UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-5807
ENNIS BUSINESS FORMS, INC.
(Exact name of registrant as specified in its charter)
Texas 75-0256410
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
107 N. Sherman Street, Ennis, Texas 75119
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (214) 872-3100
Securities registered pursuant to Section 12(b) of the Act:
Number of Shares Name of each
Outstanding on exchange on
Title of each class February 29, 1996 which registered
Common Stock, 16,439,471 New York Stock Exchange
par value $2.50 per share
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.
As to (1) Yes X No As to (2) Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 15, 1996 (14,744,631 shares) was $154,818,626.
Documents Incorporated by References:
1996 Annual Report to Shareholders - incorporated in Parts I & II
Proxy Statement dated May 15, 1996 - incorporated in Parts I & III
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
PART I
Item 1. Business
The Description of Business for the Company, insofar as it relates to
history, products, distribution, competition, raw materials, seasonal
fluctuations, and industry segments, is incorporated herein by reference to
pages 8 and 16 of the Company's Annual Report for 1996 which is attached as
Exhibit (13) hereto.
Patents, Trademarks, Licenses, Franchises and Concessions:
Neither the Company nor any of its subsidiaries has any significant
patents, trademarks, licenses, franchises or concessions.
Backlog:
At February 29, 1996 the Company's backlog of business forms orders
believed to be firm was approximately $4,459,000 as compared to
approximately $5,285,000 at February 28, 1995. The backlog of orders for
tools, dies and special machinery at February 29, 1996 was approximately
$3,191,000 as compared to approximately $3,817,000 at February 28, 1995.
It is anticipated that all of the backlog of orders will be completed in
the fiscal year ended February 28, 1997.
Research and Development:
Neither the Company nor any of its subsidiaries is involved in any
significant effort in the development of new products. There have been no
material amounts spent on research and development.
Environment:
There have been no material effects on the Company or any of its
subsidiaries arising from their compliance with Federal, State, and local
provisions or regulations relating to the protection of the environment.
Employees:
At February 29, 1996, the Company had approximately 1,319 employees, of
whom approximately 281 were represented by four unions and under five
separate contracts expiring at various times.
Item 2. Properties
The Company operates sixteen manufacturing facilities located in
thirteen states and Mexico City as follows:
Square feet
of floor space
Owned Leased Total
Ennis, Texas Manufacturing 351,668 351,668
and
General Offices
Chatham, Virginia Manufacturing 127,956 127,956
Paso Robles, California Manufacturing 94,120 94,120
Boulder City, Nevada Idle Property 49,600 49,600
Knoxville, Tennessee Manufacturing 48,057 48,057
Wolfe City, Texas Manufacturing 102,180 102,180
Portland, Oregon Manufacturing 47,000 47,000
Fort Scott, Kansas Manufacturing 69,000 69,000
DeWitt, Iowa Manufacturing 95,000 95,000
Dallas, Texas Manufacturing 62,600 62,600
Louisville, Kentucky Manufacturing 42,800 42,800
Moultrie, Georgia Manufacturing 25,000 25,000
Coshocton, Ohio Manufacturing 14,000 14,000
Los Angeles, California
(acquired April 1, 1996)Manufacturing 10,000 10,000
Macomb, Michigan Manufacturing 56,350 56,350
Seattle, Washington
(acquired April 1, 1996)Manufacturing 32,000 32,000
Mexico City, Mexico Manufacturing 9,444 9,444
1,138,331 98,444 1,236,775
All of the above properties are used for the production, warehousing
and shipping of business forms and other business products except the
Dallas, Texas plant and the Boulder City, Nevada plant; the Dallas plant is
used for the production of tools, dies and special machinery, and the
Boulder City, Nevada plant was closed in November 1995 and the property and
building are listed for sale. The plants are being operated at normal
productive capacity. Productive capacity fluctuates with the ebb and flow
of market demands and depends upon the product mix at a given point in
time. Equipment is added as existing machinery becomes obsolete or
unrepairable and as new equipment becomes necessary to meet market demands;
however, at any given time these additions and replacements are not
considered to be material additions to property, plant and equipment,
although such additions or replacements may increase a plant's efficiency
or capacity.
All of the foregoing plants and warehouses are deemed to be in good
condition and it is not anticipated that substantial expansion,
refurbishing or re-equipping will be required in the near future.
The rented property in Oregon is leased through December 2000. The
rented property in Mexico City is leased through September 1996. No
difficulties are presently foreseen in maintaining or renewing such leases
as they expire. It is the Company's intention to relocate the operations
in Los Angeles and Seattle to larger facilities in the same general
geographical area as soon as practical. Current lease arrangements for
both facilities are short-term in nature.
Item 3. Legal Proceedings.
There are no material pending legal proceedings or litigation pending
or threatened to which the registrant or its subsidiaries are parties or of
which property of the registrant or its subsidiaries is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G of Form 10-K, the following list is
included as an unnumbered Item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to
be held on June 20, 1996.
The following is a list of names and ages of all of the executive
officers of the registrant indicating all positions and offices with the
registrant held by each such person and each such person's principal
occupation or employment during the past five years. All such persons have
been elected to serve until the next annual election of officers (which
shall occur on June 20, 1996) and their successors are elected, or until
their earlier resignation or removal. No person other than those listed
below has been chosen to become an executive officer of the registrant.
Kenneth A. McCrady, Chairman of the Board and Chief Executive Officer,
age 65, was elected Chairman in April 1985. Mr. McCrady was employed by
the Company in 1970 and was elected to the office of Vice President of
Finance at that time. In May 1971 he was elected to the offices of
Executive Vice President and Treasurer. In August 1971 Mr. McCrady was
elected as President and Chief Executive Officer and served in this
capacity until his election as Chairman.
Charles F. Ray, President and Chief Operating Officer, age 52, was
elected President and Chief Operating Officer in January 1990. Mr. Ray has
been continuously employed by the Company since June 1964; he served as
Executive Vice President from June 1986 until his election as President and
Chief Operating Officer.
Harve Cathey, Vice President - Finance and Secretary, age 57, was
elected Vice President - Finance and Secretary in September 1983. Mr.
Cathey has been employed by the Company continuously since April 1969.
Prior to his election as Vice President and Secretary, Mr. Cathey served as
Treasurer (from June of 1978).
Albert V. Lemieux, Vice President - Manufacturing, age 54, was elected
Vice President - Manufacturing in September 1989. Mr. Lemieux has been
continuously employed by the Company since August 1975. Prior to his
election as Vice President - Manufacturing Mr. Lemieux served as General
Manager of the DeWitt, Iowa division of the Company from December 1986
through September 1989 and plant manager of the DeWitt, Iowa continuous
forms plant from June 1982 through December 1986.
Douglas O. Self, Vice President, age 54, was elected Vice President in
December 1989. Mr. Self has been continuously employed by the Company
since August 1965. Prior to his election as Vice President Mr. Self served
as Vice President and General Manager of a subsidiary of the Company from
February 1977.
Nelson D. Ward, Vice President - Sales and Marketing, age 54, was
elected Vice President - Sales and Marketing in September 1992. Mr. Ward
has been continuously employed by the Company since April 1971. Prior to
his election as Vice President, Mr. Ward served as President and General
Manager of a subsidiary of the Company from June 1978.
