##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the quarterly period ended July 31, 2003
    
    Commission File No. 0-21084




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Champion Industries, Inc.
(Exact name of Registrant as specified in its charter)

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 No þ.

9,713,913

shares of common stock of the Registrant were outstanding at
July 31, 2003.





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Champion Industries, Inc.

INDEX

Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    3Consolidated Statements of Operations
    
    5Consolidated Statements of Cash Flows
    
    6Notes to Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Conditionand Results of Operations
    
    15Item 3a. Quantitative and Qualitative Disclosure About Market Risk
    
    19Item 4. Controls and Procedures
    
    19Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    20Signatures
    
    21


2



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##### 



PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

ASSETS
    
    July 31,
    
    October 31,2003
    
    2002Current assets:Cash and cash equivalents
    
    $
    3,357,158
    
    
    $
    4,507,139Accounts receivable, net of allowance of $1,114,000 and $1,397,000
    
    
    17,847,603
    
    
    
    18,546,989Inventories
    
    
    10,968,236
    
    
    
    11,427,581Income tax refund
    
    
    125,289
    
    
    
    Other current assets
    
    
    1,148,852
    
    
    
    1,745,563Deferred income tax assets
    
    
    1,027,059
    
    
    
    1,027,059Total current assets
    
    
    34,474,197
    
    
    
    37,254,331Property and equipment, at cost:Land
    
    
    2,028,372
    
    
    
    1,028,372Buildings and improvements
    
    
    7,241,250
    
    
    
    6,120,122Machinery and equipment
    
    
    37,556,748
    
    
    
    36,362,178Equipment under capital leases
    
    
    983,407
    
    
    
    983,407Furniture and fixtures
    
    
    2,934,716
    
    
    
    2,872,212Vehicles
    
    
    3,167,231
    
    
    
    3,082,25853,911,724
    
    
    
    50,448,549Less accumulated depreciation
    
    
    (34,110,506
    )
    
    
    (31,442,360
    )19,801,218
    
    
    
    19,006,189Cash surrender value of officers life insurance
    
    
    957,195
    
    
    
    947,955Goodwill and other intangible assets
    
    
    1,927,982
    
    
    
    1,725,941Other assets
    
    
    330,714
    
    
    
    573,0873,215,891
    
    
    
    3,246,983Total assets
    
    $
    57,491,306
    
    
    $
    59,507,503


See notes to consolidated financial statements.

3



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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(Unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY
    
    July 31,
    
    October 31,2003
    
    2002Current liabilities:Notes payable, line of credit
    
    $
    200,000
    
    
    
    Accounts payable
    
    
    2,628,198
    
    
    $
    3,258,095Accrued payroll
    
    
    1,501,146
    
    
    
    2,004,046Taxes accrued and withheld
    
    
    1,297,904
    
    
    
    1,416,900Accrued income taxes
    
    
    
    
    
    
    873,136Accrued expenses
    
    
    792,340
    
    
    
    819,234Current portion of long-term debt:Notes payable
    
    
    2,074,164
    
    
    
    2,615,422Capital lease obligations
    
    
    206,173
    
    
    
    195,035Total current liabilities
    
    
    8,699,925
    
    
    
    11,181,868Long-term debt, net of current portion:Notes payable
    
    
    2,004,712
    
    
    
    1,445,837Capital lease obligations
    
    
    202,975
    
    
    
    359,027Notes payable, line of credit
    
    
    500,000
    
    
    
    Other liabilities
    
    
    425,636
    
    
    
    429,842Deferred income tax liability
    
    
    3,225,119
    
    
    
    3,225,119Total liabilities
    
    
    15,058,367
    
    
    
    16,641,693Shareholders equity:Common stock, $1 par value, 20,000,000 shares authorized;
9,713,913 shares issued and outstanding
    
    
    9,713,913
    
    
    
    9,713,913Additional paid-in capital
    
    
    22,242,047
    
    
    
    22,242,047Retained earnings
    
    
    10,476,979
    
    
    
    10,909,850Total shareholders equity
    
    
    42,432,939
    
    
    
    42,865,810Total liabilities and shareholders equity
    
    $
    57,491,306
    
    
    $
    59,507,503


See notes to consolidated financial statements.

