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, 1998
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 20, 1998 on which registered
Common Stock, par value $2.50 per share 16,437,668 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 20, 1998 (14,952,157 shares) was $185,032,943.
Document Incorporated by References:
Proxy Statement dated May 21, 1998 - Incorporated in Parts I & III
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
PART I
Item 1. 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 93% 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 sixteen manufacturing locations in eleven
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. In addition, the Company's subsidiary, Connolly
Tool and Machine Company (Connolly), located in Dallas, Texas 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, 1998 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 Southwestern United States.
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.
2
Patents, Trademarks, Licenses, Franchises and Concessions:
The Company does not have any significant patents, trademarks,
licenses, franchises or concessions.
Backlog:
At February 28, 1998 the Company's backlog of business forms orders
believed to be firm was approximately $4,914,000 as compared to
approximately $5,694,000 at February 28, 1997. The backlog of orders for
tools, dies and special machinery at February 28, 1998 was approximately
$3,603,000 as compared to approximately $3,423,000 at February 28, 1997.
It is anticipated that all of the backlog of orders will be completed in
the fiscal year ended February 28, 1999.
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 in the fiscal year ended February 28, 1998.
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, 1998, the Company had approximately 1,469 employees, of
whom approximately 381 were represented by four unions and under four
separate contracts expiring at various times. In March 1998, a fifth
location chose union representation. This location has 68 employees now
represented by a union. The Company and the union will be negotiating a
separate contract for this fifth location. The Company currently has a
contract in force at another location with this union.
3
Item 2. Properties
The Company operates seventeen manufacturing facilities located in
eleven states and Mexico City as follows:
Square feet
of floor space
Owned Leased Total
Ennis, Texas Two Manufacturing 351,668 351,668
Facilities 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 Two Manufacturing
Facilities 119, 259 119,259
Portland, Oregon Manufacturing 47,000 47,000
Fort Scott, Kansas Manufacturing 86,660 86,660
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 24,750 24,750
Bell, California Manufacturing 19,286 19,286
Macomb, Michigan Manufacturing 56,350 56,350
Mexico City, Mexico Manufacturing 4,982 4,982
1,154,020 71,268 1,225,288
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 Company also owns a plant in Boulder City, Nevada
with 49,600 square feet. The plant was closed in November 1995 and the
property and building are being leased to a third party.
4
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 facilities are considered to be in good condition.
The Company does 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 and the
rented property in California is leased through May 2002. The rented
property in Mexico City is leased through 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.
None.
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 18, 1998.
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 18, 1998) 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, age 67, 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 in April 1985. In November 1997 Mr. McCrady relinquished the
Chief Executive Officer responsibilities.
5
Keith S. Walters, Vice Chairman of the Board and Chief Executive
Officer, age 48, was elected Vice Chairman of the Board and Chief Executive
Officer in November 1997. Mr. Walters joined the Company in August 1997 as
Vice President - Commercial Printing Operations. Prior to joining the
Company, Mr. Walters was with Atlas/Soundolier, a division of American
Trading and Production Company, for 8 years, most recently as Vice
President of Manufacturing. Prior to that time, Mr. Walters was with the
Automotive Division of United Technologies Corporation for 15 years,
primarily in manufacturing and operations.
Nelson Ward, President and Chief Operating Officer, age 56, 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. Mr. Ward
was elected Treasurer in March 1972, Vice President - Finance in February
1973 and Secretary in May 1973 and served in these capacities until June
1978.
Albert V. Lemieux, Vice President - Tag & Label Operations, age 56,
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 47, 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.
Victor V. DiTommaso, Jr., Vice President - Finance, Secretary and
Treasurer, age 42, 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.
6
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The Company's common stock is traded on the New York Stock Exchange.
The following tables sets forth for the periods indicated: the high and
low closing sales prices and the common stock trading volume as reported by
the New York Stock Exchange and dividends declared by the Company.
