UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
 
 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, 2008
 
 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)
 1
 Registrant's telephone number, including area code:
      (304) 528-2700Securities registered pursuant to Section 12(b) of Act:
      Common Stock, $1.00 par value
              The Nasdaq Stock Market, LLC

                (Name of each exchange on which
      registered)Securities
      registered pursuant to Section 12(g) of Act: None
 
 
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 YesoNox
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
 YesoNox
  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.
 YesxNoo
 
 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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer ", "accelerated filer", and
"smaller reporting company"  in Rule 12b-2 of the Exchange Act. (Check
one):
 Large
      accelerated filero
              Accelerated
      fileroNon-accelerated
      filter o
              Smaller
      reporting company x
    Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act).
 YesoNox
 
 As of
April 30, 2008, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $23,714,043 based on the closing price
as reported on the National Association of Securities Dealers Automated
Quotation System Global Market.
 2
 The
outstanding common stock of the Registrant at the close of business on January
4, 2009 consisted of 9,987,913 shares of Common Stock, $1.00 par
value.
  Total
number of pages including cover page 112.
 
 DOCUMENTS
INCORPORATED BY REFERENCE: Portions of the Registrant’s definitive proxy
statement expected to be dated February 13, 2009 with respect to its Annual
Meeting of Shareholders to be held on March 16, 2009 are incorporated by
reference into Part III, Items 10-14. Exhibit Index located in Part IV Item
15.
 
 SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
 
 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.
  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 also publishes The
Herald-Dispatch daily newspaper in Huntington, WV with a total daily and Sunday
circulation of approximately 26,000 and 31,000, respectively. The Company's
sales offices and/or 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; 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, office furniture and newspaper advertising.
 3
 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.
 
 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” or “Champion Graphic Communications -
Baton Rouge”) 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 6-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. (“Upton” or "Champion Graphic
Communications - New Orleans”) in New Orleans in 1996 and through the
acquisition of Transdata Systems, Inc. in Baton Rouge and New Orleans in 2001.
The Upton production operations were relocated to Baton Rouge in the fourth
quarter of 2005 as a result of Hurricane Katrina. However, the sales and
customer service staff continue to operate in New Orleans.
 4
 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. The operations of Dallas were moved to Baton Rouge, Louisiana in
August 2005 and consolidated into an existing facility.
 
 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. This operation was moved to Baton
Rouge, Louisiana with the Dallas relocation.
 
 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, the Company acquired Donihe Graphics, Inc. (“Donihe”), a
high-volume color printer based in Kingsport, Tennessee.
 
 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.
 
 On August
21, 1996, the Company purchased the assets of The Merten Company (“Merten”), a
commercial printer headquartered in Cincinnati, Ohio.
 
 On
December 31, 1996, the Company acquired all outstanding capital stock of
Interform Corporation (“Interform”), a business form manufacturer in
Bridgeville, Pennsylvania.
 
 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”). During the second quarter of 2004, the Blue Ridge Knoxville plant was
consolidated into the Asheville plant. The Company continues to maintain a sales
office in Knoxville.
 5
 On
February 2, 1998, the Company acquired all outstanding common shares of Rose
City Press (“Rose City”) of Charleston, West Virginia.
 
 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.
 
 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.
 
 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.
 
 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 in Baton Rouge, Louisiana.
 
 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. In 2004, Transdata was relocated to existing
facilities in New Orleans and Baton Rouge. In 2005, Transdata New Orleans
operations were relocated to Baton Rouge.
 
 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.
 6
 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.  At closing, 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. On December 14, 2006, the Company
satisfied the contingent purchase price for a payment of
$1,350,725.
 
 On
September 14, 2007, the Company completed, pursuant to an asset purchase
agreement, the acquisition of The Herald-Dispatch daily newspaper in Huntington,
West Virginia through a newly formed subsidiary Champion Publishing, Inc. The
purchase price was $77.0 million and subject to a working capital payment of
$837,554 plus or minus any change in working capital from the index working
capital base of $1,675,107 at the closing date of September 14, 2007. The
working capital payment totaled approximately $1.6 million.
  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 also publishes The Herald-Dispatch daily newspaper in Huntington, WV
with a total daily and Sunday circulation of approximately 26,000 and 31,000.The Company's sales force markets 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.
 
 The
Company's printing services range from the simplest to the most complex jobs,
including business cards, books, tags, labels, 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 encompasses warehousing, distribution, and reporting services.
The Company also offers complete bindery and letterpress services. The printing
operations contributed $102.2 million, $101.7 million, and $106.4 million or
62.8%, 69.8%,  and 73.3% of the Company's total revenues for the
fiscal years ended October 31, 2008, 2007 and 2006.
 
 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. These sites include www.stationers-wv.com and www.cbiwv.com. In addition, the
Company offers customized on-line forms management solutions through various
sites including http://printwithchampion.com and 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
$41.5 million, $41.4 million, and $38.8 million, or 25.5%, 28.5% and 26.7% of
the Company's total revenues for the fiscal years ended October 31, 2008, 2007
and 2006.
 7
 The
Company operates a daily newspaper in Huntington, WV. The Company entered the
newspaper business by purchasing the assets of The Herald-Dispatch from
Gatehouse Media, Inc. The Herald-Dispatch was previously owned by Gannett, Inc.
since 1971 and was sold to Gatehouse Media, Inc. in May of 2007.
  The
Herald-Dispatch serves a regional market area in southwestern West Virginia
covering Cabell County and portions of neighboring Wayne County and eastern
Lawrence County, Ohio. The Herald-Dispatch is the primary print advertising
medium for the region, which centers on Huntington and draws business from
across the border into Ohio and Kentucky. The Herald-Dispatch has circulation of
26,115 Monday through Friday mornings, 25,763 on Saturday, and 31,089 on Sunday,
according to the latest Audit Bureau of Circulations (ABC) Newspaper
Publisher's Statement for the 6 months ended September 30, 2008.
The Herald-Dispatch faces a very limited amount of print competition from
other daily newspapers in its home county. It is estimated, based
on research performed by Scarborough Management, that the
designated market area readership (DMA) is approximately 102,946 on
Sunday and 79,333 for weekdays. The website has attracted approximately 378,409
unique visitors per month and approximately 4.1 million page views per month
based on the latest Newspaper Publisher's Statement. The historical on-line
revenues for The Herald-Dispatch have increased from approximately $1.1 million
in calendar year 2005 to approximately $1.3 million in calendar year 2006. The
six weeks of 2007 from the acquisition on September 14, 2007 to the Company's
fiscal calendar year ending on October 31, 2007 represented approximately
$200,000 of online revenues. Online revenues for 2008 were approximately $1.6
million. The Company will disclose The Herald-Dispatch commercial printing
as a component of the Company's printing segment. The operations also
publish the Putnam Herald serving Putnam County, West Virginia, one of the
fastest-growing counties in the state, and the Lawrence Herald in Lawrence
County, Ohio. The Putnam Herald and Lawrence Herald are distributed
free via mail on Saturday and Thursday, respectively.
  The
Huntington area has been heavily affected by the de-industrialization
experienced in the Upper Midwest since the 1970s. Huntington
has sought to recast itself as a university town home to 16,000
students. Downtown Huntington was recently revitalized with a $60
million retail/mixed use project; and new industries such as call
centers are opening and expanding their locations. The area is also a regional
shopping hub and growing medical and research center.
  Marshall University
borders the downtown area of Huntington. Marshall is over 170 years old and is
the second largest university in West Virginia. The university currently enrolls
12,000 undergraduate and 4,000 graduate students and offers a full range of
programs. Marshall's positive effect on the local economy goes beyond being one
of Huntington's top two employers. The university's research corporation,
medical school and graduate programs are dedicated to bringing research and
development dollars into the community. The university's medical school is a
nationwide leader for rural healthcare delivery.
  Huntington
has experienced several positive industrial developments in the last 10
years. According
to the Huntington Area Development Council, 9,000 new jobs have been
brought to the Huntington area in the last ten years and 1.7 million square feet
of building space has been leased, sold or built. In 2005 the $60 million
Pullman Square open-air retail, restaurant and entertainment project was
completed to rejuvenate the downtown "Superblock" area, immediately increasing
downtown usage. The Harris Riverfront Park promenade that stretches
along the Ohio River and downtown is also a target of revitalization
efforts.
 8
 
 KineticPark was another major development to open for business in 2005. This
95-acre site was developed to become a business and technology
park/retail area. Early tenants included professional service firms and a
restaurant. In addition, Marshall University and the Huntington Area
Development Council, both committed to promoting the biotech industry in the
area, have teamed
up to plan to develop the Velocity Center in KineticPark. The
Velocity Center is envisioned as a technology business incubator that will
work with the Robert C. Byrd Biotechnology Center at
Marshall University to explore and expand commercial applications to
technology innovations. The 60,000-square-foot building is also projected to
house other technology businesses, including AFB­TECH, the American
Foundation for the Blind Employment and Technology Center in
Huntington.
  Other
developments in the area include the opening of two call centers.
Amazon.com opened a call center in 2000 that employs 350. Global Contact
Services opened a call center in 1998 and in recent years announced the
intent to expand their facility and employee base. The expansion will make
them one of the larger employers in the area.
  The
Huntington area also serves as a regional shopping center. The Huntington Mall,
the largest mall in the state, houses over 150 stores, restaurants and
boutiques. It is anchored by Sears, Macy's, JC Penney, Elder Beerman and Dick's
Sporting Goods. Many retail stores surround the mall including Best Buy,
Kohl's and Walmart. Only a few minutes west on U.S. 60 from the Huntington
Mall is another growing shopping plaza, Merritt Creek Farm. This plaza of
30-plus shops includes Home Depot, Target, Marshall's, and the state's first
freestanding Starbucks. River Place, a bustling shopping center located near the
entrance to downtown Barboursville, is just another few miles down the road.
This area features many locally owned restaurants and
stores.
  Huntington's medical community provides health care for the region, which also
includes portions of Ohio and Kentucky. St. Mary's Hospital is the
second-largest health care
facility in West Virginia with 393 beds, and has recently completed a $28
million regional heart center and expanded emergency medicine department.
Cabell-Huntington Hospital, with 322 beds, recently opened its $84 million
North Patient Tower, and shares its campus with the Marshall University Medical
Center and the $44 million Edwards Comprehensive Cancer Center,
which opened in 2006. The two hospitals are jointly designated as a
Level II trauma center. The third area hospital, the Huntington VA Medical
Center, is an 80-bed medical and surgical facility. In 1998 the hospital
completed a $10 million research facility. These hospitals are three of the top
employers in the region.
  Huntington's historic roots as an industrial hub remain alive today. Located
along the Ohio River, Huntington was founded as the western terminus of the
C&O Railroad. CSX, the successor to C&O, still maintains a headquarters
and rail yard in the city. Huntington's inland port along the Ohio River is the
largest in the United States in terms of total tonnage and ton­ miles, and
much of the coal mined in southern West Virginia is brought to Huntington via
train to be transported by river barges to industrial centers in other parts of
the country. Several heavy industrial plants still line the Ohio River and the
Guyandotte River.
 9
 ORGANIZATION
 
 Champion’s
three lines of business are comprised of nineteen operating divisions. The
Huntington headquarters provides centralized financial management and
administrative services to all of its business segments.
 
 Commercial
Printing
 
 Eight commercial
printing divisions are located in Huntington, Charleston and Parkersburg, West
Virginia; Lexington, Kentucky; Baton Rouge, Louisiana; 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.
 
 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.
 
 Chapman
Printing in Charleston, West Virginia operates as a full line printing,
printing services distributor and office products and office furniture
distributor. Chapman Printing Charleston offers complete print management,
fulfillment, mail, digital print, office furniture and print and office products and
B2B e-commerce solutions. The Syscan operation was consolidated into the Chapman
Printing Charleston division effective November 1, 2005. This division also
operates a facility in Morgantown, West Virginia providing printing, office
products and office furniture, distribution and integration services. In 2007,
the Chapman Printing Charleston division spun off its print on demand and mail
operations into a new division located in Charleston, West Virginia operating
under the name Champion Output Solutions.  Champion
Output Solutions is a comprehensive transactional printing and mail center
providing statement rendering, check and explanation of benefits variable print,
medical billing and postal optimization.
 10
 River Cities Printing was acquired via the acquisition of The Herald-Dispatch
and is a commercial printer with sales comprised primarily of stick-on labels
and other commercial printing. In 2008, River Cities Printing was relocated to
an existing facility in Huntington, WV.
  Office Products, Office
Furniture and Office Design
 
 Stationers,
located in Huntington, Clarksburg (doing business as “Champion Clarksburg”),
Morgantown (through its Chapman Printing Morgantown division) and Parkersburg,
West Virginia (doing business as “Chapman Printing”), 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 sales people
and delivered in bulk daily to each division, or shipped directly to customers.
 
 Smith
& Butterfield, located in Evansville, Indiana, 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.
 
 Stationers,
through its Capitol division, offers office design services throughout West
Virginia and eastern Kentucky.
  Newspaper
  The Herald-Dispatch, located in Huntington, WV, publishes a daily
newspaper with a daily and Sunday circulation of approximately 26,000 and 31,000
respectively.
  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 and label manufacturing; (vii)
high volume process color web printing of brochures and catalogs; and (viii)
output solutions including print on demand, inserting and mailing services. The
capabilities of the Company's various printing divisions are stated
below.
 11
 Division
              
              Sales
      & Customer Service
              
              Pre-Press
              
              Sheet
      Printing
              Rotary
      Printing
              
              Full
      Color
              
              High
      Volume Full Color
              Output
      SolutionsHuntington
              
              *
              
              *
              
              *
              *Charleston
      / Morgantown
              
              *
              
              *Champion
      Output Solutions
              
              *
              
              
              
              
              
              
              
              
              
              *Parkersburg
              
              *
              
              *
              
              *
              
              
              *Lexington
              
              *
              
              *Champion
      Graphic Communications
                (Baton Rouge)
              
              *
              
              *
              
              *
              
              
              *Champion
      Graphic Communications
                (New Orleans)
              
              *Carolina
      Cut Sheets, Inc.
              
              *U.S.
      Tag & Ticket Company, Inc.
              
              *
              
              *
              
              
              *Donihe
      Graphics, Inc.
              
              *
              
              *
              
              *
              *
              
              *
              
              *The
      Merten Company
              
              *
              
              *
              
              *
              
              
              *Interform
      Corporation
              
              *
              
              *
              
              
              *
              
              *
              
              
              *Consolidated
      Graphic Communications
              
              *
              
              *Blue
      Ridge Printing Co., Inc.
              
              *
              
              *
              
              *
              
              
              *River Cities Printing
              
              *
              
              *
              
              
              *
  *  -
Services Provided
 12
 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.
  Newspaper




The Company provides its customers in the Tri-State regions surrounding
Huntington, West Virginia with the primary and premier print advertising
solutions for the region.





MANUFACTURING AND
DISTRIBUTION





The
Company's pre-press facilities have desktop publishing, typesetting, laser
imagesetting and scanning/retouching equipment, as well as complete layout,
design, stripping and plate processing operations. Sheet printing equipment (for
printing onto pre-cut, individual sheets)
includes single color duplicators, single to eight 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.





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.


13


The newspaper is produced nightly at its own in-house
facility. The paper is then distributed via contract haulers between 3:00AM and
4:00AM each morning. The contract haulers then deliver the papers to each of the
route delivery personnel for a targeted delivery of 6:00AM each
morning.




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 years ended October 31, 2008, 2007 and 2006, no single customer
accounted for more than 3% of the Company’s total revenues. Due to the
project-oriented nature of customers' printing and furniture 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 provides the Company with a competitive advantage. The
Company is also affiliated with a buying group with a national organization for
its newsprint purchases.





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.


14


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 Herald-Dispatch faces limited competition from
other daily newspapers in its primary market area of Cabell County, West
Virginia. The Herald-Dispatch competes with other advertising media in its
designated market area, including television and radio advertising.





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 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.





GEOGRAPHIC CONCENTRATION AND ECONOMIC
CONDITIONS





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.


The Company's newspaper operations are geographically concentrated and serve a
regional market area in southwestern West Virginia primarily covering Cabell
County, West Virginia, parts of neighboring Wayne County, West Virginia and
eastern Lawrence County, Ohio.


On August
29, 2005, Hurricane Katrina made landfall and subsequently caused extensive
flooding and destruction along the coastal areas of the Gulf of Mexico,
including New Orleans and other communities in Louisiana and Mississippi in
which Champion conducts business. Operations in many of the Company’s markets
were disrupted by both the evacuation of large portions of the population as
well as damage and/or lack of access to the Company’s operating facility in New
Orleans.




The
Company filed insurance claims related to both actual and contingent
losses. The Company received an advance to claim payment from an insurance
company of $300,000 in February 2006 and final settlement claims of $278,000 in
April and May 2006. The Company recorded the $300,000 payment as an insurance
recovery and related receivable at January 31, 2006. The Company recorded
additional charges of approximately $42,000 in the first quarter of 2006
associated with Hurricane Katrina. The Company received a second advance to
claim check in April of 2006 in the amount of $200,000 and a full settlement of
any and all claims check of $78,000 in May of 2006. The Company recorded the
aggregate amount of these checks as an insurance recovery and the $78,000 as a
related receivable at April 30, 2006. The Company incurred additional charges of
$234,000 primarily related to additional inventory valuation reserves and costs
associated with relocation in the second quarter of 2006. During the fourth
quarter of 2006 the Company successfully negotiated an early lease termination
related to its New Orleans location resulting in Katrina related recoveries of
approximately $76,000.


15


SEASONALITY





Historically,
the Company has experienced a greater portion of its profitability in the second
and fourth quarters than in the first and third quarters. The second quarter
generally reflects increased orders for printing of corporate annual reports and
proxy statements. A post-Labor Day increase in demand for printing services and
office products coincides with the Company's fourth quarter.




Our business is subject to seasonal fluctuations that
we expect to continue to be reflected in our operating results in future
periods. On a historical basis
The Herald-Dispatch's first and third calendar quarters
of the year tended to be the weakest because advertising volume is at its lowest
levels following the holiday season and a seasonal slowdown in the summer
months. Correspondingly, on a historical basis
the fourth calendar quarter followed by the second calendar quarter
tended to be the strongest quarters. The fourth calendar quarter includes
heavy holiday season advertising. Other factors that affect our quarterly
revenues and operating results may be beyond our control, including changes in
the pricing policies of our competitors, the hiring and retention of key
personnel, wage and cost pressures, distribution costs, changes in newsprint
prices and general economic factors.





EMPLOYEES





On
October 31, 2008, the Company had approximately 890 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
approximately 70 employees
at October 31, 2008) at its Bridgeville, Pennsylvania facility. This contract
expires May 31, 2010. As a result of the acquisition of The
Herald-Dispatch, the Company also is party to a collective bargaining agreement
with Graphic Communication Conference/ International Brotherhood of
Teamsters Local 619-M of District Council 3 covering newspaper
press production employees (totaling approximately 10 employees at October
31, 2008) at The Herald-Dispatch Huntington, West Virginia location. The
contract expires December 31, 2010. The Company believes relations with the
unions and covered employees are good.




EXECUTIVE OFFICERS OF
CHAMPION
 Position and offices with
      Champion;Name
              Age
              Principal occupation or
      employment last five yearsMarshall
      T. Reynolds
              72
              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 Pullman Plaza Hotel) 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.).Toney
      K. Adkins
              59
              President
      and Chief Operating Officer of the Company since January 2005; Vice
      President-Administration of the Company from November 1995 to January
      2005; President, KYOWVA Corrugated Container Company, Inc. from 1991 to
      1996.J. Mac
      Aldridge
              67
              Senior Vice President of the Company and Division
      Manager - Stationers since January 2005; Vice President and Division
      Manager - Stationers from December 1992 to January 2005; 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.
 16
 R.
      Douglas McElwain
              61
              Senior
      Vice President and Division Manager - Champion Graphic Communications
      Division of the Company since January 2005; Vice President and Division
      Manager - Bourque Printing division of the Company from December 1993 to
      January 2005; 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.Todd
      R. Fry
              43
              Senior
      Vice President and Chief Financial Officer of the Company since January
      2005; Vice President and Chief Financial Officer of the Company from
      November 1999 to January 2005; 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
              79
              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.James
      A. Rhodes
              52
              Senior
      Vice President of the Company since January 2005; Vice President of the
      Company from March 1999 to January 2005; President of Interform since
      October 2004; 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.
 ITEM 1A -
RISK FACTORS
  The Company’s business and results of operations are subject to a number of
risks, many of which are outside of the Company’s control. In addition to the
other information in this report, readers should carefully consider that the
following important factors, among others, including risks not presently known
or currently deemed immaterial by us could materially impact the Company’s
business and future results of operations.
 Dependence on Marshall T. Reynolds;
Control of the Company.
  
