CHAMPION INDUSTRIES INC - 10-Q Quarterly Report

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

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

2450-90 1^st Avenue
P.O. Box 2968
Huntington, WV 25728
(Address of principal executive offices)
(Zip 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.


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

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

ASSETS

July 31,

October 31,

2003

2002

Current assets:

Cash and cash equivalents

3,357,158

4,507,139

Accounts receivable, net of allowance of $1,114,000 and $1,397,000

17,847,603

18,546,989

Inventories

10,968,236

11,427,581

Income tax refund

125,289

—

Other current assets

1,148,852

1,745,563

Deferred income tax assets

1,027,059

1,027,059

Total current assets

34,474,197

37,254,331

Property and equipment, at cost:

Land

2,028,372

1,028,372

Buildings and improvements

7,241,250

6,120,122

Machinery and equipment

37,556,748

36,362,178

Equipment under capital leases

983,407

983,407

Furniture and fixtures

2,934,716

2,872,212

Vehicles

3,167,231

3,082,258

53,911,724

50,448,549

Less accumulated depreciation

(34,110,506

)

(31,442,360

)

19,801,218

19,006,189

Cash surrender value of officers’ life insurance

957,195

947,955

Goodwill and other intangible assets

1,927,982

1,725,941

Other assets

330,714

573,087

3,215,891

3,246,983

Total assets

57,491,306

59,507,503

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

LIABILITIES AND SHAREHOLDERS' EQUITY

July 31,

October 31,

2003

2002

Current liabilities:

Notes payable, line of credit

200,000

—

Accounts payable

2,628,198

3,258,095

Accrued payroll

1,501,146

2,004,046

Taxes accrued and withheld

1,297,904

1,416,900

Accrued income taxes

—

873,136

Accrued expenses

792,340

819,234

Current portion of long-term debt:

Notes payable

2,074,164

2,615,422

Capital lease obligations

206,173

195,035

Total current liabilities

8,699,925

11,181,868

Long-term debt, net of current portion:

Notes payable

2,004,712

1,445,837

Capital lease obligations

202,975

359,027

Notes payable, line of credit

500,000

—

Other liabilities

425,636

429,842

Deferred income tax liability

3,225,119

3,225,119

Total liabilities

15,058,367

16,641,693

Shareholders’ equity:

Common stock, $1 par value, 20,000,000 shares authorized; 9,713,913 shares issued and outstanding

9,713,913

9,713,913

Additional paid-in capital

22,242,047

22,242,047

Retained earnings

10,476,979

10,909,850

Total shareholders’ equity

42,432,939

42,865,810

Total liabilities and shareholders’ equity

57,491,306

59,507,503

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

Three Months Ended

Nine Months Ended

July 31,

2003

2002

2003

2002

Revenues:

Printing

23,258,426

23,132,608

69,769,120

70,632,037

Office products and office furniture

7,340,074

7,715,023

18,777,508

20,675,164

Total revenues

30,598,500

30,847,631

88,546,628

91,307,201

Cost of sales:

Printing

17,149,495

16,802,540

50,960,092

50,816,294

Office products and office furniture

5,231,810

5,604,388

12,959,752

14,713,491

Total cost of sales

22,381,305

22,406,928

63,919,844

65,529,785

Gross profit

8,217,195

8,440,703

24,626,784

25,777,416

Selling, general and administrative expenses

7,785,835

7,943,061

22,814,119

23,388,093

Income from operations

431,360

497,642

1,812,665

2,389,323

Other income (expense):

Interest income

1,154

1,927

3,201

11,712

Interest expense

(8,208

)

(84,833

)

(113,648

)

(315,392

)

Other

8,143

15,355

54,930

71,938

1,089

(67,551

)

(55,517

)

(231,742

)

Income before income taxes

432,449

430,091

1,757,148

2,157,581

Income taxes

(179,466

)

(177,368

)

(732,935

)

(896,512

)