Common
Stock Trading
Volume Dividends
number per share of
Common Stock Price Range of shares Common
High Low (in thousands) Stock
Fiscal Year Ended February 28, 1998
First Quarter $11.2500 $ 9.7500 1,195 $0.155
Second Quarter 11.1250 8.5000 2,426 0.155
Third Quarter 11.4375 9.3750 905 0.155
Fourth Quarter 10.6250 9.0625 1,094 0.155
Fiscal Year Ended February 28, 1997
First Quarter 12.0000 10.3750 1,894 0.150
Second Quarter 11.7500 10.3750 1,735 0.155
Third Quarter 11.6250 9.8750 1,161 0.155
Fourth Quarter 11.6250 9.6250 1,845 0.155
On April 20, 1998, the last sale price of the common stock was $12.375
per share and the number of shareholders of record was 1,705.
Item 6. Selected Financial Data.
Years Ended February 28 or 29,
1998 1997 1996 1995 1994
(In thousands, except per share
amounts)
Net sales $154,348 $153,726 $142,134 $140,097$132,945
Net earnings 10,208 13,493 18,617 20,016 19,457
Net earnings per basic and diluted
share of common stock (a) 0.62 0.82 1.13 1.22 1.16
Total assets 94,474 94,957 93,662 84,991 74,499
Long-term debt 206 195 280 360 435
Cash dividends per share
of common stock .620 .615 .595 .575 .555
(a)Earnings per share for each period presented has been calculated
using the provisions of SFAS No. 128, Earnings per Share, which is
effective for periods ending after December 15, 1997, and requires
the restatement of all prior period earnings per share data. (See
Note 1: "Significant Accounting Policies and General Matters." In
Part II Item 8 of this report.)
7
Item 7. 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, 1998 of $43,264,000, an increase of 2.2% from the
beginning of the year, and a current ratio of 5.2 to 1. The increase is
due to the sale of Heath Printers, Inc. in January 1998 (see note 8 to the
Company's Consolidated Financial Statements) and cash from operations
exceeding dividend and capital investment requirements. The Company has
$22,700,00 in cash and equivalents and $206,000 in long-term debt, less
current installments.
Accounting Standards
In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This statement, effective for fiscal years
beginning after December 15, 1997, requires the Company to report
components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is defined by Concepts Statement No. 6, "Elements of
Financial Statements" as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement, effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company is reviewing the provisions of this statement and,
if necessary, will change its current reportable business segments to ones
reflecting the organizational structure of the Company.
Impact of Year 2000 Issue
The Year 2000 issue results from the fact that many computer programs
have been written using two digits rather than four to define the
applicable year. Programs written in this way may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing business delays and disruptions
of operations. The Company has established a committee to oversee Year
2000 compliance. The committee has made a preliminary assessment with
respect to significant financial and accounting systems and determined that
these systems are substantially in compliance. The committee will be
assessing auxillary systems as well as integration with customers and
suppliers. The total cost and time which will be incurred by the Company
associated with the impact of Year 2000 compliance has not been determined
with certainty, but the Company believes that Year 2000 compliance will not
result in a material adverse effect on its financial condition or results
of operations.
Results of Operations
1998 as compared to 1997
Net sales increased fractionally in fiscal 1998 compared to 1997.
Several product lines experienced sales growth during fiscal 1998 but these
increases were offset by declines in some of the Company's mature products
such as cotton tags, sales books and register forms. The Company continues
to believe there are growth opportunities in
8
many of its product lines. Early in fiscal 1998, the Company firmed up its
pricing on printed products. This action had the effect of dampening
overall sales growth while improving gross profit margins. The gross
profit margin increased from 31.5% in fiscal 1997 to 31.8% in fiscal 1998.