 17
 The Company operates in a highly
competitive market that could negatively impact our results of
operations.
  In the printing segment, there has been an ongoing consolidation resulting in
fewer competitors. This in part has resulted in numerous competitors that are
larger with greater geographic diversity and broader product offerings. In
addition, the office products and office furniture industries are extremely
competitive and fragmented. The Company competes with numerous large and small
companies that operate in each industry, some of which have greater financial
resources than the Company. The Company competes on the basis of its reputation
for quality, production capability, prompt delivery, price and strength of its
continuing customer relationships.
  Our supply-chain management services are embedded into our printing and
office products and office furniture segments. The competitive factors faced by
the Company include customer service, price, distribution
geography, information technology and the customer's fulfillment and
distribution needs.
  The Company may be adversely impacted
by the rising costs of critical raw materials such as paper, ink, energy,
postage and other raw materials.
 Our primary raw material is paper, therefore, the purchase of paper and other
raw materials such as ink, energy, postage and items we distribute such as
office products and office furniture and goods and services represent a
large portion of our costs. Any increases in the costs of these items will also
increase our costs. Depending on the nature of such increases we may not be able
to pass these costs on to customers through higher prices. Increases in the
costs of these items may also adversely impact our customers’ demand for
printing and related services as well as for office products and office
furniture.
  The Company has substantial
investment in the credit worthiness and financial condition of our
customers.
  The largest current asset on the Company's balance sheet on a net basis is our
accounts receivable balances from our customers. We grant credit to
substantially all of our customers. A decline in financial condition across a
significant component of our customer base could hinder our ability to collect
amounts owed by customers. In addition, such a decline could result in lower
demand for our services. The potential causes of such a decline include national
or local economic downturns, the fact that many of our customers are in
highly-competitive industries or markets and the impact of regulatory actions
may impact the financial stability of our customers.
  We may have difficulty adjusting our
operating models to meet changing or current market conditions.
  Because the markets in which we compete are highly-competitive, we must continue
to improve our operating efficiency in order to maintain or improve our
profitability. Although we have been able to improve efficiency and reduce costs
in the past, there is no assurance that we will continue to do so in the future.
In addition, the need to reduce ongoing operating costs may result in
significant up-front costs to reduce workforce, close or consolidate facilities,
or upgrade equipment and technology.
   18
 
 We may be unable to grow through
acquisitions or to successfully integrate acquired businesses.
  The
Company has historically grown through a combination of organic
growth and acquisitions. It is critical that the Company achieve the
anticipated benefits of acquisitions. The integration of companies that have
previously operated independently may result in significant challenges, and we
may be unable to accomplish the integration smoothly or successfully. In
particular, the coordination of geographically dispersed organizations with
differences in corporate cultures and management philosophies may increase the
difficulties of integration. The integration of acquired businesses may also
require the dedication of significant management resources, which may
temporarily shift senior management’s attention from the other day-to-day
operations of the Company. Our strategy is, in part, predicated on our ability
to realize cost savings and to increase revenues through the acquisition of
businesses that strategically enhance our capabilities and
services.
 We may have difficulty hiring and
retaining appropriate employees including senior management.
 Our success depends, in part, on our general ability to attract, develop,
motivate and retain highly skilled employees. The loss of a significant number
of our employees or the inability to attract, hire, develop, train and retain
additional skilled personnel could have a material adverse effect on us. We
currently operate in several locations with geographic diversity, individual
locations may encounter strong competition from other employers for skilled
labor. In addition, many members of our management have significant industry
experience and a long track record with us that is important to our continued
success. If one or more members of our senior management team leave and we
cannot replace them with a suitable candidate quickly, we could experience
difficulty in managing our business properly, which could harm our business and
results of operations.
  We may be negatively impacted by
strikes or other work stoppages by our employees.
  We employ approximately 80 persons who are covered by collective bargaining
agreements. If our unionized employees were to engage in a concerted strike or
other work stoppage, or if our other employees were to become unionized, we
could experience a disruption of operations, higher labor costs or both.
 We may have increased employee
benefit costs for health care and other benefits.
  We provide health care and certain other benefits to our employees. In recent
years, costs for health care have increased more rapidly than general inflation
in the U.S. economy. If this trend in health care costs continues, our cost to
provide such benefits could increase, adversely impacting our business and
results of operations.
  We may be negatively impacted by
declines in general economic conditions or acts of war and terrorism.
  Demand for printing services is highly correlated with general economic
conditions. A decline in U.S. economic conditions may, therefore, adversely
impact our business and results of operations. Because such outcomes are
difficult to predict, the industry may experience excess capacity resulting in
declines in prices for our services. The overall business climate may also be
impacted by foreign wars or domestic or foreign acts of terrorism. Such acts may
have sudden and unpredictable adverse impacts on demand for our services.
 19
 We may face adverse pricing pressures
as a result of operating in a highly-competitive market.
  The markets for our services are highly fragmented and we have a large number of
competitors, resulting in a highly-competitive market and increasing the risk of
adverse pricing pressures in various circumstances outside of our control,
including economic downturns.
  We are dependent on the markets
utilizing printed materials in lieu of alternative media. If this changes we may
be adversely affected.
 In
addition to traditional non-print based marketing and advertising channels,
online distribution and hosting of media content may gain broad acceptance or
preferred status relative to printed materials among consumers generally and
have an adverse effect on our business. Consumer acceptance of electronic
delivery as well as the extent that consumers may have previously replaced
traditional reading of print material with online hosted media contents is
uncertain. We have no ability to predict the likelihood that this may occur.
  We may be adversely affected by
regulatory requirements, tax requirements and The Sarbanes-Oxley
Act.
 
 We are subject to numerous rules and regulations, including, but not limited to,
environmental and health and welfare benefit regulations as well as those
associated with being a public company as well as numerous federal, state, and
local tax rules and regulations. These rules and regulations and associated
interpretations may be changed by local, state or federal governments or
agencies. Changes in these regulations may result in a significant increase in
our compliance costs. Compliance with changes in rules and regulations could
require increases to our workforce, increased cost for services, compensation
and benefits, or investments in new or upgraded equipment. In addition, audits
and examinations of prior years may result in liabilities and additional
financial burdens. The Company will be subject to reporting on internal
controls in accordance with Section 404 of The Sarbanes-Oxley Act for
auditors attestation for fiscal years ending on or after December 15,
2009 . The
Company is currently unable to predict the cost or difficulties required to
complete such certifications.
  We are highly dependent on
information technology. If our systems fail or are unreliable our operations may
be adversely impacted.
 
 The efficient operation of our business depends on our information
technology infrastructure and our management information systems. In addition,
production technology in the printing industry has continued to evolve
specifically related to the pre-press component of production. We rely on
our management information systems to effectively manage accounting and
financial functions, job entry, tracking and cost accumulation and certain
purchasing functions as well as fulfillment and inventory management including
e-commerce activities. Our information technology infrastructure includes both
third party solutions and applications designed and maintained internally. Since
our Company operates on multiple platforms, the failure of our information
technology infrastructure and/or our management information systems to perform
could severely disrupt our business and adversely affect our results of
operation. In addition, our information technology infrastructure and/or our
management information systems are vulnerable to damage or interruption from
natural or man-made disasters, terrorist attacks, computer viruses or hackers,
power loss, or other computer systems, Internet telecommunications or data
network failures. Any such interruption could adversely affect our business and
results of operations.
 20
 Competition from alternative forms of
media may impair our ability to achieve revenue growth.
  Advertising produces the predominant share of our newspaper revenues. With the
continued development of alternative forms of media, particularly those based on
the Internet, our traditional print business faces increased competition.
Alternative media sources also affect our ability to increase our circulation
revenues. This competition could make it difficult for us to grow our
advertising and circulation revenues, which we believe will challenge us to
expand the contributions of our online business.
 Changes in economic conditions in
the markets we serve may produce volatility in demand for our products and
services.
    If there is a significant increase in
the price of newsprint or a reduction in the availability of newsprint, our
results of operations and financial condition may suffer.
 
 Newsprint is the major component of our cost of raw materials associated with
production of the newspaper. Accordingly, our earnings are sensitive to changes
in newsprint prices. We have not attempted to hedge fluctuations in the normal
purchases of newsprint or enter into contracts with embedded derivatives for the
purchase of newsprint. If the price of newsprint increases materially, our
operating results could be adversely affected. If our newsprint suppliers
experience labor unrest, transportation difficulties or other supply
disruptions, our ability to produce and deliver newspapers could be impaired
and/or the cost of the newsprint could increase, both of which would negatively
affect our operating results.
  Our indebtedness could adversely
affect our financial health and reduce the funds available to us for other
purposes, including dividend payments.
  We
have a significant amount of indebtedness. At October 31, 2008, we had
total indebtedness of $73.5 million under our credit facilities. Our interest
expense for the year ended October 31, 2008 was approximately $5.7 million.
At October 31, 2008, the borrowings under our credit facility were subject to a
floating interest rate of LIBOR plus 275 basis points or the prime rate plus 75
basis points. The borrowings under our credit facility were hedged through
the execution of interest rate hedge agreements that convert the floating
interest rate component to an effective interest rate of 4.78% plus the
applicable LIBOR margin on $25.0 million of these borrowings through
October 29, 2010.
  Volatility in U.S. credit markets
could affect the Company's ability to obtain financing to fund acquisitions,
investments, or other significant operating or capital
expenditures.
    We may not be able to pay or maintain
dividends and the failure to do so may negatively affect our share
price.
  We have historically paid regular quarterly dividends to the holders
of our common stock. Our ability to pay dividends, if any, will depend on, among
other things, our cash flows, our cash requirements, our financial condition,
the degree to which we are or become leveraged, contractual restrictions binding
on us, provisions of applicable law and other factors that our board of
directors may deem relevant. There can be no assurance that we will generate
sufficient cash from continuing operations in the future, or have sufficient
surplus or net profits to pay dividends on our common stock. Our dividend policy
is based upon our directors’ current assessment of our business and the
environment in which we operate and that assessment could change based on
competitive or technological developments (which could, for example, increase
our need for capital expenditures) or new growth opportunities. Our board of
directors may, in its discretion, amend or repeal our dividend policy to
decrease the level of dividends or entirely discontinue the payment of
dividends. The reduction or elimination of dividends may negatively affect the
market price of our common stock.
 21
 Our newspaper business is subject to
seasonal and other fluctuations, which affects our revenues and operating
results.
  Our business is subject to seasonal fluctuations that we expect to continue to
be reflected in our operating results in future periods. On a historical
basis The Herald-Dispatch's first and third calendar quarters of the year
tended to be the weakest because advertising volume is at its lowest levels
following the holiday season and a seasonal slow down in the summer
months. Correspondingly, on a historical basis
the fourth calendar quarter followed by the second calendar quarter
tended to be the strongest quarters. The fourth calendar quarter includes
heavy holiday season advertising. Other factors that affect our quarterly
revenues and operating results may be beyond our control, including changes in
the pricing policies of our competitors, the hiring and retention of key
personnel, wage and cost pressures, distribution costs, changes in newsprint
prices and general economic factors.
  We could be adversely affected by
declining newspaper circulation.
 
 According to the Newspaper Association of America, overall daily newspaper
circulation, including national and urban newspapers, has declined at an average
annual rate of 0.8% during the three-year period from 2002 to 2004. There can be
no assurance that our circulation will not decline in the future. Further
declines in circulation could impair our ability to maintain or increase our
advertising prices, cause purchasers of advertising in our publications to
reduce or discontinue those purchases and discourage potential new advertising
customers which could have a material adverse effect on our business, financial
condition, results of operations or cash flows.
  ITEM 2 -
PROPERTIES
 The Company conducts its operations primarily from twenty-two (22) different
physical locations, fifteen (15) of which are leased and seven (7) of which are
owned in fee simple by Company subsidiaries.The Company also owns two facilities
of which the operations have been consolidated into other Champion facilities.
The Company also leases other
facilities primarily as sales and customer service locations, these operations
and locations are not included as core operating facilities. 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 and may be subject to periodic adjustments based on the consumer price
index:
  Property
                          
                          Division Occupying
      Property
                          
                          Square
    Feet
                          
                          Annual
      Rental
                          
                          Expiration Of
      Term2450
      1stAvenue
                            Huntington,
      West Virginia (1)
                          
                          Chapman
      Printing- Huntington
                          
                          85,000
                          
                          $116,400
                          
                          20131945
      5thAvenue
                            Huntington,
      West Virginia (1)
                          
                          Stationers
                          
                          37,025
                          
                          30,000
                          
                          2013
 22
 Property
                  
                  Division Occupying
      Property
                  
                  Square
    Feet
                  
                  Annual
      Rental
                  
                  Expiration Of
      Term615-619
      4thAvenue
                    Huntington,
      West Virginia (1)
                  
                  Stationers
                  
                  59,641
                  
                  21,600
                  
                  2013405
      Ann Street
                    Parkersburg,
      West Virginia (1)
                  
                  Chapman
      Printing - Parkersburg
                  
                  36,614
                  
                  57,600
                  
                  2013890
      Russell Cave Road
                    Lexington,
      Kentucky (1)
                  
                  Chapman
      Printing - Lexington
                  
                  20,135
                  
                  57,600
                  
                  20132800
      Lynch Road
                    Evansville,
      Indiana (1)
                  
                  Smith
      & Butterfield
                  
                  42,375
                  
                  121,640
                  
                  20141901
      Mayview Road
                    Bridgeville,
      Pennsylvania (1)
                  
                  Interform
      Corporation
                  
                  120,000
                  
                  293,503
                  
                  20131515
      Central Parkway
                    Cincinnati,
      Ohio (1)
                  
                  The
      Merten Company
                  
                  40,000
                  
                  107,163
                  
                  20111214
      Main Street
                    Wheeling,
      West Virginia (3)
                  
                  CBI
      - Wheeling
                  
                  22,000
                  
                  36,000
                  
                  20093000
      Washington Street
                    Charleston,
      West Virginia (2)
                  
                  Chapman
      Printing-Charleston
                  
                  37,710
                  
                  147,240
                  
                  2009951
      Point Marion Road
                    Morgantown,
      West Virginia (1)
                  
                  Chapman
      Printing-Charleston
                  
                  5,850
                  
                  42,000
                  
                  2010120
      Hills Plaza
                      Charleston,
      West Virginia (4)
                  
                  Champion
      Output Solutions
                  
                  22,523
                  
                  115,992
                  
                  20111539-A River Oaks Road
                    New Orleans, Louisiana (3)
                  
                  Champion
      Graphic Communications
                  
                  3,000
                  
                  36,000
                  
                  20091639-51
      7th Avenue
                    Huntington, West Virginia (1)
                  
                  The
      Herald-Dispatch
                  
                  14,000
                  
                  39,600
                  
                  Terminated in
      2009Route 2 Industrial Lane
                    Huntington, West Virginia (1)
                  
                  The
      Herald-Dispatch
                  
                  35,000
                  
                  84,000
                  
                  2013
 23
 (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)  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.
 
 (3)  Lease is gross to the extent it excludes
taxes and insurance during the lease term.
  (4)  Lease is gross to the extent it
excludes taxes and insurance during the initial lease term. The Company has
renewal options through 2024 at various rates and the lease essentially converts
to a triple net lease in the renewal period.  The Company has entered into
a sublease agreement commencing January 2007, through June 30,
2011, at an annual sublease of $44,370, representing approximately 8,500 square
feet.
 
 The
Dallas Printing subsidiary owns, and previously operated from, a single-story
masonry structure of approximately 19,600 square feet at 321-323 East Hamilton
Street, Jackson, Mississippi. This building was vacated during the fourth
quarter of 2005. The Company is currently evaluating its options regarding this
facility.
 
 The
Chapman Printing Charleston operation previously conducted business from a
single story masonry building of approximately 21,360 square feet owned by the
Company at 1563 Hansford Street, Charleston, West Virginia. This building was
vacated during the second quarter of 2005. The Company is currently evaluating
its facility needs in Charleston and the future use, if any, of this building.
The Company also owns a structure in Charleston, WV that was purchased as a
result of the Syscan acquisition. This building is located at 811 Virginia
Street West and is a three-story block building.
 
 The
Bourque Printing subsidiary owns, and operates from, a single-story building of
approximately 42,693 square feet at 10848 Airline Highway, Baton Rouge,
Louisiana. The Company also owns a warehouse and storage 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, 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.
 24
 The
Capitol subsidiary of Stationers owns and operates from a 22,000 square foot
building at 711 Indiana Avenue, Charleston, West Virginia.
 The Herald-Dispatch owns and operates from a five-story masonry building
of approximately 65,000 square feet at 946 5th Avenue, Huntington, 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 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.
  
 ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
 
 No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
 
 PART II
 
 ITEM 5 - MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
 
 Champion
common stock has traded on the National Association of Securities Dealers, Inc.
Automated Quotation System (“NASDAQ”) National Market System (now Global
Market) 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.
 25
 Fiscal
      Year 2008
              
              Fiscal
      Year 2007High
              Low
              
              High
              LowFirst
      quarter
              $
      6.30
              $
      4.45
              
              $ 8.87
              $ 6.45Second
      quarter
              5.92
              4.55
              
              9.99
              7.56Third
      quarter
              5.16
              4.25
              
              8.22
              6.61Fourth
      quarter
              5.45
              3.07
              
              6.45
              5.30
 
 At
the close of business on January 2 , 2009,
there were 411 shareholders of record of Champion common stock. The
shareholders of record are determined by the Company’s transfer
agent.
 
 The
following table sets forth the quarterly dividends per share declared on
Champion common stock.
  Fiscal Year
      2009
              
              
              Fiscal Year
      2008
              
              
              Fiscal Year
      2007First
      quarter
              
              $
              0.06
              
              
              $
              0.06
              
              
              $
              0.06Second
      quarter
              
              
              -
              
              
              
              0.06
              
              
              
              0.06Third
      quarter
              
              
              -
              
              
              
              0.06
              
              
              
              0.06Fourth
      quarter
              
              
              -
              
              
              
              0.06
              
              
              
              0.06
 26
 ITEM 6 - SELECTED FINANCIAL
DATA
  SELECTED CONSOLIDATED FINANCIAL
DATA
 
 The
following selected consolidated financial data for each of the five years in the
period ended October 31, 2008, have been derived from the Audited Consolidated
Financial Statements of the Company. The information set forth below should be
read in conjunction with the Audited Consolidated Financial Statements, related
notes, and the information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere herein.
  Year Ended October
      31,2008
                
                
                2007 (2)
                
                
                2006 (1)
                
                
                2005 (1)
                
                
                2004(In thousands, except share and
      per share data)OPERATING STATEMENT
      DATA:Revenues:Printing
                
                $
                102,206
                
                
                $
                101,653
                
                
                $
                106,414
                
                
                $
                98,458
                
                
                $
                95,325Office
      products and office furniture
                
                
                41,540
                
                
                
                41,449
                
                
                
                38,774
                
                
                
                36,467
                
                
                
                29,077Newspaper
                
                
                18,939
                
                
                
                2,540
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      revenues
                
                
                162,685
                
                
                
                145,642
                
                
                
                145,188
                
                
                
                134,925
                
                
                
                124,402Cost of sales & newspaper
      operating costs:Printing
                
                
                72,521
                
                
                
                72,769
                
                
                
                75,016
                
                
                
                70,978
                
                
                
                69,746Office
      products and office furniture
                
                
                28,457
                
                
                
                28,835
                
                
                
                26,778
                
                
                
                25,694
                
                
                
                20,260Newspaper
      cost of sales & operating costs
                
                
                9,492
                
                
                
                1,188
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      cost of sales & newspaper operating costs
                
                
                110,470
                
                
                
                102,792
                
                
                
                101,794
                
                
                
                96,672
                
                
                
                90,006Gross
    profit
                
                
                52,215
                
                
                
                42,850
                
                
                
                43,394
                
                
                
                38,253
                
                
                
                34,396Selling,
      general and administrative expense
                
                
                39,529
                
                
                
                32,336
                
                
                
                34,018
                
                
                
                34,797
                
                
                
                33,058Hurricane
      and relocation costs, net of recoveries
                
                
                (33
                )
                
                
                -
                
                
                
                (377
                )
                
                
                1,021
                
                
                
                -Income from
      operations
                
                
                12,719
                
                
                
                10,514
                
                
                
                9,753
                
                
                
                2,435
                
                
                
                1,338Interest
      income
                
                
                66
                
                
                
                45
                
                
                
                28
                
                
                
                18
                
                
                
                7Interest
      expense
                
                
                (5,734
                )
                
                
                (1,455
                )
                
                
                (610
                )
                
                
                (610
                )
                
                
                (301
                )Other
      income
                
                
                70
                
                
                
                179
                
                
                
                32
                
                
                
                120
                
                
                
                288Income before income
      taxes
                
                
                7,121
                
                
                
                9,283
                
                
                
                9,203
                
                
                
                1,963
                
                
                
                1,332Income
      tax
                
                
                (1,099
                )
                
                
                (3,203
                )
                
                
                (3,729
                )
                
                
                (846
                )
                
                
                (582
                )Net
      income
                
                $
                6,022
                
                
                $
                6,080
                
                
                $
                5,474
                
                
                $
                1,117
                
                
                $
                750Earnings per
      share:Basic
                
                $
                0.60
                
                
                $
                0.61
                
                
                $
                0.56
                
                
                $
                0.11
                
                
                $
                0.08Diluted
                
                
                0.60
                
                
                
                0.60
                
                
                
                0.55
                
                
                
                0.11
                
                
                
                0.08Dividends per share
                
                $
                0.24
                
                
                $
                0.24
                
                
                $
                0.20
                
                
                $
                0.20
                
                
                $
                0.20Weighted average common shares
      outstanding:Basic
                
                
                9,986,000
                
                
                
                9,957,000
                
                
                
                9,818,000
                
                
                
                9,735,000
                
                
                
                9,729,000Diluted
                
                
                10,024,000
                
                
                
                10,103,000
                
                
                
                9,972,000
                
                
                
                9,809,000
                
                
                
                9,825,000
 27
  (1)
                During
      the fourth quarter of 2005, the Company incurred various charges resulting
      from Hurricane Katrina. As a result of the hurricane, the Company recorded
      a pre-tax charge of $1,021,000 or $581,000 net of tax or $0.06 per
      share on a basic and diluted basis. In 2006, the Company recorded
      recoveries of approximately $377,000, or $224,000 net of tax or $0.02 per
      share on a basic and diluted basis.  (2)
                The
      revenues associated with the acquisition of The Herald-Dispatch are
      primarily composed of advertising, circulation and commercial printing
      revenues. The advertising and circulation revenues are included as a
      component of the newspaper segment and the commercial printing revenues
      are recorded as a component of the printing segment. Approximately
      six weeks of the operations of The Herald-Dispatch are included in the
      Company's Statement of Operations commencing concurrent with the
      acquisition in 2007.
  At October
      31,2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004(in
      thousands)BALANCE SHEET
      DATA:Cash
      and cash equivalents/Negative book cash balances
                
                $
                (987
                )
                
                $
                5,793
                
                
                $
                5,487
                
                
                $
                3,662
                
                
                $
                1,745Working
      capital
                
                
                20,367
                
                
                
                25,308
                
                
                
                25,955
                
                
                
                26,081
                
                
                
                26,913Total
      assets
                
                
                141,279
                
                
                
                149,212
                
                
                
                65,989
                
                
                
                61,645
                
                
                
                64,150Long-term
      debt (net of current portion)(1)
                
                
                66,332
                
                
                
                79,378
                
                
                
                4,220
                
                
                
                6,761
                
                
                
                8,257Shareholders'
      equity
                
                
                51,860
                
                
                
                48,727
                
                
                
                44,777
                
                
                
                40,752
                
                
                
                41,551
 
 (1) Includes non-current
borrowings under the Company’s credit facilities.
 
 28
 ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 OVERVIEW
 
 The
Company is a commercial printer, business forms manufacturer and office products
and office furniture supplier in regional markets of the United States of
America, east of the Mississippi River. The Company also publishes The
Herald-Dispatch daily newspaper in Huntington, West Virginia with a total daily
and Sunday circulation of approximately 26,000 and 31,000, respectively. The
Company has grown through strategic acquisitions and internal growth. Through
such growth, the Company has realized regional economies of scale, operational
efficiencies, and exposure of its core products to new markets. The Company has
acquired fifteen printing companies, eight office products and office furniture
companies, one company with a combined emphasis on both printing and office
products and office furniture, a paper distribution division (which was
subsequently sold in 2001) and a daily newspaper since its initial public
offering on January 28, 1993.
 
 The
Company's net revenues consist primarily of sales of commercial printing,
business forms, tags, other printed products, document output solutions
including rendering, inserting and mailing, office supplies, office furniture,
data products and office design services as well as newspaper revenues primarily
from advertising and circulation. The Company recognizes revenues when
products are shipped or ownership is transferred and when services are rendered
to the customer. Newspaper advertising revenues are recognized, net of
agency commissions, in the period when advertising is printed or placed on web
sites. Circulation revenues are recognized when purchased newspapers are
distributed. The Company's revenues are subject to seasonal fluctuations caused
by variations in demand for its products.
 
