##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 For the quarterly period ended April 30, 2004
    
    Commission File No. 0-21084
   Champion Industries, Inc.  West Virginia
    
    55-0717455(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2450-90 1st Avenue
P.O. Box 2968
Huntington, WV 25728 (Address of principal executive offices)
(Zip Code) (304) 528-2700 (Registrants telephone number,
including area code)   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No o. Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes
o Noþ . 9,733,913 shares of common stock of the Registrant were outstanding at
April 30, 2004.




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##### 



Champion Industries, Inc. INDEX Page No.Part I.Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets (Unaudited)
    
    
    3Consolidated Statements of Income (Unaudited)
    
    
    5Consolidated Statements of Cash Flows (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3a. Quantitative and Qualitative Disclosure About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II.Other InformationItem 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits and Reports on Form 8-K
    
    
    19Signatures
    
    
    21
 2




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##### 



PART I  FINANCIAL INFORMATION Item 1. Financial Statements Champion Industries, Inc. and Subsidiaries Consolidated Balance Sheets
 April 30,
    
    October 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,040,763
    
    
    $
    2,171,713Accounts receivable, net of allowance of $1,196,000 and $1,191,000
    
    
    17,647,353
    
    
    
    20,142,812Inventories
    
    
    10,710,336
    
    
    
    11,349,929Other current assets
    
    
    1,454,908
    
    
    
    739,560Deferred income tax assets
    
    
    1,059,520
    
    
    
    1,059,520Total current assets
    
    
    32,912,880
    
    
    
    35,463,534Property and equipment, at cost:Land
    
    
    2,063,373
    
    
    
    2,063,373Buildings and improvements
    
    
    8,392,371
    
    
    
    7,445,219Machinery and equipment
    
    
    39,958,396
    
    
    
    37,682,530Equipment under capital leases
    
    
    983,407
    
    
    
    983,407Furniture and fixtures
    
    
    3,104,385
    
    
    
    2,965,389Vehicles
    
    
    3,320,283
    
    
    
    3,262,86157,822,215
    
    
    
    54,402,779Less accumulated depreciation
    
    
    (36,730,329
    )
    
    
    (34,964,006
    )21,091,886
    
    
    
    19,438,773Cash surrender value of officers life insurance
    
    
    988,134
    
    
    
    1,020,795Goodwill and other intangibles
    
    
    2,225,576
    
    
    
    2,114,390Other assets
    
    
    328,193
    
    
    
    431,3433,541,903
    
    
    
    3,566,528Total assets
    
    $
    57,546,669
    
    
    $
    58,468,835
 See notes to consolidated financial statements. 3




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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(Unaudited) April 30,
    
    October 31,2004
    
    2003LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,453,577
    
    
    $
    3,283,222Accrued payroll
    
    
    1,093,106
    
    
    
    1,500,165Taxes accrued and withheld
    
    
    1,300,478
    
    
    
    1,259,853Accrued income taxes
    
    
    6,149
    
    
    
    707,119Accrued expenses
    
    
    739,985
    
    
    
    789,676Current portion of long-term debt:Notes payable
    
    
    703,370
    
    
    
    744,662Capital lease obligations
    
    
    207,153
    
    
    
    202,309Total current liabilities
    
    
    6,503,818
    
    
    
    8,487,006Long-term debt, net of current portion:Notes payable, line of credit
    
    
    3,014,000
    
    
    
    1,705,668Notes payable, term
    
    
    2,705,053
    
    
    
    2,103,569Capital lease obligations
    
    
    48,805
    
    
    
    156,718Other liabilities
    
    
    424,909
    
    
    
    424,233Deferred income tax liability
    
    
    2,900,807
    
    
    
    2,900,807Total liabilities
    
    
    15,597,392
    
    
    
    15,778,001Shareholders equity:Common stock, $1 par value, 20,000,000 shares authorized;
9,733,913 and 9,713,913 shares issued and outstanding
    
    
    9,733,913
    
    
    
    9,713,913Additional paid-in capital
    
    
    22,278,110
    
    
    
    22,242,047Retained earnings
    
    
    9,937,254
    
    
    
    10,734,874Total shareholders equity
    
    
    41,949,277
    
    
    
    42,690,834Total liabilities and shareholders equity
    
    $
    57,546,669
    
    
    $
    58,468,835
 See notes to consolidated financial statements. 4




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##### 



Champion Industries, Inc. and Subsidiaries Consolidated Statements of Income
 Three Months Ended
    
    Six Months EndedApril 30,
    
    April 30,2004
    
    2003
    
    2004
    
    2003Revenues:Printing
    
    $
    24,137,454
    
    
    $
    23,904,047
    
    
    $
    47,135,346
    
    
    $
    46,510,694Office products and office
furniture
    
    
    6,363,445
    
    
    