The increase is not greater because the first quarter of fiscal 1997 had a
high gross profit margin of 34.6%. It was not until early in the second
quarter of fiscal 1997 that the Company began lowering prices to grow its
business. The fiscal 1998 gross profit margin of 31.8% compares favorably
to the gross profit margin of 29.6% earned in the fourth quarter of fiscal
1997. Much of the equipment purchased in fiscal 1997 and 1998 has yet to
provide meaningful contributions to sales. Management is currently
reassessing these projects to determine how to accelerate their
contribution to sales and earnings. Selling, general and administrative
expenses increased 10.0% during fiscal 1998 as compared to 1997. The
increase is primarily due to higher marketing and promotion costs,
increased customer telephone call activity, increased personnel costs and
expanded information and communications systems, all associated with
ongoing efforts to increase sales. Investment income decreased 29.1% from
fiscal 1997 to 1998 due to lower cash available for investment in the
current year. Net earnings for fiscal 1998 decreased 24.3% from prior year
levels; however, the trend by quarter was positive. The first two quarters
of fiscal 1998 reflected lower earnings than the corresponding periods in
the prior year. However, for the third quarter of fiscal 1998, net
earnings, excluding a $1,994,000 after-tax charge associated with the
decision to sell the commercial printing subsidiary, Heath Printers, Inc.,
matched fiscal 1997 third quarter earnings. Fourth quarter earnings for
fiscal 1998 reflect a substantial improvement over fourth quarter earnings
in fiscal 1997. The positive earnings trends are the result of firmer
selling prices instituted in the early part of fiscal 1998. Earnings per
basic and diluted common share trended in the same manner as net earnings.
The Company's effective Federal and state income tax rate decreased from
37.2% of net earnings in fiscal 1997 to 35.4% of net earnings in fiscal
1998. The primary reason for the decrease in effective income tax rate was
the recognition in fiscal 1998 of $168,000 of tax benefit associated with
foreign net operating losses.
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 basic and
diluted common share decreased 27.4%, substantially the same percentage
decrease as net earnings.
9
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 basic and diluted common share
decreased 7.4%, substantially the same percentage decrease as net earnings.
Management's discussion and analysis of financial condition and
results of operations contain 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) the rate at which the traditional business forms market is
contracting, the application of technology to the production of business
forms, demand for the Company's products in the context of the contracting
market for traditional forms products, variability in the prices of paper
and other raw materials, and competitive conditions associated with the
Company's products. Because of such uncertainties, readers are cautioned
not to place undue reliance on such forward-looking statements which speak
only as of April 20, 1998.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information called for by this Item is included on Pages F-1
through F-19 of this Annual Report on Form 10K.
10
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure
None
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 6 of the Company's Proxy
Statement dated May 21, 1998, which is attached as Exhibit (22) hereto.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to pages 6 through 10 of the Company's Proxy Statement dated May
21, 1998 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 pages 2 and 3 of the Company's Proxy Statement dated May 21,
1998 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 12 of the Company's Proxy Statement dated May 21, 1998
which is attached as Exhibit (22) hereto.
11
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) 1. Financial Statements.
2. Financial Statement Schedules.
The financial statements and financial statement schedules
listed in the index to the Consolidated Financial Statements of
Ennis Business Forms, Inc. that appear on Page F-1 of this
Report on Form 10-K are filed as part of this Report.
3. Exhibits
(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.
(ii) Bylaws of the Registrant as amended through October
15, 1997 incorporated herein by reference to Exhibit 3(ii) to
the Registrants Form 10-Q Quarterly Report for the quarter
ended November 30, 1997.
(21) Subsidiaries of Registrant.
(22) Notice, Proxy Statement and proxy incorporated herein by
reference to the Registrant's Proxy Statement dated May 21,
1998.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule (submitted for SEC use only).
(b) Reports on Form 8-K:
None
12
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.