Net income

252,983

252,723

1,024,213

1,261,069

Earnings per share
Basic

0.03

0.11

0.13

Diluted

0.03

0.11

0.13

Weighted average shares outstanding:

Basic

9,714,000

Diluted

9,756,000

9,728,000

9,745,000

9,730,000

Dividends per share

0.05

0.15

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

Nine Months Ended

July 31,

2003

2002

Cash flows from operating activities:

Net income

1,024,213

1,261,069

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

3,035,879

3,115,570

Loss on sale of assets

699

8,523

Other

10,723

13,404

Bad debt expense

123,741

404,087

Changes in assets and liabilities:

Accounts receivable

575,645

492,260

Inventories

697,228

607,643

Other 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

)

278,439

Income taxes

(998,425

)

337,791

Accrued expenses

(70,613

)

(338,007

)

Other liabilities

(14,929

)

(16,097

)

Net cash provided by operating activities

3,729,081

4,321,575

Cash 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

443,908

Businesses acquired, net of cash received

(415,598

)

—

Goodwill additions

(7,809

)

—

Decrease in other assets

242,818

26,333

Increase 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

500,000

Payments 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

5,764,716

Cash and cash equivalents, end of period

3,357,158

3,815,968

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.

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.

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.

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.

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.

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 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.

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.

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

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

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 Ended
	July 31				July 31

	2003		2002		2003		2002

Net Income, as reported	$	252,983	$	252,723	$	1,024,213	$	1,261,069
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		—		—		47,200		38,704

Pro Forma net income	$	252,983	$	252,723	$	977,013	$	1,222,365

Earnings per share:
Basic, as reported	$	0.03	$	0.03	$	0.11	$	0.13
Basic, pro forma		0.03		0.03		0.10		0.13
Diluted, as reported	$	0.03	$	0.03	$	0.11	$	0.13
Diluted, pro forma		0.03		0.03		0.10		0.13

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:


							Ended balance
	Original accrual		Cash		Noncash		July 31, 2003

Write-down of goodwill,	$	3,060,000	$	168,000	$	2,892,000	$	—
facilities and equipment
Employee severance		55,000		25,000		—		30,000
and termination benefits
Inventory obsolescence and valuation reserves		978,000		—		978,000		—
Restructuring and		1,998,000		908,000		768,000		322,000
other charges

Total	$	6,091,000	$	1,101,000	$	4,638,000	$	352,000

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 Products
2003 Quarter 3	Printing			& Furniture			Total

Revenues	$	25,737,829		$	8,598,413		$	34,336,242
Elimination of intersegment revenue		(2,479,403	)		(1,258,339	)		(3,737,742	)

Consolidated revenues	$	23,258,426		$	7,340,074		$	30,598,500

Operating income		224,502			206,858			431,360
Depreciation & amortization		973,400			35,535			1,008,935
Capital expenditures		407,201			57,132			464,333
Identifiable assets		47,676,732			9,814,574			57,491,306
Goodwill		1,447,308			286,442			1,733,750


				Office Products
2002 Quarter 3	Printing			& Furniture			Total

Revenues	$	25,311,734		$	8,715,975		$	34,027,709
Elimination of intersegment revenue		(2,179,126	)		(1,000,952	)		(3,180,078	)

Consolidated revenues	$	23,132,608		$	7,715,023		$	30,847,631

Operating income		164,102			333,540			497,642
Depreciation & amortization		1,008,713			32,761			1,041,474
Capital expenditures		378,357			76,155			454,512
Identifiable assets		47,541,234			11,779,125			59,320,359
Goodwill		1,062,926			286,442			1,349,368


				Office Products
2003 Year to date	Printing			& Furniture			Total

Revenues	$	77,344,144		$	22,483,171		$	99,827,315
Elimination of intersegment revenue		(7,575,024	)		(3,705,663	)		(11,280,687	)