Victor V. DiTommaso, Jr., Treasurer, age 40, was elected Treasurer in
December 1992. Mr. DiTommaso has been continuously employed by the Company
since July 1991. Prior to his employment by the Company, Mr. DiTommaso
maintained a public accounting practice in Dallas, Texas from June 1986.
There is no family relationship among or between any executive officers
of the registrant, nor any family relationship between any executive
officers and directors.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters.
The information required by this item is incorporated herein by
reference to page 9 of the Company's Annual Report for 1996 which is
attached as Exhibit (13) hereto.
Item 6. Selected Financial Data.
The information required by this item is incorporated herein by
reference to page 5 of the Company's Annual Report for 1996 which is
attached as Exhibit (13) hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated herein by
reference to pages 6 and 7 of the Company's Annual Report for 1996 which is
attached as Exhibit (13) hereto.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated herein by
reference to page 9 and pages 12 through 20 of the Company's Annual Report
for 1996 which is attached as Exhibit (13) hereto.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
For information with respect to executive officers of the registrant,
see "Executive Officers of the Registrant" at the end of Part I of this
report.
The information required by this item regarding Directors is
incorporated by reference to pages 2 through 4 of the Company's Proxy
Statement dated May 15, 1996 which is attached as Exhibit (22) hereto.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to pages 5 through 9 of the Company's Proxy Statement dated May
15, 1996 which is attached as Exhibit (22) hereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by
reference to page 2 of the Company's Proxy Statement dated May 15, 1996
which is attached as Exhibit (22) hereto.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated herein by
reference to page 10 of the Company's Proxy Statement dated May 15, 1996
which is attached as Exhibit (22) hereto.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
Exhibits:
(3.(i)) Restated Articles of Incorporation as amended through
June 23, 1983 with attached amendments dated June 20, 1985,
July 31, 1985, and June 16, 1988 incorporated herein by
reference to Exhibit 5 to the Registrant's Form 10-K Annual
Report for the fiscal year ended February 28, 1993.
(3.(ii)) Bylaws of the Registrant as amended through May 13,
1977 with attached amendments dated May 3, 1979 and March 2,
1983 incorporated herein by reference to Exhibit 5 to the
Registrant's Form 10-K Annual Report for the fiscal year ended
February 28, 1993.
(13) 1996 Annual Report to Shareholders.
(21) Subsidiaries of Registrant.
(22) Notice, Proxy Statement and proxy incorporated herein by
reference to the Registrant's Proxy Statement dated May 15,
1996.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule.
Financial Statements and Financial Statement Schedule:
See accompanying index to financial statements and financial
statement schedule for a list of all financial statements and the financial
statement schedule filed as part of this report.
Reports on Form 8-K:
A Form 8-K was filed on April 4, 1996, regarding the acquisition
of two privately-owned specialty printing companies and the authorization
by the Board of Directors of a significant increase in the Company's
capital expenditures budget.
UNDERTAKINGS WITH RESPECT TO REGISTRANT'S REGISTRATION
STATEMENT, FORM S-8, NUMBER 2-81124
(1) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered, to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(2) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus to each employee to whom the prospectus
is sent or given a copy of the registrant's annual report to shareholders
for its last fiscal year, unless such employee otherwise has received a
copy of such report, in which case the registrant shall state in the
prospectus that it will promptly furnish, without charge, a copy of such
report on written request of the employee. If the last fiscal year of the
registrant has ended within 120 days prior to the use of the prospectus,
the annual report of the registrant for the preceding fiscal year may be so
delivered, but within such 120 day period the annual report for the last
fiscal year will be furnished to each such employee.
(3) The undersigned registrant hereby undertakes to transmit or cause
to be transmitted to all employees participating in the plan who do not
otherwise receive such material as shareholders of the registrant, at the
time and in the manner such material is sent to its shareholders, copies of
all reports, proxy statements and other communications distributed to its
shareholders generally.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following is a list of the financial statements and financial
statement schedule which are included in this Form 10-K or which are
incorporated herein by reference. The consolidated financial statements of
the Company included in the Company's Annual Report for 1996 are
incorporated herein by reference in Item 8. With the exception of the
pages listed in this index and pages listed in Items 1, 5, 6, 7 and 8
incorporating certain portions of the Company's Annual Report for 1996,
such Annual Report for 1996 is not deemed to be filed as part of this Form
10-K.
Reference Page
Annual
Form Report
10-K for 1996
Consolidated financial statements of the Company:
Independent auditors' report 20
Consolidated balance sheets - February 29, 1996
and February 28, 1995 14 - 15
Consolidated statements of earnings - years ended
February 28 or 29, 1996, 1995 and 1994 12
Consolidated statements of cash flows - years ended
February 28 or 29, 1996, 1995 and 1994 13
Notes to consolidated financial statements 16 - 20
Independent auditors' report on financial statement
schedule S-1
Financial Statement Schedule for three years ended
February 29, 1996:
II - Valuation and qualifying accounts S-2
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements,
related notes or other schedules.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) ENNIS BUSINESS FORMS, INC.
Date: May 24, 1996 BY: /s/ Kenneth A. McCrady
Kenneth A. McCrady, Chairman of the Board
and Chief Executive Officer
Date: May 24, 1996 BY: /s/ Harve Cathey
Harve Cathey, Vice President - Finance
and Principal Financial Officer
Date: May 24, 1996 BY: /s/ Victor V. DiTommaso, Jr.
Victor V. DiTommaso, Jr., Treasurer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: May 24, 1996 BY: /s/ Kenneth A. McCrady
Kenneth A. McCrady, Director
Date: May 24, 1996 BY: /s/ Harold W. Hartley
Harold W. Hartley, Director
Date: May 24, 1996 BY: /s/ Robert L. Mitchell
Robert L. Mitchell, Director
Date: May 24, 1996 BY: /s/ Thomas R. Price
Thomas R. Price, Director
Date: May 24, 1996 BY: /s/ Charles F. Ray
Charles F. Ray, Director
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Ennis Business Forms, Inc.
Under date of April 19, 1996, we reported on the consolidated balance
sheets of Ennis Business Forms, Inc. and subsidiaries as of February 29,
1996 and February 28, 1995 and the related consolidated statements of
earnings and cash flows for each of the years in the three-year period
ended February 29, 1996, as contained in the 1996 annual report to
stockholders. These financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated
financial statement schedule as listed in the accompanying index to
financial statements and financial statement schedule on page 7. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Dallas, Texas
April 19, 1996
Schedule II
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended February 29, 1996
(In thousands)
Additions
Balance at Charged Charged Balance
beginning to to other at end
Description of year operations accounts Deductions of year
Year ended February 29, 1996:
Allowance for doubtful
receivables $1,030 348 23(1) 318 (2) 1,083
Year ended February 28, 1995:
Allowance for doubtful
receivables$ 845 444 38(1) 297 (2) 1,030
Year ended February 28, 1994:
Allowance for doubtful
receivables$ 573 556 86(1) 370 (2) 845
Notes:
(1) Principally collection of accounts previously charged off.
(2) Charge-off of uncollectible receivables.
ENNIS BUSINESS FORMS, INC.
SERVICE SINCE 1909
AND INTO THE NEXT CENTURY
What is now Ennis Business Forms began as a community newspaper
in Ennis, Texas in 1909. The company soon began manufacturing and selling
cotton bale identification tags to gin operators throughout the South.