13
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 29, 1998 BY: /s/ Keith S. Walters
Keith S. Walters, Vice Chairman of the Board
and Chief Executive Officer
Date: May 29, 1998 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 29, 1998 BY: /s/ Keith S. Walters
Keith S. Walters, Director
Date: May 29, 1998 BY: /s/ Harold W. Hartley
Harold W. Hartley, Director
Date: May 29, 1998 BY: /s/ James B. Gardner
James B. Gardner, Director
Date: May 29, 1998 BY: /s/ Thomas R. Price
Thomas R. Price, Director
Date: May 29, 1998 BY: /s/ Nelson Ward
Nelson Ward, Director
13
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 29, 1998 BY:
Keith S. Walters, Vice Chairman of the Board
and Chief Executive Officer
Date: May 29, 1998 BY:
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 29, 1998 BY:
Keith S. Walters, Director
Date: May 29, 1998 BY:
Harold W. Hartley, Director
Date: May 29, 1998 BY:
James B. Gardner, Director
Date: May 29, 1998 BY:
Thomas R. Price, Director
Date: May 29, 1998 BY:
Nelson Ward, Director
INDEX TO FINANCIAL STATEMENTS
ITEM 14 (A)1 AND ITEM 14 (A)2
Independent Auditors' Report F-2
Consolidated Statements of Earnings F-3
Consolidated Statements of Cash Flows F-4
Consolidated Balance Sheets F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts F-19
F-1
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, 1998 and February
28, 1997, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended February 28,
1998. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed
in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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, 1998 and
February 28, 1997, and the results of their operations and their cash flows
for each of the years in the three-year period ended February 28, 1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related 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 17, 1998
F-2
Consolidated Statements of Earnings
(In thousands, except per share amounts)
For the years ended February 28 or
29,
1998 1997 1996
Net sales $ 154,348 $153,726 $142,134
Costs and expenses:
Cost of sales 105,337 105,232 88,747
Selling, general and
administrative expenses 31,162 28,320 24,943
Loss on disposal of Heath Printers, Inc. 3,000 -- --
139,499 133,552 113,690
Earnings from operations 14,849 20,174 28,444
Other income (expense):
Investment income 1,048 1,478 1,872
Interest expense (60) (68) (102)
Other (32) (99) (110)
956 1,311 1,660
Earnings before income taxes 15,805 21,485 30,104
Provision for income taxes (note 6) 5,597 7,992 11,487
Net earnings $ 10,208 $ 13,493 $ 18,617
Net earnings per basic and diluted
share of common stock $ .62 $ .82 $ 1.13
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Cash Flows
(In thousands)
For the years ended February 28
or 29,
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 10,208 $13,493 $18,617
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,173 4,935 4,511
Deferred income taxes (872) 574 (295)
Pension plan expense (548) 365 827
Loss on disposal of Heath Printers, Inc. 3,000 -- --
Other 555 (651) 437
Changes in operating assets and liabilities:
Receivables 320 (1,466) 1,304
Inventories 2,329 (1,905) 1,926
Other current assets
(net of deferred taxes) 552 (522) (1,023)
Accounts payable and accrued expenses (140) (1,836) 134
Federal and state income taxes 137 (2,001) (93)
Net cash provided by operating activities 21,714 10,986 26,345
Cash flows from investing activities:
Capital expenditures (9,576) (13,575) (6,106)
Purchase of operating assets -- (7,342) --
Purchase of short-term investments -- -- (6,064)
Maturities of short-term investments -- -- 23,742
Proceeds from disposal of property 21 22 11
Proceeds from sale of Heath Printers, Inc. 2,128 -- --
Net cash provided by (used in) investing
activities (7,427) (20,895) 11,583
Cash flows from financing activities:
Dividends (10,191) (10,110) (9,782)
Other 110 (93) (81)
Net cash flows used in financing activities (10,081) (10,203) (9,863)
Net change in cash and equivalents 4,206 (20,112) 28,065
Cash and equivalents at beginning of year 18,494 38,606 10,541
Cash and equivalents at end of year $ 22,700 $18,494 $38,606
See accompanying notes to consolidated financial statements.
F-4
Consolidated Balance Sheets
(In thousands, except share amounts)
February 28, February 28,
1998 1997
Assets
Current assets:
Cash and equivalents $ 22,700 $ 18,494
Receivables, principally trade, less allowance
for doubtful receivables of $1,006 in 1998 and
$1,090 in 1997 17,980 18,600
Inventories, at lower of cost (principally
last-in, first-out) or market (note 2) 8,063 10,500
Unbilled contract revenues 2,633 2,282
Other current assets (note 6) 2,284 2,751
Total current assets 53,660 52,627
Property, plant and equipment, at cost:
Plant, machinery and equipment 64,049 62,587
Land and buildings 16,957 15,957
Other 9,193 8,869
90,199 87,413
Less accumulated depreciation 55,347 53,853
Net property, plant and equipment 34,852 33,560
Cost of purchased businesses in excess of
amounts allocated to net identifiable assets, net 4,574 5,942
Other assets and deferred charges 1,388 2,828
$ 94,474 $ 94,957
See accompanying notes to consolidated financial statements.