    5,425,140
    
    
    
    12,679,026
    
    
    
    11,437,434Total revenues
    
    
    30,500,899
    
    
    
    29,329,187
    
    
    
    59,814,372
    
    
    
    57,948,128Cost of sales:Printing
    
    
    17,483,303
    
    
    
    17,276,671
    
    
    
    34,506,803
    
    
    
    33,810,597Office products and office
furniture
    
    
    4,129,793
    
    
    
    3,560,676
    
    
    
    8,453,894
    
    
    
    7,727,942Total cost of sales
    
    
    21,613,096
    
    
    
    20,837,347
    
    
    
    42,960,697
    
    
    
    41,538,539Gross profit
    
    
    8,887,803
    
    
    
    8,491,840
    
    
    
    16,853,675
    
    
    
    16,409,589Selling, general and
administrative expenses
    
    
    8,611,461
    
    
    
    7,572,601
    
    
    
    16,532,515
    
    
    
    15,028,285Income from operations
    
    
    276,342
    
    
    
    919,239
    
    
    
    321,160
    
    
    
    1,381,304Other income (expense):Interest income
    
    
    1,180
    
    
    
    595
    
    
    
    2,798
    
    
    
    2,048Interest expense
    
    
    (56,590
    )
    
    
    (53,416
    )
    
    
    (103,269
    )
    
    
    (105,440
    )Other
    
    
    50,045
    
    
    
    21,264
    
    
    
    73,079
    
    
    
    46,787(5,365
    )
    
    
    (31,557
    )
    
    
    (27,392
    )
    
    
    (56,605
    )Income before income taxes
    
    
    270,977
    
    
    
    887,682
    
    
    
    293,768
    
    
    
    1,324,699Income taxes
    
    

    (109,822
    )
    
    
    (370,769
    )
    
    
    (119,000
    )
    
    
    (553,469
    )Net income
    
    $
    161,155
    
    
    $
    516,913
    
    
    $
    174,768
    
    
    $
    771,230Earnings per shareBasic
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.08Diluted
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.08Weighted average shares
outstanding:Basic
    
    
    9,731,000
    
    
    
    9,714,000
    
    
    
    9,724,000
    
    
    
    9,714,000Diluted
    
    
    9,864,000
    
    
    
    9,750,000
    
    
    
    9,845,000
    
    
    
    9,740,000Dividends per share
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.10
 See notes to consolidated financial statements. 5




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##### 



Champion Industries, Inc. and Subsidiaries Consolidated Statements of Cash Flows
 Six Months EndedApril 30,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    174,768
    
    
    $
    771,230Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    2,123,338
    
    
    
    2,026,944Gain on sale of assets
    
    
    (5,133
    )
    
    
    (4,450
    )Increase in deferred compensation
    
    
    5,362
    
    
    
    7,149Bad debt expense
    
    
    216,181
    
    
    
    (16,466
    )Changes in assets and liabilities:Accounts receivable
    
    
    2,279,278
    
    
    
    1,185,370Inventories
    
    
    639,593
    
    
    
    (1,210
    )Other current assets
    
    
    (715,348
    )
    
    
    633,828Accounts payable
    
    
    (829,645
    )
    
    
    (906,757
    )Accrued payroll
    
    
    (407,059
    )
    
    
    (640,993
    )Taxes accrued and withheld
    
    
    40,625
    
    
    
    (158,945
    )Accrued income taxes
    
    
    (700,970
    )
    
    
    (539,040
    )Accrued expenses
    
    
    (49,691
    )
    
    
    (53,349
    )Other liabilities
    
    
    (4,686
    )
    
    
    (9,953
    )Net cash provided by operating activities
    
    
    2,766,613
    
    
    
    2,293,358Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,708,225
    )
    
    
    (1,953,099
    )Proceeds
from sales of property and equipment
    
    
    83,614
    
    
    
    81,448Decrease in other assets
    
    
    (154,742
    )
    
    
    53,034Decrease in cash surrender value life insurance
    
    
    32,661
    
    
    
    23,421Net cash used in investing activities
    
    
    (3,746,692
    )
    
    
    (1,795,196
    )Cash flows from financing activities:Borrowings on line of credit
    
    
    2,745,000
    
    
    
    1,500,000Payments on line of credit
    
    
    (1,436,688
    )
    
    
    (500,000
    )Proceeds from term debt and leases
    
    
    1,000,000
    
    
    
    572,550Principal payments on long-term debt
    
    
    (542,857
    )
    
