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
For the fiscal year ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (972) 872-3100
Securities registered pursuant to Section 12(b) of the Act:
Number of Shares
Outstanding on Name of each exchange
Title of each class April 15, 1997 on which registered
Common Stock, par value
$2.50 per share 16,438,235 New York Stock Exchange
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, 1997 (14,816,410 shares) was $159,276,407.
Documents Incorporated by References:
1997 Annual Report to Shareholders - incorporated in Parts I & II
Proxy Statement dated May 15, 1997 - incorporated in Parts I & III
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
PART I
Item 1. Business
The Description of Business for the Company and its subsidiaries
(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 1997
Annual Report to Shareholders which is attached as Exhibit (13) hereto.
Patents, Trademarks, Licenses, Franchises and Concessions:
The Company does not have any significant patents, trademarks,
licenses, franchises or concessions.
Backlog:
At February 28, 1997 the Company's backlog of business forms orders
believed to be firm was approximately $5,694,000 as compared to
approximately $4,459,000 at February 29, 1996. The backlog of orders for
tools, dies and special machinery at February 28, 1997 was approximately
$3,423,000 as compared to approximately $3,191,000 at February 29, 1996.
It is anticipated that all of the backlog of orders will be completed in
the fiscal year ended February 28, 1998.
Research and Development:
While the Company continuously looks for new products to sell through
its distribution channel, there have been no material amounts spent on
research and development.
Environment:
There have been no material effects on the Company arising from
compliance with Federal, State, and local provisions or regulations
relating to the protection of the environment.
Employees:
At February 28, 1997, the Company had approximately 1,554 employees, of
whom approximately 333 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 twelve
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
Knoxville, Tennessee Manufacturing 48,057 48,057
Wolfe City, Texas Manufacturing 119, 259 119,259
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 82,400 82,400
Louisville, Kentucky Manufacturing 42,800 42,800
Moultrie, Georgia Manufacturing 25,000 25,000
Coshocton, Ohio Manufacturing 14,000 14,000
Los Angeles, California Manufacturing 29,286 29,286
Macomb, Michigan Manufacturing 56,350 56,350
Seattle, Washington Manufacturing 32,000 32,000
Mexico City, Mexico Manufacturing 4,982 4,982
1,125,610 113,268 1,238,878
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 which is used for the production of tools, dies and
special machinery. The Boulder City, Nevada plant, 49,600 square feet, was
closed in November 1995 and the property and building are being leased to a
third party. 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 March 1998. The Company
rents two properties in Los Angeles. In January 1997 the Company entered
into a five-year lease for 19,286 square feet of manufacturing space. The
lease expires in May 2002. While relocating its Los Angeles operation to
this new space, the Company continues to lease 10,000 square feet on a
short-term basis. The lease for the property in Seattle was re-negotiated
in the past year and now expires in March 1999. No difficulties are
presently foreseen in maintaining or renewing such leases as they expire.
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 19, 1997.
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 19, 1997) 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 66, 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.
Nelson D. Ward, President and Chief Operating Officer, age 55, was
elected President and Chief Operating Officer in September 1996. Mr. Ward
has been continuously employed by the Company since April 1971. Prior to
his election as President and Chief Operating Officer, Mr. Ward served as
Vice President - Sales and Marketing from September 1992 and President and
General Manager of a subsidiary of the Company from June 1978.
Albert V. Lemieux, Vice President - Tag & Label Operations, age 55,
was elected Vice President - Tag and Label Operations in December 1996.
Mr. Lemieux has been continuously employed by the Company since August
1975. Prior to his election as Vice President - Tag and Label Operations,
Mr. Lemieux served as Vice President - Manufacturing from September 1989,
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.
Joe R. Bouldin, Vice President - Forms Operations, age 46, was elected
Vice President- Forms Operations in December 1996. Mr. Bouldin has been
continuously employed by the Company since 1975. Prior to his election as
Vice President - Forms Operations, Mr. Bouldin served as General Manager of
the Ennis, Texas division of the Company from May 1989.
Charles F. Ray, Vice President - Administration, age 53, was elected
Vice President - Administration in September 1996. Mr. Ray has been
continuously employed by the Company since June 1964; he served as
President and Chief Operating Office from January 1990 until his election
as Vice President - Administration. He served as Executive Vice President
from June 1986 until January 1990.
Betsy D. Yorke, Vice President - Sales and Marketing, age 41, was
elected Vice President - Sales and Marketing in December 1996. Ms. Yorke
has been continuously employed by the Company since March 1991. Prior to
her election as Vice President - Sales and Marketing, Ms. Yorke served as
President and General Manager of a subsidiary of the Company from August
1993. Ms. Yorke has served in various management capacities for the
subsidiary of the Company (or its predecessor company) since January 1984.