As the American workplace changed during this century, so did the products
that Ennis Business Forms produced: salesbooks to record the credit sales
of Depression-era grocers, loan forms used by returning GI's to buy their
first homes and multi-part computer forms for the huge new calculating
machines that were
beginning to appear in the 1960's.
Ennis continues to manufacture and sell
products vital to the marketplace: a bar-coded pharmacy label that helps
speed the treatment of a hospitalized child, a colorful, customized
brochure used by an entrepreneur to launch his new business, and the CD-
ROM package that carries a computer software program to millions of
desktops throughout the world.
Printed by Ennis Business Forms, Inc.
Financial Highlights
Annual Summary
Percentage
Fiscal Year Ended Fiscal Year Ended Increase
February 29, 1996 February 28, 1995 (Decrease)
Net sales $142,134,000 $140,097,000 1.5
Earnings before income taxes 30,104,000 32,041,000 (6.0)
Income taxes 11,487,000 12,025,000 (4.5)
Net earnings 18,617,000 20,016,000 (7.0)
Dividends 9,782,000 9,453,000 3.5
Per share of common stock:
Net earnings 1.13 1.22 (7.4)
Dividends .595 .575 3.5
Weighted average number of shares
of common stock outstanding 16,439,645 16,439,844 --
Table of Contents
2 Management's Report to Shareholders
5 Selected Financial Data
6 Management's Discussion and Analysis
8 Description of Business
9 Quarterly Information
10 Ten-Year Financial Review
12 Consolidated Statements of Earnings
13 Consolidated Statements of Cash Flows
14 Consolidated Balance Sheets
16 Notes to Consolidated Financial Statements
20 Independent Auditors' Report
Inside Back Cover Directors and Officers
Inside Back Cover Manufacturing Locations and Executive Offices
MANAGEMENT'S REPORT TO SHAREHOLDERS
For the fiscal year ended February 29, 1996 we achieved record sales,
but net earnings were 12% below the record set in fiscal 1993.
The business forms industry has experienced little or no growth in
recent years, but in spite of this difficult environment, we continue to
maintain what we believe to be the highest profit margin and return on
investment of any publicly-owned business forms company in the United
States.
Operating Results
Sales for the year ended February 29, 1996 amounted to $142,134,000
compared to $140,097,000 in the prior year, an increase of 1.5%. Net
earnings for the year were $18,617,000 compared to $20,016,000 in the prior
year, a decrease of 7.0%. Net earnings per share of common stock amounted
to $1.13 compared to $1.22 in the prior year, a decrease of 7.4%. Per
share earnings computations were based on 16,439,645 shares for the year
ended February 29, 1996 and 16,439,844 shares for the prior year.
The gross margin declined this year primarily as a result of numerous
raw material cost increases which were not fully recovered through selling
price increases. Higher selling and marketing expenses in fiscal 1996 in
accordance with plan contributed to the sales increase but negatively
affected earnings.
Financial Condition
The Company's financial condition remains strong. At February 29, 1996
the ratio of current assets to current liabilities was 5.2 to 1, and long-
term debt was less than 1% of shareholders' equity.
Dividends
Cash dividends of $.595 per share were paid during the year ended
February 29, 1996 compared to $.575 in the prior year, an increase of 3.5%.
Plant Closing
In November 1995, we closed an imprint plant in Boulder City, Nevada,
which we had opened in 1984. This plant produced very short run
standardized business forms. At the time the plant was established, the
demand for the type of forms it produced was growing in excess of 20% per
year. More recently the growth rate of these products declined to the
point where we found it would be advantageous to close this facility and
move production to other plants. The decision to close Boulder City was
not an easy one. The employees at that location had done a commendable job
of bringing it from a startup to an efficient facility.
Outlook
Ennis Business Forms is at a crossroads in its 87 year history, but
since this is not the first time that the Company has found itself in this
position, we believe it would be worthwhile to review some of the
challenges which the Company has successfully faced over just the last 25
years. For the fiscal year ended February 28, 1971 the Company sustained a
37% decline in net earnings following many years of consistent earnings
growth. The current Chief Executive Officer was appointed in August 1971.
For fiscal 1972 we reported a loss of over $2 million, including
extraordinary charges. For the next three fiscal years we had a strong
rebound in earnings and set earnings records in fiscal 1974 and 1975. Then
in fiscal 1976 and 1977 earnings declined more than 20% each year. At that
point, after prolonged study, we dramatically changed our marketing
strategy. In 1977 our largest dealer class accounted for approximately 45%
of revenues, but overall profit margins from that segment of our business
were unsatisfactory, and we decided to focus most of our sales and
marketing efforts on segments of the market with better profit potential.
Although this change entailed substantial risk, subsequent events proved it
to have been wise. During the thirteen-year period beginning in fiscal
1978 through fiscal 1990, we achieved average annual growth of 6% in sales,
19% in net earnings, and 29% each in earnings per share and cash dividends
per share.
Beginning in fiscal 1991 and continuing through fiscal 1996, operating
results have been disappointing. During this six year period, sales
increased at an average annual rate of 3%, net earnings declined at an
average annual rate of 2%, earnings per share increased at an average
annual rate of 1%, and cash dividends per share increased an average of 7%
a year. Initially we believed that the recession which began in 1990 was
responsible for our lack of sales and earnings growth. Then, during 1993,
we finally realized that while the recession undoubtedly contributed to the
unsatisfactory performance, there had been a fundamental change in our
business which was going to make it very difficult to achieve sales and
earnings growth until we expanded our product offering. We became aware
that more and more small businesses, which for many years had been the
primary focus of our sales and marketing efforts, were discontinuing the
use of pre-printed customized business forms, which account for most of our
revenues and earnings, in favor of other methods of recording and reporting
business transactions. Business forms are just one of a long list of
products which have provided our revenues over the years. The Company
began as a community newspaper in Ennis, Texas in 1909. Soon thereafter it
began producing cotton tags and over the years added sales and manifold
books, restaurant guest checks, grocery bags, school supplies, ruled
notebook paper, ruled tablets, legal pads, adding machine rolls, carbon
paper, typewriter ribbons, file folders, register forms and machines, tab
cards, unit sets, continuous computer forms, pegboard forms, stock forms,
hospital menus, copier and laser printer supplies, pressure sensitive
labels, laser cut-sheet forms, presentation folders and other presentation
products, many different kinds of promotional products, and, most recently,
short-run high-quality process color commercial printing. Many of these
products became obsolete or unsatisfactorily profitable over the years and
were discontinued.
After many years of growth in excess of that of the economy as a whole,
the business forms market is in decline. Although the rate of decline is
presently slow, there is no reason to believe that the declining trend will
be reversed. Even so, we expect business forms to continue to be a very
important part of our business for the foreseeable future, providing funds
for growth in other areas. While it will be many years, if ever, before
paper business forms totally disappear from the business scene, we are once
again faced with the necessity of making a transition from our largest
product category to other products if we are to grow.
We believe growth is critical to the enhancement of shareholder value,
and about three years ago when we first recognized that we could not
realistically expect to achieve acceptable growth in the declining business
forms market, we undertook an aggressive search for acquisitions. Based on
our experience since then there are few good companies which fit our
strategic requirements and are available for acquisition at prices which
would provide incremental earnings for us in the near term. We will
continue to search for acquisitions in specialized product areas or where
we can obtain people who bring specialized product or market knowledge to
our operations; however, our present plan is to focus most of our growth
efforts on our existing plants and market channel.