4



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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

Three Months Ended
    
    Nine Months EndedJuly 31,
    
    July 31,2003
    
    2002
    
    2003
    
    2002Revenues:Printing
    
    $
    23,258,426
    
    
    $
    23,132,608
    
    
    $
    69,769,120
    
    
    $
    70,632,037Office products and office
furniture
    
    
    7,340,074
    
    
    
    7,715,023
    
    
    
    18,777,508
    
    
    
    20,675,164Total revenues
    
    
    30,598,500
    
    
    
    30,847,631
    
    
    
    88,546,628
    
    
    
    91,307,201Cost of sales:Printing
    
    
    17,149,495
    
    
    
    16,802,540
    
    
    
    50,960,092
    
    
    
    50,816,294Office products and office
furniture
    
    
    5,231,810
    
    
    
    5,604,388
    
    
    
    12,959,752
    
    
    
    14,713,491Total cost of sales
    
    
    22,381,305
    
    
    
    22,406,928
    
    
    
    63,919,844
    
    
    
    65,529,785Gross profit
    
    
    8,217,195
    
    
    
    8,440,703
    
    
    
    24,626,784
    
    
    
    25,777,416Selling, general and
administrative expenses
    
    
    7,785,835
    
    
    
    7,943,061
    
    
    
    22,814,119
    
    
    
    23,388,093Income from operations
    
    
    431,360
    
    
    
    497,642
    
    
    
    1,812,665
    
    
    
    2,389,323Other income (expense):Interest income
    
    
    1,154
    
    
    
    1,927
    
    
    
    3,201
    
    
    
    11,712Interest expense
    
    
    (8,208
    )
    
    
    (84,833
    )
    
    
    (113,648
    )
    
    
    (315,392
    )Other
    
    
    8,143
    
    
    
    15,355
    
    
    
    54,930
    
    
    
    71,9381,089
    
    
    
    (67,551
    )
    
    
    (55,517
    )
    
    
    (231,742
    )Income before income taxes
    
    
    432,449
    
    
    
    430,091
    
    
    
    1,757,148
    
    
    
    2,157,581Income taxes
    
    
    (179,466
    )
    
    
    (177,368
    )
    
    
    (732,935
    )
    
    
    (896,512
    )Net income
    
    $
    252,983
    
    
    $
    252,723
    
    
    $
    1,024,213
    
    
    $
    1,261,069Earnings
per share
Basic
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    0.13Diluted
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    0.13Weighted average shares
outstanding:Basic
    
    
    9,714,000
    
    
    
    9,714,000
    
    
    
    9,714,000
    
    
    
    9,714,000Diluted
    
    
    9,756,000
    
    
    
    9,728,000
    
    
    
    9,745,000
    
    
    
    9,730,000Dividends per share
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.15


See notes to consolidated financial statements.

5



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Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

Nine Months EndedJuly 31,2003
    
    2002Cash flows from operating activities:Net income
    
    $
    1,024,213
    
    
    $
    1,261,069Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    3,035,879
    
    
    
    3,115,570Loss on sale of assets
    
    
    699
    
    
    
    8,523Other
    
    
    10,723
    
    
    
    13,404Bad debt expense
    
    
    123,741
    
    
    
    404,087Changes in assets and liabilities:Accounts receivable
    
    
    575,645
    
    
    
    492,260Inventories
    
    
    697,228
    
    
    
    607,643Other current assets
    
    
    596,711
    
    
    
    (35,931
    )Accounts payable
    
    
    (629,895
    )
    
    
    (1,612,796
    )Accrued payroll
    
    
    (502,900
    )
    
    
    (194,380
    )Taxes accrued and withheld
    
    
    (118,996
    )
    
    
    278,439Income taxes
    
    
    (998,425
    )
    
    
    337,791Accrued expenses
    
    
    (70,613
    )
    
    
    (338,007
    )Other liabilities
    
    
    (14,929
    )
    
    
    (16,097
    )Net cash provided by operating activities
    
    
    3,729,081
    
    
    
    4,321,575Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,417,433
    )
    
    
    (1,558,792
    )Deposit on asset purchase
    
    
    
    
    