Victor V. DiTommaso, Jr., Vice President - Finance, Secretary and
Treasurer, age 41, was elected Vice President - Finance and Secretary in
September 1996 and 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 Equity and Related Shareholder
Matters.
The information required by this item is incorporated herein by
reference to page 9 of the Company's 1997 Annual Report to Shareholders
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 6 of the Company's 1997 Annual Report to Shareholders
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 1997 Annual Report to
Shareholders which is attached as Exhibit (13) hereto.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
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 and the inside back cover of
the Company's 1997 Annual Report to Shareholders which is attached as
Exhibit (13) hereto.
Item 9. Changes in and disagreements with Accountants 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, 1997 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, 1997 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, 1997
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 11 of the Company's Proxy Statement dated May 15, 1997
which is attached as Exhibit (22) hereto.
PART IV
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) 1997 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,
1997.
(23) Independent Auditors' Consent.
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:
Not applicable.
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, forming a part of the referenced
registration statement, 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 1997 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 1997,
such Annual Report for 1997 is not deemed to be filed as part of this Form
10-K.
Reference Page
1997 Annual
Form Report to
10-K Shareholders
Consolidated financial statements of the Company:
Independent auditors' report Inside Back Cover
Consolidated balance sheets - February 28, 1997
and February 29, 1996 14 - 15
Consolidated statements of earnings - years ended
February 28 or 29, 1997, 1996 and 1995 12
Consolidated statements of cash flows - years ended
February 28 or 29, 1997, 1996 and 1995 13
Notes to consolidated financial statements 16 - 20 and
Inside Back Cover
Independent auditors' report on financial statement
schedule S-1
Financial Statement Schedule for three years ended
February 28, 1997:
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 28, 1997 BY: /s/ Kenneth A. McCrady
Kenneth A. McCrady, Chairman of the Board
and Chief Executive Officer
Date: May 28, 1997 BY: /s/ Victor V. DiTommaso, Jr.
Victor V. DiTommaso, Jr.
Vice President - Finance, Secretary, Treasurer
and Principal Financial and 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 28, 1997 BY: /s/ Kenneth A. McCrady
Kenneth A. McCrady, Director
Date: May 28, 1997 BY: /s/ Harold W. Hartley
Harold W. Hartley, Director
Date: May 28, 1997 BY: /s/ Robert L. Mitchell
Robert L. Mitchell, Director
Date: May 28, 1997 BY: /s/ Thomas R. Price
Thomas R. Price, Director
Date: May 28, 1997 BY: /s/ Nelson Ward
Nelson Ward, Director
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Ennis Business Forms, Inc.:
Under date of April 18, 1997, we reported on the consolidated balance
sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28,
1997 and February 29, 1996 and the related consolidated statements of
earnings and cash flows for each of the years in the three-year period
ended February 28, 1997, as contained in the 1997 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
1997. 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 18, 1997
Schedule II
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended February 28, 1997
(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 28, 1997:
Allowance for doubtful
receivables $1,085 382 36(1) 413(2) 1,090
Year ended February 29, 1996:
Allowance for doubtful
receivables $1,030 348 25(1) 318(2) 1,085
Year ended February 28, 1995:
Allowance for doubtful
receivables $ 845 444 38(1) 297(2) 1,030
Notes:
(1) Principally collection of accounts previously charged off.
(2) Charge-off of uncollectible receivables.
Financial Highlights
Annual Summary
Fiscal Year Fiscal Year
Ended Ended Percentage
February 28, February 29, Increase
1997 1996 (Decrease)
Net sales $153,726,000 $142,134,000 8.2
Earnings before income taxes 21,485,000 30,104,000 (28.6)
Income taxes 7,992,000 11,487,000 (30.4)
Net earnings 13,493,000 18,617,000 (27.5)
Dividends 10,110,000 9,782,000 3.4
Per share of common stock:
Net earnings .82 1.13 (27.4)
Dividends .615 .595 3.4
Weighted average number of shares
of common stock outstanding 16,438,817 16,439,645 --
Table of Contents
2 Management's Report to Shareholders
4 Directors and Officers
5 Manufacturing Locations and Executive Offices
6 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
Inside Back Cover Independent Auditors' Report
Printed by Ennis Business Forms, Inc.
MANAGEMENT'S REPORT TO SHAREHOLDERS
As shown in the accompanying financial statements, for the fiscal year
ended February 28, 1997 net sales increased 8.2% and were the highest in
the Company's history. At the same time, net earnings declined 27.5% as we
began actions designed to return the Company to a consistent sales and
earnings growth track.