We are blessed with hundreds of highly skilled production and customer
service employees in our present plants, and because of their age and
location most of our facilities have relatively low operating costs. We
sell our products through over 30,000 independent dealers, many of whom
have been doing business with us for decades and have the capability of
distributing many different kinds of business supplies products. We intend
to find, either through internal development or acquisition, additional
products for our existing plants and market them through our dealer
network.
In 1991 we purchased a Michigan manufacturer of high-quality process
color presentation folders. This product line has now been expanded to
include other types of presentation products, including CD-ROM holders,
diskette holders and video boxes. The presentation folder product line
fits our distribution channel and is not subject to technological
obsolescence, thus it offers, along with its companion products,
significant growth potential. On April 1, 1996 we purchased a small Los
Angeles manufacturer of presentation folders which enhances our growth
opportunities in this product line in the large West Coast market. Also,
on April 1, 1996, we purchased a commercial printing operation in Seattle
which gives us the production and marketing knowledge to enter the
developing market for short-run high-quality process color printing. We
are now planning a major marketing effort for these products through
independent dealers throughout the United States.
At the same time we announced these acquisitions, we announced that our
Board of Directors authorized $16.5 million of capital expenditures for the
fiscal year which began March 1, 1996. The capital expenditures budget for
fiscal 1997 exceeds aggregate capital expenditures over the last five years
and will be funded from internally generated funds. The major portion of
these expenditures will be for non-forms production equipment or for
specialized forms-related equipment for high value-added products, such as
bar codes, label-form combinations and variable data printing, all of which
offer significant growth potential.
The fiscal 1997 capital budget resulted from planning sessions which
included significant input and commitment by our local plant management.
We asked each of our plant managers to develop plans for annual sales
growth of 10% and to provide investment and operating plans to achieve such
growth. The response by all of management has been an enthusiastic
commitment to aggressively pursue growth opportunities, especially in new
products and product extensions. We realize that it may be necessary to
suffer a short-term decline in profit margins in order to achieve such
growth; however, it is clear that we must get sales, and ultimately
earnings, back on a growth track for the benefit of our shareholders.
We have set a long-term growth target of 10% per year for the Company as
a whole. We are presently emphasizing sales growth, but once we achieve the
sales growth we will shift our emphasis to profits, with the objective of
obtaining average annual increases of 10% in both sales and earnings over
the long-term. We consider this an aggressive target since more than half
of our current revenues are from products which are declining in usage. We
strongly emphasize that 10% growth is our target and not a forecast.
We believe it was important to discuss in the preceding paragraphs some
of the challenges which we have confronted and successfully met over the
last 25 years because we are again facing a serious challenge and we are
asking our shareholders to bear with us while we take the actions which we
believe are necessary to get the Company back on a growth track. At the
same time, we recognize that we must again take some major risks and that
there is no guarantee that we will be successful. We believe that our
track record should provide encouragement to our shareholders during this
transition period. We are the same Company with the same management and
other strengths which have enabled us to successfully meet previous
challenges. Management is fully committed to profitable growth, and we are
confident that through the efforts of our employees and with the support of
our shareholders and customers Ennis Business Forms will again become a
growth Company.
Kenneth A. McCrady Charles F. Ray
Chairman of the Board President
and Chief Executive Officer and Chief Operating Officer
(Photogragh of Mr. McCrady) (Photogragh of Mr. Ray)
May 1, 1996
Selected Financial Data
Years Ended February 28 or 29,
1996 1995 1994 1993 1992
(In thousands, except per share amounts)
Net sales from continuing
operations $142,134 140,097 132,945 129,279 131,810
Earnings from continuing
operations 18,617 20,016 19,457 20,692 20,767
Earnings from continuing
operations per share of
common stock 1.13 1.22 1.16 1.18 1.14
Net earnings 18,617 20,016 19,457 21,252 21,216
Net earnings per share of
common stock 1.13 1.22 1.16 1.21 1.16
Total assets 93,662 84,991 74,499 75,923 81,244
Long-term debt 280 360 435 505 2,396
Cash dividends per share
of common stock .595 .575 .555 .535 .51
Notes: 1. The per share figures have been adjusted to reflect a three-for-
two stock distribution in July 1991.
2. Net earnings for fiscal 1992 include $1,500,000 (8 cents a
share) resulting from the cumulative effect of a change in
accounting for income taxes.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company has maintained a strong financial position with working
capital at February 29, 1996 of $54,490,000, an increase of 17.7% from the
beginning of the year, and a current ratio of 5.2 to 1. The increase is
due to cash provided by operating activities. In April 1996, the Company
purchased in separate transactions substantially all the operating assets
and operations of two privately-owned specialty printing companies for
approximately $8,000,000. In addition to the acquisitions, the Board of
Directors has authorized $16,500,000 of capital expenditures for fiscal
year 1997. The Company funded the acquisitions from available cash and
intends to fund the capital expenditures from available cash.
Accounting Standards
In March 1995, the Financial Accounting Standards Board (the Board)
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ". This Statement provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and
assets to be disposed of. The provisions of Statement No. 121 will be
effective for fiscal year 1997 and are not expected to have a significant
impact on the Company's Consolidated Financial Statements. See note 1 to
the Consolidated Financial Statements for the Company's current accounting
for impairment of long-lived assets.
In October 1995, the Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." The
Statement gives companies the option to adopt the fair value method for
expense recognition of employee stock options or to continue to account for
stock options and stock-based awards using the intrinsic value method as
outlined under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and to make pro forma disclosures of
net income and net income per share as if the fair value method had been
applied. The provisions of Statement No. 123 will be effective for fiscal
year 1997 and the Company has elected to continue to apply APB 25 for
future stock options and stock-based awards.
Results of Operations
1996 as compared to 1995
Net sales increased 1.5% in fiscal 1996 compared to 1995. Cost of
sales increased 2.6% in fiscal 1996 compared to 1995, a greater percentage
increase than was experienced in net sales for the same period. The gross
margin decreased .4%. Competitive market conditions have prohibited the
Company from obtaining price increases sufficient to fully offset the
increased raw material costs of the business forms printing operations.
Selling, general, and administrative expenses increased 9% over the prior
year because of additional marketing costs and customer service expenses.
Investment and other income increased in the current year over the prior
year due to increased amounts of funds available for investment. The
overall effective income tax rate increased .5% primarily due to
nondeductible foreign operating losses. Net earnings decreased 7.0% due to
unrecoverable increased raw material costs in the business forms
operations, increased selling, general, and administrative expenses, and
the write-off of impaired intangible assets. Earnings per share decreased
7.4%, substantially the same percentage decrease as net earnings because
the weighted average number of shares of common stock outstanding were
virtually unchanged from fiscal 1995.
1995 as compared to 1994
Net sales increased 5.4% in fiscal 1995 compared to 1994. Most of the
increase is attributable to additional business from two significant
customers in the business forms printing operations and sales from an award
ribbon company acquired in June 1993. The Company's tool and die
subsidiary, Connolly Tool and Machine Company, also had a significant
increase in net sales over the prior year. The upturn in the economy,
additional marketing activities, and improved customer service further
contributed to the increase in net sales. Sales by the Company's 70%-owned
Mexican subsidiary were not material. Cost of sales increased 7.1% in
fiscal 1995 compared to 1994, a greater percentage increase than was
experienced in net sales for the same period. Accordingly, gross profit
increased only 2.7%, less than the increase in sales. Competitive market
conditions have prohibited the Company from obtaining price increases
sufficient to fully offset the increased raw material costs of the business
forms printing operations. Selling, general, and administrative expenses
increased 6.4% over the prior year because of additional marketing costs,
customer service expenses and startup costs associated with a new
manufacturing facility in Mexico City. Interest expense continues to
decline due to scheduled decreases in outstanding long-term debt.