    
    (875,000
    )Proceeds from sales of property
    
    
    149,048
    
    
    
    443,908Businesses acquired, net of cash received
    
    
    (415,598
    )
    
    
    Goodwill additions
    
    
    (7,809
    )
    
    
    Decrease in other assets
    
    
    242,818
    
    
    
    26,333Increase in cash surrender value life insurance
    
    
    (9,240
    )
    
    
    (62,103
    )Net cash used in investing activities
    
    
    (2,458,214
    )
    
    
    (2,025,654
    )Cash flows from financing activities:Borrowings on line of credit
    
    
    1,700,000
    
    
    
    500,000Payments on line of credit
    
    
    (1,000,000
    )
    
    
    (500,000
    )Proceeds from term debt and leases
    
    
    572,550
    
    
    
    Principal payments on long-term debt
    
    
    (2,236,312
    )
    
    
    (2,787,581
    )Dividends paid
    
    
    (1,457,086
    )
    
    
    (1,457,088
    )Net cash used in financing activities
    
    
    (2,420,848
    )
    
    
    (4,244,669
    )Net decrease in cash
    
    
    (1,149,981
    )
    
    
    (1,948,748
    )Cash and cash equivalents, beginning of period
    
    
    4,507,139
    
    
    
    5,764,716Cash and cash equivalents, end of period
    
    $
    3,357,158
    
    
    $
    3,815,968


See notes to consolidated financial statements.

6



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

July 31, 2003

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 (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, 2002, and related notes
thereto contained in Champion Industries, Inc.s Form 10-K dated January 25,
2003. The accompanying interim financial information is unaudited. The balance
sheet information as of October 31, 2002 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 42,000 and
31,000 shares for the three and nine months ended July 31, 2003 and 14,000 and
16,000 shares for the three and nine months ended July 31, 2002.

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:

July 31,
      
      October 31,2003
      
      2002Printing:Raw
          materials
      
      $
      2,348,707
      
      
      $
      2,421,973Work
          in process
      
      
      1,741,472
      
      
      
      1,795,796Finished
          goods
      
      
      3,823,256
      
      
      
      3,942,518Office
          products and office furniture
      
      
      3,054,801
      
      
      
      3,267,294$
      10,968,236
      
      
      $
      11,427,581


7



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

4. Long-Term Debt

Long-term debt consisted of the following:

July 31,
      
      October 31,2003
      
      2002Unsecured
          term note payable
      
      $
      1,326,558
      
      
      $
      2,678,733Installment
          notes payable to banks
      
      
      2,752,318
      
      
      
      1,382,526Capital
          lease obligations
      
      
      409,148
      
      
      
      554,0624,488,024
      
      
      
      4,615,321Less
          current portion
      
      
      2,280,337
      
      
      
      2,810,457Long-term
          debt, net of current portion
      
      $
      2,207,687
      
      
      $
      1,804,864


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 March
2005 and contains certain restrictive financial covenants. There was $500,000
outstanding under this facility at July 31, 2003. This facility was terminated
in August 2003.

In August of 2003, the Company entered into an unsecured line of credit
with another bank for borrowings to a maximum of $10,000,000 with interest
payable monthly at the JP Morgan Chase prime rate. This line of credit expires
July 31, 2006, and contains certain restrictive financial covenants.

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 April 2004 and
contains certain financial covenants. There was $200,000 outstanding under
this facility at July 31, 2003.

The Companys non-cash activities for the nine months ended July 31, 2003 and
2002 included vehicle purchases of approximately $96,000 and $165,000, which
were financed by a bank and for the nine months ended July 31, 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 June 23, 2003 to
stockholders of record on June 6, 2003. Also, the Company declared a dividend
of five cents per share to be paid on September 22, 2003 to stockholders of
record on September 5, 2003.

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.

8



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

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.

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 has been advised that it has no insurance coverage for this award.
The Company under Mississippi law has a guaranteed right to appeal. The
Company has been advised by counsel that it has multiple grounds for an appeal
and a reasonable basis for believing that an appeal would be successful in
eliminating the jury award. However, there can be no assurance that the jury
award will be overturned upon appeal. If the verdict is not overturned, the
impact on the operating results of the Company could be material.

