##### 



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 January 31, 2004
    
    Commission File No. 0-21084
   Champion Industries, Inc.  West Virginia
    
    55-0717455(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer 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 ü
No . Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes  No ü     . 9,717,913 shares of common stock of the Registrant were outstanding at
January 31, 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
    
    
    17Item 4. Controls and Procedures
    
    
    17Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    18Signatures
    
    
    19
 2




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##### 



PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements Champion Industries, Inc. and Subsidiaries 
 Consolidated Balance Sheets
 ASSETS
    
    January 31,
    
    October 31,2004
    
    2003Current assets:Cash and cash equivalents
    
    $
    2,653,685
    
    
    $
    2,171,713Accounts receivable, net of allowance of $1,185,000 and $1,191,000
    
    
    16,826,430
    
    
    
    20,142,812Inventories
    
    
    10,952,800
    
    
    
    11,349,929Other current assets
    
    
    1,228,379
    
    
    
    739,560Deferred income tax assets
    
    
    1,059,520
    
    
    
    1,059,520Total current assets
    
    
    32,720,814
    
    
    
    35,463,534Property and equipment, at cost:Land
    
    
    2,063,373
    
    
    
    2,063,373Buildings and improvements
    
    
    7,888,883
    
    
    
    7,445,219Machinery and equipment
    
    
    38,067,506
    
    
    
    37,682,530Equipment under capital leases
    
    
    983,407
    
    
    
    983,407Furniture and fixtures
    
    
    3,018,370
    
    
    
    2,965,389Vehicles
    
    
    3,225,033
    
    
    
    3,262,86155,246,572
    
    
    
    54,402,779Less accumulated depreciation
    
    
    (35,799,639
    )
    
    
    (34,964,006
    )19,446,933
    
    
    
    19,438,773Cash surrender value of officers life insurance
    
    
    988,134
    
    
    
    1,020,795Goodwill and other intangibles, net of accumulated amortization
    
    
    2,235,390
    
    
    
    2,114,390Other assets
    
    
    384,578
    
    
    
    431,3433,608,102
    
    
    
    3,566,528Total assets
    
    $
    55,775,849
    
    
    $
    58,468,835
 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
    
    January 31,
    
    October 31,2004
    
    2003Current liabilities:Accounts payable
    
    $
    2,437,487
    
    
    $
    3,283,222Accrued payroll
    
    
    963,974
    
    
    
    1,500,165Taxes accrued and withheld
    
    
    1,133,867
    
    
    
    1,259,853Accrued income taxes
    
    
    94,939
    
    
    
    707,119Accrued expenses
    
    
    652,253
    
    
    
    789,676Current portion of long-term debt:Notes payable
    
    
    646,533
    
    
    
    744,662Capital lease obligations
    
    
    213,949
    
    
    
    202,309Total current liabilities
    
    
    6,143,002
    
    
    
    8,487,006Long-term debt, net of current portion:Notes payable, line of credit
    
    
    2,000,000
    
    
    
    1,705,668Notes payable, term
    
    
    1,985,770
    
    
    
    2,103,569Capital lease obligations
    
    
    94,021
    
    
    
    156,718Other liabilities
    
    
    423,179
    
    
    
    424,233Deferred income tax liabilities
    
    
    2,900,807
    
    
    
    2,900,807Total liabilities
    
    
    13,546,779
    
    
    
    15,778,001Shareholders equity:Common stock, $1 par value, 20,000,000 shares authorized;
9,717,913 and 9,713,913 shares issued and outstanding
    
    
    9,717,913
    
    
    
    9,713,913Additional paid-in capital
    
    
    22,248,567
    
    
    
    22,242,047Retained earnings
    
    
    10,262,590
    
    
    
    10,734,874Total shareholders equity
    
    
    42,229,070
    
    
    
    42,690,834Total liabilities and shareholders equity
    
    $
    55,775,849
    
    
    $
    58,468,835
 See notes to consolidated financial statements. 4




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Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited) Three Months Ended January 31,2004
    
    2003Revenues:Printing
    
    $
    22,997,892
    
    
    $
    22,606,647Office products and office furniture
    
    
    6,315,581
    
    
    
    6,012,294Total revenues
    
    
    29,313,473
    
    
    
    28,618,941Cost of sales:Printing
    
    
    17,023,500
    
    
    
    16,533,926Office products and office furniture
    
    
    4,324,101
    
    
    
    4,167,266Total cost of sales
    
    
    21,347,601
    
    
    