Investment and other income increased in the current year over the prior
year due to gains from asset sales, increased amounts of funds available
for investments and a steady increase in interest rates throughout the
year. The overall effective income tax rate remained substantially
unchanged from fiscal 1994. Net earnings increased 2.9%, comparable to the
increase in gross profits. The increased selling, general and
administrative expenses were largely offset by the higher investment
income. Earnings per share increased by a greater percentage than net
earnings because the weighted average number of shares of common stock
outstanding decreased in fiscal 1995 compared to the prior year. This
decrease in the weighted average number of shares of common stock
outstanding is because of treasury stock purchases in the first half of
fiscal 1994.
1994 as compared to 1993
Net sales from continuing operations increased 2.8% in fiscal 1994
compared to 1993. The increase is attributable to the acquisition of two
award ribbon companies (one in fiscal 1994 and one in fiscal 1993) and
additional business from several significant customers in the business
forms printing operation. Cost of sales increased 4.9% in fiscal 1994
compared to 1993, a greater percentage increase than was experienced in net
sales for the same period. Competitive market conditions have prohibited
the Company from obtaining price increases sufficient to offset the
increased raw material and labor costs of the business forms printing
operations. As a result of the competitive market conditions, gross
profits were substantially unchanged between years despite increased sales.
Gross profit margins decreased 3.0% in fiscal 1994 as compared to the prior
year. Earnings from continuing operations decreased 6.0% between fiscal
1994 and 1993. The decrease in earnings was the result of greater selling,
general and administrative expenses which increased 6.1% in fiscal 1994
compared to 1993 and an increase in the Company's effective income tax
rate. The increase in expenses was primarily the result of additional
marketing costs and the beginning of a non-competition agreement. Total
income tax expense was unchanged between fiscal 1994 and 1993 despite the
decrease in earnings before income taxes. The overall effective income tax
rate increased from 35.9% in fiscal 1993 to 37.3% in fiscal 1994. The
increase was principally due to an increase in statutory Federal income tax
rates enacted under the Revenue Reconciliation Act of 1993. Interest
expense continued to decline as a result of scheduled decreases in and
early repayment of outstanding long-term debt. Investment and other income
declined in fiscal 1994 compared to the prior year because of losses from
asset sales in the first quarter of fiscal 1994 and gains from asset sales
in the second quarter of the prior year. Earnings per share decreased by a
smaller percentage than net earnings because of the purchases of treasury
stock in fiscal 1994 (767,500 shares).
Description of Business
Ennis Business Forms, Inc. was organized under the laws of Texas in 1909.
Except for one subsidiary, Ennis (the Company and all of its other
subsidiaries) prints and constructs a broad line of business forms and
other business products for national distribution. Approximately 92% of
the business products manufactured by Ennis are custom and semi-custom,
constructed in a wide variety of sizes, colors, number of parts and
quantities on an individual job basis depending upon the customers'
specifications. Ennis operates fifteen manufacturing locations in twelve
strategically located states and Mexico City, providing the Ennis dealer a
national network for meeting users' demands for hand or machine written
records and documents. The Company's other subsidiary, Connolly Tool and
Machine Company (Connolly), is located in Dallas, Texas and designs and
manufactures tools, dies and special machinery, all to customers'
specifications, for customers located primarily in the Southwestern part of
the United States. The operations of Connolly are not significant to
consolidated operations. For the year ended February 29, 1996 the sale of
business products represents approximately 95% of consolidated net sales.
While it is not possible, because of the lack of adequate statistical
information, to determine Ennis' share of the total business products
market or Connolly's share of the total tool, dies and special machinery
market, or their positions in their respective industries, management
believes Ennis is one of the largest producers of business forms in the
United States distributing primarily through independent dealers, and that
its business forms offering is more diversified than that of most companies
in the business forms industry. Also, Connolly is believed to be one of
the leading independent designers and manufacturers of tools, dies and
special machinery in the Southwest.
Distribution of business forms and other business products throughout the
United States and Mexico is primarily through independent dealers,
including business forms distributors, stationers, printers, computer
software developers, etc. Distribution of tools, dies and special
machinery is on a contract basis with individual customers. No single
customer accounts for as much as ten percent of consolidated sales.
Raw materials principally consist of a wide variety of weights, widths,
colors, sizes, and qualities of paper for business forms and a variety of
types and grades of metals and electrical and mechanical components for
tools, dies and special machinery purchased from a number of major
suppliers at prevailing market prices.
Seasonal fluctuations in business forms usage have historically caused a
decline in sales during the first quarter, and operations are further
affected by the seasonal pattern of business forms used in the raw cotton
industry, which forms are generally sold during the months immediately
preceding the harvesting of cotton. However, recent experience indicates
that general economic conditions are the predominant factor in quarterly
volume fluctuations, not only in the business forms market, but also in the
markets in which Connolly participates.
Quarterly Information (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
May August November February
Fiscal year ended February 29, 1996:
Net sales $35,109 35,707 36,827 34,491
Gross margin 12,834 12,939 13,670 13,944
Net earnings
(notes 1 and 2) 4,490 4,641 4,840 4,646
Dividends paid 2,384 2,466 2,466 2,466
Per share of common stock:
Net earnings .27 .29 .29 .28
Dividends .145 .15 .15 .15
Common stock price 12.25 to 12.25 to 12.00 to 11.00 to
range per share 13.75 13.25 14.50 13.00
Common stock trading volume,
number of shares 844 1,074 1,496 1,227
Fiscal year ended February 28, 1995:
Net sales $34,041 34,594 35,249 36,213
Gross margin 13,032 13,099 12,913 14,565
Net earnings (note 1) 4,975 4,893 4,784 5,364
Dividends paid 2,302 2,384 2,383 2,384
Per share of common stock:
Net earnings .30 .30 .29 .33
Dividends .14 .145 .145 .145
Common stock price 13.38 to 13.25 to 12.63 to 11.63 to
range per share 16.13 15.00 14.88 14.00
Common stock trading volume,
number of shares 722 593 900 992
The Company's common stock is traded on the New York Stock Exchange. The
number of common shareholders of record as of the close of business on
April 15, 1996 was 1,848.
Notes: 1. Year-end adjustments related to physical inventory counts and
LIFO valuation increased net earnings for the fourth quarter of
fiscal 1996 by approximately $820,000 (5 cents a share) as
compared to an increase in net earnings of approximately $267,000
(2 cents a share) from comparable adjustments in the fourth
quarter of fiscal 1995.
2. The fourth quarter of fiscal 1996 includes a decrease in net
earnings of approximately $504,000 (3 cents a share) due to a
charge for the impairment of certain intangible assets.