 The
Company's cost of sales primarily consists 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 printing, office supplies and the newspaper operations, 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, legal, audit, information systems
equipment costs, software maintenance and depreciation.
 
 CRITICAL ACCOUNTING POLICIES
INVOLVING SIGNIFICANT ESTIMATES
 
 The
Company’s significant accounting policies are described in Note 1 to the
consolidated financial statements included in Item 15 of this Form 10-K. The
discussion and analysis of the financial statements and results of operations
are based upon the Company’s consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. The following critical accounting policies affect the Company’s
more significant judgments and estimates used in the preparation of the
consolidated financial statements. There can be no assurance that actual results
will not differ from those estimates.
 29
 Asset Impairment: The
Company is required to test for asset impairment relating to property and
equipment whenever events or changes in circumstances indicate that the carrying
value of an asset might not be recoverable. The Company applies Statement of
Financial Accounting Standards (SFAS) No. 144, “ Accounting for the Impairment or
Disposal of Long-Lived Assets ” (SFAS
144) in order to determine whether or not an asset is impaired. This standard
requires an impairment analysis when indicators of impairment are present. If
such indicators are present, the standard indicates that if the sum of the
future expected cash flows from the Company’s asset, undiscounted and without
interest charges, is less than the carrying value, an asset impairment must be
recognized in the financial statements. The amount of the impairment is the
difference between the fair value of the asset and the carrying value of the
asset.
 
 The
Company believes that the accounting estimate related to an asset impairment is
a “critical accounting estimate” because it is highly susceptible to change from
period to period because it requires management to make assumptions about future
cash flows over future years and that the impact of recognizing an impairment
could have a significant effect on operations. Management’s assumptions about
future cash flows requires significant judgment because actual operating levels
have fluctuated in the past and are expected to continue to do so in the future.
Management has discussed the development and selection of this critical
accounting estimate with the audit committee of our board of directors and the
audit committee has reviewed the Company’s disclosure relating to it in the
MD&A.
 
 Beginning
in fiscal year 2002, goodwill and other intangibles are required to be evaluated
annually for impairment, according to SFAS No. 142, “ Goodwill and Other Intangible
Assets .” (SFAS
142). The standard requires a two-step process be performed to analyze whether
or not goodwill has been impaired. Step one is to test for potential impairment
and requires that the fair value of the reporting unit be compared to its book
value including goodwill and other intangibles. If the fair value is higher than
the book value, no impairment is recognized. If the fair value is lower than the
book value, a second step must be performed. The second step is to measure the
amount of impairment loss, if any, and requires that a hypothetical purchase
price allocation be done to determine the implied fair value of
goodwill and other intangibles. This fair value is then compared to the carrying
value of goodwill and other intangibles. If the implied fair value is lower than
the carrying value, an impairment must be recorded.
 
 As
discussed in the notes to the financial statements, goodwill and other
intangibles are recorded at the adjusted book value and were analyzed for
impairment with the implementation of SFAS 142. The fair value of the Company’s
goodwill and other intangibles was estimated using discounted cash flow
methodologies. Based on the analysis, the Company determined that the fair value
relating to goodwill and other intangibles resulted in an implied fair value
greater than the book value recorded for the corresponding goodwill and other
intangibles, and therefore, no impairment was recognized in any period
subsequent to the adoption of this statement.
 
 The
Company believes that the accounting estimate related to the goodwill and other
intangibles impairment is a “critical accounting estimate” because the
underlying assumptions used for the discounted cash flow can change from period
to period and could potentially cause a material impact to the income statement.
Management’s assumptions about discount rates, inflation rates and other
internal and external economic conditions, such as earnings growth rate, require
significant judgment based on fluctuating rates and expected revenues.
Additionally, SFAS 142 requires that the goodwill and other intangibles be
analyzed for impairment on an annual basis using the assumptions that apply at
the time the analysis is updated. Management has discussed the development of
these estimates with the audit committee of the board of directors.
Additionally, the board of directors has reviewed this disclosure and its
relation to MD&A.
 30
 Allowance for
Doubtful Accounts: The
Company encounters risks associated with sales and the collection of the
associated accounts receivable. As such, the Company records a monthly provision
for accounts receivable that are considered to be uncollectible. In order to
calculate the appropriate monthly provision, the Company primarily utilizes a
historical rate of accounts receivables written off as a percentage of total
revenue. This historical rate is applied to the current revenues on a monthly
basis. The historical rate is updated periodically based on events that may
change the rate such as a significant increase or decrease in collection
performance and timing of payments as well as the calculated total exposure in
relation to the allowance. Periodically, the Company compares the identified
credit risks with the allowance that has been established using historical
experience and adjusts the allowance accordingly.
 
 The Company believes that the accounting estimate related to the allowance for
doubtful accounts is a “critical accounting estimate” because the underlying
assumptions used for the allowance can change from period to period and could
potentially cause a material impact to the income statement and working capital.
Management has discussed the development and selection of this estimate with the
audit committee of the board of directors, and the board has, in turn, reviewed
the disclosure and its relation to MD&A.
 
 During
2008, 2007 and 2006, $854,000, $492,000, and $979,000 of bad debt expense was
incurred and the allowance for doubtful accounts was $1,851,000,
$1,511,000 and $1,558,000 of
October 31, 2008, 2007 and 2006. The actual write-offs for the periods were
$514,000, $657,000, and $832,000 during 2008, 2007 and 2006. General economic
conditions and specific geographic and customer concerns are major factors that
may affect the adequacy of the allowance and may result in a change in the
annual bad debt expense.
 
 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.
 
 31
 RESULTS OF
OPERATIONS
 
 The
following table sets forth for the periods indicated information derived from
the Company's Consolidated Statements of Operations, including certain
information presented as a percentage of total revenues.
  Year Ended October 31,($ In
      thousands)2008
                
                
                2007
                
                
                2006Revenues:Printing
                
                $
                102,206
                
                
                62.8
                %
                
                $
                101,653
                
                
                69.8
                %
                
                $
                106,414
                
                
                73.3
                %Office
      products and office furniture
                
                
                41,540
                
                
                25.5
                
                
                
                41,449
                
                
                28.5
                
                
                
                38,774
                
                
                26.7Newspaper
                
                
                18,939
                
                
                11.7
                
                
                
                2,540
                
                
                1.7
                
                
                
                -
                
                
                0.0Total
      revenues
                
                
                162,685
                
                
                100.0
                
                
                
                145,642
                
                
                100.0
                
                
                
                145,188
                
                
                100.0Cost of sales & newspaper
      operating costs:Printing
                
                
                72,521
                
                
                44.6
                
                
                
                72,769
                
                
                50.0
                
                
                
                75,016
                
                
                51.7Office
      products and office furniture
                
                
                28,457
                
                
                17.5
                
                
                
                28,835
                
                
                19.8
                
                
                
                26,778
                
                
                18.4Newspaper cost of sales & operating costs
                
                
                9,492
                
                
                5.8
                
                
                
                1,188
                
                
                0.8
                
                
                
                -
                
                
                0.0Total
      cost of sales and newspaper operating costs
                
                
                110,470
                
                
                67.9
                
                
                
                102,792
                
                
                70.6
                
                
                
                101,794
                
                
                70.1Gross
    profit
                
                
                52,215
                
                
                32.1
                
                
                
                42,850
                
                
                29.4
                
                
                
                43,394
                
                
                29.9Selling,
      general and administrativeexpenses
                
                
                39,529
                
                
                24.3
                
                
                
                32,336
                
                
                22.2
                
                
                
                34,018
                
                
                23.5Hurricane
      and relocation costs, net of recoveries
                
                
                (33
                )
                
                -0.0
                
                
                
                -
                
                
                0.0
                
                
                
                (377
                )
                
                -0.3Income
      from operations
                
                
                12,719
                
                
                7.8
                
                
                
                10,514
                
                
                7.2
                
                
                
                9,753
                
                
                6.7Other income
      (expense):Interest
      income
                
                
                66
                
                
                0.0
                
                
                
                45
                
                
                0.0
                
                
                
                28
                
                
                0.0Interest
      expense
                
                
                (5,734
                )
                
                -3.5
                
                
                
                (1,455
                )
                
                -1.0
                
                
                
                (610
                )
                
                -0.4Other
      income
                
                
                70
                
                
                0.1
                
                
                
                179
                
                
                0.2
                
                
                
                32
                
                
                0.0Income
      before income taxes
                
                
                7,121
                
                
                4.4
                
                
                
                9,283
                
                
                6.4
                
                
                
                9,203
                
                
                6.3Income
      tax expense
                
                
                (1,099
                )
                
                -0.7
                
                
                
                (3,203
                )
                
                -2.2
                
                
                
                (3,729
                )
                
                -2.5Net
    income
                
                $
                6,022
                
                
                3.7
                %
                
                $
                6,080
                
                
                4.2
                %
                
                $
                5,474
                
                
                3.8
                %
 32
 Year Ended October 31, 2008 Compared
to Year Ended October 31, 2007
 
 Revenues
 
 Consolidated
net revenues were $162.7 million for the year ended October 31, 2008 compared to
$145.6 million in the prior fiscal year. This change represents an increase in
revenues of approximately $17.0 million, or 11.7%. Printing revenues increased
by $0.6 million or 0.5% from $101.7 million in 2007 to $102.2 million in 2008.
The increase in printing sales was primarily due to incremental printing sales
associated with the acquisition of The Herald-Dispatch. Office products and
office furniture revenue increased from $41.4 million in 2007 to $41.5 million
in 2008. The increase in revenues for the office products and office furniture
segment was primarily attributable to continued strong office
furniture sales, partially offset by a reduction in office supply and data
sales. In 2008, newspaper revenues were composed of approximately $14.7 million
in advertising revenue and $4.2 million in circulation revenue. During the
approximately 6 week period of 2007 in which the Company owned The
Herald-Dispatch, the newspaper revenues were composed of approximately $2.0
million in advertising revenue and $0.6 million in circulation
revenues.
  Cost of Sales
 
 Total
cost of sales for the year ended October 31, 2008 totaled $110.5 million
compared to $102.8 million in the previous year. This change represented an
increase of $7.7 million or 7.5% in cost of sales. Printing cost of sales
decreased $248,000, to $72.5 million in 2008 compared to $72.8 million in 2007.
Printing cost of sales were lower due to improved printing gross margins.
Printing cost of sales as a percentage of printing sales decreased to 71.0% as a
percent of printing sales in 2008 from 71.6% in 2007. This decrease was
primarily the result of improved material and absorption overhead partially
offset by higher labor costs as a percent of printing sales. Office
products and office furniture cost of sales decreased $377,000 to $28.5 million
in 2008 from $28.8 million in 2007. The decrease in office products and office
furniture cost of sales is attributable to improved gross margins in the office
supply and office furniture categories. The decrease in office products and
office furniture cost of sales as a percent of office products and office
furniture sales is primarily reflective of lower furniture and
office products costs as a percent of furniture and office products
sales. The increase in newspaper cost of sales and operating costs is reflective
of a full year operation for The Herald-Dispatch in 2008 compared to six weeks
in 2007.
 33
 Operating Expenses and
Income
 
 Selling,
general and administrative (S,G&A) expenses increased $7.2 million to
$39.5 million in 2008 from $32.3 million in 2007. S,G&A as a percentage of
net sales represented 24.3% of net sales in 2008 compared with 22.2% of net
sales in 2007. This increase in selling, general and administrative costs
is primarily due to higher selling, general and
administrative expenses from a full year of operations for the The
Herald-Dispatch in 2008 compared to six weeks in 2007.
  Other Income
(Expense)
 
 Other
expense increased approximately $4,367,000 from $1,231,000 in 2007 to $5,598,000
in 2008. This was primarily due to an increase in interest expense of $4.3
million from $1,455,000 in 2007 to $5,734,000 in 2008. The increase in interest
expense was attributed to the acquisition of The Herald-Dispatch which was
completed on September 14, 2007.
 Income
Taxes
 
 Income
taxes as a percentage of income before taxes were 15.4% in 2008 compared with
34.5% in 2007. The decrease in income taxes as a percentage of income before
taxes is primarily related to amortization expense deductions recorded as a
permanent difference due to the acquisition of The Herald-Dispatch.
 
 The
effective income tax rate in 2008 and 2007 approximates the combined federal and
state, net of federal benefit, statutory income tax rate.
 
 Net
Income
 
 For
reasons set forth above, net income for 2008 decreased approximately $60,000 to
$6.0 million, or $0.60 per share on a basic and a diluted basis, from net
income of $6.1 million for 2007, or $0.61 per share on a basic basis and $0.60
on a diluted basis.
 34
 Year Ended October 31, 2007 Compared
to Year Ended October 31, 2006
 
 Revenues
 
 Consolidated
net revenues were $145.6 million for the year ended October 31, 2007 compared to
$145.2 million in the prior fiscal year. This change represents an increase in
revenues of approximately $0.5 million, or 0.3%. Printing revenues decreased by
$4.8 million or 4.5% from $106.4 million in 2006 to $101.7 million in 2007. The
decrease in printing sales was primarily due to sales declines in several of our
commercial plants that primarily operate in the sheetfed arena. Office products
and office furniture revenue increased $2.7 million or 6.9% from $38.8 million
in 2006 to $41.4 million in 2007. The increase in revenues for the office
products and office furniture segment was primarily attributable to robust
office furniture sales in 2007 compared to 2006, as well as slight increases in
office products sales. During the period in which the Company owned The
Herald-Dispatch, approximately six weeks, the newspapers revenues were composed
of approximately $2.0 million in advertising revenue and $0.6 million in
circulation revenues.
 
 Cost of Sales
 
 Total
cost of sales for the year ended October 31, 2007 totaled $102.8 million
compared to $101.8 million in the previous year. This change represented an
increase of $1.0 million or 1.0% in cost of sales. Printing cost of sales
decreased $2.2 million, or 3.0% to $72.8 million in 2007 compared to $75.0
million in 2006. Printing cost of sales was higher due to an overall
decrease in printing sales. Printing cost of sales as a percentage of
printing sales increased to 71.6% as a percent of printing sales in 2007 from
70.5% in 2006. This increase was primarily  the result of higher payroll
costs as a percent of sales. Office products and office furniture cost of sales
increased $2.1 million to $28.8 million in 2007 from $26.8 million in 2006. The
increase in office products and office furniture cost of sales is attributable
to an increase in office products and office furniture sales. The increase in
office products and office furniture cost of sales as a percent of office
products and office furniture sales is primarily reflective of higher furniture
costs as a percent of furniture sales.
 
 Operating Expenses and
Income
 
 Selling,
general and administrative (S,G&A) expenses decreased $1.7 million to $32.3
million in 2007 from $34.0 million in 2006. S,G&A as a percentage of net
sales represented 22.2% of net sales in 2007 compared with 23.5% of net sales in
2006. This decrease in selling, general, and administrative costs is due to
reductions in payroll, lower selling related expense and a decrease in bad debt
expense, as well as reductions in several other S,G&A line items partially
offset by additional expenses from the acquisition of The
Herald-Dispatch.
 35
 Other Income
(Expense)
 
 Other
expense increased approximately $681,000 from $550,000 in 2006 to $1,231,000 in
2007. This was primarily due to an increase in interest expense of $846,000 from
$610,000 in 2006 to $1,455,000 in 2007 partially offset by higher other income.
The increase in interest expense was attributed to the acquisition of The
Herald-Dispatch which was completed on September 14, 2007.
  Income
Taxes
 
 Income
taxes as a percentage of income before taxes were 34.5% in 2007 compared with
40.5% in 2006. The decrease in income taxes as a percentage of income before
taxes is primarily related to lower state tax rates based on multi-state
apportionment factors, amended state returns, and amortization expense
deductions recorded as a permanent difference due to the acquisition of The
Herald-Dispatch.
 
 The
effective income tax rate in 2007 and 2006 approximates the combined federal and
state, net of federal benefit, statutory income tax rate.
 
 Net
Income
 
 For
reasons set forth above, net income for 2007 increased approximately $0.6
million to $6.1 million, or $0.61 per share on a basic and $0.60 per share on a
diluted basis, from net income of $5.5 million for 2006, or $0.56 per share on a
basic basis and $0.55 on a diluted basis.
 36
 LIQUIDITY AND CAPITAL
RESOURCES
 
 As of
October 31, 2008, the Company had $(1.0) million negative book cash balance, a
net decrease in cash and cash equivalents of $6.8 million from the prior year.
Working capital as of October 31, 2008 was $20.4 million, a 19.5% decrease from
$25.3 million at October 31, 2007.
  The
Company had historically used cash generated from operating activities and debt
to finance capital expenditures and the cash portion of the purchase price of
acquisitions. Management plans to continue making significant investments in
equipment and to seek appropriate acquisition candidates. However, to fund the
Company's continued expansion of operations, additional financing may be
necessary. The Company has two available lines of credit totaling up to $31.0
million, of which $30.0 million is subject to borrowing base
limitations (See Note 3 of the Consolidated Financial Statements). For
the foreseeable future including through Fiscal 2009, management believes it can
fund operations, meet debt service requirements and make the planned capital
expenditures based on the available cash and cash equivalents, cash flow from
operations and lines of credit.
 
 Additionally,
the Company has minimal amounts of future contracted obligations (See Note 3 and
Note 6 of the Consolidated Financial Statements). The Company is not a guarantor
of indebtedness of others. The Company’s off balance sheet arrangements at
October 31, 2008 relate to the Syscan acquisition and are associated with a put
option from Williams Land Corporation to sell a building to the Company for $1.5
million. This option may be exercised no later than 60 days prior to the end of
the lease and closing of said purchase cannot exceed 45 days from the end of the
lease.
  The Company had borrowed under its $30.0 million line of
credit approximately $9.1 million at October 31, 2008 which encompassed
refinancing of existing indebtedness prior to The Herald-Dispatch acquisition
and to partially fund the purchase of The Herald-Dispatch. Pursuant to the
borrowing base calculation the Company had $9.1 million in additional
availability under its $30.0 million revolving credit line. In January
2009, the Company renewed its $1.0 million unsecured line of credit with
a bank.
 
 As
of October 31, 2008, the Company had contractual obligations in the form of
leases and debt as follows:
 
 Payments Due by Fiscal
      YearContractual
      Obligations
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                Residual
                
                
                TotalNon-cancelable
      operating leases
                
                $
                1,319,849
                
                
                $
                1,095,075
                
                
                $
                940,785
                
                
                $
                782,343
                
                
                $
                695,884
                
                
                $
                121,640
                
                
                $
                4,955,576Revolving
      line of credit
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,125,496
                
                
                
                -
                
                
                
                -
                
                
                
                9,125,496Term
      debt
                
                
                7,118,543
                
                
                
                5,055,960
                
                
                
                5,062,313
                
                
                
                5,068,927
                
                
                
                42,019,107
                
                
                
                -
                
                
                
                64,324,850$
                8,438,392
                
                
                $
                6,151,035
                
                
                $
                6,003,098
                
                
                $
                14,976,766
                
                
                $
                42,714,991
                
                
                $
                121,640
                
                
                $
                78,405,922
  The Company is required to make certain mandatory
payments on its credit facilities related to (1) net proceeds received from a
loss subject to applicable thresholds, (2) equity proceeds and (3)
effective January 31, 2009, the Company is required to prepay its credit
facilities by 75% of excess cash flow for its most recently completed fiscal
year. The excess cash flow for purposes of this calculation is defined as
the difference (if any) between (a) EBITDA for such period and (b) federal,
state and local income taxes paid in cash during such period plus capital
expenditures during such period not financed with indebtedness plus interest
expense paid in cash during such period plus the aggregate amount of scheduled
payments made by the Borrower and its Subsidiaries during such period in respect
of all principal on all indebtedness (whether at maturity, as a result of
mandatory sinking fund redemption, or otherwise), plus restricted payments paid
in cash by the Borrower during such period in compliance with the credit
agreement. The Company's prepayment obligation due January 31, 2009 is
approximately $2.0 million.
   37
 
 Cash Flows from Operating
Activities
 
 Cash
flows from operating activities for the years ended October 31, 2008, 2007 and
2006 were $10.3 million, $8.7 million,
and $10.2 million. The increase in cash flows from operating activities for
fiscal 2008 compared to 2007 was primarily associated with higher depreciation
and amortization, deferred financing costs, deferred income taxes and bad debt
expense. The decrease in cash flows from operating activities for the fiscal
year 2007 compared to 2006 was primarily reflective of cash paid for taxes of
which a refund has been recorded in 2007 and a liability was recorded in 2006,
primarily due to the timing of tax payments and a cash payment under a deferred
compensation plan. These items were partially offset by additional cash
generated by changes in the remaining assets and liabilities and an increase in
net income.
  Cash Flows from Investing
Activities
 
 Cash used
in investing activities was ($3.8) million, ($4.1) million, and ($3.0)
million for the years ended October 31, 2008, 2007 and 2006. Cash flows used in
investing activities were down approximately $300,000 in 2008 from 2007. The
cash used in investing activities in 2008 was primarily related to capital
expenditures and a working capital adjustment payment associated with the
acquisition of The Herald-Dispatch. Cash flows used in investing activities
increased in 2007 compared to 2006 primarily due to the contingent earn-out
paid for the acquisition of Syscan, higher capital expenditures, partially
offset by cash net of certain acquisition related expenditures for The
Herald-Dispatch.
  Cash Flows from Financing
Activities
 
 Net cash
flows used in financing activities for the years ended October 31, 2008,
2007 and 2006 were ($12.3) million, ($4.2) million, and ($5.4) million. The
increase in cash used in financing activities was primarily associated with
payments made on the Company's outstanding indebtedness associated with its
revolving credit facility. The $4.2 million utilized for financing
activities in 2007 was primarily reflective of net payments on debt,
dividends and financing costs paid, partially offset by stock option
proceeds.  During 2006, the Company reduced net borrowings by approximately
$2.6 million and, after adjusting for non-cash investing and financing
activities, reduced net borrowings by $3.9 million. This, coupled with dividend
payments of $2.0 million, partially offset by stock option proceeds, was
reflective of net cash used in financing activities during 2006. Dividends
paid in 2008, 2007, and 2006 were $2.4 million, $2.4 million, and $2.0
million.
 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. In addition, the Company is not
particularly energy dependent; therefore, an increase in energy costs should not
have a significant impact on the Company.
 38
 SEASONALITY
 
 Historically, the Company has experienced a greater portion of its profitability
in the second and fourth quarters than in the first and third quarters. The
second quarter generally reflects increased orders for printing of corporate
annual reports and proxy statements. A post-Labor Day increase in demand for
printing services and office products coincides with the Company's fourth
quarter.
  Our business is subject to seasonal fluctuations that we expect to continue to
be reflected in our operating results in future periods. On a historical
basis The Herald-Dispatch's first and third calendar quarters of
the year tended to be the weakest because advertising volume is at its lowest
levels following the holiday season and a seasonal slowdown in the summer
months. Correspondingly, on a historical basis
the fourth calendar quarter followed by the second calendar quarter
tended to be the strongest quarters. The fourth calendar quarter includes
heavy holiday season advertising. Other factors that affect our quarterly
revenues and operating results may be beyond our control, including changes in
the pricing policies of our competitors, the hiring and retention of key
personnel, wage and cost pressures, distribution costs, changes in newsprint
prices and general economic factors.
   