F-5
Consolidated Balance Sheets
(In thousands, except share amounts)
February 28, February 28,
1998 1997
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 191 $ 85
Accounts payable 4,759 5,234
Accrued expenses:
Employee compensation and benefits 4,086 3,942
Taxes other than income 463 375
Other 760 671
Federal and state income taxes payable (note 6) 137 --
Total current liabilities 10,396 10,307
Long-term debt, less current installments 206 195
Deferred credits, principally Federal income taxes
(note 6) 2,200 2,869
Shareholders' equity (notes 3, 4 and 5):
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 1998 and 1997 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 119,335 119,318
Cumulative foreign currency translation adjustments -- (76)
173,500 173,407
Less cost of 4,812,175 shares in 1998 and
4,811,506 shares in 1997 of common stock
in treasury 91,828 91,821
Total shareholders' equity 81,672 81,586
$ 94,474 $ 94,957
See accompanying notes to consolidated financial statements.
F-6
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 majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Intangible Assets. The excess of cost over amounts assigned to net
identifiable assets of purchased subsidiaries is amortized on the straight-
line basis over periods from 10 to 40 years. Other acquired intangibles
are principally non-compete agreements and are being amortized on the
straight line basis over periods from 3 to 8 years. At February 28, 1998
and February 28, 1997, accumulated amortization of intangible assets
amounted to $1,662,000 and $1,124,000, respectively.
Cash and Equivalents. The Company invests cash in excess of daily
operating requirements in income producing investments. Such amounts,
stated at cost which approximates market, at February 28, 1998 and 1997,
were $24,594,000 and $20,468,000, respectively. All such investments
(consisting of Eurodollar deposits of U. S. banks) have an original
maturity of 90 days or less and are considered to be cash equivalents.
Such investments exceed total cash and equivalents at February 28, 1998 and
1997, due to outstanding checks issued in the normal course of business.
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, which range from 3 to 11 years for plant machinery and equipment
and 5 to 34 years for buildings and improvements. 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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, on March 1, 1996. This
Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell. For the fiscal year ended February 29,
1996, the Company charged to expense $775,000 of intangible assets believed
to be impaired. In the third quarter of the fiscal year ended February 28,
1998, the Company charged to expense $3,000,000 of tangible and intangible
assets to be disposed of. The residual value of the assets held for
disposal approximated the amount realized upon the actual sale of the
assets in the fourth quarter of fiscal 1998.
Fair Value. The carrying amount of cash and cash equivalents, receivable
and accounts payable approximates fair value because of the short maturity
of these instruments.
F-7
Revenue Recognition. Revenue is recognized upon shipment of all printed
products. Revenues from fixed contracts for the design and construction of
tools, dies and special machinery is recognized using the percentage of
completion method of accounting.
Advertising Expenses. The Company expenses advertising costs as incurred.
Catalog and brochure preparation and printing costs, which are considered
direct response advertising, are amortized to expense over the life of the
catalog which typically ranges from three to twelve months. Advertising
expense was approximately $2,741,000, $2,141,000 and $2,142,000 during the
years ended February 28, 1998, February 28, 1997 and February 29, 1996,
respectively. Included in advertising expense is amortization related to
direct response advertising of $1,202,000, $945,000 and $1,203,000 for the
years ended February 28, 1998, February 28, 1997 and February 29, 1996,
respectively. Unamortized direct response advertising costs included in
other current assets at February 28, 1998 and 1997 were $518,000 and
$441,000, respectively.
Investment Income. Investment income was approximately $1,048,000,
$1,478,000 and $1,872,000 for fiscal years 1998, 1997 and 1996,
respectively.
Income Taxes. Income taxes are accounted for under the asset and liability
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 and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
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 1998, 1997 and 1996, business forms and other
printed business products operations represented approximately 91% 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 100%, 93% and
100%, respectively. The Company's Mexico operations are not material to
consolidated earnings or financial position for fiscal years 1998, 1997 or
1996.