Operating Results
Net sales for the year ended February 28, 1997 amounted to
$153,726,000 compared to $142,134,000 in the prior year, an increase of
8.2%. Net earnings for the year were $13,493,000 compared to $18,617,000
in the prior year, a decrease of 27.5%. Net earnings per share of common
stock amounted to $.82 compared to $1.13 in the prior year, a decrease of
27.4%. Per share earnings computations were based on 16,438,817 shares for
the year ended February 28, 1997 and 16,439,645 shares for the prior year.
The sales increase for the year is primarily attributable to two
acquisitions effected on April 1, 1996. Sales of business forms products
began to increase in the second half of the fiscal year. Order counts grew
more rapidly than sales dollars because of lower selling prices necessary
to meet competition. The net earnings decline is primarily attributable to
the lower selling prices and higher costs associated with an increase in
the number of employees required to produce more orders and improve service
time in accordance with the growth plan we announced in May 1996.
Financial Condition
The Company's financial condition remains strong. At February 28,
1997 the ratio of current assets to current liabilities was 5.1 to 1, and
long-term debt was less than 1% of shareholders' equity.
Dividends
Cash dividends of $.615 per share were paid during the year ended
February 28, 1997 compared to $.595 in the prior year, an increase of 3.4%.
Acquisitions
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 provided the
production and marketing knowledge which enabled us to enter the developing
market for short-run high-quality process color printing.
Outlook
In our 1996 Annual Report, which was issued in May 1996, we announced
a long-term growth target of 10% per year for the Company as a whole. At
that time we indicated that we would initially be emphasizing sales growth,
but once we get sales on a growth track our emphasis will shift to profits,
with the objective of obtaining average annual increases of 10% in both
sales and earnings over the long-term.
In view of the maturity of the forms industry, a sales growth target
of 10% is an aggressive target because more than half of our current
revenues are from products which are declining in usage. Even though the
forms market as a whole is shrinking, the market is still estimated by
industry trade associations to be in the $7 billion range at retail prices.
We have a very small share of the total forms market and believe that our
production, distribution and financial strengths will allow us to gain
market share. Experience is teaching us that we can reasonably expect 3%
to 4% unit sales growth in our traditional business forms products. To
achieve our overall goal of 10% sales growth we will need to continue to
expand into non-form products and services which we can profitably market
through our more than 30,000 dealers. Once again, we strongly emphasize
that 10% growth is our target and not a forecast.
By summer 1997 we expect to release the initial version of our
internally developed computer software program called Printers' Mall. The
program allows dealers and their customers to easily design and order
process color commercial printing. Over time, Printers' Mall will be
expanded to include other of our products.
During fiscal 1997 we completed the InstaLink system, a
communications network that allows our dealers to conduct business with us
quickly and efficiently. Through the Internet, our dealers are able to
send us electronic orders, graphic files and make inquiries. In turn, our
plants are able to provide proofs, quotes and order status information. We
will continue to improve InstaLink and our in-plant order time to provide
the fastest service possible.
In addition to the acquisitions discussed above, the Company invested
$13.6 million in equipment to expand our product offering to include a
broader range of process color commercial printing and high value-added
products such as label/form combinations, variable data printing and bar
codes. We also invested in computer systems to improve customer service
activities and production equipment to increase efficiency and capacity in
the production of business forms, labels and presentation products. Most
of these investments have only recently or are just now being put into
production. For the fiscal year ending February 28, 1998, the Board of
Directors has approved an additional capital investment budget of $6.9
million to provide for continued improvements in production.
The decline in net earnings in fiscal 1997 was greater than we had
anticipated and is a significant disappointment. Quarterly net earnings
trended downward all year as we reduced selling prices and improved
customer service, actions consistent with our stated goal of sales growth.
This earnings trend may continue through the first quarter of fiscal 1998.
We are optimistic that as we improve operating efficiencies and continue to
grow sales that net earnings for the second quarter of fiscal 1998 will
improve over earnings for the quarter ended February 28, 1997 and probable
net earnings for the quarter ending May 31, 1997. We have substantial cash
reserves and expect to continue the dividend at the current rate.
We are undertaking a major transformation of the Company to lessen our
dependence on the business forms market and there are substantial risks
associated with this transformation. We will continue aggressively
marketing our present products and services and search for acquisitions
which meet our strategic requirements. We will also continue to improve
efficiencies in all respects. Your Board of Directors, management and
employees are firmly committed to profitable long-term growth, and we are
confident in our growth strategy.
We appreciate the support of our dealer customers, employees and
shareholders.