    20,701,192Gross profit
    
    
    7,965,872
    
    
    
    7,917,749Selling, general and administrative expenses
    
    
    7,921,054
    
    
    
    7,455,685Income from operations
    
    
    44,818
    
    
    
    462,064Other income (expense):Interest income
    
    
    1,618
    
    
    
    1,452Interest expense
    
    
    (46,679
    )
    
    
    (52,024
    )Other
    
    
    23,034
    
    
    
    25,524(22,027
    )
    
    
    (25,048
    )Income before income taxes
    
    
    22,791
    
    
    
    437,016Income tax expense
    
    
    (9,178
    )
    
    
    (182,700
    )Net income
    
    $
    13,613
    
    
    $
    254,316Earnings per shareBasic
    
    $
    0.00
    
    
    $
    0.03Diluted
    
    $
    0.00
    
    
    $
    0.03Weighted average shares outstanding:Basic
    
    
    9,717,000
    
    
    
    9,714,000Diluted
    
    
    9,826,000
    
    
    
    9,730,000Dividends per share
    
    $
    0.05
    
    
    $
    0.05
 See notes to consolidated financial statements. 5




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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited) Three Months Ended January 31,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    13,613
    
    
    $
    254,316Adjustments to reconcile net income to cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    975,126
    
    
    
    1,006,795Gain on sale of assets
    
    
    (1,107
    )
    
    
    (1,677
    )Increase in deferred compensation
    
    
    2,681
    
    
    
    3,575Bad debt expense
    
    
    124,209
    
    
    
    66,700Changes in assets and liabilities:Accounts receivable
    
    
    3,192,173
    
    
    
    1,049,242Inventories
    
    
    397,129
    
    
    
    (83,986
    )Other current assets
    
    
    (488,819
    )
    
    
    (463,978
    )Accounts payable
    
    
    (845,735
    )
    
    
    (428,386
    )Accrued payroll
    
    
    (536,191
    )
    
    
    (628,276
    )Taxes accrued and withheld
    
    
    (125,986
    )
    
    
    (249,527
    )Income taxes
    
    
    (612,180
    )
    
    
    (528,198
    )Accrued expenses
    
    
    (137,423
    )
    
    
    (30,931
    )Other liabilities
    
    
    (3,735
    )
    
    
    (4,976
    )Net cash provided by (used in) operating activities
    
    
    1,953,755
    
    
    
    (39,307
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,009,258
    )
    
    
    (472,462
    )Proceeds from sales of property
    
    
    58,064
    
    
    
    37,527Goodwill additions
    
    
    (130,814
    )
    
    
    Decrease in cash surrender value life insurance
    
    
    32,661
    
    
    
    24,284Other assets
    
    
    25,594
    
    
    
    23,421Net cash used in investing activities
    
    
    (1,023,753
    )
    
    
    (387,230
    )Cash flows from financing activities:Net borrowings of notes payable
    
    
    1,000,000
    
    
    
    Payments of notes payable
    
    
    (705,668
    )
    
    
    Proceeds from term debt and leases
    
    
    
    
    
    
    122,500Principal payments on long-term debt
    
    
    (266,985
    )
    
    
    (766,004
    )Proceeds from exercise of stock options
    
    
    10,520
    
    
    
    Dividends paid
    
    
    (485,897
    )
    
    
    (485,693
    )Net cash used in financing activities
    
    
    (448,030
    )
    
    
    (1,129,197
    )Net increase (decrease) in cash and cash equivalents
    
    
    481,972
    
    
    
    (1,555,734
    )Cash and cash equivalents, beginning of period
    
    
    2,171,713
    
    
    
    4,507,139Cash and cash equivalents, end of period
    
    $
    2,653,685
    
    
    $
    2,951,405
 See notes to consolidated financial statements. 6




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##### 



Champion Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) January 31, 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 109,000
and 16,000 shares for the three months ended January 31, 2004 and 2003. The
Company also had 34,000 and 77,000 outstanding options that were anti-dilutive
for the three months ended January 31, 2004 and January 31, 2003 because the
option exercise price exceeded the stock price. 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. 7




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Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued) Inventories consisted of the following: January 31,
    
    October 31,2004
    
    2003Printing:Raw materials
    
    $
    2,213,540
    
    
    $
    2,203,228Work in process
    
    
    2,031,885
    
    
    
    2,022,420Finished goods
    
    
    3,697,408
    
    
    