7. New Accounting Pronouncements and Significant Accounting Policy Updates

In July 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities (Statement No. 146), which supercedes EITF
No. 94-3, Liability Recognition for Certain Employment Termination Benefits
and Other Costs to Exit an Activity. Statement 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 is
effective for exit or disposal activities that are initiated after December 31,
2002. Even though on August 1, 2003 the Company ceased production at its
Baltimore, Maryland U.S. Tag production facility and consolidated production
into its Huntington, West Virginia Chapman Printing facility it is not believed
the adoption of this standard will have a significant impact on the Companys
financial statements.

FIN 46

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51(FIN 46). FIN 46
requires the consolidation of entities in which an enterprise absorbs a
majority of the entitys expected losses, receives a majority of the entitys
expected residual returns, or both, as a result of ownership, contractual or
other financial interests in the entity. Currently entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity. The provisions
of FIN 46 are effective immediately for entities with variable interests in
variable interest entities (VIE) created after January 31, 2003. For public
companies with variable interests in a VIE created before February 1, 2003, the
interpretation is effective at the beginning of the first interim or annual
reporting period beginning after June 15, 2003. Management does not believe
that FIN 46 will

9



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

have a material impact on the Companys financial statements; however,
management continues to review the requirements and the related accounting
implications.

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 2003 and 2002, respectively: risk-free interest rates of 3.97%
and 3.91%; dividend yields of 7.22% and 8.03%; volatility factors of the
expected market price of the Companys common stock of 46.4% and 45.4%; 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 nine months ended July 31 are as
follows:

Three Months Ended
    
    Nine Months EndedJuly 31
    
    July 312003
    
    2002
    
    2003
    
    2002Net Income, as reported
    
    $
    252,983
    
    
    $
    252,723
    
    
    $
    1,024,213
    
    
    $
    1,261,069Deduct: Total
stock-based employee
compensation expense
determined under fair
value method for all
awards, net of related
tax effects
    
    
    
    
    
    
    
    
    
    
    47,200
    
    
    
    38,704Pro Forma net income
    
    $
    252,983
    
    
    $
    252,723
    
    
    $
    977,013
    
    
    $
    1,222,365Earnings per share:Basic, as reported
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    0.13Basic, pro forma
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.10
    
    
    
    0.13Diluted, as reported
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    0.13Diluted, pro forma
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.10
    
    
    
    0.13


10



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##### 



Champion Industries, Inc. and
Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

8. Restructuring Charge, Asset Impairment Charge and Other Charges

In the third quarter of 2001, the Company recorded charges related to a
restructuring and profitability enhancement plan. This plan was implemented to
effectuate certain key initiatives including plant and office consolidations,
headcount reductions, asset impairment issues and a general response to a
deteriorating economic environment. The third quarter of 2001 pre-tax charge
resulting from these actions was $6.1 million ($4.3 million after-tax or $0.44
per share on a basic and diluted basis.) The charge related to approximately
$3.1 million from asset impairments including goodwill, facility and equipment
write-downs. The Company recorded charges for restructuring and other special
charges of $3.0 million comprised primarily of severance payments, charge-offs
related to duplicative facility leases, increases in allowance for doubtful
accounts and inventory obsolescence and valuation reserves, costs related to
the impairment of the Companys information systems hardware and software,
charges related to termination and related fees of a pension plan of an
acquired Company, and other charges and expenses related to plant
consolidations and restructuring.

As a result of the Companys restructuring plan, approximately 35 employees
were terminated from the Company primarily as a result of plant and office
consolidations at the Companys Carolina Cut Sheets operation, Chapman Printing
Lexington location and the Garrison Brewer division of Stationers. In
addition, the Company anticipates the elimination of additional positions
resulting from retirements and normal attrition within the next twelve to
eighteen months. As of October 31, 2001 35 employees were notified of their
termination and one retired position was eliminated.

