11
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended NOVEMBER 30, 1999
------------------------------------------------------------
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 (I. R. S. Employer
incorporation or organization) Identification No.)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 228-7801
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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 prior that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 30, 1999
- --------------------------------------- --------------------------------
Common stock, par value $2.50 per share 16,391,911
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information - unaudited
Condensed Consolidated Balance Sheets --
November 30, 1999 and February 28, 1999 2
Condensed Consolidated Statements of Earnings --
Three and Nine Months Ended November 30,1999
and 1998 3
Condensed Consolidated Statements of Cash
Flows --Nine Months Ended November 30, 1999
and 1998 4
Notes to Condensed Consolidated Financial
Statements 5 - 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 9
Part II. Other Information 10
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
November 30, February 28,
1999 1999
------------ ------------
Assets
Current assets:
Cash and equivalents $ 4,403 20,691
Accounts receivable, net 23,858 18,720
Inventories 9,219 8,533
Other current assets 3,311 4,732
-------- -------
Total current assets 40,791 52,676
-------- -------
Long Term Investments and Marketable Securities 8,641 --
Property, plant and equipment, net 42,239 33,911
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 8,053 5,731
Other assets and deferred charges 1,563 2,017
-------- -------
Total assets $101,287 94,335
======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 325 199
Accounts payable 4,073 4,107
Accrued expenses 5,421 4,061
-------- -------
Total current liabilities 9,819 8,367
-------- -------
Long-term debt, less current installments 537 7
Deferred credits, principally Federal income taxes 2,643 2,462
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 124,466 122,307
-------- -------
178,631 176,472
Less:
Treasury stock 90,343 92,973
-------- -------
Total shareholders' equity 88,288 83,499
-------- -------
Total liabilities and shareholders' equity $101,287 94,335
======== =======
See accompanying notes to condensed consolidated financial statements.
2
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $41,173 38,800 $118,996 112,038
------- ------ -------- -------
Costs and expenses:
Cost of sales 27,561 26,939 80,988 76,860
Selling, general and
Administrative expenses 7,472 6,974 22,197 20,561
------- ------ -------- -------
35,033 33,913 103,185 97,421
------- ------ -------- -------
Earnings from operations 6,140 4,887 15,811 14,617
Investment and other income 200 302 1,829 977
------- ------ -------- -------
Earnings before income taxes 6,340 5,189 17,640 15,594
Provision for income taxes 2,380 1,909 6,541 5,731
------- ------ -------- -------
Net earnings $ 3,960 3,280 $ 11,099 9,863
======= ====== ======== =======
Weighted average number of common
shares outstanding 16,287,986 16,166,634 16,267,266 16,329,264
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and diluted
share of common stock $ .24 .20 $ .68 .60
===== ==== ===== ====
Cash dividends $.155 .155 $.465 .465
===== ==== ===== ====
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
November 30,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $11,099 9,863
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,870 3,980
Gain on the sale of property, plant and equipment (1,192) (22)
Loss on impairment of long-lived assets 611 --
Changes in operating assets and liabilities 1,234 3,902
Other (77) (1,307)
------- ------
Net cash provided by operating activities 16,545 16,416
------- ------
Cash flows from investing activities:
Acquisition of business (16,820) (2,269)
Capital expenditures (2,063) (3,131)
Purchases of Investments (8,641) --
Proceeds from disposal of property 1,963 664
------- ------
Net cash used in investing activities (25,561) (4,736)
------- ------
Cash flows from financing activities:
Purchase of treasury shares (1) (3,300)
Dividends declared (7,558) (7,597)
Other 287 (174)
------- ------
Net cash used in financing activities (7,272) (11,071)
------- ------
Net change in cash and equivalents (16,288) 609
Cash and equivalents at beginning of period 20,691 22,700
------- ------
Cash and equivalents at end of period $ 4,403 23,309
======= ======
See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
These unaudited condensed consolidated financial statements of Ennis
Business Forms, Inc. and its subsidiaries (collectively the "Company"),
for the quarter ended November 30, 1999 have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended
February 28, 1999, from which the accompanying condensed consolidated
balance sheet at February 28, 1999 was derived. All significant
intercompany balances and transactions have been eliminated in
consolidation. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been
included. The results of operations for any interim period are not
necessarily indicative of the results of operations for a full year.