Net Earnings Per Common Share. In the fiscal year ended February 28, 1998,
the Company adopted the provisions of SFAS No. 128, Earnings Per Share,
which requires the calculation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing earnings available for
common shareholders by the weighted average number of shares outstanding
during the period. Diluted earnings per share is computed by dividing
earnings available for common shareholders by the weighted average number
of shares outstanding plus the number of additional shares that would have
been outstanding if potentially dilutive securities had been
F-8
issued. In addition, in computing the dilutive effect of such securities,
the numerator is adjusted to add back (a) any convertible preferred
dividends and (b) the after-tax amount of interest recognized in the period
associated with any convertible debt. All prior period earnings per share
amounts have been restated to reflect the requirements of this statement.
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.
During the year ended February 28, 1998, the Company decided to dispose of
its interest in its foreign subsidiary; therefore, all translation
adjustments are reflected in net earnings for the year. Translation
adjustments are included in shareholders' equity for years ended February
28, 1997 and February 29, 1996. 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, 1998 and February 28, 1997, approximately 78% and 71%,
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 28,
1998 1997
Raw material $ 4,640 6,394
Work-in-process 1,065 1,127
Finished goods 2,358 2,979
$ 8,063 10,500
The excess of current costs over LIFO stated values amounts to
approximately $5,504,000 and $5,565,000 at February 28, 1998 and February
28, 1997, respectively.
F-9
(3) Shareholders' Equity
Following is a summary of transactions in shareholders' equity accounts for
the three years ended February 28, 1998: (in thousands, except share amounts)
Fiscal Year Ended February 28 or 29
<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, 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) $(91,821)
Net earnings -- -- -- 10,208
-- -- --
Dividends declared
($.62 per share) -- -- -- (10,191)
-- -- --
Foreign currency
translation adjustment -- -- -- --
76 -- --
Treasury stock purchases -- -- -- --
-- (669) (7)
Balance February 28, 1998 21,249,860 $53,125 1,040 119,335
-- (4,812,175) $(91,828)
</TABLE>
F-10
(4) Earnings Per Share The following table reconciles the numerators and
denominators of basic and diluted earnings per share for fiscal years ended
1998, 1997 and 1996: (in thousands, except share amounts)
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 28, 1998 February 28, 1997 February 29, 1996
Earnings Shares Earnings Shares Earnings Shares
Basic - earnings available
for common shareholders
based on weighted
average common shares
outstanding $10,208 16,437,982 $13,493 16,438,817 $18,617 16,439,645
Effect of dilutive securities -
stock options -- -- -- 6,112 -- 17,982
Diluted - earnings available
for common shareholders
plus assumed
conversions $10,208 16,437,982 $13,493 16,449,929 $18,617 16,457,627
F-11
(5) Stock Options
At February 28, 1998, the Company has two incentive stock option
plans, the 1991 Incentive Stock Option Plan and the 1980 Incentive Stock
Option Plan. The Company has 308,337 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 were granted
prior to fiscal year 1998. The exercise price of each option granted
equals the quoted 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 per share weighted-average fair value of options granted during
fiscal years ended February 28, 1998 and February 28, 1997, was $1.68 and
$1.69, respectively, on the date of grant using the Black Scholes option-
pricing model with the following weighted-average assumptions:
For the years ended February 28
1998 1997
Expected dividend yield 5.98% 6.15%
Stock price volatility 23.40% 22.00%
Risk-free interest rate 5.70% 6.67%
Expected option term 7 years 7 years
The Company applies Accounting Principles Board (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 net
earnings and earnings per share would have been reduced to the pro-forma
amounts indicated below: (in thousands, except per share amounts)
For the years ended February 28
1998 1997
Earnings available for common shareholders:
As reported $10,208 $13,493
Pro-forma 10,169 13,472
Earnings per share:
As reported - basic and diluted .62 .82
Pro-forma - basic and diluted .62 .82
Pro-forma net earnings reflects only options granted in fiscal years
February 28, 1998 and February 28, 1997. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net earnings amounts presented above because
compensation cost is reflected over the options' vesting period of five
years and compensation cost for options granted prior to March 1, 1995 is
not considered.