<TABLE>
Ten-Year Financial Review
(In thousands, except per share and per dollar of sales amounts)
<CAPTION>
Fiscal years ended 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
February 28 or 29
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales from continuing $142,134 $140,097 $132,945 $129,279 $131,810 $120,159 $122,941 $120,016 $110,002 $103,460
operations
Earnings from continuing
operations before income taxes 30,104 32,041 31,039 32,276 32,303 32,225 32,630 28,735 25,614 22,377
Federal and state income 11,487 12,025 11,582 11,584 11,536 11,489 11,629 10,259 10,008 10,191
taxes
Earnings from continuing 18,617 20,016 19,457 20,692 20,767 20,736 21,001 18,476 15,606 12,186
operations
Per dollar of sales .131 .143 .146 .16 .158 .173 .171 .154 .142 .118
Per share(a) 1.13 1.22 1.16 1.18 1.14 1.10 1.06 .91 .73 .54
Net earnings 18,617 20,016 19,457 21,252 21,216 21,100 21,027 18,839 15,751 12,562
Per share(a) 1.13 1.22 1.16 1.21 1.16 1.12 1.06 .92 .74 .56
Dividends 9,782 9,453 9,270 9,400 9,310 8,810 8,158 6,609 4,761 3,340
Per share(a) .595 .575 .555 .535 .51 .47 .41 .32 .22 .15
Shareholders' equity 78,195 69,338 58,897 60,565 66,485 55,830 60,737 52,954 49,586 53,950
Per share(a) 4.76 4.22 3.52 3.52 3.65 3.05 3.10 2.66 2.41 2.43
Current assets 67,544 59,265 48,519 48,928 51,035 50,927 55,527 46,797 45,600 53,390
Current liabilities 13,054 12,976 12,548 12,087 9,631 10,203 10,074 10,080 12,619 12,642
Net working capital 54,490 46,289 35,971 36,841 41,404 40,724 45,453 36,717 32,981 40,748
Ratio of current assets to
current liabilities
5.2:1 4.6:1 3.9:1 4.0:1 5.3:1 5.0:1 5.5:1 4.6:1 3.6:1 4.2:1
Depreciation of plant and 3,553 3,499 3,805 4,086 4,368 3,694 3,486 3,372 3,249 3,097
equipment
Additions to property, 6,106 4,010 2,215 1,315 2,484 3,684 3,639 2,096 2,563 2,906
plant and equipment
<FN>
(a) Earnings from continuing operations per share, net earnings per share, dividends per share and shareholders'
equity per share figures have been adjusted to reflect the following stock distributions:
July 1991 3 for 2
July 1989 3 for 2
February 1987 3 for 2
</FN>
</TABLE>
Consolidated Statements of Earnings
(In thousands, except per share amounts)
For the years ended February 28 or 29,
1996 1995 1994
Net sales $142,134 140,097 132,945
Costs and expenses:
Cost of sales 88,747 86,488 80,737
Selling, general and
administrative expenses 24,943 22,893 21,525
Interest expense 102 87 120
113,792 109,468 102,382
Earnings from operations 28,342 30,629 30,563
Investment and other income - net 1,762 1,412 476
Earnings before income taxes 30,104 32,041 31,039
Provision for income taxes (note 5) 11,487 12,025 11,582
Net earnings $ 18,617 20,016 19,457
Net earnings per share of
common stock $ 1.13 1.22 1.16
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(In thousands)
For the years ended February 28 or 29,
1996 1995 1994
Cash flows from operating activities:
Net earnings $18,617 20,016 19,457
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,511 3,657 4,107
Deferred income taxes (295) (272) (675)
Pension plan expense 827 524 318
Other 437 (308) (118)
Changes in assets and liabilities:
Receivables 1,304 (3,185) 659
Inventories 1,926 (1,553) (716)
Other current assets
(net of deferred taxes) (1,023) 344 (127)
Accounts payable and
accrued expenses 134 1,188 2,349
Federal and state income taxes (93) (688) (98)
Net cash provided by operating
activities 26,345 19,723 25,156
Cash flows from investing activities:
Capital expenditures (6,106) (4,010) (2,215)
Purchase of operating assets -- -- (1,000)
Purchase of short-term investments (6,064) (17,600) --
Maturities of short-term investments 23,742 -- --
Proceeds from disposal of property 11 379 24
Net cash provided by (used in)
investing activities 11,583 (21,231) (3,191)
Cash flows from financing activities:
Exercise of incentive stock options -- 18 19
Purchase of treasury stock (6) (15) (11,874)
Dividends (9,782) (9,453) (9,270)
Payment of long-term debt (75) (70) (1,860)
Net cash flows used in financing
activities (9,863) (9,520) (22,985)
Effect of exchange rate changes on cash -- (8) --
Net change in cash and equivalents 28,065 (11,036) (1,020)
Cash and equivalents at beginning of
year 10,541 21,577 22,597
Cash and equivalents at end of year $38,606 10,541 21,577
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
(In thousands, except share amounts)
February 29, February 28,
1996 1995
Assets
Current assets:
Cash and equivalents $38,606 10,541
Short-term investments -- 17,600
Receivables, principally trade, less allowance
for doubtful receivables of $1,085 in 1996 and
$1,033 in 1995 16,975 18,284
Inventories, at lower of cost (principally
last-in, first-out) or market (note 2) 8,298 10,301
Other current assets (note 5) 3,665 2,539
Total current assets 67,544 59,265
Property, plant and equipment, at cost:
Plant machinery and equipment 49,563 48,600
Land and buildings 15,010 14,548
Other 7,079 4,776
71,652 67,924
Less accumulated depreciation 49,795 48,403
Net property, plant and equipment 21,857 19,521
Cost of purchased businesses in excess of
amounts allocated to tangible net assets 3,861 4,356
Other assets and deferred charges 400 1,849
$93,662 84,991
See accompanying notes to consolidated financial statements.
February 29, February 28,
1996 1995
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term
debt $ 80 75
Accounts payable 5,144 5,014
Accrued expenses:
Employee compensation and benefits 5,702 5,303
Taxes other than income 348 740
Other 793 764
Federal and state income taxes payable
(note 5) 987 1,080
Total current liabilities 13,054 12,976
Long-term debt, less current installments 280 360
Deferred credits, principally Federal
income taxes (note 5) 2,133 2,317
Shareholders' equity (notes 3 and 4):
Preferred stock of $10 par value.
Authorized 1,000,000 shares;
none issued -- --
Common stock of $2.50 par value.
Authorized 40,000,000 shares; issued
21,249,860 in 1996 and 1995 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 115,935 107,100
Cumulative foreign currency translation
adjustments (97) (125)
170,003 161,140
Less cost of 4,810,389 shares in 1996 and
4,809,829 shares in 1995 of common stock
in treasury 91,808 91,802
Total shareholders' equity 78,195 69,338
$ 93,662 84,991
Notes to Consolidated Financial Statements
(1) Significant Accounting Policies and General Matters
Basis of Consolidation. The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Intangible Assets. The excess of cost over amounts assigned to tangible
assets of purchased subsidiaries is amortized on the straight-line basis
over periods from 3 to 40 years. The Company periodically evaluates the
net carrying value of such assets based on expectations of discounted cash
flows of each subsidiary for which such assets are recorded. To the extent
such estimated discounted cash flows are not adequate to recover the
carrying amount of the related assets, the assets are written down by a
charge to expense. For the fiscal year ended February 29, 1996 the Company
charged to expense $775,000 of intangible assets believed to be impaired.
Cash and Short-Term Investments. Investments with original maturities of
less than three months are classified as cash equivalents. At February 28,
1995, short-term investments consisted of debt securities issued by the U.