Kenneth A. McCrady Nelson Ward
Chairman of the Board President
and Chief Executive Officer and Chief Operating Officer
April 15, 1997
Management's report to shareholders contains forward-looking statements
that reflect the Company's current view with respect to future revenues and
earnings. These statements are subject to numerous uncertainties,
including (but not limited to) demand for the Company's products and
competitive conditions. Because of such uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements,
which speak only as of the date of the report.
Directors and Officers
Directors Officers
Harry M. Cornell, Jr. (c) Kenneth A. McCrady
Chairman of the Board and Chief Chairman of the Board and
Executive Officer of Leggett & Platt, Inc. Chief Executive Officer
Carthage, Missouri
Nelson Ward
James B. Gardner (b) (c) President and
Managing Director Chief Operating Officer
Service Asset Management Company
Dallas, Texas Victor V. DiTommaso
Vice President-Finance,
Harold W. Hartley (a) Secretary and Treasurer
Retired
Mabank, Texas Joe Bouldin
Vice President -
Kenneth A. McCrady Forms Operations
Chairman of the Board and
Chief Executive Officer of Al Lemieux
the Company Vice President - Tag and
Label Operations
Robert L. Mitchell (a)
Retired Charles F. Ray
Ennis, Texas Vice President - Administration
Thomas R. Price (b) Betsy D. Yorke
Owner and President Vice President - Sales
Price Industries and Marketing
Ennis, Texas
Pat G. Sorrells (b)(c)
Ranching and Investments
Kingsland, Texas
Ewell L. Tankersley (a)
Ranching and Investments
Austin, Texas
(a) Member of Audit Committee
Nelson Ward (b) Member of Executive Compensation
President and Chief Operating and Stock Option Committee
Officer of the Company (c) Member of Nominating Committee
Manufacturing Locations and Executive Offices
Manufacturing Locations Executive Offices
Los Angeles, California 107 N. Sherman Street
Paso Robles, California Ennis, TX 75119
Moultrie, Georgia (972) 872-3100
DeWitt, Iowa
Fort Scott, Kansas Internet: http://www.ennis.com
Louisville, Kentucky Shareholders' e-mail:
Macomb, Michigan [email protected]
Coshocton, Ohio
Portland, Oregon Registrar and Transfer Agent
Knoxville, Tennessee Harris Trust and Savings Bank
Dallas, Texas Attention: Shareholder Services
Ennis, Texas P. O. Box A3504
Wolfe City, Texas Chicago, IL 60690-3504
Chatham, Virginia
Seattle, Washington Independent Auditors
Mexico City, Mexico KPMG Peat Marwick LLP
Dallas, Texas
Annual Meeting
10:00 a.m. June 19, 1997
Fairmont Hotel
Parisian Room
1717 N. Akard 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 shareholders upon
written request therefor.
Selected Financial Data
Years Ended February 28 or 29,
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
Net sales from continuing
operations $153,726 142,134 140,097 132,945 129,279
Earnings from continuing
operations 13,493 18,617 20,016 19,457 20,692
Earnings from continuing
operations per share of
common stock 0.82 1.13 1.22 1.16 1.18
Net earnings 13,493 18,617 20,016 19,457 21,252
Net earnings per share of
common stock 0.82 1.13 1.22 1.16 1.21
Total assets 94,957 93,662 84,991 74,499 75,923
Long-term debt 195 280 360 435 505
Cash dividends per share
of common stock .615 .595 .575 .555 .535
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 28, 1997 of $42,320,000, a decrease of 22.3% from the
beginning of the year, and a current ratio of 5.1 to 1. The decrease is
due to acquisitions in April 1996 (see note 7 to the Company's Consolidated
Financial Statements) and a large capital investment program. The Company
funded the acquisitions and capital investments 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 were
effective for fiscal year 1997 and did not have a significant impact on the
Company's Consolidated Financial Statements.
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 are effective for fiscal year
1997 and the Company has elected to continue to apply APB 25 for future
stock options and stock based awards. The required pro forma disclosures
of net earnings and net earnings per share using the fair value method are
in note 4 to the Company's Consolidated Financial Statements.
In February 1997, the Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." The Statement specifies the
computation, presentation and disclosure requirements for earnings per
share. The Company will adopt the Statement in the fourth quarter of
fiscal 1998. Had the Company adopted the Statement for fiscal 1997, the
impact on earnings per share would not have been material.