The cash and non-cash elements of the Companys restructuring charge, asset
impairment charge, and other unusual charges approximated $1.5 million in cash
and $4.6 million non-cash. The printing segment charges approximated $3.5
million and the office products and furniture segment charges approximated
$2.6 million. Details of the approximated charges and the status of the
related obligations are as follows as of July 31, 2003:

Utilized

Ended balanceOriginal accrual
    
    Cash
    
    Noncash
    
    July 31, 2003Write-down
of goodwill,
    
    $
    3,060,000
    
    
    $
    168,000
    
    
    $
    2,892,000
    
    
    $
    facilities and equipmentEmployee severance
    
    
    55,000
    
    
    
    25,000
    
    
    
    
    
    
    
    30,000and termination benefitsInventory obsolescence
and valuation reserves
    
    
    978,000
    
    
    
    
    
    
    
    978,000
    
    
    
    Restructuring and
    
    
    1,998,000
    
    
    
    908,000
    
    
    
    768,000
    
    
    
    322,000other chargesTotal
    
    $
    6,091,000
    
    
    $
    1,101,000
    
    
    $
    4,638,000
    
    
    $
    352,000


11



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

9. 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
nine months ended July 31:

Office Products2003 Quarter 3
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    25,737,829
    
    
    $
    8,598,413
    
    
    $
    34,336,242Elimination of intersegment revenue
    
    
    (2,479,403
    )
    
    
    (1,258,339
    )
    
    
    (3,737,742
    )Consolidated revenues
    
    $
    23,258,426
    
    
    $
    7,340,074
    
    
    $
    30,598,500Operating income
    
    
    224,502
    
    
    
    206,858
    
    
    
    431,360Depreciation & amortization
    
    
    973,400
    
    
    
    35,535
    
    
    
    1,008,935Capital expenditures
    
    
    407,201
    
    
    
    57,132
    
    
    
    464,333Identifiable assets
    
    
    47,676,732
    
    
    
    9,814,574
    
    
    
    57,491,306Goodwill
    
    
    1,447,308
    
    
    
    286,442
    
    
    
    1,733,750


Office Products2002 Quarter 3
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    25,311,734
    
    
    $
    8,715,975
    
    
    $
    34,027,709Elimination of intersegment revenue
    
    
    (2,179,126
    )
    
    
    (1,000,952
    )
    
    
    (3,180,078
    )Consolidated revenues
    
    $
    23,132,608
    
    
    $
    7,715,023
    
    
    $
    30,847,631Operating income
    
    
    164,102
    
    
    
    333,540
    
    
    
    497,642Depreciation & amortization
    
    
    1,008,713
    
    
    
    32,761
    
    
    
    1,041,474Capital expenditures
    
    
    378,357
    
    
    
    76,155
    
    
    
    454,512Identifiable assets
    
    
    47,541,234
    
    
    
    11,779,125
    
    
    
    59,320,359Goodwill
    
    
    1,062,926
    
    
    
    286,442
    
    
    
    1,349,368


12



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial
Statements (Unaudited) (continued)

Office Products2003 Year to date
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    77,344,144
    
    
    $
    22,483,171
    
    
    $
    99,827,315Elimination of intersegment revenue
    
    
    (7,575,024
    )
    
    
    (3,705,663
    )
    
    
    (11,280,687
    )Consolidated revenues
    
    $
    69,769,120
    
    
    $
    18,777,508
    
    
    $
    88,546,628Operating income
    
    
    1,496,409
    
    
    
    316,256
    
    
    
    1,812,665Depreciation & amortization
    
    
    2,955,155
    
    
    
    80,724
    
    
    
    3,035,879Capital expenditures
    
    
    3,837,425
    
    
    
    116,473
    
    
    
    3,953,898Identifiable assets
    
    
    47,676,732
    
    
    
    9,814,574
    
    
    
    57,491,306Goodwill
    
    
    1,447,308
    
    
    
    286,442
    
    
    
    1,733,750


Office Products2002 Year to date
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    77,244,035
    
    
    $
    23,227,228
    
    
    $
    100,471,263Elimination of intersegment revenue
    
    
    (6,611,998
    )
    
    
    (2,552,064
    )
    
    
    (9,164,062
    )Consolidated revenues
    
    $
    70,632,037
    
    
    $
    20,675,164
    
    
    $
    91,307,201Operating income
    
    
    1,768,844
    
    
    
    620,479
    
    
    
    2,389,323Depreciation & amortization
    
    
    3,034,438
    
    
    
    81,132
    
    
    