 NEWLY ISSUED ACCOUNTING
STANDARDS
  SFAS
NO. 157
  In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value, establishes methods used to measure fair value and
expands disclosure requirements about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal periods, as it
relates to financial assets and liabilities that are carried at fair value. SFAS
No. 157 requires certain tabular disclosures related to results of applying SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and
SFAS No. 142, "Goodwill and Other Intangible Assets". On November 14, 2007, the
FASB provided a one year deferral for the implementation of SFAS No. 157 for
non-financial assets and liabilities. Based on the assets and liabilities on our
balance sheet as of October 31, 2008, we do not expect the adoption of SFAS No.
157 to have a material impact on our results of operations, financial
position or cash flows.
  SFAS
NO. 159
  In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115. SFAS No. 159 permits entities to choose to measure at fair
value many financial instruments and certain other items at fair value that are
not currently required to be measured. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings. SFAS No.
159 does not affect any existing accounting literature that requires certain
assets and liabilities to be carried at fair value. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. Based on the assets and
liabilities on our balance sheet as of October 31, 2008, we do not expect the
adoption of SFAS No. 159 to have any impact on our results of operations,
financial position or cash flows.
  SFAS
NO. 141 (R)
  During December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations".
SFAS No. 141 (R) is effective for fiscal years beginning December 15, 2008.
Earlier application is prohibited. Assets and liabilities that arose from
business combinations which occurred prior to the adoption of FASB No. 141 (R)
should not be adjusted upon the adoption of SFAS No. 141 (R). SFAS No. 141 (R)
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the business combination;
establishes the acquisition date as the measurement date to determine the fair
value of all assets acquired and liabilities assumed; and requires the acquirer
to disclose to investors and other users all of the information they need to
evaluate and understand the nature and financial effect of the business
combination.
  As
it relates to recognizing all (and only) the assets acquired and liabilities
assumed in a business combination, costs an acquirer expects but it not
obligated to incur in the future to exit an activity of an acquiree or to
terminate or relocate an acquiree's employees are not liabilities at the
acquisition date but must be expensed in accordance with other applicable
generally accepted accounting principles. Additionally, during the measurement
period, which should not exceed one year from the acquisition date, any
adjustments that are needed to assets acquired and liabilities assumed to
reflect new information obtained about facts and circumstances that existed as
of that date will be adjusted retrospectively.
 39
  The
acquirer will be required to expense all acquisition- related costs in the
periods such costs are incurred other than costs to issue debt or equity
securities. SFAS No. 141 (R) will have no impact on our results of operations,
financial position or cash flows at the date of adoption, but it could have
a material impact on our results of operations, financial position or cash
flows in the future when it is applied to acquisitions which occur in the fiscal
year beginning November 1, 2009.
  FSP FAS 142-3
  In April 2008, the FASB issued staff position FSP FAS 142-3 (FSP 142-3),
"Determination of the Useful Life of Intangible Assets". FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142. The intent of FSP 142-3 is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141 (R) and other U.S. generally accepted accounting
principles (GAAP). FSP 142-3 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years and should be
applied prospectively to intangible assets acquired after the effective date.
Early adoption is prohibited. Accordingly, we will adopt FSP 142-3 on November
1, 2009. We do not expect FSP 142-3 to have an impact on our results of
operations, financial position or cash flows at the date of adoption, but
it could have a material impact on our results of operations, financial
position or cash flows in future
periods.
  SFAS
NO. 161
  In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative instruments and Hedging Activities - an amendment
of FASB Statement No. 133” (SFAS 161). SFAS 161 changes the disclosure
requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and how derivative instruments
and related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008, with early application permitted. The
Company does not expect the implementation of SPAS 161 to have a material impact
on its consolidated financial statements.
  SFAS
NO. 162
  In
May 2008, the FASB issued Statement of Financial Accounting Standards No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162). This
Statement identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. SFAS 162 becomes effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411. The Company does not expect the
implementation of SFAS 162 to have a material
impact on its consolidated financial statements.
  FSP FAS
157-2
  In
February 2008, the FASB issued FASB Staff Position FSP FAS No. 157-2 (FSP
157-2), “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP FAS
157-2 delays the effective date of SFAS 157, “Fair Value Measurements,” for
nonfinancial assets and nonfinancial liabilities, except foritems
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The delay is intended to allow the FASB and
constituents additional time to consider the effect of various implementation
issues that have arisen, or that may arise, from the application of Statement
157. FSP 157-2 defers the effective date of Statement 157 to fiscal years
beginning after November 15,2008, and interim periods within those fiscal years, for items within the
scope of this FSP. Examples of items to which the deferral would and would not
apply are listed in the FSP. The Company does not expect the implementation of
FSP 157-2 to have a material
impact on its consolidated financial statements.
  FSP FAS
157-3
  In
October 2008, the FASB issued FSP FAS 157-3 (FSP 157-3), “Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active” (FSP
157-3).FSP
157-3 clarifies the application of SFAS 157, “Fair Value Measurements,” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP was effective upon
issuance, including prior periods for which financial statements have not been
issued.
 40
 ITEM 7A - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 The
Company does not have any significant exposure relating to market
risk.
 
 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 included in Item 15 and listed
in the index on page F-1 of this report.
 
 ITEM 9 - CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
 The Board
of Directors selects the independent accountants for the Company each year. On
April 16, 2007, the Company dismissed BKD, LLP and engaged the firm of Arnett
and Foster, PLLC as its independent accountants for the fiscal year ended
October 31, 2007. During the Company's two most recent fiscal years and through
the date of discharge of BKD, LLP, there were no disagreements with BKD, LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of BKD, LLP would have caused BKD, LLP to make reference to the
matter in its report. The reports of BKD, LLP on the Company's financial
statements for the fiscal year ended October 31, 2006, contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The Company requested BKD,
LLP to furnish to the Company a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the above statements.
Such letter, received by the Company on April 18, 2007, was filed as an exhibit
to Form 8-K by the Company with the Securities and Exchange Commission on April
20, 2007. The decision to change accountants was approved by the Audit Committee
of the Board of Directors of the Company and ratified by the Board of
Directors.
  ITEM 9A(T) - CONTROLS AND
PROCEDURES
  a) Evaluation of Disclosure
Controls and Procedures
  Company
management, including the Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15c as of
the end of the period covered by this annual report. Based on that evaluation,
the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this annual report has
been made known to them in a timely fashion.
 41
  b) Management's Report on Internal
Control over Financial Reporting
              
  
 
   /s/
                  Marshall
      T. ReynoldsMarshall T.
      ReynoldsChairman and Chief
      Executive Officer/s/
                  Toney
      K. AdkinsToney K.
      AdkinsPresident and Chief
      Operating Executive/s/
                  Todd R.
  FryTodd R.
      FrySenior Vice
      President and Chief Financial Officer
    42
 PART III
 
 ITEM 10 - DIRECTORS,  EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
 
 Information
relating to the directors and corporate governance of the Company is contained
under the captions “Elections of Directors”, “Meetings, Committees and
Attendance”, “Section 16a Beneficial Ownership Reporting Compliance” and “Code
of Ethics” in the Company’s definitive Proxy Statement, expected to be dated
February 13, 2009, with respect to the Annual Meeting of Shareholders to be held
on March 16, 2009, which will be filed pursuant to regulation 14(a) of the
Securities Exchange Act of 1934 and which is incorporated herein by reference.
Certain information concerning executive officers of the Company appear in
“EXECUTIVE OFFICERS OF CHAMPION” at Part I of this report.
 
 ITEM 11 - EXECUTIVE
COMPENSATION
 
 The
information called for by this Item is contained under the captions
" Executive
Compensation" including "Compensation Discussion and Analysis", "Compensation
Committee Report", "Summary Compensation Table", "Outstanding Equity Awards at
Fiscal Year-End" and "Director Compensation" in the
Company’s definitive Proxy Statement, expected to be dated February 13, 2009,
with respect to the Annual Meeting of Shareholders to be held on March 16, 2009,
which will be filed pursuant to regulation 14(a) of the Securities Exchange Act
of 1934 and which is incorporated herein by reference.
 
 ITEM 12 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 The
information called for by this Item is contained under the captions “Equity
Compensation Plan Information” and “Ownership of Shares” in the Company’s
definitive Proxy Statement, expected
to be dated
February 13, 2009, with respect to the Annual Meeting of Shareholders to be held
on March 16, 2009, which will be filed pursuant to regulation 14(a) of the
Securities Exchange Act of 1934 and which is incorporated herein by
reference.
   43
  ITEM 13 - CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
   
 ITEM 14 - PRINCIPAL ACCOUNTANT FEES
AND SERVICES
 
 The information called for by this Item is contained under the caption
“Independent Auditors” in the Company’s definitive Proxy Statement, expected to
be dated February 13, 2009, with respect to the Annual Meeting of Shareholders
to be held on March 16, 2009, which will be filed pursuant to regulation 14(a)
of the Securities Exchange Act of 1934 and which is incorporated herein by
reference.
  PART IV
 
 ITEM 15 - EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
 (a) (1)
and (2)
 
 The
Consolidated Financial Statements and Schedule, required by Item 8, are listed
on the index on page F-1 and included as part of Item 15.
 
 All other
Schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
  3.        
EXHIBITS
  (2)
                    
                    Plan
      of Acquisition
                    Stock
      Purchase Agreement between Company and William G. Williams, Jr., sole
      shareholder of Syscan Corporation, dated September 7, 2004 filed as
      Exhibit 2.1 to Form 8-K dated September 7, 2004, filed September 10, 2004,
      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 Form 10-K dated January 21, 2008, filed on January 25,
      2008, incorporated herein by reference.(4)
                    
                    Instruments
      defining the rights of security holders, including
    debentures.
                    See
      Exhibit 3.1 above.(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.
 44
 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, filed as Exhibit 10.6 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.
 45
 Executive
      Compensation Plans and Arrangements
                          Company's
      1993 Stock Option Plan, 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.
                            
                            Company’s
      2003 Stock Option Plan, filed as Exhibit A to proxy statement dated
      February 12, 2004, filed February 13, 2004, is incorporated herein by
      reference.
                            
                            Form
      of Stock Option Agreement pursuant to Company’s 2003 Stock Option Plan
      filed as Exhibit 10.2 to form 10-Q dated September 10, 2004 filed
      September 13, 2004, is incorporated herein by reference.
                            
                            Employment
      Agreement dated September 7, 2004 among William G. Williams, Jr., Syscan
      Corporation and the Company, filed as Exhibit 10.1 to Form 8-K dated
      September 7, 2004, filed September 10, 2004, is incorporated herein by
      reference.
                            
                            Confidentiality
      and Non-Competition Agreement dated September 7, 2004 among William G.
      Williams, Jr., Syscan Corporation and the Company, filed as Exhibit 10.2
      to Form 8-K dated September 7, 2004, filed September 10, 2004, is
      incorporated herein by reference.
                            
                            $10,000,000
      revolving credit agreement by and among the Company and its subsidiaries
      and National City Bank dated as of April 1, 1999, filed as Exhibit 10.2 to
      Form 10-K dated January 25, 2000, filed January 28, 2000, is incorporated
      herein by reference.
                            
                            Lease
      Agreement dated November 1, 1999 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
      10.3 to Form10-K
      dated January 25, 2000, filed January 28, 2000, is incorporated herein by
      reference.
 46
 Agreement
      of Lease dated September 25, 1998 between Ronald H. Scott and Frank J.
      Scott dba St. Clair Leasing Co. and Interform Corporation, regarding 1901
      Mayview Road, Bridgeville, Pennsylvania, filed as Exhibit 10.4 to Form
      10-K dated January 25, 2000, filed January 28, 2000, is incorporated
      herein by reference.
                              
                              First
      Amendment of Real Estate Lease Agreement dated May 6, 2003 by and between
      Ronald H. Scott and Frank J. Scott dba St. Clair Leasing Company and
      Interform Corporation, filed as Exhibit 10.1 to Form 8-K filed October 4,
      2004, is incorporated herein by reference.
                                
                                $2,690,938
      Business Loan agreement by and among the Company and One Valley Bank
      National Association (BB&T), dated as of May 6, 1999, together with
      Promissory Note and Commercial Security Agreement, filed as Exhibit 10.4
      to form 10-K dated January 22, 2001, filed January 26, 2001 is
      incorporated herein by reference.
                                
                                $618,720
      Promissory Note by and among the Company and Bank One, West Virginia, N.A.
      dated as of June 6, 2000 together with commercial security agreement,
      filed as Exhibit 10.5 to form 10-K dated January 22, 2001, filed January
      26, 2001, is incorporated herein by reference.
                                  
                                  $550,000
      Promissory Note by and among the Company and Bank One, West Virginia, N.A.
      dated as of August 4, 2000 together with Commercial Security Agreement and
      Letter of Understanding, filed as Exhibit 10.6 to form 10-K dated January
      22, 2001, filed January 26, 2001, is incorporated herein by
      reference.
                                    
                                    Agreement
      of Lease dated September 1, 2002 between Marion B. and Harold A. Merten,
      Jr. and The Merten Company regarding 1515 Central Parkway, Cincinnati,
      Ohio, filed as Exhibit (10.1) to form 10-K dated January 21, 2002, Filed
      January 25, 2002 is incorporated herein by reference.
 47
 $415,000
      Commercial Lease Agreementby
      and among the company and Firstar Equipment Finance dated as of January
      12, 2001, Filed as Exhibit (10.2) to form 10-K dated January 21, 2002,
      filed January 25, 2002 is incorporated herein by reference.
                                $450,000
      Commercial Lease Agreement by and among the Company and Leasing One
      Corporation dated as of April 19, 2001, Filed as Exhibit (10.3) to form
      10-K dated January 21, 2002, filed January 25, 2002 is incorporated herein
      by reference.
                                $315,665
      Promissory Note by and among the Company and Community Trust Bank, N.A. as
      of April 27, 2001, Filed as Exhibit (10.4) to form 10-K dated January 21,
      2002, filed January 25, 2002 is incorporated herein by
      reference.
                                
                                Lease
      Agreement dated February 27, 1991 between the Alfred J. Moran Trust and
      Docutec of Louisiana, Inc. regarding 7868 Anselmo Lane, Baton Rouge,
      Louisiana, filed as Exhibit (10.6) to form 10-K dated January 21, 2002,
      Filed January 25, 2002 is incorporated herein by reference.
                                
                                Amendment
      No. 2 to Credit Agreement by and among the Company and its subsidiaries
      and National City Bank dated as of April 1, 2002 along with Amended and
      Restated Subsidiaries Guaranty. Filed as Exhibit (10.1) to form 10-K dated
      January 20, 2003, filed January 24, 2003 is incorporated herein by
      reference.
                                
                                Agreement
      Amending and Extending term of lease dated May 24, 2002 between Earl H.
      and Elaine D. Seibert and Smith and Butterfield Co., Inc. Filed as Exhibit
      (10.2) to form 10-K dated January 20, 2003, Filed January 24, 2003 is
      incorporated herein by reference.
                                
                                Business
      Loan Agreement, $1,440,000 commercial loan between Bourque Printing
      Company and Hibernia National Bank together with promissory note dated as
      of March 19, 2003,filed as Exhibit 10.1 to form 10-K dated January 19,
      2004 filed January 26, 2004,is
      incorporated herein by reference.
 48
 Commercial
      Security Agreement, $450,050 commercial loan between Champion Industries,
      Inc. and First Century Bank dated as of March 2, 2003, filed as Exhibit
      10.2 to form 10-K dated January 19, 2004 filed January 26, 2004,is
      incorporated herein by reference.
                                  
                                  Business
      Loan Agreement, $351,000 commercial loan between Champion Industries, Inc.
      and City National Bank together with promissory note dated as of August
      14, 2003, filed as Exhibit 10.3 to form 10-K dated January 19, 2004 filed
      January 26, 2004,is
      incorporated herein by reference.
                                  
                                  Revolving
      Credit Agreement, $10,000,000 revolving line of credit between Champion
      Industries, Inc. and United Bank, Inc. dated as of August 1, 2003, filed
      as Exhibit 10.4 to form 10-K dated January 19, 2004 filed January 26,
      2004,is
      incorporated herein by reference.
                                  
                                  Agreement
      Amending and Extending term of lease dated May 9, 2003 between Champion
      Industries, Inc. dba, Upton Printing and AMB Property, L.P, filed as
      Exhibit 10.5 to form 10-K dated January 19, 2004 filed January 26, 2004,is
      incorporated herein by reference.
                                  
                                  Agreement
      Amending and Extending term of lease dated October 1, 2003 between Bourque
      Printing dba, Upton Printing and M. Field Gomila Et. Al. , filed as
      Exhibit 10.6 to form 10-K dated January 19, 2004 filed January 26, 2004,is
      incorporated herein by reference.
                                  
                                  Promissory
      Note, $122,500 between Champion Industries, Inc. and Community Trust Bank
      dated as of January 9, 2003, filed as Exhibit 10.7 to form 10-K dated
      January 19, 2004 filed January 26, 2004,is
      incorporated herein by reference.
 49
 Agreement
      of Lease dated as of September 1, 2004, between Williams Land Corporation
      and Syscan Corporation regarding North Hills Drive and Washington Street,
      Charleston, West Virginia, filed as Exhibit 10.3 to Form 8-K dated
      September 7, 2004, filed September 10, 2004, is incorporated herein by
      reference.
                                    
                                    Agreement
      of Lease dated as of September 1, 2004, between Williams Land Corporation
      and Syscan Corporation regarding 2800 Seventh Avenue, Charleston, West
      Virginia, filed as Exhibit 10.4 to Form 8-K dated September 7, 2004, filed
      September 10, 2004, is incorporated herein by reference.
                                    
                                    Agreement
      of Purchase and Sale dated September 7, 2004, between Syscan Corporation
      and Williams Properties, LLC regarding 811 Virginia Street, East,
      Charleston, West Virginia, filedas
      Exhibit 10.5 to Form 8-K dated September 7, 2004, filed September 10,
      2004, is incorporated herein by reference.
                                    
                                    Exercise
      of Lease renewal option for 2800 Lynch Road Evansville, Indiana dated as
      of September 22, 2003, filed as Exhibit 10.1 to form 10-K dated January
      17, 2005 filed January 31, 2005, is incorporated herein by
      reference.
                                    
                                    $1,000,000
      Business Loan Agreement and promissory note by and between the Company and
      Community Trust Bank, N.A. as of March 19, 2004, filed as Exhibit 10.2 to
      form 10-K dated January 17, 2005 filed January 31, 2005, is incorporated
      herein by reference.
                                    
                                    $1,000,000
      revolving line of credit between Stationers, Inc. and First Sentry Bank
      dated as of April 7, 2004, filed as Exhibit 10.3 to form 10-K dated
      January 17, 2005 filed January 31, 2005, is incorporated herein by
      reference.
                                    
                                    $600,075
      term note between Bourque Printing, Inc. and First Century Bank dated as
      of September 9, 2004, filed as Exhibit 10.4 to form 10-K dated January 17,
      2005 filed January 31, 2005, is incorporated herein by
      reference.
                                    
                                    $3,920,000 promissory note and security agreement
      between Champion Industries, Inc. and United Bank, Inc. dated as of
      October 26, 2004, filed as Exhibit 10.5 to Form 10-K dated January 17,
      2005 filed January 31, 2005, is incorporated herein by
      reference.
 50
 Modification
      letter to promissory note between Bourque Printing and Hibernia National
      Bank, Inc. dated December 28, 2004, filed as Exhibit 10.6 to Form 10-K
      dated January 17, 2005 filed January 31, 2005, is incorporated herein by
      reference.
                                    
                                    First
      Amendment to Revolving Credit Agreement between Champion Industries, Inc.
      and United Bank, Inc. Filed as Exhibit 10.1 to Form 8-K dated February 15,
      2005, filed February 16, 2005, is incorporated herein by
      reference.
                                    
                                    Release
      of Claims and Settlement Agreement between Defendants Champion Industries,
      Inc., Timothy V. Ross and Todd Ross and Plaintiff National Forms and
      Systems Group, Inc. dated May 6, 2005 filed as Exhibit 10.1 to Form 8-K
      dated May 11, 2005, filed May 11, 2005, is incorporated herein by
      reference.
                                    
                                    Second
      Amendment to Revolving Credit Agreement between Champion Industries, Inc.
      and United Bank, Inc. Filed as Exhibit 10.1 to form 8-K dated July 11,
      2005, filed July 11, 2005, is incorporated herein by
      reference.
                                    
                                    $605,095
      term note between Champion Industries, Inc. and First Century Bank dated
      as of July 27, 2005.  Filed as Exhibit 10.1 to Form 10-Q dated
      September 9, 2005, filed September 9, 2005, is incorporated herein by
      reference.
                                      
                                      $1,000,000
      revolving line of credit between Stationers, Inc. and First Sentry Bank
      dated as of October 7, 2005, filed as exhibit 10.1 to Form 10-K dated
      January 16, 2006 filed January 27, 2006, is incorporated herein by
      reference.
                                        
                                        Lease
      Agreement dated October 31, 2005, between SANS LLC and Champion
      Industries, Inc. dba Chapman Printing Company regarding 951 Point
      Marion Road Morgantown, West Virginia, filed as Exhibit 10.2 to Form 10-K
      dated January 16, 2006, filed January 27, 2006, is incorporated herein by
      reference.
                                        
                                        Lease
      Agreement dated June 28, 2006, between White Properties No. II, LLC and
      Champion Industries, Inc. regarding 120 Hills Plaza Charleston, West
      Virginia, filed as Exhibit 10.1 to Form 8-K dated July 3, 2006, filed July
      3, 2006 is incorporated herein by reference.
                                        
                                        $1,200,000 term note between Champion Industries,
      Inc. and Community Trust Bank, Inc. dated as of July 28, 2006, filed as
      Exhibit 10.1 to Form 10-K dated January 15, 2007 filed January 28, 2007,
      is incorporated herein by reference.
 51
 $642,831.68
      term note between Champion Industries, Inc. and First Bank of Charleston,
      Inc. dated as of August 30, 2006, filed as Exhibit 10.1 to Form 10-K dated
      January 15, 2007 filed January 28, 2007, is incorporated herein by
      reference.
                    