    
    (1,499,639
    )Proceeds from exercise of stock options
    
    
    56,063
    
    
    
    Dividends paid
    
    
    (972,389
    )
    
    
    (971,390
    )Net cash provided by (used in) financing activities
    
    
    849,129
    
    
    
    (898,479
    )Net decrease in cash and cash equivalents
    
    
    (130,950
    )
    
    
    (400,317
    )Cash and cash equivalents, beginning of period
    
    
    2,171,713
    
    
    
    4,507,139Cash and cash equivalents, end of period
    
    $
    2,040,763
    
    
    $
    4,106,822
 See notes to consolidated financial statements. 6




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Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) April 30, 2004 1. Basis of Presentation and Business Operations The foregoing financial information has been prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP) and rules and regulations of the Securities and Exchange Commission
for interim financial reporting. The preparation of the financial statements in
accordance with GAAP 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. In the opinion of management,
the financial information reflects all adjustments (consisting of items of a
normal recurring nature) necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with GAAP. These
interim financial statements should be read in conjunction with the
consolidated financial statements for the year ended October 31, 2003, and
related notes thereto contained in Champion Industries, Inc.s Form 10-K dated
January 26, 2004. The accompanying interim financial information is unaudited.
The balance sheet information as of October 31, 2003 was derived from our
audited financial statements. Certain prior-year amounts have been reclassified to conform to the current
year Financial Statement presentation. 2. 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. The dilutive effect of stock options was 133,000
and 121,000 shares for the three and six months ended April 30, 2004 and 36,000
and 26,000 shares for the three and six months ended April 30, 2003. 3. 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. The Company utilizes an estimated gross profit method for
determining cost of sales in interim periods. Inventories consisted of the following: April 30,
    
    October 31,2004
    
    2003Printing:Raw materials
    
    $
    2,137,549
    
    
    $
    2,203,228Work in process
    
    
    1,962,131
    
    
    
    2,022,420Finished goods
    
    
    3,570,476
    
    
    
    3,680,184Office products and office furniture
    
    
    3,040,180
    
    
    
    3,444,097$
    10,710,336
    
    
    $
    11,349,929
 7




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Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continue) 4. Long-Term Debt Long-term debt consisted of the following: April 30,
    
    October 31,2004
    
    2003Installment notes payable to banks
    
    $
    3,408,423
    
    
    $
    2,848,231Capital lease obligations
    
    
    255,958
    
    
    
    359,0273,664,381
    
    
    
    3,207,258Less current portion
    
    
    910,523
    
    
    
    946,971Long-term debt, net of current portion
    
    $
    2,753,858
    
    
    $
    2,260,287
 The Company has an unsecured revolving line of credit with a bank for
borrowings to a maximum of $10,000,000 with interest payable monthly at
interest rates at LIBOR plus 1% to 1.5%. This line of credit expires in July
2006 and contains certain restrictive financial covenants. There was $3,014,000
and $1,705,668 outstanding under this facility at April 30, 2004 and October
31, 2003. 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. The line of credit expires in October 2005 and
contains certain financial covenants. There were no borrowings outstanding
under this facility at April 30, 2004. During the second quarter of 2004 the Company financed a previously funded
press purchase with a term note for $1.0 million at the Wall Street Journal
prime rate. The Companys non-cash activities for the six months ended April 30, 2004 and
2003 included vehicle purchases of approximately $0 and $96,000, which were
financed by a bank and for the six months ended April 30, 2003 the purchase of
a building in Baton Rouge, Louisiana of which $1,440,000 of the purchase price
was financed by a bank. 5. Shareholders Equity The Company paid a dividend of five cents per share on March 22, 2004 to
stockholders of record on March 5, 2004. Also, the Company declared a dividend
of five cents per share to be paid on June 21, 2004 to stockholders of record
on June 4, 2004. 6. Commitments and Contingencies On February 16, 2002, a jury verdict was rendered against the Company in a
civil action brought against the Company in state court in Jackson,
Mississippi. The plaintiffs in this civil action asserted that the Company and its Dallas
Printing Company, Inc. subsidiary had engaged in unfair competition and other
wrongful acts in hiring certain of its employees. The jury awarded the
plaintiffs $1,745,000 in actual damages and $750,000 in punitive damages. 8