F-12
Following is a summary of transactions of incentive stock options
during the three fiscal years ended in 1998:
For the years ended February 28 or 29 Weighted
Number Average
of Exercise
Shares Price
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
Granted 42,500 10.80
Terminated (95,371) 10.32
Outstanding at February 28, 1998
(154,522 shares exercisable) 295,837 13.94
The following table summarizes information about incentive stock
options outstanding at February 28, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted
Remaining Average Weighted
Exercise Number Contractual Excercise Number Average
Prices Outstanding Life Price Excercisable Excercise
$10.31 to
$12.00 131,250 8.5 years $11.07 1,876 $12.00
13.81 to
15.63 115,087 3.4 14.91 103,146 15.04
19.25 49,500 3.8 19.25 49,500 19.25
$10.31 to
19.25 295,837 5.8 $13.75 154,522 $16.35
F-13
(6) Income Taxes
The components of the provision for income taxes for fiscal years
1998, 1997 and 1996 are (in thousands):
For the years ended February 28 or 29 1998 1997 1996
Current:
Federal $5,894 $6,664 $10,523
State and local 575 754 1,259
Deferred Federal (872) 574 (295)
Total provision for income taxes $5,597 $7,992 $11,487
Total income taxes paid $5,218 $9,500 $12,377
The following summary for the three fiscal years ended in 1998
reconciles the statutory U. S. Federal income tax rate to the Company's
effective tax rate:
For the years ended February 28 or 29 1998 1997 1996
Statutory rate 35.0% 35.0% 35.0%
Provision for state income taxes,
net of Federal income tax benefit 2.4 2.3 2.7
Foreign net operating losses (0.8) 0.3 0.7
ESOP pass-through dividend deduction (1.1) (0.9) (0.6)
Other (0.1) 0.5 0.4
Effective tax rate 35.4% 37.2% 38.2%
The Federal and state income tax assets and liabilities are summarized
as follows (in thousands):
February 28,
For the years ended February 28 or 29 1998 1997
Current:
Current asset $ -- $1,014
Currently payable 137 --
Deferred:
Current asset 2,192 1,611
Noncurrent liability 1,962 2,253
The components of deferred income tax assets and liabilities are
summarized as follows (in thousands):
February 28,
For the years ended February 28 or 29 1998 1997
Current deferred asset:
Allowance for doubtful receivables $ 478 $ 518
Inventory valuation 499 350
Employee compensation and benefits 911 813
Foreign net operating loss carryforwards 228 393
Other 304 (70)
Subtotal 2,420 2,004
Valuation allowance (228) (393)
$2,192 $1,611
F-14
Noncurrent deferred liability:
Depreciation $2,015 $1,631
Intangibles amortization and impairments (1,181) (309)
Prepaid pension cost 796 579
Other 332 352
$1,962 $2,253
The valuation allowance of $228,000 at February 28, 1998, has been
provided to reduce the total tax asset to $2,192,000 because it is likely
that a portion of the tax asset will not be realized. The valuation
allowance decreased $168,000 during fiscal 1998. The net increases in the
valuation allowance for fiscal years 1997 and 1996 were $69,000 and
$212,000, respectively. All valuation allowances relate to foreign net
operating loss carryforwards.
F-15
(7) 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 Plan's funded status and amounts recognized in the Company's
consolidated balance sheets at February 28, 1998 and February 28, 1997: (in
thousands)
As of February 28, 1998 1997
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $25,848 and $24,379
in 1998 and 1997, respectively $29,366 $ 27,027
Projected benefit obligation for service
rendered to date $(41,370) $(36,877)
Plan assets at fair value (principally publicly
traded mutual funds) 32,225 28,860
Plan assets (less than) projected
benefit obligation (9,145) (8,017)
Unrecognized net loss 12,100 11,116
Unrecognized net transition asset being
recognized over the average
remaining service life (2,823) (3,515)
Accrued pension asset (liability) $ 132 $ (416)
Net pension cost for fiscal years 1998, 1997 and 1996 included the
following components: (in thousands):
For the years ended February 28 or 29, 1998 1997 1996
Service cost - benefits earned during
the current period $1,956 $1,668 $1,355
Interest cost on projected benefit
obligation 2,972 2,800 2,478
Actual return on plan assets (3,010) (3,051) (3,182)
Net amortization and deferral (193) 135 178
Net periodic pension cost $1,725 $1,552 $829
Assumptions used in accounting for the defined benefit plans for fiscal
years 1998, 1997 and 1996 are as follows:
For the years ended February 28 or 29, 1998 1997 1996
Weighted average discount rate 7.25% 7.50% 7.50%
Earnings progression 4.50% 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.25% 9.25% 9.50%
F-16
(8) Acquisitions and Disposal
On April 1, 1996, the Company purchased in separate transactions the
operating assets and operations of two privately-owned specialty printing
companies for approximately $7,342,000 in cash. The acquisitions were
accounted for by the purchase method; therefore, the 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 net
identifiable 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. Summarized below are unaudited
condensed pro-forma consolidated results of operations for the fiscal years
ended February 28, 1997 and February 28, 1996, which reflects inclusion of
the companies as if they had been acquired on March 1, 1995 (in thousands,
except share amounts). The pro-forma information does not purport to
represent what the Company's results of operations actually would have been
had such transactions or events occurred on the dates specified, or to
project the Company's results of operations for any future period.