                    $10,000,000 promissory note between Champion
      Industries, Inc. and United Bank, Inc., filed as Exhibit 10.2 to form 8-K
      dated March 20, 2007 filed March 22, 2007, is
      incorporated herein by reference.
                    $324,408.00
      promissory note between Champion Industries, Inc. and First Bank of
      Charleston, Inc. dated as of March 23, 2007, filed as Exhibit 10.1 to Form
      10-Q dated June 8, 2007 filed June 8, 2007, is incorporated herein by
      reference.
                        
                        $1,000,000
      revolving line of credit between Stationers, Inc. and First Sentry Bank
      dated as of April 7, 2007, filed as exhibit 10.2 to Form 10-Q dated June
      8, 2007 filed June 8, 2007, is incorporated herein by
      reference.
                          
                          $267,013
      master loan agreement between Champion Industries, Inc. and US Bancorp
      Equipment Finance dated as of May 30, 2007, filed as Exhibit 10.1 to Form
      10-Q dated September 10, 2007 filed September 11, 2007, is
      incorporated herein by reference.
                            
                            $1,750,000
      promissory note between Champion Industries, Inc. and Community Trust
      Bank, Inc. dated as of June 12, 2007, filed as Exhibit 10.2 to Form
      10-Q dated September 10, 2007 filed September 11, 2007, is
      incorporated herein by reference.
                              
                              Credit agreement between Champion Industries, Inc.
      and Fifth Third Bank, filed as Exhibit 10.1 to Form 8-K dated September
      14, 2007 filed September 19, 2007, is incorporated herein by
      reference.
                              
                              $767,852 term loan between Champion Industries,
      Inc. and First Bank of Charleston, Inc. dated April 22, 2008, filed
      as Exhibit 10.1 to Form 8-K dated April 25, 2008 filed April 25,
      2008, is incorporated herein by reference.
 52
 (10.1)
                            
                            
                            Agreement
      of lease dated November 1, 2008 between ADJ Corporation and Champion
      Publishing, Inc. regarding 100 Industrial Lane Property, Huntington, West
      Virginia.
                              Page Exhibit (10.1) - p1(10.2)
                            
                            
                            $1,000,000
      revolving line of credit between Stationers, Inc. and First Sentry Bank
      dated as of January 13, 2009.
                              Page Exhibit (10.2) - p1(14)
                            
                            Code
      of Ethics
                            Code
      of Ethics for the Chief Executive Officer, Chief Operating Officer and
      Chief Accounting Officer, filed as Exhibit 14 to form 10-K dated January
      19, 2004 filed January 26, 2004, is incorporated herein by
      reference.
                              
                              Code
      of Business Conduct and Ethics, filed as Exhibit 14.2 to Form 10-K dated
      January 19, 2004 filed January 26, 2004, is incorporated herein by
      reference.(16)
                            
                            
                            Letter
      of BKD, LLP dated April 20, 2007, filed as Exhibit 16 to Form 8-K dated
      April 20, 2007, filed April 20, 2007, is incorporated herein by
      reference.(21)
                            
                            Subsidiaries
      of the Registrant
                            
                            Exhibit
      21
                            
                            Page
      Exhibit 21-p1(23.1)
                            
                            Consent
      of Arnett and Foster, PLLC
                            
                            Exhibit
      23.1
                            
                            Page
      Exhibit 23.1-p1(23.2)
                            
                            Consent
      of BKD, LLP
                            
                            Exhibit
      23.2
                            
                            Page
      Exhibit 23.2-p1(31.1)
                            
                            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Marshall T. Reynolds
                            
                            Exhibit
      31.1
                            
                            Page
      Exhibit 31.1-p1(31.2)
                            
                            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Todd R. Fry
                            
                            Exhibit
      31.2
                            
                            Page
      Exhibit 31.2-p1
 (31.3)
                          
                          Principal
      Operating Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Toney K. Adkins
                          
                          Exhibit
      31.3
                          
                          Page
      Exhibit 31.3-p1(32)
                          
                          Marshall
      T. Reynolds, Todd R. Fry and Toney K. Adkins Certification Pursuant to 18
      U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley act of 2002
                          
                          Exhibit
      32
                          
                          Page
      Exhibit 32-p1
 
 53
 (b)  Exhibits
- Exhibits are filed as a separate section of this report.
 
 (c) 
Financial Statement Schedules - Filed as separate section on page
F-42.
 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.
      ReynoldsMarshall
      T. ReynoldsChief
      Executive OfficerBy/s/ Toney K. AdkinsToney
      K. AdkinsPresident
      and Chief Operating OfficerBy/s/ Todd R. FryTodd
      R. FrySenior
      Vice President and Chief Financial OfficerDate: 
      January 19, 2009
 
 
 54
 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/ Louis J. Akers
                  
                  January
      19, 2009Louis
      J. Akers, Director/s/
      Philip E.
      Cline
                  
                  January
      19, 2009Philip
      E. Cline, Director/s/
      Harley F. Mooney,
      Jr.
                  
                  January
      19, 2009Harley
      F. Mooney, Jr., Director/s/
      A. Michael
      Perry
                  
                  January
      19, 2009A.
      Michael Perry, Director/s/
      Marshall T.
      Reynolds
                  
                  January
      19, 2009Marshall
      T. Reynolds, Director/s/
      Neal W.
      Scaggs
                  
                  January
      19, 2009Neal
      W. Scaggs, Director/s/
      Glenn W. Wilcox,
      Sr.
                  
                  January
      19, 2009Glenn
      W. Wilcox, Sr., Director
 
 
 55
 Champion Industries,
Inc.
 
 Audited
Consolidated Financial Statements and Schedule
 
 October
31, 2008
 
 
 Contents
 Report
      of Independent Registered Public Accounting Firm
                  F-2Report
      of Independent Registered Public Accounting Firm
                  F-3Audited
      Consolidated Financial Statements:Consolidated
      Balance Sheets as of October 31, 2008 and 2007
                  F-4Consolidated
      Statements of Operations for the years ended October 31, 2008, 2007 and
      2006
                  F-6Consolidated
      Statements of Shareholders’ Equity for the years ended October 31, 2008,
      2007 and 2006
                  F-7Consolidated
      Statements of Cash Flows for the years ended October 31, 2008, 2007 and
      2006
                  F-8Notes
      to Consolidated Financial Statements
                  F-9Schedule
      II - Valuation and Qualifying Accounts
                  F-42
 F-1
 Report of Independent Registered
Public Accounting Firm
 
 
 Audit
Committee, Board of Directors and Shareholders
 Champion
Industries, Inc.
 Huntington,
West Virginia
 
 We have
audited the accompanying consolidated balance sheets of Champion Industries,
Inc. and Subsidiaries (the “Company”) as of October 31, 2008 and 2007, and the
related consolidated statements of operations, shareholders’ equity and cash
flows for each of the two years in the period ended October 31, 2008.
Our audits also included the financial statement schedule listed in the index at
Item 15(a). These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based upon our
audits.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 financial position of the Company at October 31,
2008 and 2007, and the results of its operations and its cash flows
for each of the two years in the period ended October 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
   
 /s/
Arnett & Foster, PLLC
 
 Charleston,
West Virginia
 January
19, 2009
 F-2
 
 Report of Independent Registered
Public Accounting Firm
 
 
 Audit
Committee, Board of Directors and Shareholders
 Champion
Industries, Inc.
 Huntington,
West Virginia
 
 We have
audited the accompanying consolidated balance sheet of Champion Industries, Inc.
and Subsidiaries (the “Company”) as of October 31, 2006 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year ended October 31, 2006. Our audit also included the financial statement
schedule listed in the index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit  provides a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company at October 31,
2006, and the results of its operations and its cash flows for the year ended
October 31, 2006, in conformity with accounting principles generally accepted in
the United States of America. 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/ BKD,
LLP
 
 Evansville,
Indiana
 December
15, 2006
 F-3
 Champion Industries, Inc. and
Subsidiaries
 
 Consolidated
Balance Sheets
  October
    31,2008
                  
                  
                  2007AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  -
                  
                  
                  $
                  5,793,120Accounts
      receivable, net of allowance of $1,851,000 and $1,511,000
                  
                  
                  23,888,688
                  
                  
                  
                  23,239,103Inventories
                  
                  
                  12,014,118
                  
                  
                  
                  11,504,847Income tax refund
                  
                  
                  711,096
                  
                  
                  
                  632,439Other
      current assets
                  
                  
                  833,066
                  
                  
                  
                  882,535Deferred
      income tax assets
                  
                  
                  1,130,742
                  
                  
                  
                  969,664Total
      current assets
                  
                  
                  38,577,710
                  
                  
                  
                  43,021,708Property
      and equipment, at cost:Land
                  
                  
                  2,120,689
                  
                  
                  
                  2,120,689Buildings
      and improvements
                  
                  
                  12,110,480
                  
                  
                  
                  12,262,229Machinery
      and equipment
                  
                  
                  55,407,620
                  
                  
                  
                  55,763,920Furniture
      and fixtures
                  
                  
                  4,089,466
                  
                  
                  
                  4,088,761Vehicles
                  
                  
                  3,144,682
                  
                  
                  
                  3,185,55576,872,937
                  
                  
                  
                  77,421,154Less
      accumulated depreciation
                  
                  
                  (49,764,709
                  )
                  
                  
                  (48,164,640
                  )27,108,228
                  
                  
                  
                  29,256,514Cash
      surrender value of officers’ life insurance
                  
                  
                  874,397
                  
                  
                  
                  834,106Goodwill
                  
                  
                  38,894,778
                  
                  
                  
                  38,853,657Deferred financing costs
                  
                  
                  1,508,669
                  
                  
                  
                  1,818,140Other
      intangibles, net of accumulated amortization
                  
                  
                  15,730,841
                  
                  
                  
                  16,779,241Trademark and masthead
                  
                  
                  18,515,316
                  
                  
                  
                  18,515,316Other
      assets
                  
                  
                  68,906
                  
                  
                  
                  132,90975,592,907
                  
                  
                  
                  76,933,369Total
      assets
                  
                  $
                  141,278,845
                  
                  
                  $
                  149,211,591
 
 
 
 
 
 
 See notes to consolidated financial
statements.
 F-4
 
 Champion Industries, Inc. and
Subsidiaries
 
 Consolidated
Balance Sheets (continued)
  October
    31,2008
                  
                  
                  2007Liabilities and shareholders’
      equityCurrent
      liabilities:Negative
      book cash balances
                  
                  $
                  986,704
                  
                  
                  $
                  -Accounts
      payable
                  
                  
                  4,844,725
                  
                  
                  
                  5,491,189Accrued
      payroll and commissions
                  
                  
                  2,726,911
                  
                  
                  
                  2,460,287Taxes
      accrued and withheld
                  
                  
                  987,385
                  
                  
                  
                  1,294,125Accrued
      expenses
                  
                  
                  1,546,055
                  
                  
                  
                  3,433,971Current
      portion of long-term debt:Notes
      payable
                  
                  
                  7,118,543
                  
                  
                  
                  5,033,637Total
      current liabilities
                  
                  
                  18,210,323
                  
                  
                  
                  17,713,209Long-term
      debt, net of current portion:Line
      of credit
                  
                  
                  9,125,496
                  
                  
                  
                  15,540,496Notes
      payable
                  
                  
                  57,206,307
                  
                  
                  
                  63,837,402Deferred
      income tax liabilities
                  
                  
                  3,937,658
                  
                  
                  
                  3,382,447Other
      liabilities
                  
                  
                  939,006
                  
                  
                  
                  10,950Total
      liabilities
                  
                  
                  89,418,790
                  
                  
                  
                  100,484,504Commitments
      and contingencies-See NoteShareholders’
      equity:Common
      stock, $1 par value, 20,000,000 shares authorized;9,987,913
      and 9,968,913 shares issuedand
      outstanding
                  
                  
                  9,987,913
                  
                  
                  
                  9,968,913Additional
      paid-in capital
                  
                  
                  22,768,610
                  
                  
                  
                  22,733,300Retained
      earnings
                  
                  
                  19,661,445
                  
                  
                  
                  16,036,224Other comprehensive loss
                  
                  
                  (557,913
                  )
                  
                  
                  (11,350
                  )Total
      shareholders’ equity
                  
                  
                  51,860,055
                  
                  
                  
                  48,727,087Total
      liabilities and shareholders’ equity
                  
                  $
                  141,278,845
                  
                  
                  $
                  149,211,591
 
 
 
 
 See notes to consolidated financial
statements.
 
 F-5
 Champion Industries, Inc. and
Subsidiaries
 
 Consolidated
Statements of Operations
  Year Ended October
      31,2008
                  
                  2007
                  
                  2006Revenues:Printing
                  
                  $
                  102,206,098
                  
                  $
                  101,652,835
                  
                  $
                  106,413,663Office
      products and office furniture
                  
                  
                  41,540,114
                  
                  
                  41,448,642
                  
                  
                  38,774,213Newspaper
                  
                  
                  18,939,250
                  
                  
                  2,540,377
                  
                  
                  -Total
      revenues
                  
                  
                  162,685,462
                  
                  
                  145,641,854
                  
                  
                  145,187,876Cost
      of sales & newspaper operating costs:Printing
                  
                  
                  72,521,154
                  
                  
                  72,769,486
                  
                  
                  75,015,978Office
      products and office furniture
                  
                  
                  28,457,142
                  
                  
                  28,834,642
                  
                  
                  26,777,539Newspaper
      cost of sales & operating costs
                  
                  
                  9,492,591
                  
                  
                  1,187,444
                  
                  
                  -Total
      cost of sales & newspaper operating costs
                  
                  
                  110,470,887
                  
                  
                  102,791,572
                  
                  
                  101,793,517Gross
      profit
                  
                  
                  52,214,575
                  
                  
                  42,850,282
                  
                  
                  43,394,359Selling,
      general and administrative expenses
                  
                  
                  39,528,551
                  
                  
                  32,335,593
                  
                  
                  34,018,288Hurricane
      and relocation costs, net of recoveries
                  
                  
                  (33,411
                  )
                  
                  -
                  
                  
                  (377,276
                  )Income
      from operations
                  
                  
                  12,719,435
                  
                  
                  10,514,689
                  
                  
                  9,753,347Other
      income (expense):Interest
      income
                  
                  
                  65,657
                  
                  
                  45,021
                  
                  
                  28,251Interest
      expense
                  
                  
                  (5,733,677
                  )
                  
                  (1,455,470
                  )
                  
                  (609,881
                  )Other
                  
                  
                  69,602
                  
                  
                  179,126
                  
                  
                  31,694(5,598,418
                  )
                  
                  (1,231,323
                  )
                  
                  (549,936
                  )Income
      before income taxes
                  
                  
                  7,121,017
                  
                  
                  9,283,366
                  
                  
                  9,203,411Income
      tax expense
                  
                  
                  (1,098,933
                  )
                  
                  (3,203,226
                  )
                  
                  (3,729,563
                  )Net
      income
                  
                  $
                  6,022,084
                  
                  $
                  6,080,140
                  
                  $
                  5,473,848Earnings
      per share:Basic
                  
                  $
                  0.60
                  
                  $
                  0.61
                  
                  $
                  0.56Diluted
                  
                  
                  0.60
                  
                  
                  0.60
                  
                  
                  0.55Dividends
      paid per share
                  
                  
                  0.24
                  
                  
                  0.24
                  
                  
                  0.20Weighted
      average shares outstanding:Basic
                  
                  
                  9,986,000
                  
                  
                  9,957,000
                  
                  
                  9,818,000Diluted
                  
                  
                  10,024,000
                  
                  
                  10,103,000
                  
                  
                  9,972,000
  
 See notes to consolidated financial
statements.
 F-6
 
 
 
 Champion Industries, Inc. and
Subsidiaries
 
 Consolidated
Statements of Shareholders’ Equity
 
 Additional
                  
                  
                  
                  OtherCommon
    Stock
                  
                  Paid-In
                  
                  Retained
                  
                  ComprehensiveShares
                  
                  Amount
                  
                  Capital
                  
                  Earnings
                  
                  Loss
                  
                  TotalBalance,
      October 31,
      2005
                  
                  
                  9,745,913
                  
                  $
                  9,745,913
                  
                  $
                  22,297,670
                  
                  $
                  8,708,638
                  
                  $
                  -
                  
                  $
                  40,752,221Net
      income for 2006
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,473,848
                  
                  
                  -
                  
                  
                  5,473,848Dividends
      ($0.20 per share)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,965,334
                  )
                  
                  -
                  
                  
                  (1,965,334
                  )Stock
      options exercised
                  
                  
                  177,000
                  
                  
                  177,000
                  
                  
                  338,950
                  
                  
                  -
                  
                  
                  -
                  
                  
                  515,950Balance,
      October 31, 2006
                  
                  
                  9,922,913
                  
                  
                  9,922,913
                  
                  
                  22,636,620
                  
                  
                  12,217,152
                  
                  
                  -
                  
                  
                  44,776,685Net
      income for 2007
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,080,140
                  
                  
                  -
                  
                  
                  6,080,140Other comprehensive loss(net
      of tax)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (11,350
                  )
                  
                  (11,350
                  )Total comprehensive
      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,080,140
                  
                  
                  (11,350
                  )
                  
                  6,068,790Dividends ($0.24 per share)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,389,417
                  )
                  
                  -
                  
                  
                  (2,389,417
                  )Stock options exercised
                  
                  
                  46,000
                  
                  
                  46,000
                  
                  
                  96,680
                  
                  
                  -
                  
                  
                  -
                  
                  
                  142,680Cumulative effect of adjustment resulting from adoption of SAB 108,
      net of tax
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  128,349
                  
                  
                  -
                  
                  
                  128,349Balance,
      October 31, 2007
                  
                  
                  9,968,913
                  
                  
                  9,968,913
                  
                  
                  22,733,300
                  
                  
                  16,036,224
                  
                  
                  (11,350
                  )
                  
                  48,727,087Net income
      for 2008
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,022,084
                  
                  
                  -
                  
                  
                  6,022,084Other comprehensive
      loss(net of tax)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (546,563
                  )
                  
                  (546,563
                  )Total comprehensive income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,022,084
                  
                  
                  (546,563
                  )
                  
                  5,475,521Dividends
      ($0.24 per share)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,396,863
                  )
                  
                  -
                  
                  
                  (2,396,863
                  )Stock
      options exercised
                  
                  
                  19,000
                  
                  
                  19,000
                  
                  
                  35,310
                  
                  
                  -
                  
                  
                  -
                  
                  
                  54,310Balance, October 31,
      2008
                  
                  
                  9,987,913
                  
                  $
                  9,987,913
                  
                  $
                  22,768,610
                  
                  $
                  19,661,445
                  
                  $
                  (557,913
                  )
                  $
                  51,860,055
  See notes to consolidated financial
statements.
 F-7
 
 
 Champion Industries, Inc. and
Subsidiaries
 Consolidated
Statements of Cash Flows
 Year Ended
      October 31,2008
                  
                  2007
                  
                  2006Cash flows from
      operating activities:Net
      income
                  
                  $
                  6,022,084
                  
                  $
                  6,080,140
                  
                  $
                  5,473,848Adjustments
      to reconcile net income to cash
                    provided
      by operating activities:Depreciation
      and amortization
                  
                  
                  5,384,509
                  
                  
                  3,992,640
                  
                  
                  4,158,748Loss on
      sale of assets
                  
                  
                  4,552
                  
                  
                  49,758
                  
                  
                  4,409Deferred
      income taxes
                  
                  
                  766,076
                  
                  
                  (15,194
                  )
                  
                  (388,431
                  )Deferred
      compensation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,574Deferred financing costs or compensation
                  
                  
                  309,471
                  
                  
                  -
                  
                  
                  -Bad
      debt expense
                  
                  
                  854,283
                  
                  
                  491,934
                  
                  
                  979,089Hurricane related
      recoveries
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (377,276
                  )Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  (1,503,868
                  )
                  
                  (927,958
                  )
                  
                  (2,239,782
                  )Inventories
                  
                  
                  (509,271
                  )
                  
                  4,232
                  
                  
                  (101,037
                  )Other
      current assets
                  
                  
                  49,469
                  
                  
                  (166,758
                  )
                  
                  10,832Accounts
      payable
                  
                  
                  (635,114
                  )
                  
                  959,552
                  
                  
                  1,533,189Accrued
      payroll and commissions
                  
                  
                  266,624
                  
                  
                  298,569
                  
                  
                  455,799Taxes
      accrued and withheld
                  
                  
                  (306,740
                  )
                  
                  (132,206
                  )
                  
                  287,435Accrued
      income taxes
                  
                  
                  (78,657
                  )
                  
                  (1,825,842
                  )
                  
                  426,074Accrued
      expenses
                  
                  
                  (271,800
                  )
                  
                  248,251
                  
                  
                  (62,158
                  )Other
      liabilities
                  
                  
                  (1,800
                  )
                  
                  (377,434
                  )
                  
                  (4,120
                  )Net
      cash provided by operating activities
                  
                  
                  10,349,818
                  
                  
                  8,679,684
                  
                  
                  10,160,193Cash flows from
      investing activities:Purchase
      of property and equipment
                  
                  
                  (2,373,122
                  )
                  
                  (3,530,050
                  )
                  
                  (2,951,610
                  )Proceeds
      from sale of fixed assets
                  
                  
                  192,749
                  
                  
                  146,857
                  
                  
                  135,846Businesses
      acquired, net of cash received
                  
                  
                  (1,657,239
                  )
                  
                  (1,214,283
                  )
                  
                  -Goodwill
      and other intangible additions
                  
                  
                  -
                  
                  
                  (45,811
                  )
                  
                  -Change
      in other assets
                  
                  
                  52,003
                  
                  
                  127,657
                  
                  
                  (52,362
                  )Cash
      surrender value proceeds
                  
                  
                  -
                  
                  
                  291,836
                  
                  
                  -(Increase)
      decrease in cash surrender value
                  
                  
                  (40,291
                  )
                  
                  76,754
                  
                  
                  (85,212
                  )Net
      cash used in investing activities
                  
                  
                  (3,825,900
                  )
                  
                  (4,147,040
                  )
                  
                  (2,953,338
                  )Cash flows from
      financing activities:Borrowings
      on line of credit
                  
                  
                  -
                  
                  
                  12,101,000
                  
                  
                  10,884,000Payments
      on line of credit
                  
                  
                  (6,415,000
                  )
                  
                  (12,101,000
                  )
                  
                  (12,496,000
                  )Increase in negative book cash balances
                  
                  
                  986,704
                  
                  
                  -
                  
                  
                  -Proceeds
      from long-term debt
                  
                  
                  767,852
                  
                  
                  2,654,254
                  
                  
                  1,091,843Principal
      payments on long-term debt
                  
                  
                  (5,314,041
                  )
                  
                  (4,313,471
                  )
                  
                  (3,412,359
                  )Financing
      costs paid
                  
                  
                  -
                  
                  
                  (320,147
                  )
                  
                  -Proceeds
      from exercise of stock options
                  
                  
                  54,310
                  
                  
                  142,680
                  
                  
                  515,950Dividends
      paid
                  
                  
                  (2,396,863
                  )
                  
                  (2,389,417
                  )
                  
                  (1,965,334
                  )Net
      cash used in financing activities
                  
                  
                  (12,317,038
                  )
                  
                  (4,226,101
                  )
                  
                  (5,381,900
                  )Net
      (decrease) increase in cash and cash equivalents
                  
                  
                  (5,793,120
                  )
                  
                  306,543
                  
                  
                  1,824,955Cash
      and cash equivalents at beginning of year
                  
                  
                  5,793,120
                  
                  
                  5,486,577
                  
                  
                  3,661,622Cash
      and cash equivalents at end of year
                  
                  $
                  -
                  
                  $
                  5,793,120
                  
                  $
                  5,486,577
 See notes to consolidated financial
statements.
 F-8
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements
 1. Summary of Significant Accounting
Policies
  Champion
is a commercial printer, business forms manufacturer and office products and
office furniture supplier in regional markets in the United States of America,
east of the Mississippi. Champion also publishes The Herald-Dispatch daily
newspaper in Huntington, WV with a total daily and Sunday circulation of
approximately 26,000 and 31,000, respectively.
 