S. Treasury with varying maturities through October 1995. Short-term
investments are classified as held-to-maturity securities and reported at
amortized cost, which approximates fair market value, in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Property, Plant and Equipment. Depreciation of property, plant and
equipment is provided by the straight-line method at rates presently
considered adequate to amortize the total cost over the useful lives of the
assets. Repairs and maintenance are expensed as incurred. Renewals and
betterments are capitalized and depreciated over the remaining life of the
specific property unit. The Company capitalizes all significant leases
which are in substance acquisitions of property.
Investment Income. Investment income was approximately $1,872,000,
$1,215,000 and $536,000 for fiscal years 1996, 1995 and 1994, respectively.
Income Taxes. The Company complies with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The Statement requires
the use of the asset and liability method of accounting for income taxes.
Accordingly, changes in statutory income tax rates, such as the rate
increase enacted under the Revenue Reconciliation Act of 1993, increase or
decrease deferred income tax expense in the period of enactment.
Credit Risk. The Company's financial instruments which are exposed to
credit risk consist of its trade receivables and short term investments.
The trade receivables are geographically dispersed within the continental
United States and Mexico and the short term investments are generally
restricted to investment grade commercial paper, Eurodollar deposits of
U.S. banks, and U. S. Government obligations.
Nature of Operations and Business Segment. The Company is principally in
the business of manufacturing and selling business forms and other printed
business products to customers primarily located in the United States and
Mexico. For the fiscal years 1996, 1995 and 1994, business forms
operations represented approximately 90% to 95% of net sales, operating
profits, depreciation and identifiable assets in each year. Capital
expenditures attributable to business forms operations for the same years
were 100%, 100% and 98%, respectively. The Company's Mexico operations are
not material to consolidated earnings or financial position for fiscal
years 1996, 1995 or 1994.
Net Earnings Per Common Share. Net earnings per common share amounts are
based on the weighted average number of shares outstanding during each
year. Common stock equivalents (options) have not been included in
determining earnings per common share amounts because their inclusion would
not materially dilute the amounts shown. The weighted average number of
shares outstanding for the fiscal years 1996, 1995 and 1994 were
16,439,645, 16,439,844 and 16,717,525, respectively.
Foreign Currency Translation Adjustments. Financial position and results
of operations of the Company's foreign, 70%-owned subsidiary are measured
using the local currency as the functional currency. Assets and
liabilities of this operation were translated at the exchange rates in
effect at the balance sheet dates. Income statement accounts were
translated at the average exchange rates prevailing during the year.
Translation adjustments are included in shareholders' equity. Gains and
losses that result from foreign currency transactions are included in
earnings. Such amounts were not material in any of the years presented.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates.
(2) Inventories
The Company values the raw material content of most of its business
forms inventories at the lower of last-in, first-out (LIFO) cost or market.
At February 29, 1996 and February 28, 1995 approximately 70% and 78%,
respectively, of business forms inventories are valued at LIFO with the
remainder of inventories valued at the lower of first-in, first-out cost or
market. The following table summarizes the components of inventory at the
different stages of production (in thousands):
February 29, February 28,
1996 1995
Raw material $5,073 6,746
Work-in-process 679 963
Finished goods 2,546 2,592
$8,298 10,301
The excess of current costs over LIFO stated values amounts to
approximately $6,084,000 and $5,486,000 at February 29, 1996 and February
28, 1995.
(3) Shareholders' Equity
Following is a summary of transactions in shareholders' equity
accounts for the three years ended February 29, 1996 (amounts in thousands,
except share amounts):
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency Treasury Stock
Common Stock Additional Retained Translation (at cost)
Shares Amount Capital Earnings Adjustments Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 28, 1993 21,249,860 $53,125 1,195 86,350 -- (4,051,289) $(80,105)
Net earnings -- -- -- 19,457 -- -- --
Dividends declared
($.555 per share) -- -- -- (9,270) -- -- --
Treasury stock transactions:
Purchases -- -- -- -- -- (767,500) (11,874)
Exercise of stock options -- -- (100) -- -- 6,126 119
Balance February 28, 1994 21,249,860 53,125 1,095 96,537 -- (4,812,663) (91,860)
Net earnings -- -- -- 20,016 -- -- --
Dividends declared
($.575 per share) -- -- -- (9,453) -- -- --
Foreign currency translation
adjustment -- -- -- -- (125) -- --
Treasury stock transactions:
Purchases -- -- -- -- -- (1,037) (15)
Exercise of stock options -- -- (55) -- -- 3,871 73
Balance February 28, 1995 21,249,860 53,125 1,040 107,100 (125) (4,809,829) (91,802)
Net earnings -- -- -- 18,617 -- -- --
Dividends declared
($.595 per share) -- -- -- (9,782) -- -- --
Foreign currency translation
adjustment -- -- -- -- 28 -- --
Treasury stock purchases -- -- -- -- -- (560) (6)
Balance February 29, 1996 21,249,860 $53,125 1,040 115,935 (97) (4,810,389) $(91,808)
</TABLE>
(4) Stock Options
At February 29, 1996, 378,958 shares of the Company's unissued common
stock were reserved under an incentive stock option plan for issuance to
officers and supervisory employees of the Company and its subsidiaries.
Following is a summary of transactions in qualified stock options and
incentive stock options during the three fiscal years ended in 1996:
Number Exercise
of Price
Shares Per Share
Outstanding at February 28, 1993
(142,196 shares exercisable) 217,016 $3.04 to 19.25
Exercised (6,126) 3.04
Granted 46,500 13.81
Terminated (1,000) 15.63
Outstanding at February 28, 1994
(166,119 shares exercisable) 256,390 $3.04 to 19.25
Exercised (3,557) 3.04 to 10.17
Granted 5,750 12.00 to 14.25
Terminated (2,375) 13.81 to 19.25
Outstanding at February 28, 1995
(189,763 shares exercisable) 256,208 $10.17 to 19.25
Outstanding at February 29, 1996
(216,708 shares exercisable) 256,208 $10.17 to 19.25
(5) Income Taxes
The components of the provision for income taxes for fiscal years
1996, 1995 and 1994 are (in thousands):
1996 1995 1994
Current:
Federal $10,523 11,029 11,003
State and local 1,259 1,268 1,254
Deferred Federal (295) (272) (675)
Total provision for income taxes $11,487 12,025 11,582
Total income taxes paid $12,377 12,986 12,369
The following summary for the three fiscal years ended in 1996
reconciles the statutory U. S. Federal income tax rate to the Company's
effective tax rate:
1996 1995 1994
Statutory rate 35.0% 35.0% 35.0%
Provision for state income taxes,
net of Federal income tax benefit 2.7 2.5 2.6
Nondeductible foreign net operating loss 0.7 0.3 --
ESOP pass-through dividend deduction (0.6) (0.6) (0.7)
Other 0.4 0.3 0.4
Effective tax rate 38.2% 37.5% 37.3%
The Federal and state income tax assets and liabilities are summarized
as follows (in thousands):
February 28 or 29,
1996 1995
Currently payable $ 987 1,080
Deferred:
Current asset 1,792 1,682
Noncurrent liability 1,860 2,045
The components of deferred income tax assets and liabilities are
summarized as follows (in thousands):
February 28 or 29,
1996 1995
Current deferred asset:
Allowance for doubtful receivables $ 489 491
Employee compensation and benefits 949 884
Foreign net operating loss carryforwards 324 112
Other 354 307
Subtotal 2,116 1,794
Valuation allowance (324) (112)
$1,792 1,682
Noncurrent deferred liability:
Depreciation $1,453 1,475
Prepaid pension cost 303 177
Other 104 393
$1,860 2,045
The valuation allowance of $324,000 has been provided to reduce the
total tax asset to $1,792,000 because it is likely that a portion of the
tax asset will not be realized. The net change in the valuation allowance
of $212,000 relates to an increase in the valuation allowance for foreign
net operating loss carryforwards.