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Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) On March 1, 2002, the plaintiffs in the civil action filed a motion for
attorneys fees and costs in the amount of $889,401. On July 16, 2002, the
court entered an order granting plaintiff $645,119 in attorney fees and
expenses, and ordered that interest on the amount of the jury award accrue from
February 22, 2002. On July 17, 2002, the Company filed a notice of appeal from the jury verdict.
The appeal involves both the jury award and the attorneys fee and expense
award. If the Company is not successful on appeal, Mississippi law provides
that it is liable for an additional 15% of the total award. The Company was advised on February 3, 2004 that the Court of Appeals of the
State of Mississippi has reversed the aforementioned judgment and jury verdict
rendered against the Company and has remanded the case for new trial. As a
result of this action plaintiffs had 14 days from February 3, 2004 to petition
the appeals court for rehearing of its ruling. The plaintiffs filed their
petition for rehearing on February 17, 2004. The Company had 7 days to respond
to such a petition and the Companys response was filed on February 24, 2004.
Unless the appeals court reverses its order upon petition, the effect of the
appeals court is to negate the lower courts award of damages and attorneys
fees previously granted against the Company, and grant a new trial on
plaintiffs claims. If the appeals court does not reverse its order, plaintiffs
may seek an appeal to the Mississippi Supreme Court. Similarly, if the appeals
court reverses its order, the Company may seek an appeal to the Mississippi
Supreme Court. The Company has been advised that it has no insurance coverage for this award.
If upon final resolution of the appeals process, the verdict is not overturned,
the impact on the operating results of the Company could be material. As of April 30, 2004 the Company had contractual obligations in the form of
leases and debt as follows: Payments Due by Fiscal YearContractual Obligations
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Residual
    
    TotalNon-cancelable operating leases
    
    $
    546,826
    
    
    $
    838,513
    
    
    $
    751,053
    
    
    $
    555,103
    
    
    $
    399,594
    
    
    $
    6,000
    
    
    $
    3,097,089Revolving line of credit
    
    
    
    
    
    
    
    
    
    
    3,014,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,014,000Term debt
    
    
    703,370
    
    
    
    533,769
    
    
    
    446,691
    
    
    
    464,436
    
    
    
    319,964
    
    
    
    940,193
    
    
    
    3,408,423Obligations under capital leases
    
    
    207,153
    
    
    
    48,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    255,958$
    1,457,349
    
    
    $
    1,421,087
    
    
    $
    4,211,744
    
    
    $
    1,019,539
    
    
    $
    719,558
    
    
    $
    946,193
    
    
    $
    9,775,470
 9




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##### 



Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) 7. Accounting for Stock-Based Compensation In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure. Statement 148 amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition to Statement 123s fair value method of
accounting for stock-based employee compensation. The Company has 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 is recognized. 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 for 2004 and 2003, respectively: risk-free interest rates of 4.03%
and 3.97%; dividend yields of 4.21% and 7.22%; volatility factors of the
expected market price of the Companys common stock of 54.0% and 46.4%; 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 is
expensed in the year granted since the options vest immediately. The Companys
pro forma information for the quarters and six months ended April 30 are as
follows: Three Months Ended
    
    Six Months EndedApril
30
    
    April 302004
    
    2003
    
    2004
    
    2003Net Income, as reported
    
    $
    161,155
    
    
    $
    516,913
    
    
    $
    174,768
    
    
    $
    771,230Deduct: Total
stock-based employee
compensation expense
determined under fair
value method for all
awards, net of related
tax effects
    
    
    
    
    
    
    
    
    
    
    109,962
    
    
    
    47,200Pro Forma net income
    
    $
    161,155
    
    
    $
    516,913
    
    
    $
    64,806
    
    
    $
    724,030Earnings per share:Basic, as reported
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.08Basic, pro forma
    
    
    0.02
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    0.07Diluted, as reported
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.08Diluted, pro forma
    
    
    0.02
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    0.07
 10




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##### 



Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) 8. Industry Segment Information The Company operates principally in two 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) and the sale of office products and
office furniture including interior design services. The table below presents information about reported segments for the three and
six months ended April 30: Office Products2004 Quarter 2
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    27,068,780
    
    
    $
    7,908,579
    
    
    $
    34,977,359Elimination of intersegment revenue
    
    
    (2,931,326
    )
    
    
    (1,545,134
    )
    
    
    (4,476,460
    )Consolidated revenues
    
    $
    24,137,454
    
    
    $
    6,363,445
    
    
    $
    30,500,899Operating income
    
    
    297,582
    
    
    
    (21,240
    )
    
    
    276,342Depreciation & amortization
    
    
    1,089,450
    
    
    
    58,762
    
    
    
    1,148,212Capital expenditures
    
    
    2,689,128
    
    
    
    9,839
    
    
    
    2,698,967Identifiable assets
    
    
    48,131,179
    
    
    
    9,415,490
    
    
    
    57,546,669Goodwill
    
    
    1,774,344
    
    
    
    286,442
    
    
    