    3,680,184Office products and office furniture
    
    
    3,009,967
    
    
    
    3,444,097$
    10,952,800
    
    
    $
    11,349,929
 4. Goodwill and other intangibles Goodwill and other intangibles increased by $130,814 during the three months
ended January 31, 2004 as a result of the payment of contingent consideration
of a prior acquisition. 5. Long-Term Debt Long-term debt consisted of the following: January 31,
    
    October 31,2004
    
    2003Installment notes payable to banks
    
    $
    2,632,303
    
    
    $
    2,848,231Capital lease obligations
    
    
    307,970
    
    
    
    359,0272,940,273
    
    
    
    3,207,258Less current portion
    
    
    860,482
    
    
    
    946,971Long-term debt, net of current portion
    
    $
    2,079,791
    
    
    $
    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 the
prime rate of interest. The line of credit expires in July 2006 and contains
certain restrictive financial covenants. The Company had outstanding borrowings
under this facility of $2.0 million and $1.7 million at January 31, 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 April 2004 and
contains certain financial covenants. There were no borrowings outstanding
under this facility at January 31, 2004 and October 31, 2003. The Companys non-cash financing activities for the three months ended January
31, 2003 included vehicle purchases of approximately $96,000 which were
financed by a bank. There were no non-cash financing activities for the three
months ended January 31, 2004. 8




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Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued) 6. Shareholders Equity The Company paid a dividend of five cents per share on December 26, 2003 to
stockholders of record on December 1, 2003. Also, the Company declared a
dividend of five cents per share to be paid on March 22, 2004 to stockholders
of record on March 5, 2004. 7. 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. 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. 9




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Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued) As of January 31, 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
    
    $
    820,239
    
    
    $
    838,513
    
    
    $
    751,053
    
    
    $
    555,103
    
    
    $
    399,594
    
    
    $
    6,000
    
    
    $
    3,370,502Revolving line of credit
    
    
    
    
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000,000Term debt
    
    
    646,533
    
    
    
    343,434
    
    
    
    263,675
    
    
    
    258,492
    
    
    
    139,169
    
    
    
    981,000
    
    
    
    2,632,303Obligations under capital leases
    
    
    213,949
    
    
    
    94,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307,970$
    1,680,721
    
    
    $
    1,275,968
    
    
    $
    3,014,728
    
    
    $
    813,595
    
    
    $
    538,763
    
    
    $
    987,000
    
    
    $
    8,310,775
 8. 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 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. 10




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##### 



Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued) 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 ended January 31 are as follows: Quarter Ended January 312004
    
    2003Net Income, as reported
    
    $
    13,613
    
    
    $
    254,316Deduct: 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 (loss)
    
    $
    (96,349
    )
    
    $
    207,116Earnings (loss) per share:Basic, as reported
    
    $
    0.00
    
    
    $
    0.03Basic, pro forma
    
    
    (0.01
    )
    
    
    0.02Diluted, as reported
    
    $
    0.00
    
    
    $
    0.03Diluted, pro forma
    
    
    (0.01
    )
    
    
    0.02
 Since the Company had a pro-forma net loss as shown above for the three months
ended January 31, 2004 the dilutive effect of 109,000 stock options were
anti-dilutive on a pro-forma basis for the three months ended January 31, 2004. 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. 11




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##### 



Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued) The table below presents information about reported segments for the three
months ended January 31: Office Products2004 Quarter 1
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    25,530,021
    
    
    $
    7,689,954
    
    
    $
    33,219,975Elimination of intersegment revenue
    
    
    (2,532,129
    )
    
    
    (1,374,373
    )
    
    
    (3,906,502
    )Consolidated revenues
    
    $
    22,997,892
    
    
    $
    6,315,581
    
    
    $
    29,313,473Operating income
    
    
    177,384
    
    
    
    (132,566
    )
    
    
    44,818Depreciation & amortization
    
    
    961,696
    
    
    
    13,430
    
    
    
    975,126Capital expenditures
    
    
    993,549
    
    
    
    15,709
    
    
    
    1,009,258Identifiable assets
    
    
    45,995,910
    
    
    
    9,779,939
    
    
    
    55,775,849Goodwill
    
    
    1,774,344
    
    
    
    286,442
    
    
    
    2,060,786
 Office Products2003 Quarter 1
    
    Printing
    
    & Furniture
    
    TotalRevenues
    
    $
    25,234,276
    
    
    $
    7,218,148
    
    
    $
    32,452,424Elimination of intersegment revenue
    
    
    (2,627,629
    )
    