    3,115,570Capital expenditures
    
    
    2,462,541
    
    
    
    136,211
    
    
    
    2,598,752Identifiable assets
    
    
    47,541,234
    
    
    
    11,779,125
    
    
    
    59,320,359Goodwill
    
    
    1,062,926
    
    
    
    286,442
    
    
    
    1,349,368


13



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##### 



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 nine months ended July
31, 2003 and 2002, is as follows:

Three months
    
    Nine months2003
    
    2002
    
    2003
    
    2002Revenues:Total segment revenues
    
    $
    34,336,242
    
    
    $
    34,027,709
    
    
    $
    99,827,315
    
    
    $
    100,471,263Elimination of intersegment revenue
    
    
    (3,737,742
    )
    
    
    (3,180,078
    )
    
    
    (11,280,687
    )
    
    
    (9,164,062
    )Consolidated revenue
    
    $
    30,598,500
    
    
    $
    30,847,631
    
    
    $
    88,546,628
    
    
    $
    91,307,201Operating Income:Total segment operating income
    
    $
    431,360
    
    
    $
    497,642
    
    
    $
    1,812,665
    
    
    $
    2,389,323Interest income
    
    
    1,154
    
    
    
    1,927
    
    
    
    3,201
    
    
    
    11,712Interest expense
    
    
    (8,208
    )
    
    
    (84,833
    )
    
    
    (113,648
    )
    
    
    (315,392
    )Other income
    
    
    8,143
    
    
    
    15,355
    
    
    
    54,930
    
    
    
    71,938Consolidated income before income
taxes
    
    $
    432,449
    
    
    $
    430,091
    
    
    $
    1,757,148
    
    
    $
    2,157,581Identifiable assets:Total segment identifiable assets
    
    $
    57,491,306
    
    
    $
    59,320,359
    
    
    $
    57,491,306
    
    
    $
    59,320,359Elimination of intersegment assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consolidated assets
    
    $
    57,491,306
    
    
    $
    59,320,359
    
    
    $
    57,491,306
    
    
    $
    59,320,359


10. Acquisitions

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 June 18, 2003, the Company acquired certain assets of Contract Business
Interiors (CBI) of Wheeling, WV 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.

Pro forma financial information related to these acquisitions has not been
presented because such information would not be materially different than that
reported herein.

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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
    
    Nine Months EndedJuly 31,
    
    July 31,2003
    
    2002
    
    2003
    
    2002Revenues:Printing
    
    
    76.0
    %
    
    
    75.0
    %
    
    
    78.8
    %
    
    
    77.4
    %Office products and office furniture
    
    
    24.0
    
    
    
    25.0
    
    
    
    21.2
    
    
    
    22.6Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales:Printing
    
    
    56.0
    
    
    
    54.5
    
    
    
    57.6
    
    
    
    55.7Office products and office furniture
    
    
    17.1
    
    
    
    18.1
    
    
    
    14.6
    
    
    
    16.1Total cost of sales
    
    
    73.1
    
    
    
    72.6
    
    
    
    72.2
    
    
    
    73.1Gross profit
    
    
    26.9
    
    
    
    27.4
    
    
    
    27.8
    
    
    
    28.2Selling, general and administrative
expenses
    
    
    25.5
    
    
    
    25.8
    
    
    
    25.8
    
    
    
    25.6Income from operations
    
    
    1.4
    
    
    
    1.6
    
    
    
    2.0
    
    
    
    2.6Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1Interest (expense)
    
    
    0.0
    
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.4
    )Other income
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Income before taxes
    
    
    1.4
    
    
    
    1.4
    
    
    
    2.0
    
    
    
    2.4Income tax expense
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.8
    )
    
    
    (1.0
    )Net income
    
    
    0.8
    %
    
    
    0.8
    %
    
    
    1.2
    %
    
    
    1.4
    %


Three Months Ended July 31, 2003 Compared to Three Months Ended July 31, 2002

Revenues

Total revenues decreased 0.8% in the third quarter of 2003 compared to the same
period in 2002 from $30.8 million to $30.6 million. Printing revenue increased
0.5% in the third quarter of 2003 to $23.3 million from $23.1 million in the
third quarter of 2002. Office products and office furniture revenue decreased
4.9% in the third quarter of 2003 to $7.3 million from $7.7 million in the
third quarter of 2002. The revenue decrease was primarily attributable to an
industry-wide slowdown in office furniture sales, with office furniture sales
down approximately $500,000. The slight increase in printing sales was
reflective of additional sales resulting from the purchase of certain assets
of Integrated Marketing Solutions in July 2003.