 The
accounting and reporting policies of Champion conform to accounting principles
generally accepted in the United States. 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, Donihe
Graphics, Inc., Smith and Butterfield Co., Inc., The Merten Company, Interform
Corporation, Blue Ridge Printing Co., Inc., CHMP Leasing, Inc., Rose City Press,
Capitol Business Equipment, Inc., Thompson’s of Morgantown, Inc., Independent
Printing Service, Inc., Diez Business Machines, Transdata Systems, Inc., Syscan
Corporation and Champion Publishing, Inc.
 
 Significant
intercompany transactions have been eliminated in consolidation.
 
 Cash and Cash
Equivalents
  Cash and
cash equivalents consist principally of cash on deposit with banks
and repurchase agreements for government securities, all highly liquid
investments with an original maturity of three months or less. At October
31, 2008 and 2007, the Company held overnight repurchase agreements for $30,000
and $1,021,000 of Eurodollar Sweep Investments with stated interest rates
of 1.22% and 3.97%, respectively. The Company's cash deposits in excess of
federally insured amounts are primarily maintained at a large well-known
financial institution.
  Accounts
Receivable
  Accounts
receivable are stated at the amount billed to customers. Accounts receivable are
ordinarily due 30 days from the invoice date.
 F-9
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The
Company encounters risks associated with sales and the collection of the
associated accounts receivable. As such, the Company records a monthly provision
for accounts receivable that are considered to be uncollectible. In order to
calculate the appropriate monthly provision, the Company primarily utilizes a
historical rate of accounts receivable written off as a percentage of total
revenue. This historical rate is applied to the current revenues on a monthly
basis. The historical rate is updated periodically based on events that may
change the rate such as a significant increase or decrease in collection
performance and timing of payments as well as the calculated total exposure in
relation to the allowance. Periodically, the Company compares the
identified credit risks with the allowance that has been established using
historical experience and adjusts the allowance accordingly.
 
 During
2008, 2007 and 2006, $854,000, $492,000, and $979,000 of bad debt expense was
incurred and the allowance for doubtful accounts was $1,851,000, $1,511,000, and
$1,558,000 as of October 31, 2008, 2007 and 2006. The actual write-offs for the
periods were $514,000, $657,000, and $832,000 during 2008, 2007 and 2006. The
actual write-offs occur when it is determined an account will not be collected.
General economic conditions and specific geographic and customer concerns are
major factors that may affect the adequacy of the allowance and may result in a
change in the annual bad debt expense.
 
 No
individual customer represented greater than 3.0% and 6.0% of the gross
outstanding accounts receivable at October 31, 2008 and 2007. The Company’s ten
largest accounts receivable balances represented 18.1% and 17.6% of gross
outstanding accounts receivable at October 31, 2008 and 2007.
 
 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.
 
 In
November 2004, the FASB issued SFAS No. 151 “ Inventory Costs ” (SFAS
151), an amendment of ARB No. 43, chapter 4. SFAS 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling cost
and wasted material. SFAS 151 was effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of this standard did
not have a material effect on the Company’s financial
statements.
 F-10
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 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 yearsMachinery
      and equipment
                  3 -
      10 yearsFurniture
      and fixtures
                  5 -
      10 yearsVehicles
                  3 -
      5 years
  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 $4,324,000, $3,538,000, and $3,786,000 for the
years ended October 31, 2008, 2007 and 2006.
  Long-lived property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. This evaluation includes the review of operating performance and
estimated future undiscounted cash flows of the underlying assets or
businesses.
  Goodwill and Other
Intangibles
  The excess cost over fair value of net assets of acquired businesses, goodwill,
was in years prior to 2002 being amortized by the straight-line method over
periods ranging from 15 to 25 years. The other intangible assets are being
amortized over 5 to 20 years representing the future benefit of the intangible.
The fair values of these intangible assets are estimated based on management's
assessment as well as independent third party appraisals in some
cases.
 F-11
 Champion Industries, Inc. and
Subsidiaries  Notes to
Consolidated Financial Statements (continued)
 In
June 2001, the FASB issued SFAS No. 141, "Business Combinations"(SFAS
141), and SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). The Company adopted these standards with its fiscal
year beginning November 1, 2001. Under the new rules, goodwill (and intangible
assets deemed to have indefinite lives) is no longer amortized but is subject to
annual impairment tests in accordance with SFAS 142 except in the year of
adoption where companies were required to evaluate impairment at the beginning
of the year and again at a recurring annual date. The first step in the
impairment analysis is a screen for potential impairment and was required to be
completed within six months of adopting SFAS 142. The second step if required,
measures the amount of impairment. The Company completed step one of the initial
impairment analysis and the subsequent annual analysis during the second and
fourth quarters of 2002. Additionally, this analysis was performed in the fourth
quarter of each year thereafter. The application of the requirements of this
standard did not result in an impairment charge.
  Advertising Costs
  Advertising costs are expensed as incurred. Advertising expense for the years
ended October 31, 2008, 2007 and 2006 approximated $963,000, $587,000, and
$647,000.
  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 basis 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. A valuation
allowance is established to reduce deferred tax assets if it is more likely than
not that a deferred tax asset will not be realized.
 F-12
 Champion Industries, Inc. and
Subsidiaries  Notes to
Consolidated Financial Statements (continued)
 Earnings Per
Share
  Basic
earnings per share is computed by dividing net income by the weighted average
shares of common stock outstanding for the period and excludes any dilutive
effects of stock options. Diluted earnings per share is computed by dividing net
income by the weighted average shares of common stock outstanding for the period
plus the shares that would be outstanding assuming the exercise of dilutive
stock options using the treasury stock method. The effect of dilutive stock
options increased weighted average shares outstanding by 38,000, 146,000 and
154,000 for the years ended October 31, 2008, 2007 and 2006.
  Segment
Information
 
 The
Company designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company’s reportable segments. The Company’s operating segments are more fully
described in Note 9.
  Accounting for Web Site Development
Costs
  Certain
external costs and internal payroll and payroll-related costs have been
capitalized during the application, development and implementation stages of the
Company’s web site. The costs regarding the ongoing operation and maintenance
are expensed in the period incurred. The Company’s internet sales are based on a
cooperative effort with the Company’s direct sales force as an optional ordering
alternative.
 F-13
 Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
 Revenue
Recognition
  Revenues
are recognized when products are shipped or ownership is transferred and when
services are rendered to customers. The Company acts as a principal party in
sales transactions, assumes title to products and assumes the risks and rewards
of ownership including risk of loss for collection, delivery or returns. The
Company typically recognizes revenue for the majority of its products upon
shipment to the customer and transfer of title. Under agreements with certain
customers, custom forms may be stored by the Company for future delivery. In
these situations, the Company may receive a logistics and warehouse management
fee for the services provided. In these cases, delivery and bill schedules are
outlined with the customer and product revenue is recognized when manufacturing
is complete and the product is received into the warehouse, title transfers to
the customer, the order is invoiced and there is reasonable assurance of
collectability. Since the majority of products are customized, product returns
are not significant. Therefore, the Company records sales on a gross basis.
Shipping and handling costs are recorded as a component of cost of sales. 
Advertising revenues are recognized, net of agency commissions, in the period
when advertising is printed or placed on websites. Circulation revenues are
recognized when purchased newspapers are distributed. Amounts received from
customers in advance of revenue recognized are recorded as deferred revenue. The
deferred revenue associated with The Herald-Dispatch approximated $684,000 and
$424,000 at October 31, 2008 and 2007.
 
 Accounting for Costs Associated with
Exit or Disposal Activities
 
 In July
2002, the FASB issued SFAS No. 146 “ Accounting for Costs Associated with
Exit or Disposal Activities ” (SFAS
146), which supersedes EITF No. 94-3, “ Liability Recognition for Certain
Employment Termination Benefits and Other Costs to Exit an
Activity. ” SFAS
146 requires companies to record liabilities for costs associated with exit
or disposal activities to be recognized only when the liability is incurred
instead of at the date of commitment to an exit or disposal activity. Adoption
of this standard was effective for exit or disposal activities that were
initiated after December 31, 2002.  During the fourth quarter of 2005, the
Company recognized costs associated with facility related costs, equipment
costs, operational costs from lost business and uncollectible receivables,
personnel costs, inventory related costs and relocation costs aggregating
approximately $1.0 million associated with Hurricane Katrina. In 2006, the
Company recognized recoveries, net of expenses associated with Hurricane Katrina
of approximately $377,000.
 F-14
 Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
 Accounting
for Stock-Based Compensation
  In
December 2004, the FASB issued SFAS No. 123R (revised 2004), “ Share-Based
Payment ” (SFAS
123R). This statement revises SFAS No. 123, “ Accounting for Stock-Based
Compensation ,” (SFAS
123) and requires companies to expense the value of employee stock options and
similar awards. The effective date of this standard was interim and annual
periods beginning after June 15, 2005 . On April
14, 2005, the United States Securities and Exchange Commission amended the
effective date of this standard to the beginning of a company’s fiscal year that
begins after June 15, 2005. Therefore, the effective date of this standard for
the Company was November 1, 2005. Since the Company’s employee stock options
vest immediately in the year granted, the initial adoption of this
standard did not have any effect on the Company’s financial
statements. However, the Company will be required to expense the value of the
employee stock options when future options are granted.  There were no
stock option grants in 2008, 2007 or 2006.
 
 Before
the adoption of SFAS 123R, the Company had elected to follow the intrinsic
value method in accounting for its employee stock options. Accordingly, 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 was recognized.
  Historically,
the fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions regarding risk-free interest rates; dividend yields; volatility
factors of the expected market price of the Company's common stock; and a
weighted-average expected life of the option of 4 years.
  The
following pro forma information has been determined as if the Company had
accounted for its employee stock options under the fair value method. For
purposes of pro forma disclosures, the estimated fair value of the
options was expensed in the year granted since the options vested
immediately. The Company's pro forma information for the years ended October 31
are as follows:
 
 
 Year Ended October
      31,2008 (1)
                      
                      2007(1)
                      
                      2006(1)Net
      income as reported
                      
                      $
                      6,022,084
                      
                      $
                      6,080,140
                      
                      $
                      5,473,848Deduct:
      Total stock-based employee compensation expense determined under the fair
      value method for all awards, net of related tax effects
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -Pro
      forma net income
                      
                      $
                      6,022,084
                      
                      $
                      6,080,140
                      
                      $
                      5,473,848Earnings
      per share:Basic,
      as reported
                      
                      $
                      0.60
                      
                      $
                      0.61
                      
                      $
                      0.56Basic,
      pro forma
                      
                      $
                      0.60
                      
                      $
                      0.61
                      
                      $
                      0.56Diluted,
      as reported
                      
                      $
                      0.60
                      
                      $
                      0.60
                      
                      $
                      0.55Diluted,
      pro forma
                      
                      $
                      0.60
                      
                      $
                      0.60
                      
                      $
                      0.55
  (1) Not applicable, since
the Company adopted SFAS 123R on November 1, 2005 and there were no stock
options granted during 2006, 2007 and 2008.
 F-15
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  SAB 108
 
 In
September 2006, the SEC Staff issued SAB No. 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (SAB 108). SAB 108 was issued in order to eliminate the
diversity of practice surrounding how public companies quantify financial
statement misstatements.
 
 Traditionally, there have been two widely-recognized methods for quantifying the
effects of financial statement misstatements: the “rollover” method and the
“iron curtain” method. The rollover method focuses primarily on the impact of a
misstatement on the income statement-including the reversing effect of prior
year misstatements- but its use can lead to the accumulation of misstatements in
the balance sheet. The iron curtain method, on the other hand, focuses primarily
on the effect of correcting the period-end balance sheet with less emphasis on
the reversing effects of prior year errors on the income statement. We currently
use the rollover method for quantifying identified financial statement
misstatements.
 
 In
SAB 108, the SEC Staff established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatements on
each of the company’s financial statements and the related financial statement
disclosures. This model is commonly referred to as a “dual approach” because it
requires quantification of errors under both the iron curtain and the rollover
methods.
 
 SAB 108 permits existing public companies to initially apply its provisions by
(i) restating prior financial statements as if the “dual approach” had always
been used or (ii) recording the cumulative effect of initially applying the
“dual approach” as adjustments to the carrying value of assets and liabilities
as of November 1, 2006, with an offsetting adjustment recorded to the
opening balance of retained earnings. Use of the “cumulative effect” transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when it
arose.
  We adopted the provisions of SAB 108 using the cumulative effect transition
method in connection with the preparation of our annual financial statements for
the year ended October 31, 2007.  As a result of the adoption of SAB
108, the Company recorded an increase in net fixed assets of
approximately $95,000, an increase in accounts receivable of approximately
$101,000, a decrease in accrued payroll of approximately $68,000, a
decrease in accrued professional fees of approximately $83,000, reductions in
accounts receivable and inventory of approximately $65,000, other accrual
increases of $68,000 and an increase in retained earnings of approximately
$128,000, net of tax, as of November 1, 2006. The accompanying financial
statements reflect these adjustments.
 F-16
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 EITF 06-3
 
 In
June 2006, the FASB Emerging Issues Tax Force (EITF) issued EITF 06-3 "How Sales Taxes Collected from
Customers and Remitted to Governmental Authorities Should be Presented in the
Income Statement" (That is, Gross Versus Net Presentation) to clarify
diversity in practice on the presentation of different types of taxes in the
financial statements. The task force concluded that, for taxes within the scope
of the issue, a company may adopt a policy of presenting taxes either gross
within revenue or net. That is, it
may include charges to customers for taxes within revenues and the charges for
the taxes from the taxing authority within cost of sales, or alternatively, it
may net the charge to the customer and the charge from the taxing authority. If
taxes subject to EITF 06-3 are significant, a company is required to disclose
its accounting policy for presenting taxes and the amounts of such taxes that
are recognized on a gross basis. The guidance in this consensus is effective for
the first interim reporting period beginning after December 15, 2006 (the second
quarter of our fiscal year 2007). We adopted EITF 06-3 on February 1, 2007
and we record sales tax on a net basis. The adoption of EITF 06-3 did not
have a material impact on our results of operations, financial position or cash
flows.
 SFAS NO. 157
 In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value, establishes methods used to measure fair value and
expands disclosure requirements about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal periods, as it
relates to financial assets and liabilities that are carried at fair value. SFAS
No. 157 requires certain tabular disclosures related to results of applying SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and
SFAS No. 142, "Goodwill and Other Intangible Assets". On November 14, 2007, the
FASB provided a one year deferral for the implementation of SFAS No. 157 for
non-financial assets and liabilities. Based on the assets and liabilities on our
balance sheet as of October 31, 2008, we do not expect the adoption of SFAS No.
157 to have a material impact on our results of operations, financial
position or cash flows.
  SFAS
NO. 159
  In February 2007, the FASB
issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115. SFAS No. 159
permits entities to choose to measure at fair value many financial instruments
and certain other items at fair value that are not currently required to be
measured. Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. SFAS No. 159 does not affect any
existing accounting literature that requires certain assets and liabilities to
be carried at fair value. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. Based on the assets and liabilities on our balance
sheet as of October 31, 2008, we do not expect the adoption of SFAS No. 159
to have any impact on our results of operations, financial position or
cash flows.
  F-17
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 SFAS NO. 141 (R)
  During
December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations". SFAS
No. 141 (R) is effective for fiscal years beginning December 15, 2008. Earlier
application is prohibited. Assets and liabilities that arose from business
combinations which occurred prior to the adoption of FASB No. 141 (R) should not
be adjusted upon the adoption of SFAS No. 141 (R). SFAS No. 141 (R) requires the
acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the business combination; establishes
the acquisition date as the measurement date to determine the fair value of all
assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination.
  As it relates to
recognizing all (and only) the assets acquired and liabilities assumed in a
business combination, costs an acquirer expects but it not obligated to incur in
the future to exit an activity of an acquiree or to terminate or relocate an
acquiree's employees are not liabilities at the acquisition date but must be
expensed in accordance with other applicable generally accepted accounting
principles. Additionally, during the measurement period, which should not exceed
one year from the acquisition date, any adjustments that are needed to assets
acquired and liabilities assumed to reflect new information obtained about facts
and circumstances that existed as of that date will be adjusted retrospectively.
The acquirer will be required to expense all acquisition- related costs in the
periods such costs are incurred other than costs to issue debt or equity
securities. SFAS No. 141 (R) will have no impact on our results of operations,
financial position or cash flows at the date of adoption, but it could have
a material impact on our results of operations, financial position or cash
flows in the future when it is applied to acquisitions which occur in the fiscal
year beginning November 1, 2009.
  FSP FAS
142-3
  In April 2008, the FASB issued staff position FSP FAS 142-3 (FSP 142-3),
"Determination of the Useful Life of Intangible Assets". FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142. The intent of FSP 142-3 is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141 (R) and other U.S. generally accepted accounting
principles (GAAP). FSP 142-3 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years and should be
applied prospectively to intangible assets acquired after the effective date.
Early adoption is prohibited. Accordingly, we will adopt FSP 142-3 on November
1, 2009. We do not expect FSP 142-3 to have an impact on our results of
operations, financial position or cash flows at the date of adoption, but
it could have a material impact on our results of operations, financial
position or cash flows in future periods.
  SFAS
NO. 161
  In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative instruments and Hedging Activities - an amendment
of FASB Statement No. 133” (SFAS 161). SFAS 161 changes the disclosure
requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and how derivative instruments
and related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008, with early application permitted. The
Company does not expect the implementation of SPAS 161 to have a material impact
on its consolidated financial statements.  F-18
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  SFAS
NO. 162
 
 In May 2008, the FASB issued Statement of Financial Accounting Standards No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162).
This Statement identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. SFAS 162 becomes effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411. The Company does not expect the
implementation of SFAS 162 to have amaterial
impact on its consolidated financial statements.
  FSP FAS
157-2
  In
February 2008, the FASB issued FASB Staff Position FSP FAS No. 157-2 (FSP
157-2), “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP FAS
157-2 delays the effective date of SFAS 157, “Fair Value Measurements,” for
nonfinancial assets and nonfinancial liabilities, except foritems
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The delay is intended to allow the FASB and
constituents additional time to consider the effect of various implementation
issues that have arisen, or that may arise, from the application of Statement
157. FSP 157-2 defers the effective date of Statement 157 to fiscal years
beginning after November 15,2008, and interim periods within those fiscal years, for items within the
scope of this FSP. Examples of items to which the deferral would and would not
apply are listed in the FSP. The Company does not expect the implementation of
FSP 157-2 to have amaterial
impact on its consolidated financial statements.
  FSP FAS
157-3
  In
October 2008, the FASB issued FSP FAS 157-3 (FSP 157-3), “Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active” (FSP
157-3).FSP
157-3 clarifies the application of SFAS 157, “Fair Value Measurements,” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP was effective upon
issuance, including prior periods for which financial statements have not been
issued.
  2. Inventories
  Inventories
consisted of the following:
 
 October
      31,2008
                                
                                
                                2007Printing and
      Newspaper:Raw materials
                                
                                $
                                3,137,060
                                
                                
                                $
                                2,401,340Work in process
                                
                                
                                1,929,581
                                
                                
                                
                                1,906,301Finished goods
                                
                                
                                3,867,023
                                
                                
                                
                                4,003,318Office
      products and office furniture
                                
                                
                                3,080,454
                                
                                
                                
                                3,193,888$
                                12,014,118
                                
                                
                                $
                                11,504,847
   F-19
 Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
  3. Long-term
Debt
  Long-term
debt consisted of the following:
 October
    31,2008
                      
                      
                      2007Installment
      notes payable to banks, due in monthly installments plus interest at rates
      approximating the bank’s prime rate maturing in various periods ranging
      from February 2009-May 2013, collateralized by equipment
      and vehicles.
                      
                      $
                      749,850
                      
                      
                      $
                      171,039Term
      loan facility with a bank, due in quarterly installments of $1,225,000
      plus interest payments equal to the Base Rate plus the applicable margin
      or the adjusted LIBOR Rate plus the applicable marginmaturing September 2013, collateralized by substantially all of the assets
      of the Company.
                      
                      
                      63,575,000
                      
                      
                      
                      68,700,00064,324,850
                      
                      
                      
                      68,871,039Less
      current portion
                      
                      
                      7,118,543
                      
                      
                      
                      5,033,637Long-term
      debt, net of current portion
                      
                      $
                      57,206,307
                      
                      
                      $
                      63,837,402
  The
secured and unsecured credit facilities contain restrictive financial
covenants requiring the Company to maintain certain financial ratios. The
Company was in compliance with these covenants at October 31, 2008. The Company
is required to maintain a minimum of $750,000 of compensating balances with
Fifth Third Bank under the terms of its credit agreement. The Company is
permitted to pay dividends under its Credit Agreement as long as no default or
event of default exists or shall exist after giving effect to the proposed
dividend and the Company has delivered to the Credit Agreement's administrative
agent prior to the proposed dividend a pro forma compliance certificate
evidencing compliance with applicable covenants as defined in the Credit
Agreement.
  The Company is required to make certain mandatory
payments on its credit facilities related to (1) net proceeds received from a
loss subject to applicable thresholds, (2) equity proceeds and (3)
effective January 31, 2009, the Company is required to prepay its credit
facilities by 75% of excess cash flow for its most recently completed fiscal
year. The excess cash flow for purposes of this calculation is defined as
the difference (if any) between (a) EBITDA for such period and (b) federal,
state and local income taxes paid in cash during such period plus capital
expenditures during such period not financed with indebtedness plus interest
expense paid in cash during such period plus the aggregate amount of scheduled
payments made by the Borrower and its Subsidiaries during such period in respect
of all principal on all indebtedness (whether at maturity, as a result of
mandatory sinking fund redemption, or otherwise), plus restricted payments paid
in cash by the Borrower during such period in compliance with the credit
agreement. The Company's prepayment obligation due January 31, 2009 is
approximately $2.0 million.
  Maturities
of long-term debt for each of the next five years follow:
  2009
                      
                      $
                      7,118,5432010
                      
                      
                      5,055,9602011
                      
                      
                      5,062,3132012
                      
                      
                      5,068,9272013
                      
                      
                      42,019,107$
                      64,324,850
  F-20
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 Prior to
September 14, 2007, the Company had an unsecured revolving line of credit
with a bank for borrowings to a maximum of $10,000,000 with interest payable
monthly at the prime rate of interest. The line of credit was terminated
and replaced with a revolving credit agreement with another bank. Under this
revolving note, the Company can borrow a maximum of $30,000,000 subject to
a borrowing base limitation with interest payable monthly at the prime rate
of interest and/or LIBOR plus a margin. The Company had borrowed $9,125,496 and
$15,540,496 under this facility at October 31, 2008 and 2007. Pursuant to
its borrowing base calculation, the Company had approximately $9.1
million and $8.8 million in additional availability under its
$30.0 million revolving credit line at October 31, 2008 and 2007. The line
of credit expires in September 2012 and contains certain restrictive financial
covenants, is subject to borrowing base limitations and is collateralized by
substantially all of the assets of the Company.
 