Results of Operations
1997 as compared to 1996
Net sales increased 8.2% in fiscal 1997 compared to 1996. The
majority of the increase is due to acquisitions in separate transactions of
two specialty printing companies on April 1, 1996. In the second half of
the year the Company began to achieve sales growth in its business forms
products. Many of the equipment additions under the $16,500,000 capital
investment program announced in April 1996 were not placed into service
until late in the year and did not contribute meaningfully to fiscal 1997
sales. Cost of sales increased 18.6% in fiscal 1997 compared to 1996, a
greater percentage increase than was experienced in net sales for the same
period. Gross margins decreased 9.2%. In accordance with the Company's
growth strategy announced in May 1996, the Company reduced selling prices
and enhanced customer service, including providing improved delivery
schedules for its custom products. New employees were hired and trained to
produce an increasing volume of business. All of these measures
substantially reduced gross profit margins. Selling, general and
administrative expenses increased 13.5% over the prior year because of
additional expenses from the acquired companies and depreciation and other
expenses related to a new management and customer service information
system. Investment and other income decreased 21.7% due to a decreased
amount of funds available for investment. The acquisitions and capital
investment program were both funded from available cash. The overall
effective income tax rate decreased 1% due primarily to lower state and
local income taxes and the ESOP dividend pass-through deduction increasing
as a percentage of income. Net earnings decreased 27.5% due to the
increase in cost of sales and selling, general and administrative expenses
and the decrease in investment and other income. Earnings per share
decreased 27.4%, substantially the same percentage decrease as net
earnings.
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 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 fiscal 1996 over the previous 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.
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. 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 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.
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. For the year ended February 28, 1997 the sale of
business products represents approximately 96% of consolidated net sales
with Connolly's operations accounting for the balance 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 net sales.
Raw materials principally consist of a wide variety of weights, widths,
colors, sizes, and qualities of paper for business products 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 28, 1997:
Net sales $36,924 38,715 40,210 37,877
Gross margin 12,773 12,293 12,224 11,204
Net earnings
(note 1) 4,222 3,595 3,117 2,559
Dividends paid 2,466 2,548 2,548 2,548
Per share of
common stock:
Net earnings .26 .22 .19 .15
Dividends .15 .155 .155 .155
Common stock
price range
per share10.375 to 12.00 10.375 to 11.75 9.875 to 11.625 9.625 to 11.625
Common stock
trading volume,
number of shares 1,894 1,735 1,161 1,845
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 range
per share12.25 to 13.75 12.25 to 13.25 12.00 to 14.50 11.00 to 13.00
Common stock trading volume,
number of shares 844 1,074 1,496 1,227
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, 1997 was 1,832.
Notes: 1. Year-end adjustments related to physical inventory counts and
LIFO valuation increased net earnings for the fourth quarter of
fiscal 1997 by approximately $545,000 (3 cents a share) as
compared to an increase in net earnings of approximately $820,000
(5 cents a share) from comparable adjustments in the fourth
quarter of fiscal 1996.
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 assets.
<TABLE>
Ten-Year Financial Review
(In thousands, except per share and per dollar of sales amounts)
<CAPTION>
Fiscal years ended 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
February 28 or 29
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales from $153,726 $142,134 $140,097 $132,945 $129,279 $131,810 $120,159 $122,941 $120,016 $110,002
continuing operations
Earnings from
continuing operations
before income taxes 21,485 30,104 32,041 31,039 32,276 32,303 32,225 32,630 28,735 25,614
Federal and state 7,992 11,487 12,025 11,582 11,584 11,536 11,489 11,629 10,259 10,008
income taxes
Earnings from 13,493 18,617 20,016 19,457 20,692 20,767 20,736 21,001 18,476 15,606
continuing operations
Per dollar of sales .088 .131 .143 .146 .160 .158 .173 .171 .154 .142
Per share(a) .82 1.13 1.22 1.16 1.18 1.14 1.10 1.06 .91 .73
Net earnings 13,493 18,617 20,016 19,457 21,252 21,216 21,100 21,027 18,839 15,751
Per share(a) .82 1.13 1.22 1.16 1.21 1.16 1.12 1.06 .92 .74
Dividends 10,110 9,782 9,453 9,270 9,400 9,310 8,810 8,158 6,609 4,761
Per share(a) .615 .595 .575 .555 .535 .51 .47 .41 .32 .22
Shareholders' equity 81,586 78,195 69,338 58,897 60,565 66,485 55,830 60,737 52,954 49,586
Per share(a) 4.96 4.76 4.22 3.52 3.52 3.65 3.05 3.10 2.66 2.41