Cost of Sales

Total cost of sales were flat at $22.4 million for the third quarter of 2003
and 2002, respectively. Printing cost of sales in the third quarter of 2003
increased $350,000 and increased as a percentage of

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Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

printing sales from 72.6% in 2002 to 73.7% in 2003 primarily due to increased
labor and overhead costs and competitive market pressures. Office products and
office furniture cost of sales decreased 6.7% or approximately $373,000 in 2003
to $5.2 million from $5.6 million in 2002. The decrease in office products and
office furniture cost of sales is attributable to the lower sales discussed
above and enhanced gross margins for remaining office furniture sales.

Operating Expenses

In the third quarter of 2003, selling, general, and administrative expenses
decreased on a gross dollar basis to $7.8 million from $7.9 million in 2002 a
decrease of $157,000 or 2.0%. Selling, general and administrative expenses as a
percentage of sales also decreased to 25.5% in 2003 from 25.8% in 2002.

The reduction in selling, general and administrative expenses is primarily due
to a decrease in bad debt expense, lower professional service related expenses,
and lower payroll expense partially offset by increased insurance and
information systems related costs.

Income from Operations and Other Income and Expenses

Income from operations decreased 13.3% in the third quarter of 2003 to $431,000
from $498,000 in the third quarter of 2002. This decrease is primarily the
result of decreased sales and reduced gross profits partially offset by a
reduction in selling, general and administrative expenses. Other
income/expense (net), changed $69,000 from an expense of $68,000 in 2002 to
income of $1,000 in 2003, due to lower total interest expense resulting from a
decrease in total interest bearing debt and lower interest rates.

Income Taxes

The Companys effective income tax rate was 41.5% for the third quarter of 2003
and 41.2% for the third quarter of 2002. 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 third quarter of 2003 and 2002 was $253,000 respectively.
Basic and diluted earnings per share for the three months ended July 31, 2003
and 2002 were $0.03.

Nine Months Ended July 31, 2003 Compared to Nine Months Ended July 31, 2002

Revenues

Total revenues decreased 3.0% in the first nine months of 2003 compared to the
same period in 2002 to $88.5 million from $91.3 million. Printing revenue
decreased 1.2% in the nine month period ended July 31, 2003 to $69.8 million
from $70.6 million in the same period in 2002. Office products and office
furniture revenue decreased 9.2% in the nine month period ended July 31, 2003
to $18.8 million from $20.7 million in the same period in 2002. The revenues
in the printing and office products and office furniture segment decreased
primarily due to an overall sluggish market in most of the geographic regions
served by the Company. Office furniture sales accounted for $2.1 million of the
total sales decrease or 76.6%.

16



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Cost of Sales

Total cost of sales decreased 2.5% in the nine months ended July 31, 2003 to
$63.9 million from $65.5 million in the nine months ended July 31, 2002.
Printing cost of sales increased 0.3% in the nine months ended July 31, 2003 to
$51.0 million from $50.8 million in the nine months ended July 31, 2002, due
primarily to increased labor and overhead costs and competitive market
pressures. Office products and office furniture cost of sales decreased 11.9%
in the nine months ended July 31, 2003 to $13.0 million from $14.7 million in
the nine months ended July 31, 2002. The decrease in office products and office
furniture cost of sales is attributable to a decrease in office products and
office furniture sales coupled with enhanced gross margins for remaining
furniture sales.

Operating Expenses

During the nine months ended July 31, 2003 compared to the same period in 2002,
selling, general and administrative expenses increased slightly as a percentage
of sales to 25.8% from 25.6%. Total selling, general and administration expense
decreased $574,000 primarily as a result of decreases in payroll expenses, bad
debt expense, professional service related expenses and telecommunication
expenses. These decreases were offset by increases in health and other
insurance related costs.