    2,060,786
 Office Products2003 Quarter 2
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    26,372,039
    
    
    $
    6,666,610
    
    
    $
    33,038,649Elimination of intersegment revenue
    
    
    (2,467,992
    )
    
    
    (1,241,470
    )
    
    
    (3,709,462
    )Consolidated revenues
    
    $
    23,904,047
    
    
    $
    5,425,140
    
    
    $
    29,329,187Operating income
    
    
    797,482
    
    
    
    121,757
    
    
    
    919,239Depreciation & amortization
    
    
    983,395
    
    
    
    36,754
    
    
    
    1,020,149Capital expenditures
    
    
    2,895,686
    
    
    
    24,951
    
    
    
    2,920,637Identifiable assets
    
    
    49,339,095
    
    
    
    9,275,736
    
    
    
    58,614,831Goodwill
    
    
    1,447,308
    
    
    
    286,442
    
    
    
    1,733,750
 11




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##### 



Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) Office Products2004 Year to date
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    52,598,800
    
    
    $
    15,598,533
    
    
    $
    68,197,333Elimination of intersegment revenue
    
    
    (5,463,454
    )
    
    
    (2,919,507
    )
    
    
    (8,382,961
    )Consolidated revenues
    
    $
    47,135,346
    
    
    $
    12,679,026
    
    
    $
    59,814,372Operating income
    
    
    474,966
    
    
    
    (153,806
    )
    
    
    321,160Depreciation & amortization
    
    
    2,051,147
    
    
    
    72,191
    
    
    
    2,123,338Capital expenditures
    
    
    3,682,677
    
    
    
    25,548
    
    
    
    3,708,225Identifiable assets
    
    
    48,131,179
    
    
    
    9,415,490
    
    
    
    57,546,669Goodwill
    
    
    1,774,344
    
    
    
    286,442
    
    
    
    2,060,786
 Office Products2003 Year to date
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    51,606,315
    
    
    $
    13,884,759
    
    
    $
    65,491,074Elimination of intersegment revenue
    
    
    (5,095,621
    )
    
    
    (2,447,325
    )
    
    
    (7,542,946
    )Consolidated revenues
    
    $
    46,510,694
    
    
    $
    11,437,434
    
    
    $
    57,948,128Operating income
    
    
    1,271,906
    
    
    
    109,398
    
    
    
    1,381,304Depreciation & amortization
    
    
    1,957,040
    
    
    
    69,904
    
    
    
    2,026,944Capital expenditures
    
    
    3,430,224
    
    
    
    59,341
    
    
    
    3,489,565Identifiable assets
    
    
    49,339,095
    
    
    
    9,275,736
    
    
    
    58,614,831Goodwill
    
    
    1,447,308
    
    
    
    286,442
    
    
    
    1,733,750
 12




---



##### 



Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (continued) A reconciliation of total segment revenues and of total segment operating
income to income before income taxes, for the three and six months ended April
30, 2004 and 2003, is as follows: Three months
    
    Six months2004
    
    2003
    
    2004
    
    2003Revenues:Total segment revenues
    
    $
    34,977,359
    
    
    $
    33,038,649
    
    
    $
    68,197,333
    
    
    $
    65,491,074Elimination of intersegment revenue
    
    
    (4,476,460
    )
    
    
    (3,709,462
    )
    
    
    (8,382,961
    )
    
    
    (7,542,946
    )Consolidated revenue
    
    $
    30,500,899
    
    
    $
    29,329,187
    
    
    $
    59,814,372
    
    
    $
    57,948,128Operating Income:Total segment operating income
    
    $
    276,342
    
    
    $
    919,239
    
    
    $
    321,160
    
    
    $
    1,381,304Interest income
    
    
    1,180
    
    
    
    595
    
    
    
    2,798
    
    
    
    2,048Interest expense
    
    
    (56,590
    )
    
    
    (53,416
    )
    
    
    (103,269
    )
    
    
    (105,440
    )Other income
    
    
    50,045
    
    
    
    21,264
    
    
    
    73,079
    
    
    
    46,787Consolidated income before income
taxes
    
    $
    270,977
    
    
    $
    887,682
    
    
    $
    293,768
    
    
    $
    1,324,699Identifiable assets:Total segment identifiable assets
    
    $
    57,546,669
    
    
    $
    58,614,831
    
    
    $
    57,546,669
    
    
    $
    58,614,831Elimination of intersegment assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consolidated assets
    
    $
    57,546,669
    
    
    $
    58,614,831
    
    
    $
    57,546,669
    
    
    $
    58,614,831
 13




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##### 



Champion Industries, Inc. and Subsidiaries Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth, for the periods indicated, information derived
from the Consolidated Income Statements as a percentage of total revenues. Percentage of Total RevenuesThree Months Ended
    