For the years ended February 28 or 29
(in thousands, except share amounts) 1997 1996
Net sales $ 154,653 $ 152,450
Net income $ 13,479 $ 18,155
Earnings per basic and diluted share $ .82 $ 1.10
During the fiscal year ended February 28, 1998, the Company elected to
sell one of the two specialty printing companies. A $3,000,000 charge to
earnings before income taxes was recorded in the third quarter of fiscal
1998 to reflect the assets held for disposal at fair value. The assets
were subsequently sold in January 1998 for $2,300,000. The charge recorded
in the third quarter approximated the loss realized from the sale in the
fourth quarter.
F-17
(9) Quarterly Information (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
May August November
February
Fiscal year ended February 28, 1998:
Net sales $37,896 $38,309 $40,311 $37,832
Gross margin 10,876 11,747 12,489 13,899
Net earnings (notes 1 and 2) 2,340 2,650 1,131 4,087
Dividends paid 2,548 2,548 2,548 2,547
Per share of common stock:
Basic and diluted net earnings
(note 3) .14 .16 .07 .25
Dividends .155 .155 .155 .155
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:
Basic and diluted net earnings
(note 3) .26 .22 .19 .15
Dividends .15 .155 .155 .155
Notes: 1. Year-end adjustments related to physical inventory counts and
LIFO valuation increased net earnings for the fourth quarter of
fiscal 1998 by approximately $1,404,000 (9 cents a share) as
compared to an increase in net earnings of approximately $545,000
(3 cents a share) from comparable adjustments in the fourth
quarter of fiscal 1997.
2. The third quarter of fiscal 1998 includes a decrease in net
earnings of approximately $1,994,000 (12 cents a share) due to a
charge for the impairment of certain assets held for disposal.
3. Earnings per share for each period presented has been
calculated using the provisions of SFAS No. 128, Earnings per
Share, which is effective for periods ending after December 15,
1997, and requires the restatement of all prior period earnings
per share data. (See Note 1: "Significant Accounting Policies
and General Matters.")
F-18
Schedule II
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended February 28, 1998
(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, 1998:
Allowance for doubtful
receivables $1,090 414 45 (1) 543 (2) 1,006
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
Notes:
(1) Principally collection of accounts previously charged off.
(2) Charge-off of uncollectible receivables.
F-19
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
Ennis Business Forms of Washington, Inc. Washington
Connolly Tool and Machine Company Delaware
United Continental Leasing Co. Delaware
Star Award Ribbon Company, Inc. Texas
Admore, Inc. Texas
PFC Products, Inc. * Delaware
Ennis Business Forms of Washington, Inc.
(formerly 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 inclusion in the registration statement (No. 2-81124) on
Form S-8 of Ennis Business Forms, Inc. of our report dated April 17,1998,
relating to the consolidated balance sheets of Ennis Business Forms, Inc.
and subsidiaries as of February 28, 1998 and 1997 and the related
statements of earnings and cash flows and related schedule for each of the
years in the three-year period ended February 28, 1998, which report
appears in the 1998 annual report on Form 10-K of Ennis Business Forms,
Inc.
KPMG Peat Marwick LLP
Dallas, Texas
May 29, 1998
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