 The
Company has an unsecured revolving line of credit with a bank for borrowings to
a maximum of $1,000,000 with interest payable monthly at the Wall Street Journal
prime rate. This line of credit expired in October 2008. The Company renewed
this line of credit in January 2009 and the line of credit expires in July
2010 subject to a floor of 4.25% and contains certain financial covenants.
There were no borrowings outstanding under this facility at October 31, 2008 or
2007.
 The prime rate was the primary interest rate on the above loans prior to
September 14, 2007. After this date, the primary interest rate consisted
primarily of LIBOR 30-day and 90-day rates plus 275 basis points. Prime rate
approximated 4.00% and 7.50% at October 31, 2008 and 2007, while the 30-day
LIBOR rate approximated 3.12% and 4.75% at October 31, 2008 and 2007. The
Company has entered into a hedging arrangement to convert $25.0 million of
variable interest rate debt to fixed interest rate debt (see Note 14). Interest
paid during the years ended October 31, 2008, 2007 and 2006 approximated
$5,713,000, $1,168,000, and $616,000 . The
Company had accrued interest of approximately $8,000 and $302,000 at October 31,
2008 and 2007. Deferred financing costs are amortized over the life of the
related credit facilities and are reported as part of interest expense. In
2008 and 2007, $309,000 and $46,000 of deferred financing costs were included as
interest expense; there were no deferred financing costs in 2006.
  The
Company’s non-cash activities for 2008, 2007 and 2006 included equipment
purchases of approximately $0, $1,738,000, and $1,322,000 which were
financed by a bank, and the accrual for the contingent earn out payment to
Syscan of $1,350,725 in 2006. The Company recorded non-cash investing and
financing activities for the acquisition of The Herald-Dispatch of approximately
$78.5 million. The Company also accrued approximately $1.6 million for a final
working capital payment for the acquisition of The Herald-Dispatch. The working
capital payment was made in the first quarter of 2008 totaling approximately
$1.6 million.
 
 4. Employee Benefit
Plans
  The
Company had a Profit Sharing Plan that covered all eligible employees and
qualified as a Savings Plan under Section 401(k) of the Internal Revenue Code.
Effective January 1, 1998, the Profit Sharing Plan was merged into The Champion
Industries, Inc. 401(k) Plan (the “Plan”). The Plan covers all eligible
employees who satisfy the age and service requirements. Each participant may
elect to contribute up to 15% of annual compensation and the Company is
obligated to contribute 100% of the participant’s contribution not to exceed 2%
of the participant’s annual compensation. The Company may make discretionary
contributions to the Plan. The Company’s expense under these Plans was
approximately $525,000, $428,000, and $437,000 for the years ended October 31,
2008, 2007 and 2006.
 
 The
Company’s accrued vacation liability as of October 31, 2008 and 2007 was
approximately $645,000 and $597,000. This item is classified as a component of
accrued expenses on the financial statements.
 F-21
  Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The
Company's 1993 Stock Option Plan provides for the granting of both incentive and
non-qualified stock options to management personnel for up to 762,939 shares of
the Company's common stock. In March 2004, the Company’s 2003 stock option plan
was adopted to provide for the granting of both incentive and non-qualified
stock options to management personnel for up to 475,000 shares of the Company’s
common stock.
    A summary
of the Company’s stock option activity and related information for the years
ended October 31 follows:
  Weighted
                      
                      
                      
                      Weighted
                      
                      
                      
                      WeightedAverage
                      
                      
                      
                      Average
                      
                      
                      
                      AverageExercise
                      
                      
                      
                      Exercise
                      
                      
                      
                      Exercise2008
                      
                      Price
                      
                      2007
                      
                      Price
                      
                      2006
                      
                      PriceOutstanding-beginning
      of year
                      
                      
                      330,000
                      
                      $
                      4.18
                      
                      
                      382,000
                      
                      $
                      4.01
                      
                      
                      570,000
                      
                      $
                      3.67Granted
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -Exercised
                      
                      
                      (19,000
                      )
                      
                      2.77
                      
                      
                      (46,000
                      )
                      
                      3.10
                      
                      
                      (177,000
                      )
                      
                      2.91Forfeited
      or expired
                      
                      
                      -
                      
                      
                      -
                      
                      
                      (6,000
                      )
                      
                      2.49
                      
                      
                      (11,000
                      )
                      
                      3.80Outstanding-end
      of year
                      
                      
                      311,000
                      
                      
                      4.27
                      
                      
                      330,000
                      
                      
                      4.18
                      
                      
                      382,000
                      
                      
                      4.01Weighted
      average fair value of options granted during the year
                      
                      $
                      -
                      
                      
                      
                      
                      $
                      -
                      
                      
                      
                      
                      $
                      -
 
 A summary
of stock options outstanding and exercisable at October 31, 2008,
follows:
 
 
 Exercise
                      
                      Number
                      
                      RemainingPrice
                      
                      Outstanding
                      
                      Life4.29
                      
                      
                      91,000
                      
                      
                      0.124.26
                      
                      
                      220,000
                      
                      
                      1.96
  F-22
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The
Company had a deferred compensation agreement with one employee of Blue Ridge
Printing Co., Inc. providing for payments totaling approximately $500,000 over a
ten year period after retirement. During
fiscal year 2007, a one-time payment to this employee of $375,000 was made by
the Company satisfying its obligation in full. To assist in the
funding of the payment, the Company had invested in life insurance policies
which were monetized to effectuate this transaction. The amount expensed for
this agreement for the year ended October 31, 2006 approximated $4,000. There
was no expense for years ended October 31, 2008 and 2007.
  5. Income Taxes
  Income
tax expense consisted of the following:
  Year Ended October
      31,2008
                      
                      2007
                      
                      2006Current
      expense (benefit):Federal
                      
                      $
                      463,599
                      
                      $
                      2,666,371
                      
                      $
                      3,282,566State
                      
                      
                      (130,742
                      )
                      
                      552,049
                      
                      
                      835,428Deferred
      expenses (benefit)
                      
                      
                      766,076
                      
                      
                      (15,194
                      )
                      
                      (388,431
                      )$
                      1,098,933
                      
                      $
                      3,203,226
                      
                      $
                      3,729,563
  Deferred
tax assets and liabilities are as follows:
  October
    31,2008
                        
                        
                        2007Deferred
      tax assets:Allowance
      for doubtful accounts
                        
                        $
                        697,181
                        
                        
                        $
                        561,002Net
      operating loss carryforward of acquired companies
                        
                        
                        393,911
                        
                        
                        
                        420,261Accrued
      vacation
                        
                        
                        253,127
                        
                        
                        
                        235,400Other
      accrued liabilities
                        
                        
                        184,093
                        
                        
                        
                        177,133Other
      comprehensive income
                        
                        
                        371,943
                        
                        
                        
                        -Gross
      deferred tax assets
                        
                        
                        1,900,255
                        
                        
                        
                        1,393,796Deferred
      tax liabilities:Property
      and equipment
                        
                        
                        3,325,252
                        
                        
                        
                        2,453,341Intangible
      assets
                        
                        
                        1,090,710
                        
                        
                        
                        1,062,029Gross
      deferred tax liability
                        
                        
                        4,415,962
                        
                        
                        
                        3,515,370Net
      deferred tax liabilities before valuation allowance
                        
                        
                        2,515,707
                        
                        
                        
                        2,121,574Valuation
      allowance:Beginning
      balance
                        
                        
                        291,209
                        
                        
                        
                        303,317Decrease
      during the period
                        
                        
                        -
                        
                        
                        
                        (12,108
                        )Ending
      balance
                        
                        
                        291,209
                        
                        
                        
                        291,209Net
      deferred tax liabilities
                        
                        $
                        2,806,916
                        
                        
                        $
                        2,412,783
  F-23
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  The above net deferred tax liability is presented on the balance sheet as
follows:
 2008
                        
                        
                        2007Deferred
      tax asset - current
                        
                        $
                        1,130,742
                        
                        
                        $
                        969,664Deferred
      tax liability - long-term
                        
                        
                        (3,937,658
                        )
                        
                        
                        (3,382,447
                        )$
                        (2,806,916
                        )
                        
                        $
                        (2,412,783
                        )
  A
reconciliation of the statutory federal income tax rate to the Company’s
effective income tax rate is as follows:
  Year Ended October
      31,2008
                      
                      
                      2007
                      
                      
                      2006Statutory
      federal income tax rate
                      
                      
                      34.0
                      %
                      
                      
                      34.0
                      %
                      
                      
                      34.0
                      %State
      taxes, net of federal benefit
                      
                      
                      1.3
                      
                      
                      
                      5.7
                      
                      
                      
                      5.2Change
      in valuation allowance
                      
                      
                      -
                      
                      
                      
                      (0.1
                      )
                      
                      
                      -Selling
      expenses
                      
                      
                      1.1
                      
                      
                      
                      0.7
                      
                      
                      
                      0.7Cash
      surrender value of life insurance accretion
                      
                      
                      (0.2
                      )
                      
                      
                      (0.2
                      )
                      
                      
                      (0.3
                      )Amended state
      returns
                      
                      
                      -
                      
                      
                      
                      (0.8
                      )
                      
                      
                      -State
      apportionment tax accrual adjustments
                      
                      
                      (3.6
                      )
                      
                      
                      (1.9
                      )
                      
                      
                      -Federal
      tax accrual adjustments
                      
                      
                      (0.8
                      )
                      
                      
                      (0.7
                      )
                      
                      
                      -Tax
      benefits associated with The Herald-Dispatch
                      
                      
                      (17.2
                      )
                      
                      
                      (1.7
                      )
                      
                      
                      -Other
                      
                      
                      0.8
                      
                      
                      
                      (0.5
                      )
                      
                      
                      0.9Effective
      tax rate
                      
                      
                      15.4
                      %
                      
                      
                      34.5
                      %
                      
                      
                      40.5
                      %
  Income
taxes paid during the years ended October 31, 2008, 2007 and 2006 approximated
$412,000, $5,084,000, and $3,608,000. The Company recorded an income tax refund
at October 31, 2008 and 2007 of $711,000 and $632,000.
  The
Company has available for income tax purposes net operating loss carryforwards
from acquired companies of approximately $827,000, of which $794,000 expires in
2012 and $33,000 in 2013.  The Company has available for state income tax
purposes net operating loss carryforwards from acquired companies of
approximately $1,275,000 of which $30,000 expires in 2013, $268,000 expires
in 2019, $478,000 expires in 2020, $98,000 expires in 2023, $120,000 expires in
2024 and $281,000 expires in 2025. In 2007, the valuation allowance decreased by
approximately $12,000, which is primarily reflective of the usage of net
operating losses in the state of Mississippi.  The Company did not record a
change in the valuation allowance in 2006 and 2008.
 F-24
  Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  "Accounting for
Income Taxes"
    Unrecognized
      tax benefit at November 1, 2007
                      
                      $
                      150,000Other
                      
                      
                      (42,000
                      )Settlements/Audits
                      
                      
                      (72,000
                      )Unrecognized
      tax benefit at October 31, 2008
                      
                      $
                      36,000
 F-25
    Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
 6. Related Party Transactions and
Operating Lease Commitments
   The
Company leases operating facilities from entities controlled by its Chief
Executive Officer, his family and affiliates as well as facilities controlled by
a Company owned by the former sole owner of Syscan pursuant
to the acquisition of Syscan (see note 8). The original terms of these leases,
which are accounted for as operating leases, range from two to fifteen
years.
   A summary
of significant related party transactions follows:
  Year Ended October
      31,2008
                      
                      2007
                      
                      2006Rent
      expense paid to affiliated entitiesfor
      operating facilities
                      
                      $
                      434,000
                      
                      $
                      434,000
                      
                      $
                      449,000Sales
      of office products, office furniture and printing services to affiliated
      entities
                      
                      
                      895,000
                      
                      
                      934,000
                      
                      
                      693,000
 
 
 In
addition, the Company leases property and equipment from unrelated entities
under operating leases. Rent expense amounted to $912,000, $819,000, and
$714,000 for the years ended October 31, 2008, 2007 and 2006.
 
 Under the
terms and conditions of the above-mentioned leases, the Company is
primarily responsible for all taxes, assessments, maintenance, repairs or
replacements, utilities and insurance. The Champion Output Solutions' lease
excludes taxes and insurance during the initial lease term. Champion Output
Solutions subleases approximately 8,500 square feet at an annual rate of
approximately $44,000 through June 30th, 2011. The Company has renewal options
for certain leases covering varying periods.
   F-26
   Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 Future
minimum rental commitments for all noncancelable operating leases including
related party commitments with initial terms of one year or more consisted of
the following at October 31, 2008:
  2009
                        
                        $
                        1,319,8492010
                        
                        
                        1,095,0752011
                        
                        
                        940,7852012
                        
                        
                        782,3432013
                        
                        
                        695,884Residual
                        
                        
                        121,640$
                        4,955,576
 
 
 The
Company participates in a self-insurance program for employee health care
benefits with affiliates controlled by its Chief Executive Officer and as such
is responsible for paying claims of Company participants as required by the plan
document. The Company is allocated costs primarily related to the
reinsurance premiums 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, 2008, 2007 and 2006 was approximately $5,017,000, $3,493,000,
and $3,792,000.
 
 During
2008, 2007 and 2006, the Company utilized an aircraft from an entity controlled
by its Chief Executive Officer and reimbursed the controlled entity for the use
of the aircraft, fuel, aircrew, ramp fees and other expenses attendant to the
Company’s use, in amounts aggregating $56,000, $91,000, and $119,000. The
Company believes that such amounts
are at or below the market rate charged by third-party commercial charter
companies for similar aircraft.
 
 The
Company believes that the terms of its related party transactions are no less
favorable to the Company than could be obtained with an independent third
party.
 F-27
 Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
  7. 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 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 is subject to various claims and legal actions that arise in the
ordinary course of business as well as various governmental audits and
examinations. In the opinion of management, after consulting with legal counsel
where applicable, the Company believes that the ultimate resolution of these
claims, audits and legal actions will not have a material effect on the
consolidated financial statements of the Company.
 
 8. Acquisitions
  On
September 14, 2007, the Company completed, pursuant to an asset purchase
agreement, the acquisition of The Herald-Dispatch daily newspaper in
Huntington, WV. The purchase price was $77.0 million and subject to a working
capital payment of $837,554 plus or minus any change in working capital from the
index working capital base of $1,675,107 at the closing date of September 14,
2007. The working capital payment totaled approximately $1.6 million.
  Approximately
six weeks of the operations of The Herald-Dispatch are included in the Company's
Statement of Operations commencing concurrent with the acquisition in
2007.
 F-28
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The
Company acquired substantially all of the net assets of The Herald-Dispatch for
a purchase price of $77.0 million consisting of cash.  The purchase price
included a cash payment of $77.0 million plus acquisition costs of approximately
$373,000 and a working capital adjustment of approximately $1,616,000.  The
working capital adjustment was recorded under accrued expenses at October 31,
2007. The purchase price was financed by the Company through a term debt
facility and a revolving credit facility. The purchase of The Herald-Dispatch
was consummated based on certain specifically identified synergies due in part
to duplicative functions, to achieve cash flow
diversity, to capitalize on a unique investment opportunity in the
Company's core territory, and to provide a platform for future growth and
expansion opportunities. The following is a condensed balance sheet indicating
the amount assigned to each major asset and liability caption of The
Herald-Dispatch at September 14, 2007:
  Current
      assets, net of cash received
                          
                          $
                          2,748,445Property,
      plant and equipment
                          
                          
                          8,582,200Goodwill
                          
                          
                          35,396,335Trademark
      & masthead
                          
                          
                          18,515,316Subscriber
      base asset
                          
                          
                          3,427,755Advertiser
      base asset
                          
                          
                          10,613,497Total
      assets
                          
                          $
                          79,283,548Current
      liabilities
                          
                          $
                          740,395Net
      assets acquired
                          
                          $
                          78,543,153
 F-29
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The following table summarizes the unaudited
consolidated pro forma results of operations and pro forma net income per share
for the years ended October 31, 2007 and 2006, assuming The Herald-Dispatch
acquisition had occurred at the start of the Company's fiscal year for each of
the periods represented below. The pro forma results below were derived from The
Herald-Dispatch internal financial statements representing the periods
approximating the Company's fiscal year and are reflective of adjustments
associated with additional interest expense and associated deferred financing
costs not recorded on the Company's financial statements of approximately $5.2
million and $6.2 million for the 2007 and 2006, respectively. The Company
recorded pro forma adjustments resulting from additional amortization expense of
$614,000 and $702,000 for 2007 and 2006, respectively; additional depreciation
of $524,000 and $352,000 for 2007 and 2006 and adjustments associated with
retirement plans and postretirement benefits other than pensions which
were not assumed by the Company totaling $398,000 and $869,000 in 2007 and
2006.
  (in
      millions, except per share data)
                        
                        2007
                        
                        
                        2006Revenues
                        
                        $
                        164.7
                        
                        
                        $
                        168.8Net
      income
                        
                        $
                        6.9
                        
                        
                        $
                        6.6Earnings
      per share:Basic
                        
                        $
                        0.69
                        
                        
                        $
                        0.67Diluted
                        
                        $
                        0.68
                        
                        
                        $
                        0.66Weighted
      average shares outstanding:Basic
                        
                        
                        10.0
                        
                        
                        
                        9.8Diluted
                        
                        
                        10.1
                        
                        
                        
                        10.0
  The
identifiable intangible assets of The Herald-Dispatch are being amortized on a
straight-line basis over a period of 20 years for both the subscriber and
advertiser base. The weighted average life of the amortizable intangible assets
for the acquisition of The Herald-Dispatch at the acquisition date was
approximately 20 years. The trademarks and masthead for the acquisition of The
Herald-Dispatch was determined to have an indefinite life. The remaining
allocation of the purchase price of The Herald-Dispatch was assigned to
goodwill. The Company expects to achieve tax deductions associated with
non-amortizing intangibles and goodwill of approximately $3.6 million per year
for a period of 15 years.
  On
September 7, 2004, the Company acquired all the issued and outstanding capital
stock of Syscan Corporation (“Syscan”), a West Virginia corporation, for a cash
price of $3,500,000 and a contingent purchase price, dependent upon satisfaction
of certain conditions, not to exceed the amount of $1,500,000.  On December
14, 2006, the Company paid the contingent purchase price in the amount of
$1,350,725. This amount was accrued at October 31, 2006. The Company also
purchased a building from an entity controlled by Syscan’s sole shareholder for
$117,000 concurrent with the Syscan acquisition. After considering the cash
received, the acquisition of a building and acquisition costs the net assets
acquired totaled approximately $2,688,000. Syscan Corporation is a provider of
integrated business products, with a primary emphasis on office and data
products, printing, mailing and fulfillment services, and office furniture. The
acquisition was consummated based on significant identified synergies which
could be achieved due to a duplication of market territory. The acquisition
brought additional supply chain management and mailing expertise to the Company
and allowed Syscan to offer a broader array of printing services to its existing
customer base.
 
 The
Williams Land Corporation has the option to put the 3000 Washington Street
building occupied by Syscan to the Company for a purchase price of $1.5 million
and the Company has the option to purchase the building for $1.5 million at the
conclusion of the five year lease term ending September 1, 2009. This
option may be exercised no later than 60 days prior to the end of the lease and
closing of said purchase cannot exceed 45 days from the end of the
lease.
 F-30
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 All of
the above transactions have been accounted for using the purchase method of
accounting.
 