    Six Months EndedApril 30,
    
    April 30,2004
    
    2003
    
    2004
    
    2003Revenues:Printing
    
    
    79.1
    %
    
    
    81.5
    %
    
    
    78.8
    %
    
    
    80.3
    %Office products and office furniture
    
    
    20.9
    
    
    
    18.5
    
    
    
    21.2
    
    
    
    19.7Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales:Printing
    
    
    57.3
    
    
    
    58.9
    
    
    
    57.7
    
    
    
    58.4Office products and office furniture
    
    
    13.6
    
    
    
    12.1
    
    
    
    14.1
    
    
    
    13.3Total cost of sales
    
    
    70.9
    
    
    
    71.0
    
    
    
    71.8
    
    
    
    71.7Gross profit
    
    

    29.1
    
    
    
    29.0
    
    
    
    28.2
    
    
    
    28.3Selling, general and administrative expenses
    
    
    28.2
    
    
    
    25.8
    
    
    
    27.6
    
    
    
    25.9Income from operations
    
    
    0.9
    
    
    
    3.2
    
    
    
    0.6
    
    
    
    2.4Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Interest (expense)
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Other income
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Income before taxes
    
    
    0.9
    
    
    
    3.1
    
    
    
    0.5
    
    
    
    2.3Income tax expense
    
    
    (0.4
    )
    
    
    (1.3
    )
    
    
    (0.2
    )
    
    
    (1.0
    )Net income
    
    
    0.5
    %
    
    
    1.8
    %
    
    
    0.3
    %
    
    
    1.3
    %
 Three Months Ended April 30, 2004 Compared to Three Months Ended April 30, 2003 Revenues Total revenues increased 4.0% in the second quarter of 2004 compared to the
same period in 2003 to $30.5 million from $29.3 million. Printing revenue
increased 1.0% in the second quarter of 2004 to $24.1 million from $23.9
million in the second quarter of 2003. Office products and office furniture
revenue increased 17.3% in the second quarter of 2004 to $6.4 million from $5.4
million in the second quarter of 2003. The revenue increase was primarily
attributable to strategic acquisitions completed in the third quarter
of 2003 in both segments. Cost of Sales Total cost of sales increased 3.7% in the second quarter of 2004 to $21.6
million from $20.8 million in the second quarter of 2003. Printing cost of
sales in the second quarter of 2004 increased $207,000 and increased slightly
as a percentage of printing sales from 72.3% in 2003 to 72.4% in 2004. Office
products and office furniture cost of sales increased 16.0% or 14




---



##### 



approximately $569,000 in 2004 to $4.1 million from $3.6 million in 2003. The
increase in office products and office furniture cost of sales is attributable
to the higher sales discussed above. The decrease in office products and office
furniture cost of sales as a percent of sales is reflective of reduced costs
resulting from an import program, margin enhancements on sales growth and new
pricing programs for the calendar year. Operating Expenses In the second quarter of 2004, selling, general, and administrative expenses
increased on a gross dollar basis to $8.6 million from $7.6 million in 2003, an
increase of $1,039,000 or 13.7%. This increase resulted in selling, general and
administrative expenses as a percentage of sales increasing to 28.2% in 2004
from 25.8% in 2003. The increase in selling, general and administrative expenses is primarily due
to acquisitions completed in the third quarter of 2003, costs incurred in the
consolidation of facilities, higher payroll costs to support sales initiatives
and increased professional fees for accounting and legal costs. Selling,
general and administrative expenses were favorably impacted during the second
quarter of 2003 as a result of a decrease in bad debt expense resulting from a
customer in bankruptcy who subsequently paid in full. Income from Operations and Other Income and Expenses Income from operations decreased 69.9% in the second quarter of 2004 to
$276,000 from $919,000 in the second quarter of 2003. This decrease is the
result of increased selling, general and administrative expenses partially
offset by increased gross profit contributions as discussed above. Income Taxes The Companys effective income tax rate was 40.5% for the second quarter of
2004 and 41.8% for the second quarter of 2003. The effective income tax rate
approximates the combined federal and state, net of federal benefit, statutory
income tax rate. Net Income Net income for the second quarter of 2004 was $161,000 compared to net income
of $517,000 in the second quarter of 2003. Basic and diluted earnings per
share for the three months ended April 30, 2004 and 2003 were $0.02 and $0.05. Six Months Ended April 30, 2004 Compared to Six Months Ended April 30, 2003 Revenues Total revenues increased 3.2% in the first six months of 2004 compared to the
same period in 2003 to $59.8 million from $57.9 million. Printing revenue
increased 1.3% in the six month period ended April 30, 2004 to $47.1 million
from $46.5 million in the same period in 2003. Office products and office
furniture revenue increased 10.9% in the six month period ended April 30, 2004
to $12.7 million from $11.4 million in the same period in 2003. The revenues
in the printing and office products and office furniture segment increased
primarily due to strategic acquisitions completed during the third quarter of
2003 in both segments. 15