    
    (1,205,854
    )
    
    
    (3,833,483
    )Consolidated revenues
    
    $
    22,606,647
    
    
    $
    6,012,294
    
    
    $
    28,618,941Operating income
    
    
    629,376
    
    
    
    (167,312
    )
    
    
    462,064Depreciation & amortization
    
    
    973,645
    
    
    
    33,150
    
    
    
    1,006,795Capital expenditures
    
    
    534,537
    
    
    
    34,390
    
    
    
    568,927Identifiable assets
    
    
    47,381,901
    
    
    
    9,480,467
    
    
    
    56,862,368Goodwill
    
    
    1,439,499
    
    
    
    286,442
    
    
    
    1,725,941
 12




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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 months ended January 31,
2004 and 2003, is as follows: Three months ended January 31,2004
    
    2003Revenues:Total segment revenues
    
    $
    33,219,975
    
    
    $
    32,452,424Elimination of intersegment revenue
    
    
    (3,906,502
    )
    
    
    (3,833,483
    )Consolidated revenue
    
    $
    29,313,473
    
    
    $
    28,618,941Operating Income:Total segment operating income
    
    $
    44,818
    
    
    $
    462,064Interest income
    
    
    1,618
    
    
    
    1,452Interest expense
    
    
    (46,679
    )
    
    
    (52,024
    )Other income
    
    
    23,034
    
    
    
    25,524Consolidated income before income taxes
    
    $
    22,791
    
    
    $
    437,016Identifiable assets:Total segment identifiable assets
    
    $
    55,775,849
    
    
    $
    56,862,368Elimination of intersegment assets
    
    
    
    
    
    
    Total consolidated assets
    
    $
    55,775,849
    
    
    $
    56,862,368
 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. Three Months Ended January 31,2004
    
    2003($ in thousands)Revenues:Printing
    
    $
    22,998
    
    
    
    78.5
    %
    
    $
    22,607
    
    
    
    79.0
    %Office products and office furniture
    
    
    6,316
    
    
    
    21.5
    
    
    
    6,012
    
    
    
    21.0Total revenues
    
    
    29,314
    
    
    
    100.0
    
    
    
    28,619
    
    
    
    100.0Cost of sales:Printing
    
    
    17,024
    
    
    
    58.1
    
    
    
    16,534
    
    
    
    57.8Office products and office furniture
    
    
    4,324
    
    
    
    14.7
    
    
    
    4,167
    
    
    
    14.5Total cost of sales
    
    
    21,348
    
    
    
    72.8
    
    
    
    20,701
    
    
    
    72.3Gross profit
    
    
    7,966
    
    
    
    27.2
    
    
    
    7,918
    
    
    
    27.7Selling, general and administrative
expenses
    
    
    7,921
    
    
    
    27.0
    
    
    
    7,456
    
    
    
    26.1Income from operations
    
    
    45
    
    
    
    0.2
    
    
    
    462
    
    
    
    1.6Interest income
    
    
    2
    
    
    
    0.0
    
    
    
    1
    
    
    
    0.0Interest expense
    
    
    (47
    )
    
    
    (0.1
    )
    
    
    (52
    )
    
    
    (0.2
    )Other income
    
    
    23
    
    
    
    0.0
    
    
    
    26
    
    
    
    0.1Income before taxes
    
    
    23
    
    
    
    0.1
    
    
    
    437
    
    
    
    1.5Income taxes
    
    
    (9
    )
    
    
    (0.0
    )
    
    
    (183
    )
    
    
    (0.6
    )Net income
    
    $
    14
    
    
    
    0.1
    %
    
    $
    254
    
    
    
    0.9
    %
 Three Months Ended January 31, 2004 Compared to Three Months Ended January 31, 2003 Revenues Total revenues increased 2.4% in the first quarter of 2004 compared to the same
period in 2003 from $28.6 million to $29.3 million. Printing revenue increased
1.7% in the first quarter of 2004 to $23.0 million from $22.6 million in the
first quarter of 2003. Office products and office furniture revenue increased
5.0% in the first quarter of 2004 to $6.3 million from $6.0 million in the
first quarter of 2003. The revenue increase for the office product and office
supply segment was primarily attributable to an increase in furniture sales in
2004 due in part to the additional sales derived from the purchase of certain
assets of Contract Business Interiors in June 2003. The increase in printing
sales was primarily due to the addition of a new large customer subsequent to
the first quarter of 2003 and additional sales derived primarily from the
operations of certain assets purchased from Integrated Marketing Solutions in
July 2003. 14