2. Stock Option Plans
------------------
As of November 30, 1999, the Company has reserved 1,122,712 shares of
common stock under incentive stock option plans. Stock options are
antidilutive for each period presented and, therefore, have been
excluded from the earnings per share calculation.
3. Inventories
-----------
The Company uses the Last-In, First-Out (LIFO) method of pricing the
raw material content of most of its business forms inventories, and the
First-In, First-Out (FIFO) method is used to value the remainder. The
following table summarizes the components of inventory at the different
stages of production (in thousands of dollars):
November 30, February 28,
1999 1999
------------ ------------
Raw material $5,264 4,734
Work-in-process 1,048 951
Finished goods 2,907 2,848
------ -----
$9,219 8,533
====== =====
4. Comprehensive Income
--------------------
Comprehensive income and net income are substantially the same.
5
5. Segment Data
------------
Segment data for the three months and nine months ended November 30, 1999
and 1998 were as follows (in thousands):
Business Forms
& Printed Consolidated
Products Tool & Die Totals
-------- ---------- ------
Three months ended November 30, 1999:
Net Sales $40,058 $1,115 $ 41,173
Depreciation and amortization 1,438 48 1,486
Segment earnings before income tax 6,193 147 6,340
Segment Assets 96,659 4,628 101,287
Capital Expenditures 584 38 622
Three months ended November 30, 1998:
Net Sales $37,093 $1,707 $38,800
Depreciation and amortization 1,246 62 1,308
Segment earnings before income tax 4,891 298 5,189
Segment Assets 89,062 4,580 93,642
Capital Expenditures 1,113 6 1,119
Nine months ended November 30, 1999:
Net Sales $115,147 $3,849 $118,996
Depreciation and amortization 4,712 158 4,870
Segment earnings before income tax 17,706 (66) 17,640
Segment Assets 96,659 4,628 101,287
Capital Expenditures 1,978 85 2,063
Nine months ended November 30, 1998:
Net Sales $107,748 $4,290 $112,038
Depreciation and amortization 3,782 198 3,980
Segment earnings before income tax 15,084 510 15,594
Segment Assets 89,062 4,580 93,642
Capital Expenditures 2,962 169 3,131
The Company is principally in the business of manufacturing and selling
business forms and other printed products to customers located in the
United States. The Company previously reported its smaller operating
segment and corporate and financing activities on a combined basis. For
the three months and nine months ended November 30, 1999 and 1998, the
Company has reported its smaller operating segment separately.
6
6. Purchase of Adams McClure and American Forms
--------------------------------------------
On November 4, 1999, the Company and its wholly owned subsidiary, Ennis
Acquisitions, Inc., purchased the general and limited partnership
interests in Adams McClure L.P. The $16,694,000 purchase price for this
transaction consisted of $1,250,000 in cash, $1,250,000 in stock
(138,599 shares of the Company's common stock) and assumption of certain
liabilities of Adams McClure L.P. amounting to approximately $14,194,000
which includes $160,000 of accrued expenses. The excess purchase price
over the fair values of net tangible assets acquired, pending final
determination of certain acquired balances, was $3,002,000 and is being
amortized to expense over a period of 15 years.
On November 15, 1999, American Forms I L.P., a Texas limited
partnership, the general partner of which is the Company, purchased the
production equipment, furniture and fixtures, name and operations of
American Forms, Inc. In a separate transaction, the Company purchased
the land and building currently occupied by American Forms, Inc. The
$2,123,000 purchase price of this transaction included a promissory note
to pay $525,000 over the next three years and $62,000 of accrued
expenses. The excess purchase price over the fair values of net
tangible assets acquired, pending final determination of certain
acquired balances, was $73,000 and is being amortized to expense over a
period of 15 years.
The accompanying consolidated financial statements include the
operations of Adams McClure, L.P. and American Forms I L.P. since the
date of acquisition. The following table is prepared on a pro forma
basis as though only Adams McClure L.P. had been acquired as of March 1,
1998, after including the estimated impact of adjustments such as
amortization of goodwill and depreciation, interest expense, interest
income, and related tax effects (in thousands, except per share
amounts):
For the Nine Months Ended November 30, 1999 1998
-------------------------------------- ---- ----
Net Sales $135,131 $129,944
Net Earnings 11,436 9,353
Earnings per share - basic and diluted 0.70 0.57
The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the periods
presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved
from combining the operations.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At November 30, 1999, the Company's financial position continues to be
strong. Working capital decreased from $44,309,000 at February 28, 1999 to
$30,972,000 at November 30,1999. The decrease is due to the $16,820,000
cash requirement for the acquisition of Adams McClure L.P. and American
Forms Inc. The Company has $4,403,000 in cash and equivalents and $537,000
in long-term debt, less current installments. The Company expects to
generate sufficient cash flow to more than cover its operating and capital
requirements for the foreseeable future.