Current assets 52,627 67,544 59,265 48,519 48,928 51,035 50,927 55,527 46,797 45,600
Current liabilities 10,307 13,054 12,976 12,548 12,087 9,631 10,203 10,074 10,080 12,619
Net working capital 42,320 54,490 46,289 35,971 36,841 41,404 40,724 45,453 36,717 32,981
Ratio of current
assets to
current liabilities 5.1:1 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
Depreciation of plant 4,475 3,553 3,499 3,805 4,086 4,368 3,694 3,486 3,372 3,249
and equipment
Additions to property, 13,575 6,106 4,010 2,215 1,315 2,484 3,684 3,639 2,096 2,563
plant and equipment
(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
</TABLE>
Consolidated Statements of Earnings
(In thousands, except per share amounts)
For the years ended February 28 or 29,
1997 1996 1995
Net sales $153,726 142,134 140,097
Costs and expenses:
Cost of sales 105,232 88,747 86,488
Selling, general and
administrative expenses 28,320 24,943 22,893
Interest expense 68 102 87
133,620 113,792 109,468
Earnings from operations 20,106 28,342 30,629
Investment and other income - net 1,379 1,762 1,412
Earnings before income taxes 21,485 30,104 32,041
Provision for income taxes (note 5) 7,992 11,487 12,025
Net earnings $ 13,493 18,617 20,016
Net earnings per share of
common stock $ .82 1.13 1.22
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(In thousands)
For the years ended February 28 or 29,
1997 1996 1995
Cash flows from operating activities:
Net earnings $ 13,493 18,617 20,016
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,935 4,511 3,657
Deferred income taxes 574 (295) (272)
Pension plan expense 365 827 524
Other (651) 437 (308)
Changes in assets and liabilities:
Receivables (1,466) 1,304 (3,185)
Inventories (1,905) 1,926 (1,553)
Other current assets
(net of deferred taxes) (522) (1,023) 344
Accounts payable and accrued expenses (1,836) 134
1,188
Federal and state income taxes (2,001) (93) (688)
Net cash provided by operating activities 10,986 26,345 19,723
Cash flows from investing activities:
Capital expenditures (13,575) (6,106) (4,010)
Purchase of operating assets (7,342) -- --
Purchase of short-term investments -- (6,064) (17,600)
Maturities of short-term investments -- 23,742 --
Proceeds from disposal of property 22 11 379
Net cash provided by (used in)
investing activities (20,895) 11,583 21,231)
Cash flows from financing activities:
Dividends (10,110) (9,782) (9,453)
Other (93) (81) (67)
Net cash flows used in financing activities (10,203) (9,863) (9,520)
Effect of exchange rate changes on cash -- -- (8)
Net change in cash and equivalents (20,112) 28,065 (11,036)
Cash and equivalents at beginning of year 38,606 10,541 21,577
Cash and equivalents at end of year $18,494 38,606 10,541
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
(In thousands, except share amounts)
February 28, February 29,
1997 1996
Assets
Current assets:
Cash and equivalents $18,494 38,606
Receivables, principally trade, less allowance
for doubtful receivables of $1,090 in 1997 and
$1,085 in 1996 18,600 16,975
Inventories, at lower of cost (principally
last-in, first-out) or market (note 2) 10,500 8,298
Other current assets (note 5) 5,033 3,665
Total current assets 52,627 67,544
Property, plant and equipment, at cost:
Plant, machinery and equipment 62,587 49,563
Land and buildings 15,957 15,010
Other 8,869 7,079
87,413 71,652
Less accumulated depreciation 53,853 49,795
Net property, plant and equipment 33,560 21,857
Cost of purchased businesses in excess of
amounts allocated to tangible net assets 5,942 3,861
Other assets and deferred charges 2,828 400
$94,957 93,662
See accompanying notes to consolidated financial statements.
February 28, February 29,
1997 1996
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term
debt $ 85 80
Accounts payable 5,234 5,144
Accrued expenses:
Employee compensation and benefits 3,942 5,702
Taxes other than income 375 348
Other 671 793
Federal and state income taxes payable (note 5) --
987
Total current liabilities 10,307 13,054
Long-term debt, less current installments 195 280
Deferred credits, principally Federal income
taxes (note 5) 2,869 2,133
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 1997 and 1996 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 119,318 115,935
Cumulative foreign currency translation adjustments (76) (97)
173,407 170,003
Less cost of 4,811,506 shares in 1997 and
4,810,389 shares in 1996 of common stock
in treasury 91,821 91,808
Total shareholders' equity 81,586 78,195
$94,957 93,662
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 cash flows of
each subsidiary for which such assets are recorded. To the extent such
estimated 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 Equivalents. Investments with original maturities of less than
three months are classified as cash equivalents. Investments are carried
at 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 $1,478,000,
$1,872,000 and $1,215,000 for fiscal years 1997, 1996 and 1995,
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 increase or decrease
deferred income tax expense in the period of enactment. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases.