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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 increased 3.1% in the first quarter of 2004 to $21.3
million from $20.7 million in the first quarter of 2003. Printing cost of sales
in the first quarter of 2004 increased $500,000 over the prior year and
increased as a percentage of printing sales from 73.1% in 2003 to 74.0% in 2004
primarily due to increased material and outside purchase costs. The dollar
increase resulted from the increased material and outside purchase costs as a
percentage of sales and the increase in sales. Office products and office
furniture cost of sales increased 3.8% or approximately $157,000 in 2004 to
$4.3 million from $4.2 million in 2003 but decreased as a percent of sales from
69.3% in 2003 to 68.5% in 2004. The increase in office products and office
furniture cost of sales is attributable to the increase in sales. The decrease
in office products and office furniture 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, one month of which was
included in the first quarter. Operating Expenses In the first quarter of 2004, selling, general and administrative expenses
increased on a gross dollar basis to $7.9 million from $7.5 million in 2003 an
increase of $465,000 or 6.2%. As a percentage of sales the expenses increased
on a quarter to quarter basis in 2004 to 27.0% from 26.1% in 2003 of total
sales. The increase in selling, general and administrative expenses is primarily the
result of increased payroll expenses to support the sales growth and increased
professional fees during the quarter. Income from Operations and Other Income and Expenses Income from operations decreased 90.3% in the first quarter of 2004 to $45,000
from $462,000 in the first quarter of 2003. This decrease is the result of
increased selling, general and administrative expenses partially offset by an
increase in sales and gross profit. Other expense (net), decreased
approximately $3,000 from 2003 to 2004. Income Taxes The Companys effective income tax rate was 40.3% for the first quarter of 2004
and 41.8% for the first 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 first quarter of 2004 was $14,000 compared to net income of
$254,000 in the first quarter of 2003. Basic and diluted earnings per share
for the three months ended January 31, 2004 and 2003 were $0.00 and $0.03. 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. 15




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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 three months ended January 31, 2004,
was $2.0 million compared to net cash used in operations of $39,000 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 of
inventories in 2004 compared to an increase in inventories in 2003 and an
increase in cash generated from accounts receivable collections representing
$3.2 million in 2004 compared to $1.0 million in 2003. Net cash used in investing activities for the three months ended January 31,
2004 was $1.0 million compared to $387,000 during the same period in 2003. The
net cash used in investing activities during the first three months of 2004 and
2003 primarily relates to equipment purchases and building improvements. During the first quarter of 2004, the Company entered into purchase agreements
with an equipment manufacturer for the purchase of three printing presses in
the aggregate amount of approximately $1.7 million. As a result of this
commitment the Company paid this manufacturer a deposit of $170,000. Net cash used in financing activities for the three months ended January 31,
2004 was $448,000 compared to $1.1 million during the same period in 2003. This
change is primarily due to an increase in net borrowings of $170,000 and a
$500,000 reduction of principal payments in 2003. Working capital on January 31, 2004 was $26.6 million, a decrease of $400,000
from October 31, 2003. Management believes that working capital and operating
ratios remain at acceptable levels. 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, 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. 16




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##### 



Champion Industries, Inc. and Subsidiaries Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued) 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 Company does not have any significant exposure relating to market risk. 
 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. 17




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##### 



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
    
    Exhibit 31.1
    
    Page Exhibit 33.1-p1(31.2)
    
    Principal Financial
Officer
Certification
Pursuant to Section
302 of the
Sarbanes-Oxley act
of 2002  Todd R.
Fry
    
    Exhibit 31.2
    
    Page Exhibit 31.2-p1(31.3)
    
    Principal Operating
Officer
Certification
Pursuant to Section
302 of the
Sarbanes-Oxley act
of 2002  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 January 7, 2004, filed January 7, 2004 regarding Champions
press release titled CHAMPION ANNOUNCES 2003 YEAR END AND FOURTH QUARTER
EARNINGS. 18




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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: March 12, 2004
    
    /s/ Marshall T. ReynoldsMarshall T. Reynolds
Chief Executive OfficerDate: March 12, 2004
    
    /s/ Kirby J. TaylorKirby J. Taylor
President and Chief Operating OfficerDate: March 12, 2004
    
    /s/ Todd R. FryTodd R. Fry
Vice President and Chief Financial Officer
 19