Consolidated revenues	$	69,769,120		$	18,777,508		$	88,546,628

Operating income		1,496,409			316,256			1,812,665
Depreciation & amortization		2,955,155			80,724			3,035,879
Capital expenditures		3,837,425			116,473			3,953,898
Identifiable assets		47,676,732			9,814,574			57,491,306
Goodwill		1,447,308			286,442			1,733,750


				Office Products
2002 Year to date	Printing			& Furniture			Total

Revenues	$	77,244,035		$	23,227,228		$	100,471,263
Elimination of intersegment revenue		(6,611,998	)		(2,552,064	)		(9,164,062	)

Consolidated revenues	$	70,632,037		$	20,675,164		$	91,307,201

Operating income		1,768,844			620,479			2,389,323
Depreciation & amortization		3,034,438			81,132			3,115,570
Capital expenditures		2,462,541			136,211			2,598,752
Identifiable assets		47,541,234			11,779,125			59,320,359
Goodwill		1,062,926			286,442			1,349,368

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 months

2003

2002

2003

2002

Revenues:

Total segment revenues

34,336,242

34,027,709

99,827,315

100,471,263

Elimination 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

91,307,201

Operating Income:

Total segment operating income

431,360

497,642

1,812,665

2,389,323

Interest income

1,154

1,927

3,201

11,712

Interest expense

(8,208

)

(84,833

)

(113,648

)

(315,392

)

Other income

8,143

15,355

54,930

71,938

Consolidated income before income taxes

432,449

430,091

1,757,148

2,157,581

Identifiable assets:

Total segment identifiable assets

57,491,306

59,320,359

57,491,306

59,320,359

Elimination of intersegment assets

—

Total consolidated assets

57,491,306

59,320,359

57,491,306

59,320,359

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and 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 Revenues

Three Months Ended

Nine Months Ended

July 31,

2003

2002

2003

2002

Revenues:

Printing

76.0

75.0

78.8

77.4

Office products and office furniture

24.0

25.0

21.2

22.6

Total revenues

100.0

Cost of sales:

Printing

56.0

54.5

57.6

55.7

Office products and office furniture

17.1

18.1

14.6

16.1

Total cost of sales

73.1

72.6

72.2

73.1

Gross profit

26.9

27.4

27.8

28.2

Selling, general and administrative expenses

25.5

25.8

25.6

Income from operations

1.4

1.6

2.0

2.6

Interest income

0.0

0.1

Interest (expense)

0.0

(0.3

)

(0.1

)

(0.4

)

Other income

0.0

0.1

Income before taxes

1.4

2.0

2.4

Income tax expense

(0.6

)

(0.6

)

(0.8

)

(1.0

)

Net income

0.8

1.2

1.4

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

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.

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

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.

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 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.

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 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.

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%.

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

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.

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 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.

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 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.

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.

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

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.

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.

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,

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.

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.

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.

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.

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

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.”

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.


West Virginia		55-0717455

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


		July 31,		October 31,
		2003		2002

Printing:
	Raw materials	$	2,348,707	$	2,421,973
	Work in process		1,741,472		1,795,796
	Finished goods		3,823,256		3,942,518
Office products and office furniture			3,054,801		3,267,294

		$	10,968,236	$	11,427,581


	July 31,		October 31,
	2003		2002

Unsecured term note payable	$	1,326,558	$	2,678,733
Installment notes payable to banks		2,752,318		1,382,526
Capital lease obligations		409,148		554,062

		4,488,024		4,615,321
Less current portion		2,280,337		2,810,457

Long-term debt, net of current portion	$	2,207,687	$	1,804,864


Date: September 12, 2003				/s/ Marshall T. Reynolds

				Marshall T. Reynolds
				Chief Executive Officer

Date: September 12, 2003				/s/ Kirby J. Taylor

				Kirby J. Taylor
				President and Chief Operating Officer

Date: September 12, 2003				/s/ Todd R. Fry

				Todd R. Fry
				Vice President and Chief Financial Officer


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