Income from Operations and Other Income and Expenses

Income from operations decreased 24.0% in the nine month period ended July 31,
2003 to $1.8 million from $2.4 million in the same period of 2002. This
decrease is primarily the result of lower sales partially offset by reductions
in selling, general and administration expenses. Other expense decreased
approximately $176,000 primarily due to lower total interest expense resulting
from a decrease in interest bearing debt and lower interest rates.

Income Taxes

The Companys effective income tax rate was 41.7% for the nine months ended
July 31, 2003, up from 41.6% in the same period of 2002. 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 nine months of 2003 decreased 18.8% to $1,024,213 from
$1,261,069 in the same period of 2002 due to the reasons discussed above. Basic
and diluted earnings per share for the nine months ended July 31, 2003 and
2002, were $0.11 and $0.13.

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.

17



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

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 nine months ended July 31, 2003, was
$3.7 million compared to net cash provided by operations of $4.3 million during
the same period in 2002. This change in net cash from operations is due to
income tax payments in 2003 and income tax refunds in 2002, resulting in part
from the Companys restructuring in the third quarter of 2001.

Net cash used in investing activities for the nine months ended July 31, 2003
was $2.5 million compared to $2.0 million during the same period in 2002. The
net cash used in investing activities during the first nine months of 2003 and
2002 primarily relates to purchases and deposits for the purchase of property
and equipment. In addition, in 2003 the Company utilized cash for the purchase
of certain assets of Integrated Marketing Solutions and Contract Business
Interiors.

Net cash used in financing activities for the nine months ended July 31, 2003
was $2.4 million compared to $4.2 million during the same period in 2002. This
change is primarily due to $700,000 in additional borrowings on the Companys
line of credit, proceeds from term debt borrowings secured by equipment, and
lower principal payments in 2003.

Working capital on July 31, 2003 was $25.8 million, a decrease of $298,000 from
October 31, 2002. Management believes that working capital and operating ratios
remain at acceptable levels.

The Company purchased a building in Baton Rouge, Louisiana for an aggregate
purchase price of $1.8 million in March of 2003 in an effort to consolidate
multiple facilities to one location. As a result of this transaction the
Company entered into a term debt agreement with a bank for $1,440,000 of the
purchase price.

Even though the Company believes that the legal contingency (See Note 6 of the
Consolidated Financial Statements) that it faces will be resolved favorably,
the possibility for an adverse decision on appeal is also inherent in the legal
process. The Company believes that adequate liquidity is available to fund
this contingency, if required.

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.

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,

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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

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-14 as of a date within 90 days of the filing of this quarterly 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 quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls, or in
factors that could significantly affect internal controls, subsequent to the
date the Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer completed their evaluation.

19



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##### 



Champion Industries, Inc. and Subsidiaries

PART II  OTHER INFORMATION

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
| |  | -------------------------------------------------------------------------------------------------------------------------------



| |  | 31.2 Principal Financial Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley act of 2002  Todd R. Fry
| |  | ----------------------------------------------------------------------------------------------------------------------



| |  | 31.3 Principal Operating Officer Certification
Pursuant to Section 302 of the Sarbanes-Oxley act of 2002 
Kirby J. Taylor
| |  | --------------------------------------------------------------------------------------------------------------------------



|32 |  | Marshall T. Reynolds, Todd R. Fry and Kirby J. Taylor
Certification Pursuant to 18 U.SC. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley act of 2002
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

b) The following reports on Form 8-K were filed during the quarter for which
this report is filed:

Form 8-K dated May 22, 2003, filed May 23, 2003 regarding Champions press
release titled CHAMPION ANNOUNCES EARNINGS AND DIVIDEND FOR 2nd QUARTER 2003.

20



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##### 



SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CHAMPION INDUSTRIES, INC.

Date: September 12, 2003
    
    
    
    /s/ Marshall T. ReynoldsMarshall T. ReynoldsChief Executive OfficerDate: September 12, 2003
    
    
    
    /s/ Kirby J. TaylorKirby J. TaylorPresident and Chief Operating OfficerDate: September 12, 2003
    
    
    
    /s/ Todd R. FryTodd R. FryVice President and Chief Financial Officer


21