---



##### 



Cost of Sales Total cost of sales increased 3.4% in the six months ended April 30, 2004 to
$43.0 million from $41.5 million in the six months ended April 30, 2003.
Printing cost of sales increased 2.1% in the six months ended April 30, 2004 to
$34.5 million from $33.8 million in the six months ended April 30, 2003, due
primarily to the increase in printing sales noted above and gross margin
compression resulting from increased material and outside purchase costs.
Office products and office furniture cost of sales increased 9.4% in the six
months ended April 30, 2004 to $8.5 million from $7.7 million in the six months
ended April 30, 2003 but decreased as a percent of sales from 67.6% in 2003 to
66.7% in 2004. The increase in office products and office furniture cost of
sales is attributable to an increase in office products and office furniture
sales. The decrease in office products and office furniture cost of sales as a
percent of sales is reflective of reduced costs resulting from an import
program, margin enhancements on sales growth and new pricing programs for the
calendar year, of which four months are included in the six months ended April
30, 2004. Operating Expenses During the six months ended April 30, 2004 compared to the same period in 2003,
selling, general and administrative expenses increased as a percentage of sales
to 27.6% from 25.9%. Total selling, general and administrative
expenses
increased $1.5 million. The increase in selling, general and administrative
expenses is primarily due to acquisitions completed in the third quarter of
2003, costs incurred in the consolidation of facilities during the second
quarter of 2004, higher payroll costs to support sales initiatives and
increased professional fees for accounting and legal costs. Selling, general
and administrative expenses were favorably impacted during the second quarter
of 2003 as a result of a decrease in bad debt expense resulting from a customer
in bankruptcy who subsequently paid in full. Income from Operations and Other Income and Expenses Income from operations decreased 76.8% in the six month period ended April 30,
2004 to $321,000 from $1.4 million in the same period of 2003. This decrease is
the result of increased selling, general and administrative expenses partially
offset by increased gross profit contributions as discussed above. Income Taxes The Companys effective income tax rate was 40.5% for the six months ended
April 30, 2004, down from 41.8% in the same period of 2003. The effective
income tax rate approximates the combined federal and state, net of federal
benefit, statutory income tax rate and is partially impacted by the geographic
profitability mix of our operations. Net Income Net income for the first six months of 2004 decreased 77.3% to $175,000 from
$771,000 in the same period of 2003 due to the reasons discussed above. Basic
and diluted earnings per share for the six months ended April 30, 2004 and
2003, were $0.02 and $0.08. 16




---



##### 



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 sales and purchase contracts;
therefore, to the extent permitted by competition, it has the ability to pass
through to the customer most cost increases resulting from inflation, if any. 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. Liquidity and Capital Resources Net cash provided by operations for the six months ended April 30, 2004, was
$2.8 million compared to net cash provided by operations of $2.3 million during
the same period in 2003. This change in net cash from operations is due
primarily to timing changes in assets and liabilities including a reduction in
inventories in 2004 versus a slight increase in 2003 and an increase in cash
generated from accounts receivable collections representing $2.3 million in
2004 compared to $1.2 million in 2003. These items were partially offset by
increases in other current assets compared to decreases in other current assets
in 2003, resulting from a deposit refund in 2003 to purchase a fractional
ownership in an aircraft from an entity controlled by its Chief Executive
Officer in the amount of $875,000. Net cash used in investing activities for the six months ended April 30, 2004
was $3.7 million compared to $1.8 million during the same period in 2003. The
net cash used in investing activities during the first six months of 2004 and
2003 primarily relates to equipment purchases and expenditures for buildings and improvements. Net cash provided by financing activities for the six months ended April 30,
2004 was $849,000 compared to net cash used in financing activities of $898,000
during the same period in 2003. This change is primarily due to $300,000 in net
additional borrowings on the Companys line of credit, an additional $400,000
of net proceeds from term debt borrowings secured by equipment, and lower
principal payments in 2004. Working capital on April 30, 2004 was $26.4 million, a decrease of $567,000
from October 31, 2003. Management believes that working capital and operating
ratios remain at acceptable levels. During the second quarter of 2004, the Company entered into a purchase
agreement with an equipment manufacturer for the purchase of a printing press
for approximately $479,000. As a result of this commitment the Company paid
this manufacturer a deposit of $96,000. The Company expects that the combination of funds available from working
capital, borrowings available under the Companys credit facilities and
anticipated cash flows from operations will provide sufficient capital
resources for the foreseeable future. In the event the Company seeks to
accelerate internal growth or make acquisitions beyond these sources,
additional financing would be necessary. 17