 9. Industry Segment
Information
  The
Company operates principally in three industry segments organized on the basis
of product lines: the production, printing and sale, principally to commercial
customers, of printed materials (including brochures, pamphlets, reports, tags,
continuous and other forms); the sale of office products and office
furniture including interior design services; and publication of The
Herald-Dispatch daily newspaper in Huntington, West Virginia with a total daily
and Sunday circulation of approximately 26,000 and 31,000,
respectively. Approximately
six weeks of the operations of The Herald-Dispatch are included in the Company's
Statement of Operations commencing concurrent with the acquisition in 2007.The Company employs approximately 89 0 people,
of whom approximately 80, or 9%, are covered by collective bargaining
agreements, which expire on May 31, 2010 and December 31, 2010, respectively.
 F-31
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The table
below presents information about reported segments for the years ended October
31:
 2008
                        
                        Printing
                        
                        Office Products &
      Furniture
                        
                        
                        Newspaper
                        
                        
                        TotalRevenues
                        
                        $
                        115,565,580
                        
                        
                        $
                        49,708,630
                        
                        
                        $
                        18,939,250
                        
                        
                        $
                        184,213,460Elimination of intersegment
      revenue
                        
                        
                        (13,359,482
                        )
                        
                        
                        (8,168,516
                        )
                        
                        
                        -
                        
                        
                        
                        (21,527,998
                        )Consolidated
      revenues
                        
                        $
                        102,206,098
                        
                        
                        $
                        41,540,114
                        
                        
                        $
                        18,939,250
                        
                        
                        $
                        162,685,462Operating
      income
                        
                        
                        5,533,022
                        
                        
                        
                        3,628,716
                        
                        
                        
                        3,557,697
                        
                        
                        
                        12,719,435Depreciation &
      amortization
                        
                        
                        3,534,326
                        
                        
                        
                        214,298
                        
                        
                        
                        1,635,885
                        
                        
                        
                        5,384,509Capital
      expenditures
                        
                        
                        2,136,125
                        
                        
                        
                        84,434
                        
                        
                        
                        152,563
                        
                        
                        
                        2,373,122Identifiable
      assets
                        
                        
                        54,152,606
                        
                        
                        
                        5,228,906
                        
                        
                        
                        81,897,333
                        
                        
                        
                        141,278,845Goodwill
                        
                        
                        2,226,837
                        
                        
                        
                        1,230,485
                        
                        
                        
                        35,437,456
                        
                        
                        
                        38,894,7782007
                        
                        Printing
                        
                        Office
      Products & Furniture
                        
                        
                        Newspaper
                        
                        
                        TotalRevenues
                        
                        $
                        114,394,118
                        
                        
                        $
                        49,881,702
                        
                        
                        $
                        2,540,377
                        
                        
                        $
                        166,816,197Elimination
      of intersegment revenue
                        
                        
                        (12,741,283
                        )
                        
                        
                        (8,433,060
                        )
                        
                        
                        -
                        
                        
                        
                        (21,174,343
                        )Consolidated
      revenues
                        
                        $
                        101,652,835
                        
                        
                        $
                        41,448,642
                        
                        
                        $
                        2,540,377
                        
                        
                        $
                        145,641,854Operating
      income
                        
                        
                        6,416,551
                        
                        
                        
                        3,438,459
                        
                        
                        
                        659,679
                        
                        
                        
                        10,514,689Depreciation
      & amortization
                        
                        
                        3,576,975
                        
                        
                        
                        211,167
                        
                        
                        
                        204,498
                        
                        
                        
                        3,992,640Capital
      expenditures
                        
                        
                        4,919,357
                        
                        
                        
                        145,471
                        
                        
                        
                        203,086
                        
                        
                        
                        5,267,914Identifiable
      assets
                        
                        
                        57,020,668
                        
                        
                        
                        10,339,686
                        
                        
                        
                        81,851,237
                        
                        
                        
                        149,211,591Goodwill
                        
                        
                        2,226,837
                        
                        
                        
                        1,230,485
                        
                        
                        
                        35,396,335
                        
                        
                        
                        38,853,6572006
                        
                        Printing
                        
                        Office
      Products & Furniture
                        
                        
                        Newspaper
                        
                        
                        TotalRevenues
                        
                        $
                        120,891,348
                        
                        
                        $
                        47,758,730
                        
                        
                        
                        -
                        
                        
                        $
                        168,650,078Elimination
      of intersegment revenue
                        
                        
                        (14,477,685
                        )
                        
                        
                        (8,984,517
                        )
                        
                        
                        -
                        
                        
                        
                        (23,462,202
                        )Consolidated
      revenues
                        
                        $
                        106,413,663
                        
                        
                        $
                        38,774,213
                        
                        
                        
                        -
                        
                        
                        $
                        145,187,876Operating
      income
                        
                        
                        6,804,181
                        
                        
                        
                        2,949,166
                        
                        
                        
                        -
                        
                        
                        
                        9,753,347Depreciation
      & amortization
                        
                        
                        3,975,850
                        
                        
                        
                        182,898
                        
                        
                        
                        -
                        
                        
                        
                        4,158,748Capital
      expenditures
                        
                        
                        3,995,745
                        
                        
                        
                        278,184
                        
                        
                        
                        -
                        
                        
                        
                        4,273,929Identifiable
      assets
                        
                        
                        53,714,643
                        
                        
                        
                        12,274,083
                        
                        
                        
                        -
                        
                        
                        
                        65,988,726Goodwill
                        
                        
                        2,226,837
                        
                        
                        
                        1,184,674
                        
                        
                        
                        -
                        
                        
                        
                        3,411,511
 F-32
 Champion Industries, Inc. and
Subsidiaries
 Notes to
Consolidated Financial Statements (continued)
 A
reconciliation of total segment revenue, assets and operating income to
consolidated income before income taxes for the years ended October 31, 2008,
2007 and 2006 is as follows:
  2008
                        
                        
                        2007
                        
                        
                        2006Revenues:Total
      segment revenues
                        
                        $
                        184,213,460
                        
                        
                        $
                        166,816,197
                        
                        
                        $
                        168,650,078Elimination
      of intersegment revenue
                        
                        
                        (21,527,998
                        )
                        
                        
                        (21,174,343
                        )
                        
                        
                        (23,462,202
                        )Consolidated
      revenue
                        
                        $
                        162,685,462
                        
                        
                        $
                        145,641,854
                        
                        
                        $
                        145,187,876Operating
      income:Total
      segment operating income
                        
                        $
                        12,719,435
                        
                        
                        $
                        10,514,689
                        
                        
                        $
                        9,753,347Interest
      income
                        
                        
                        65,657
                        
                        
                        
                        45,021
                        
                        
                        
                        28,251Interest
      expense
                        
                        
                        (5,733,677
                        )
                        
                        
                        (1,455,470
                        )
                        
                        
                        (609,881
                        )Other
      income
                        
                        
                        69,602
                        
                        
                        
                        179,126
                        
                        
                        
                        31,694Consolidated
      income before income taxes
                        
                        $
                        7,121,017
                        
                        
                        $
                        9,283,366
                        
                        
                        $
                        9,203,411Identifiable
      assets:Total
      segment identifiable assets
                        
                        $
                        141,278,845
                        
                        
                        $
                        149,211,591
                        
                        
                        $
                        65,988,726Elimination
      of intersegment assets
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      consolidated assets
                        
                        $
                        141,278,845
                        
                        
                        $
                        149,211,591
                        
                        
                        $
                        65,988,726
 F-33
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 10.Accounting for Costs Associated with
Exit or Disposal Activities and Impact of Hurricane
Katrina
 On August
29, 2005, Hurricane Katrina made landfall and subsequently caused extensive
flooding and destruction along the coastal areas of the Gulf of Mexico,
including New Orleans and other communities in Louisiana and Mississippi in
which Champion conducts business. Operations in many of the Company’s markets
were disrupted by both the evacuation of large portions of the population as
well as damage and/or lack of access to the Company’s operating facility in New
Orleans.
  The
Company filed insurance claims related to both actual and contingent losses. The
Company received an advance to claim from an insurance company of $300,000 in
February 2006. A second advance to claim of $200,000 was received in April 2006
and a check in the amount of $78,000 in full settlement of any and all claims
was received in May 2006. The Company recorded all of the payments as insurance
recoveries for the year ended October 31, 2006.
 The
Company has categorized the costs associated with Hurricane Katrina as
follows:
  1.)
                        Personnel
      costs representing costs associated with payment of personnel primarily in
      New Orleans during the time
                          period
      the city was essentially shut down; 2.)
                        Plant
      costs represent all facilities, equipment and inventory charges incurred
      as a result of the hurricane using the
                          most
      current available information; 3.)
                        The
      allowance for doubtful accounts charge represents accounts receivable
      specifically reserved based on a
                          collectability
      analysis performed by the Company using the most current available
      information for customers
                          located
      in the New Orleans area at that time; 4.)
                        The
      relocation costs represent costs of closing the New Orleans production
      facility and associated costs
                          of
      moving equipment.  F-34
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  The
following table summarizes the cumulative costs incurred as of October 31, 2008
relating to Hurricane Katrina.
 Personnel
                            
                            $
                            88,423Plant
                            
                            
                            745,035Allowance
      for doubtful accounts
                            
                            
                            208,310Moving
      and relocation costs
                            
                            
                            255,215Total
      pre-tax hurricane expense
                            
                            
                            1,296,983Lease
      settlement recovery
                            
                            
                            75,583Insurance
      recoveries
                            
                            
                            577,677Total
      recoveries
                            
                            
                            653,260Cumulative
      impact of Hurricane Katrina, net
                            
                            $
                            643,723
 The Company recorded costs of $1,020,999 for the three months ended October, 31
2005 and costs of $275,984 and recoveries of $653,260 for the year ended October
31, 2006 relating to Hurricane Katrina. There were no costs or recoveries
associated with Hurricane Katrina recorded in 2007 and 2008.
  The costs and recoveries associated with Hurricane Katrina are reflected in the
consolidated statements of operations in the category “Hurricane and relocation
costs, net of recoveries” and are part of the printing segment.
 11. 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 long-term debt was estimated
using discounted cash flows and it approximates its carrying
value.
 F-35
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 12. Acquired Intangible Assets and
Goodwill
  2008
                        
                        
                        2007Gross
                        
                        
                        
                        
                        
                        GrossCarrying
                        
                        
                        Accumulated
                        
                        
                        Carrying
                        
                        
                        AccumulatedAmount
                        
                        
                        Amortization
                        
                        
                        Amount
                        
                        
                        AmortizationAmortizableintangible
      assets:Non-compete
      agreement
                        
                        $
                        1,000,000
                        
                        
                        $
                        595,238
                        
                        
                        $
                        1,000,000
                        
                        
                        $
                        452,381Customer
      relationships
                        
                        
                        2,451,073
                        
                        
                        
                        538,544
                        
                        
                        
                        2,451,073
                        
                        
                        
                        416,446Advertising and subscriber base
                        
                        
                        14,041,252
                        
                        
                        
                        789,820
                        
                        
                        
                        14,041,252
                        
                        
                        
                        87,758Other
                        
                        
                        564,946
                        
                        
                        
                        402,828
                        
                        
                        
                        564,946
                        
                        
                        
                        321,44518,057,271
                        
                        
                        
                        2,326,430
                        
                        
                        
                        18,057,271
                        
                        
                        
                        1,278,030Unamortizableintangible
      assets:Goodwill
                        
                        
                        39,402,056
                        
                        
                        
                        507,278
                        
                        
                        
                        39,360,935
                        
                        
                        
                        507,278Trademark and masthead
                        
                        
                        18,515,316
                        
                        
                        
                        -
                        
                        
                        
                        18,515,316
                        
                        
                        
                        -57,917,372
                        
                        
                        
                        507,278
                        
                        
                        
                        57,876,251
                        
                        
                        
                        507,278Total
      goodwill and other intangibles
                        
                        $
                        75,974,643
                        
                        
                        $
                        2,833,708
                        
                        
                        $
                        75,933,522
                        
                        
                        $
                        1,785,308
 F-36
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 Amortization
expense for the years ended October 31, 2008, 2007 and 2006 was $1,048,000,
$443,000 and $361,000 respectively. The non-compete agreement is being amortized
over a period of seven years and the customer relationships are being amortized
over a period of 20 years. These items are both related to the acquisition of
Syscan in 2004. The advertising and subscribers bases related to the
acquisition of The Herald-Dispatch are being amortized over 20 years. The
trademark and masthead associated with the acquisition of The Herald-Dispatch
are non-amortizing assets. The weighted average remaining life of the Company's
amortizable intangible assets was approximately 15 years. Estimated amortization
expense for each of the following years is:
  2009
                        
                        $
                        1,019,0792010
                        
                        
                        1,001,8662011
                        
                        
                        971,7082012
                        
                        
                        847,1602013
                        
                        
                        841,660Thereafter
                        
                        
                        11,049,368$
                        15,730,841
 
 
 The
changes in the carrying amount of goodwill for the years ended October 31, 2008
and 2007 were:
  2008
                        
                        
                        2007Balance
      as of November 1, 2007 and 2006
                        
                        $
                        38,853,657
                        
                        
                        $
                        3,411,511Goodwill
      acquired during the year additions
                        
                        
                        41,121
                        
                        
                        
                        35,442,146Balance
      as of October 31, 2008 and 2007
                        
                        $
                        38,894,778
                        
                        
                        $
                        38,853,657
 F-37
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 The
changes in the carrying amounts of goodwill and other intangibles attributed to
each segment at October 31, 2008 and 2007 are as follows:
  GOODWILLOctober 31,2007
                        
                        
                        Amortization
                                Expense
                        
                        
                        Other
                        
                        
                        October 31,
      2008Printing
                        
                        $
                        2,226,837
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,226,837Office
      products & furniture
                        
                        
                        1,230,485
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,230,485Newspaper
                        
                        
                        35,396,335
                        
                        
                        
                        -
                        
                        
                        
                        41,121
                        
                        
                        
                        35,437,456Total
                        
                        $
                        38,853,657
                        
                        
                        $
                        -
                        
                        
                        $
                        41,121
                        
                        
                        $
                        38,894,778October
      31, 2006
                        
                        
                        Amortization
                                    Expense
                        
                        
                        Other
                        
                        
                        October 31,
      2007Printing
                        
                        $
                        2,226,837
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,226,837Office
      products & furniture
                        
                        
                        1,184,674
                        
                        
                        
                        -
                        
                        
                        
                        45,811
                        
                        
                        
                        1,230,485Newspaper
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        35,396,335
                        
                        
                        
                        35,396,335Total
                        
                        $
                        3,411,511
                        
                        
                        $
                        -
                        
                        
                        $
                        35,442,146
                        
                        
                        $
                        38,853,657OTHER
      INTANGIBLESOctober 31,2007
                        
                        
                        Amortization
                            Expense
                        
                        
                        Other
                        
                        
                        October 31,
      2008Printing
                        
                        $
                        925,210
                        
                        
                        $
                        339,189
                        
                        
                        $
                        -
                        
                        
                        $
                        586,021Office
      products & furniture
                        
                        
                        1,900,537
                        
                        
                        
                        7,148
                        
                        
                        
                        -
                        
                        
                        
                        1,893,389Newspaper
                        
                        
                        32,468,810
                        
                        
                        
                        702,063
                        
                        
                        
                        -
                        
                        
                        
                        31,766,747Total
                        
                        $
                        35,294,557
                        
                        
                        $
                        1,048,400
                        
                        
                        $
                        -
                        
                        
                        $
                        34,246,157October
      31, 2006
                        
                        
                        Amortization
                            Expense
                        
                        
                        Other
                        
                        
                        October 31,
      2007Printing
                        
                        $
                        1,212,899
                        
                        
                        $
                        342,689
                        
                        
                        $
                        55,000
                        
                        
                        $
                        925,210Office
      products & furniture
                        
                        
                        1,912,792
                        
                        
                        
                        12,255
                        
                        
                        
                        -
                        
                        
                        
                        1,900,537Newspaper
                        
                        
                        -
                        
                        
                        
                        87,758
                        
                        
                        
                        32,556,568
                        
                        
                        
                        32,468,810Total
                        
                        $
                        3,125,691
                        
                        
                        $
                        442,702
                        
                        
                        $
                        32,611,568
                        
                        
                        $
                        35,294,557
  F-38
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 13. Certain Significant
Estimates
 
 Our
estimates that influence the financial statements are normally based on
knowledge and experience about past and current events and assumptions about
future events. The following estimates affecting the financial statements are
particularly sensitive because
of their significance and it is at least reasonably possible that a change in
these estimates will occur in the near term.
 
 Goodwill and Intangible
Assets
 
 We
evaluate the recoverability of the goodwill and intangible assets of each of our
reporting units as required under SFAS 142 by comparing the fair value of
each reporting unit with its carrying value. The fair values of our reporting
units are determined using a combination of a discounted cash flow analysis and
market multiples based on historical and projected financial information. We
apply our best judgment when assessing the reasonableness of the financial
projections used to determine the fair value of each reporting
unit.
 
 Allowance for Doubtful Accounts
 
 The
Company encounters risks associated with sales and the collection of the
associated accounts receivable. As such, the Company records a monthly provision
for accounts receivable that are considered to be uncollectible. In order to
calculate the appropriate monthly provision, the Company primarily utilizes a
historical rate of accounts receivables written off as a percentage of total
revenue. This historical rate is applied to the current revenues on a monthly
basis. The historical rate is updated periodically based on events that may
change the rate such as a significant increase or decrease in collection
performance and timing of payments as well as the calculated total exposure in
relation to the allowance. Periodically, the Company compares the identified
credit risks with the allowance that has been established using historical
experience and adjusts the allowance accordingly. The underlying assumptions
used for the allowance can change from period to period and could potentially
cause a material impact to the income statement and working
capital.
  Financial
Instruments
  In
managing interest rate risk exposure, the Company enters into interest rate swap
agreements. An interest rate swap is a contractual exchange of interest payments
between two parties. A standard interest rate swap involves the payment of a
fixed rate times a notional amount by one party in exchange for a floating rate
times the same notional amount from another party. As interest rates change, the
difference to be paid or received is accrued and recognized as interest expense
or income over the life of the agreement. These instruments are not entered into
for trading purposes. Counterparties to the Company’s interest rate swap
agreements are major financial institutions. In accordance with SFAS No. 133 ,
“Accounting for Derivative
Instruments and Certain Hedging Activities”, as amended by SFAS No. 137
and 138, the Company recognizes interest rate swap agreements on the balance
sheet at fair value. The interest rate swap agreements are marked to market with
changes in fair value recognized in other comprehensive income
(loss).
 F-39
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
  14. Derivative Instruments and
Hedging Activities
  The Company manages exposure to changes in market interest rates. The Company’s
use of derivative instruments is limited to highly effective fixed and floating
interest rate swap agreements used to manage well-defined interest rate risk
exposures. The Company monitors its positions and the credit ratings of its
counterparties and does not anticipate non-performance by the counterparties.
Interest rate swap agreements are not entered into for trading
purposes.
  At September 28, 2007, the Company was party to an interest rate swap agreement
which terminates on October 29, 2010. The swap agreement is with a major
financial institution and aggregates $25 million in notional principal amount.
This swap agreement effectively converted $25 million of variable interest rate
debt to fixed rate debt. The swap agreement requires the Company to make fixed
interest payments based on an average effective rate of 4.78% and receive
variable interest payments from its counterparties based on one-month LIBOR
(actual rate of 3.12% at October 31, 2008). The remaining term of this swap
agreement is approximately two years. In fiscal 2008 and 2007, the Company
recorded a net change in the fair value of the fixed interest rate swap
agreement in the amount of $546,563 and $11,350, net of income tax as other
comprehensive loss. The net additional interest payments made or received under
this swap agreement are recognized in interest expense.
  15. Earnings Per
Share
 
 Earnings
per share (EPS) were computed as follows:
  Income
                              
                              Weighted
                                Average
                                Shares
                              
                              Per
                                Share
                                AmountYear Ended October 31,
      2008Net
      income
                              
                              $
                              6,022,084Basic
      earnings per shareIncome
      available to common shareholders
                              
                              
                              6,022,084
                              
                              
                              9,986,000
                              
                              $
                              0.60Effect
      of dilutive securities stock options
                              
                              
                              
                              
                              
                              38,000Diluted
      earnings per shareIncome
      available to common shareholders and assumed
    conversions
                              
                              $
                              6,022,084
                              
                              
                              10,024,000
                              
                              $
                              0.60Year Ended October 31,
      2007Net
      income
                              
                              $
                              6,080,140Basic
      earnings per shareIncome
      available to common shareholders
                              
                              
                              6,080,140
                              
                              
                              9,957,000
                              
                              $
                              0.61Effect
      of dilutive securities stock options
                              
                              
                              
                              
                              
                              146,000Diluted
      earnings per shareIncome
      available to common shareholders and assumed conversions
                              
                              $
                              6,080,140
                              
                              
                              10,103,000
                              
                              $
                              0.60Year Ended October 31,
      2006Net
      income
                              
                              $
                              5,473,848Basic
      earnings per shareIncome
      available to common shareholders
                              
                              
                              5,473,848
                              
                              
                              9,818,000
                              
                              $
                              0.56Effect
      of dilutive securities stock options
                              
                              
                              
                              
                              
                              154,000Diluted
      earnings per shareIncome
      available to common shareholders and assumed conversions
                              
                              $
                              5,473,848
                              
                              
                              9,972,000
                              
                              $
                              0.55
 F-40
 Champion Industries, Inc. and
Subsidiaries
  Notes to
Consolidated Financial Statements (continued)
 16. Quarterly Results of Operations
(unaudited)
 
 The
following is a summary of the quarterly results of operations for the years
ended October 31, 2008 and 2007.
 First
                                Quarter
                              
                              Second
                                Quarter
                              
                              Third
                                Quarter
                              
                              Fourth
                                QuarterRevenues2008
                              
                              $
                              40,294,000
                              
                              $
                              39,271,000
                              
                              $
                              39,716,000
                              
                              $
                              43,404,0002007
                              
                              $
                              34,939,000
                              
                              $
                              33,814,000
                              
                              $
                              35,592,000
                              
                              $
                              41,297,000Gross
    profit2008
                              
                              $
                              12,897,000
                              
                              $
                              12,770,000
                              
                              $
                              12,272,000
                              
                              $
                              14,276,0002007
                              
                              $
                              10,351,000
                              
                              $
                              10,191,000
                              
                              $
                              9,752,000
                              
                              $
                              12,556,000Net
    income2008
                              
                              $
                              1,278,000
                              
                              $
                              1,395,000
                              
                              $
                              1,067,000
                              
                              $
                              2,282,0002007
                              
                              $
                              1,268,000
                              
                              $
                              1,390,000
                              
                              $
                              1,031,000
                              
                              $
                              2,391,000Earnings per
      shareBasic2008
                              
                              $
                              0.13
                              
                              $
                              0.14
                              
                              $
                              0.11
                              
                              $
                              0.232007
                              
                              $
                              0.13
                              
                              $
                              0.14
                              
                              $
                              0.10
                              
                              $
                              0.24Diluted2008
                              
                              $
                              0.13
                              
                              $
                              0.14
                              
                              $
                              0.11
                              
                              $
                              0.232007
                              
                              $
                              0.13
                              
                              $
                              0.14
                              
                              $
                              0.10
                              
                              $
                              0.24Weighted average shares
      outstandingBasic2008
                              
                              
                              9,981,000
                              
                              
                              9,988,000
                              
                              
                              9,988,000
                              
                              
                              9,988,0002007
                              
                              
                              9,939,000
                              
                              
                              9,962,000
                              
                              
                              9,963,000
                              
                              
                              9,963,000Diluted2008
                              
                              
                              10,045,000
                              
                              
                              10,041,000
                              
                              
                              10,023,000
                              
                              
                              9,988,0002007
                              
                              
                              10,110,000
                              
                              
                              10,133,000
                              
                              
                              10,106,000
                              
                              
                              10,064,000
  F-41
 Champion Industries, Inc. and
Subsidiaries
  Schedule
II
  Valuation
and Qualifying Accounts
  Years
Ended October 31, 2008, 2007 and 2006
  
 Description
                              
                              Balance at beginning of
      period
                              
                              
                              Balances of acquired
      companies
                              
                              
                              Additions charged to costs and
      expense
                              
                              
                              Deductions(1)
                              
                              
                              Balance at end of
      period2008Allowance
      for doubtful accounts
                              
                              $
                              1,511,037
                              
                              
                              $
                              -
                              
                              
                              $
                              854,283
                              
                              
                              $
                              (513,835
                              )
                              
                              $
                              1,851,4852007Allowance
      for doubtful accounts
                              
                              $
                              1,557,895
                              
                              
                              $
                              117,768
                              
                              
                              $
                              491,934
                              
                              
                              $
                              (656,560
                              )
                              
                              $
                              1,511,0372006Allowance
      for doubtful accounts
                              
                              $
                              1,410,308
                              
                              
                              $
                              -
                              
                              
                              $
                              979,089
                              
                              
                              $
                              (831,502
                              )
                              
                              
                              1,557,895
  (1) Uncollectible accounts
written off, net of recoveries.
  F-42