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 1997, 1996 and 1995, business forms and other
printed business products operations represented approximately 90% to 96%
of net sales, operating profits, depreciation and identifiable assets in
each year. Capital expenditures attributable to business forms and other
printed business products operations for the same years were 93%, 100% and
100%, respectively. The Company's Mexico operations are not material to
consolidated earnings or financial position for fiscal years 1997, 1996 or
1995.
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 1997, 1996 and 1995 were
16,438,817, 16,439,645 and 16,439,844, 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 28, 1997 and February 29, 1996 approximately 71% and 70%,
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 28, February 29,
1997 1996
Raw material $6,394 5,073
Work-in-process 1,127 679
Finished goods 2,979 2,546
$10,500 8,298
The excess of current costs over LIFO stated values amounts to
approximately $5,565,000 and $6,084,000 at February 28, 1997 and February
29, 1996, respectively.
(3) Shareholders' Equity
Following is a summary of transactions in shareholders' equity
accounts for the three years ended February 28, 1997 (amounts in thousands,
except share amounts):
<TABLE>
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, 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 ($.595 per share) -- -- -- (9,782) -- -- --
Foreign currency translation adjustment -- -- -- -- 28 -- --
Treasury stock purchases -- -- -- -- -- (560) (6)
Balance February 29, 1996 21,249,860 53,125 1,040 115,935 (97) (4,810,389) (91,808)
Net earnings -- -- -- 13,493 -- -- --
Dividends declared ($.615 per share) -- -- -- (10,110) -- -- --
Foreign currency translation adjustment -- -- -- -- 21 -- --
Treasury stock purchases -- -- -- -- -- (1,117) (13)
Balance February 28, 1997 21,249,860 $53,125 1,040 119,318 (76) (4,811,506) $(91,821)
</TABLE>
(4) Stock Options
At February 28, 1997, the Company has two incentive stock option
plans, the 1991 Incentive Stock Option Plan and the 1980 Incentive Stock
Option Plan. The Company has 378,958 shares of unissued common stock
reserved under the incentive stock option plans for issuance to officers
and supervisory employees of the Company and its subsidiaries. All
available options under the 1980 Incentive Stock Option Plan have been
granted prior to fiscal year 1997. The exercise price of each option
granted equals the market price of the Company's stock on the date of
grant, and an option's maximum term is ten years. Options may be granted
at different times during the year and vest over a five year period.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its incentive stock option plans. Had compensation cost for
the Company's incentive stock option plans been determined consistent with
FASB Statement No. 123, the Company's reported net earnings and earnings
per share would have been substantially unchanged.
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997: dividend yield of 6.15 %;
expected volatility of 22 %; risk-free interest rate of 6.67 %; expected
life of seven years.
Following is a summary of transactions of incentive stock options
during the three fiscal years ended in 1997:
Weighted
Number Average
of Exercise
Shares Price
Outstanding at February 28, 1994
(166,119 shares exercisable) 256,390 $14.03
Exercised (3,557) 3.60
Granted 5,750 12.78
Terminated (2,375) 15.24
Outstanding at February 28, 1995
(189,763 shares exercisable) 256,208 14.13
Outstanding at February 29, 1996
(216,708 shares exercisable) 256,208 14.13
Granted 92,500 11.10
Outstanding at February 28, 1997
(229,396 shares exercisable) 348,708 13.33
Weighted Average Fair Value of
Options granted during 1997 1.69
The following table summarizes information about incentive stock
options outstanding at February 28, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Price Exercisable Exercise
Prices Life Price
$10.17 to
12.00 181,496 5.2 years $10.68 86,184 $10.19
13.81 to
15.63 117,212 4.3 14.91 93,212 15.18
19.25 50,000 4.8 19.25 50,000 19.25
10.17 to
19.25 348,708 4.9 13.33 229,396 14.19
(5) Income Taxes
The components of the provision for income taxes for fiscal years
1997, 1996 and 1995 are (in thousands):
1997 1996 1995
Current:
Federal $6,664 10,523 11,029
State and local 754 1,259 1,268
Deferred Federal 574 (295) (272)
Total provision for income taxes $7,992 11,487 12,025
Total income taxes paid $9,500 12,377 12,986
The following summary for the three fiscal years ended in 1997
reconciles the statutory U. S. Federal income tax rate to the Company's
effective tax rate:
1997 1996 1995
Statutory rate 35.0% 35.0% 35.0%
Provision for state income taxes,
net of Federal income tax benefit 2.3 2.7 2.5
Nondeductible foreign net operating loss 0.3 0.7 0.3
ESOP pass-through dividend deduction (0.9) (0.6) (0.6)
Other 0.5 0.4 0.3
Effective tax rate 37.2% 38.2% 37.5%
The Federal and state income tax assets and liabilities are summarized
as follows (in thousands):
February 28 or 29,
1997 1996
Current:
Current asset $1,014 --
Currently payable -- 987
Deferred:
Current asset 1,611 1,792