---



##### 



Environmental Regulation The Company is subject to the environmental laws and regulations of the United
States, and the states in which it operates, concerning emissions into the air,
discharges into the waterways and the generation, handling and disposal of
waste materials. The Companys past expenditures relating to environmental
compliance have not had a material effect on the Company. These laws and
regulations are constantly evolving, and it is impossible to predict accurately
the effect they may have upon the capital expenditures, earnings, and
competitive position of the Company in the future. Based upon information
currently available, management believes that expenditures relating to
environmental compliance will not have a material impact on the financial
position of the Company. Special Note Regarding Forward-Looking Statements Certain statements contained in this Form 10-Q, 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 27A of the Securities Act of 1933, as amended (the
Securities Act), and 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 conditions, changes in business strategy or
development plans, and other factors referenced in this Form 10-Q. Given these
uncertainties, readers 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. ITEM 3a. Quantitative and Qualitative Disclosure About Market Risk The Registrant is currently financing primarily with equity capital.
Therefore, changes in interest rates do not have a material impact on the
Companys Financial Statements. ITEM 4. 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. There were
no changes in internal controls over financial reporting during the last fiscal
quarter that have materially affected or are reasonably likely to materially
affect the Companys internal controls over financial reporting. 18




---



##### 



PART II  OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held March 15, 2004, the following
matters were voted upon:  a) Fixing the number of directors at eight (8) and election of the
following nominees as directors, with votes for and withheld, as well
as broker non-votes, as follows: Director
    
    Votes "For"
    
    Votes "Withheld"
    
    Broker Non-votesLouis J. Akers
    
    
    9,214,733
    
    
    
    45,624
    
    
    
    -0-Philip E. Cline
    
    
    9,233,381
    
    
    
    26,976
    
    
    
    -0-Charles R. Hooten, Jr.
    
    
    9,236,726
    
    
    
    23,631
    
    
    
    -0-Harley F. Mooney, Jr.
    
    
    9,238,796
    
    
    
    21,561
    
    
    
    -0-A. Michael Perry
    
    
    9,238,796
    
    
    
    21,561
    
    
    
    -0-Marshall T. Reynolds
    
    
    9,220,253
    
    
    
    40,104
    
    
    
    -0-Neal W. Scaggs
    
    
    9,219,853
    
    
    
    40,504
    
    
    
    -0-Glenn W. Wilcox, Sr.
    
    
    9,150,828
    
    
    
    109,529
    
    
    
    -0-
  b) Adoption of the 2003 Stock Option Plan Votes "For"
    
    Votes "Against"
    
    Votes"Abstained"
    
    Broker Non-votes6,913,074
    
    
    204,027
    
    
    
    132,146
    
    
    
    2,011,110
 Item 6. Exhibits and reports on Form 8-K  a) Exhibits: (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
 19




---



##### 



(31.3)
    
    Principal Operating
Officer
Certification
Pursuant to Section
302 of the
Sarbanes-Oxley act
of 2002  Kirby J.
Taylor
    
    Exhibit 31.3
    
    Page Exhibit 31.3-p1(32)
    
    Marshall T.
Reynolds, Todd R.
Fry and Kirby J.
Taylor
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
  b) The following reports on Form 8-K were filed during the quarter for
which this report is filed: Form 8-K dated February 3, 2004, filed February 3, 2004 regarding Champions
press release titled COURT REVERSES JURY VERDICT AND FEE AWARD AGAINST
CHAMPION. Form 8-K dated
February 4, 2004, filed February 9, 2004 regarding Item 4
of Form 8-K CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT. Form 8-K dated February 24, 2004, filed February 24, 2004 regarding Champions
press release titled CHAMPION ANNOUNCES FIRST QUARTER 2004 RESULTS AND
DIVIDEND. 20




---



##### 



SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. CHAMPION INDUSTRIES, INC.Date: June 11, 2004
    
    /s/ Marshall T. ReynoldsMarshall T. ReynoldsChief Executive OfficerDate: June 11, 2004
    
    /s/ Kirby J. TaylorKirby J. TaylorPresident and Chief Operating OfficerDate: June 11, 2004
    
    /s/ Todd R. FryTodd R. FryVice President and Chief Financial Officer
 21