(6) Employee Benefit Plans
The Company and certain subsidiaries have a noncontributory defined
benefit retirement plan covering substantially all of their employees.
Benefits are based on years of service and the employee's average
compensation for the highest five consecutive compensation years preceding
retirement or termination. The Company's funding policy is to contribute
annually an amount in accordance with the requirements of ERISA. The
following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheets at February 29, 1996 and
February 28, 1995 (in thousands):
1996 1995
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $24,647 and $19,971
in 1996 and 1995, respectively $ 27,311 22,198
Projected benefit obligation for service
rendered to date $(37,702) (30,286)
Plan assets at fair value 29,325 27,904
Plan assets (less than) projected
benefit obligation (8,377) (2,382)
Unrecognized net loss 12,533 8,059
Unrecognized net transition asset being
recognized over the average
remaining service life (4,207) (4,899)
Prepaid pension cost (accrued pension liability) $ (51) 778
Net pension cost for fiscal years 1996, 1995 and 1994 included the
following components (in thousands):
1996 1995 1994
Service cost - benefits earned during
the current period $1,355 1,520 1,383
Interest cost on projected benefit
obligation 2,478 2,563 2,185
Actual (return) loss on plan assets (3,182) 119 (3,365)
Net amortization and deferral 178 (3,490) (78)
Net periodic pension cost $ 829 712 125
Assumptions used in accounting for the defined benefit plans for fiscal
years 1996, 1995 and 1994 are as follows:
1996 1995 1994
Weighted average discount rate 7.50% 8.25% 7.50%
Earnings progression 4.50% 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.50% 10.00% 9.75%
At February 29, 1996, substantially all of the plan assets were invested
in publicly-traded mutual funds.
(7) Subsequent Events
On April 1, 1996, the Company purchased in separate transactions
substantially all the operating assets and operations of two privately-
owned specialty printing companies located on the West Coast for aggregate
cash consideration of approximately $8,000,000, including $2,600,000 in non-
compete agreements with principals of the selling companies. In their most
recent fiscal years the operations purchased had combined sales of
approximately $10,000,000.
Independent Auditors' Report
The Board of Directors and Shareholders
Ennis Business Forms, Inc.:
We have audited the accompanying consolidated balance sheets of Ennis
Business Forms, Inc. and subsidiaries as of February 29, 1996 and February
28, 1995, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended February 29,
1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Ennis Business Forms, Inc. and subsidiaries as of February 29, 1996 and
February 28, 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended February 29, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 19, 1996
Directors
Harry M. Cornell, Jr. (c)
Chairman of the Board and Chief
Executive Officer of Leggett & Platt, Inc.
Carthage, Missouri
James B. Gardner (b)
Managing Director
Service Asset Management Company
Dallas, Texas
Harold W. Hartley (a)
Retired
Mabank, Texas
Kenneth A. McCrady
Chairman of the Board and
Chief Executive Officer of the Company
Robert L. Mitchell (a)
Retired
Ennis, Texas
Thomas R. Price (b)
Owner and President
Price Industries
Ennis, Texas
Charles F. Ray
President and Chief Operating
Officer of the Company
Pat G. Sorrells (b)(c)
Ranching and Investments
Kingsland, Texas
Ewell L. Tankersley (a)(c)
Ranching and Investments
Austin, Texas
Officers
Kenneth A. McCrady
Chairman of the Board and
Chief Executive Officer
Charles F. Ray
President and Chief Operating Officer
Harve Cathey
Vice President-Finance and Secretary
Nelson Ward
Vice President Sales and Marketing
Al Lemieux
Vice President Manufacturing
Doug Self
Vice President
Victor DiTommaso
Treasurer
(a) Member of Audit Committee
(b) Member of Executive Compensation
and Stock Option Committee
(c) Member of Nominating Committee
(A map of the continental United States with the states highlighed and
cities stared where manufacturing locations & executive offices are
located)
MANUFACTURING LOCATIONS & EXECUTIVE OFFICES
Manufacturing Locations
Los Angeles, California
(Acquired April 1, 1996)
Paso Robles, California
Moultrie, Georgia
DeWitt, Iowa
Fort Scott, Kansas
Louisville, Kentucky
Macomb, Michigan
Coshocton, Ohio
Portland, Oregon
Knoxville, Tennessee
Dallas, Texas
Ennis, Texas
Wolfe City, Texas
Chatham, Virginia
Seattle, Washington
(Acquired April 1, 1996)
Mexico City, Mexico
Executive Offices
107 N. Sherman Street
Ennis, Texas 75119
(214) 872-3100
Internet: http://www.ennis.com
E-Mail: [email protected]
Registrar and Transfer Agent
KeyCorp Shareholder Services, Inc.
5050 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2014
Auditors
KPMG Peat Marwick LLP
Dallas, Texas
Annual Meeting
10:00 a.m. June 20, 1996
Union Station at Hyatt Regency
Stationmaster Room
400 S. Houston Street
Dallas, Texas
Stock Exchange Listing
New York Stock Exchange
Symbol: EBF
The Company's Form 10-K as
filed with the Securities and
Exchange Commission will be
provided to stockholders upon
written request therefor.
c1996 Ennis Business Forms, Inc.
Exhibit (21)
Subsidiaries of the Registrant
The registrant owns 100 percent of the outstanding
voting securities of the following subsidiary companies.
Name of Company Jurisdiction
Ennis Tag & Label Company Delaware
Ennis Business Forms of Georgia, Inc. Georgia
Ennis Business Forms of Ohio, Inc. Ohio
Ennis Business Forms of Kentucky, Inc. Kentucky
Ennis Business Forms of Oregon, Inc. Oregon
Ennis Business Forms of Kansas, Inc. Kansas
Ennis Business Forms of Tennessee, Inc. Texas
Ennis Business Forms of Texas, Inc. Delaware
Connolly Tool and Machine Company Delaware
United Continental Leasing Co. Delaware
Admore, Inc. Texas
Star Award Ribbon Company, Inc. Texas
PFC Products, Inc. Delaware
Heath Printers, Inc. (acquired April 1,1996) Delaware
The registrant owns 70 percent of the outstanding
voting securities of the following subsidiary company.
Name of Company Jurisdiction
Formas Para Negocios Ennis, S.A. DE C.V. Mexico
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ennis Business Forms, Inc.:
We consent to incorporation by reference in the registration statement (No.
2-81124) on Form S-8 of Ennis Business Forms, Inc. of our reports dated
April 19, 1996, relating to the consolidated balance sheets of Ennis
Business Forms, Inc. and subsidiaries as of February 29, 1996 and February
28, 1995 and the related consolidated statements of earnings and cash flows
and related schedule for each of the years in the three-year period ended
February 29, 1996, which reports appear, or are incorporated by reference
in, the 1996 annual report on Form 10-K of Ennis Business Forms, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
May 24, 1995
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