Noncurrent liability 2,253 1,860
The components of deferred income tax assets and liabilities are
summarized as follows (in thousands):
February 28 or 29,
1997 1996
Current deferred asset:
Allowance for doubtful receivables $ 518 489
Employee compensation and benefits 813 949
Foreign net operating loss carryforwards 393 324
Other 280 354
Subtotal 2,004 2,116
Valuation allowance (393) (324)
$1,611 1,792
Noncurrent deferred liability:
Depreciation $1,631 1,453
Prepaid pension cost 579 303
Other 43 104
$2,253 1,860
The valuation allowance of $393,000 at February 28, 1997 has been
provided to reduce the total tax asset to $1,611,000 because it is likely
that a portion of the tax asset will not be realized. The net increases in
the valuation allowance for fiscal years 1997, 1996 and 1995 were $69,000,
$212,000 and $112,000, respectively. All increases relate to 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 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 Plans' funded status and amounts recognized in the Company's
consolidated balance sheets at February 28, 1997 and February 29, 1996 (in
thousands):
1997 1996
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $24,379 and $24,647
in 1997 and 1996, respectively $ 27,027 27,311
Projected benefit obligation for service
rendered to date $(36,877) (37,702)
Plan assets at fair value 28,860 29,325
Plan assets (less than) projected
benefit obligation (8,017) (8,377)
Unrecognized net loss 11,116 12,533
Unrecognized net transition asset being
recognized over the average
remaining service life (3,515) (4,207)
Accrued pension liability $ (416) (51)
Net pension cost for fiscal years 1997, 1996 and 1995 included the
following components (in thousands):
1997 1996 1995
Service cost - benefits earned during
the current period $ 1,668 1,355 1,520
Interest cost on projected benefit obligation 2,800 2,478 2,563
Actual (return) loss on plan assets (3,051) (3,182) 119
Net amortization and deferral 135 178 (3,490)
Net periodic pension cost $1,552 829 712
Assumptions used in accounting for the defined benefit plans for fiscal
years 1997, 1996 and 1995 are as follows:
1997 1996 1995
Weighted average discount rate 7.50% 7.50% 8.25%
Earnings progression 4.50% 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.25% 9.50% 10.00%
(7) Acquisitions
On April 1, 1996, the Company purchased in separate transactions the
operating assets and operations of two privately-owned specialty printing
companies for approximately $7,300,000 in cash. The acquisitions were accounted
for by the purchase method; therefore the following Consolidated Statement of
Earnings for the year ended February 28, 1997 includes the results of operations
of the two companies from the date of acquisition. The cost of the acquired
companies in excess of the amounts allocated to tangible net assets is being
amortized over 25 years from the date of acquisition. The Company also entered
into non-competition agreements for $2,580,000 with the principals of the
selling companies. The cost of these agreements is being amortized over the
related non-competition periods. Additionally, the Company entered into
employment agreements with certain of the principals of the selling companies.
Following are unaudited condensed pro forma consolidated results of operations
for the fiscal years ended February 28, 1997 and February 29, 1996 which
reflects inclusion of the companies as if they had been acquired on March 1,
1995 (in thousands, except per share amounts):
Fiscal Year Ended Fiscal Year Ended
February 28, 1997 February 29, 1996
Net sales $154,653 152,450
Net income $ 13,479 18,155
Earnings per share $ .82 1.10
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 28, 1997 and February
29, 1996, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended February 28,
1997. 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 28, 1997 and
February 29, 1996, and the results of their operations and their cash flows
for each of the years in the three-year period ended February 28, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 18, 1997
Exhibit (21)
Subsidiaries of the Registrant
The registrant directly or indirectly 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
Star Award Ribbon Company, Inc. Texas
Admore, Inc. Texas
PFC Products, Inc. * Delaware
Heath Printers, Inc. Delaware
Dunlee Marketing, Inc. Delaware
* A wholly-owned subsidiary of Admore, Inc.
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 the incorporation by reference in the Registration Statement
on Form S-8 (No. 2-81124) of Ennis Business Forms, Inc. of our reports
dated April 18, 1997, relating to the consolidated balance sheets of Ennis
Business Forms, Inc. and subsidiaries as of February 28, 1997 and February
29, 1996 and the related consolidated statements of earnings and cash flows
and the related schedule for each of the years in the three-year period
ended February 28, 1997, which reports appear, or are incorporated by
reference in, the February 28, 1997 Annual Report on Form 10-K of Ennis
Business Forms, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
May 28, 1997
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