certiorari is to negate the trial court’s award of damages and attorneys fees previously granted against the Company, and grant a new trial on plaintiff’s claims.
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
Champion common stock has traded 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 does not include retail mark‑up, mark‑down or commission.
Fiscal Year 2004 |
Fiscal Year 2003 |
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