Results of Operations
- ---------------------
Net sales for the three months and nine months ended November 30, 1999
increased 6.1% and 6.2% respectively from the corresponding periods in the
prior year. The increase in the quarter was attributable to revenue from
the Company's newly acquired businesses, with only modest increases from
the Company's business form product segment. Year to date increases in
revenue were primarily the result of increases in the business form
segment. Gross profit margins increased from 30.6% in the three months
ended November 30, 1998 to 33.1% in the three months ended November 30,
1999. Gross profit margin increased from 31.4% in the nine months ended
November 30, 1998 to 31.9% in the nine months ended November 30, 1999.
Increases in gross margins in both reported periods is the result of a
combination of lower cost of raw material and operating efficiency
improvements. The tool and die segment experienced a negative gross margin
for the first quarter ended May 31, 1999. Selling, general and
administrative expenses for the three and nine months ended November 30,
1999 increased 7.1% and 8.0%, respectively, compared to the corresponding
period in the prior year. This increase was attributable to the
acquisition of the Houston, Texas business forms operating unit in November
1998 and to a pre-tax charge of $611,000 resulting from the impairment of
intangible assets relating to the Company's InstaColor product line which
occurred in the second fiscal quarter. Excluding the pre-tax charge
related to the impairment of the InstaColor product line, selling, general
and administrative expenses for the nine months ended November 30, 1999
increased 5.0% compared to the corresponding period in the prior year.
Investment and other income increased in the nine months ended November 30,
1999 for the same period in the prior year. The increase in other income
is primarily the result of a pre-tax gain of $1,182,000 from the sale of
rental property in Boulder City, Nevada. Earnings before income taxes for
the three and nine months ended November 30, 1999 increased 22.2% and
13.1%, respectively, from the corresponding periods in the prior year. The
increase in net earnings resulted from increased sales and the gain
recognized for the sales of property netted with the charge from impairment
of intangible assets relating to the InstaColor product line. Basic and
diluted earnings per share increased $0.04 and $0.08 respectively the three
and nine months ended November 30, 1999 from the corresponding periods in
the prior year. The per share earnings were based upon three months and
nine months weighted average shares outstanding of 16,287,986 and
16,267,266 respectively for the periods ended November 30, 1999 and
16,166,634 and 16,329,264 weighted average shares outstanding for the
periods ended November 30, 1998. The effective rate of the Federal and
state income tax expense was 37.5% and 36.8% for the three months ended
November 30, 1999 and November 30, 1998, respectively, and 37.1% and 36.8%
for nine months ended November 30, 1999 and November 30, 1998.
8
Accounting Standards
- --------------------
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. This statement will be
effective for the company beginning March 1, 2001. It is not expected to
have a material impact on our financial statements.
Year 2000 issues
- ----------------
The Year 2000 may have a broad impact on the business environment in
which the Company operates due to the possibility that many computerized
systems across all industry lines will be unable to process information
containing dates beginning in the Year 2000. In 1995, for reasons
unrelated to preparations for the Year 2000, the Company invested
approximately $3,000,000 in a project to replace substantially all of its
existing computer hardware and software. One of the benefits of this
project was to bring a major portion of the Company's technology assets
into Year 2000 readiness. Subsequent to the project mentioned above, the
Company has invested approximately $700,000 over the past three years in
technological hardware and software, all of which is Year 2000 ready.
In addition to the investment described above, the Company has
surveyed all major suppliers of goods and services to determine their
readiness for Year 2000. Also, the operating units have surveyed the
ancillary equipment used in their respective operations to ascertain the
equipment'' readiness for Year 2000. The cost of performing these survey's
has been nominal. No problems have been discovered at this time.
The Company believes that substantially all of its internal technology
systems are prepared for Year 2000 at this time. Contingency plans are in
place in the event that unexpected problems arise. Any adverse
consequences to the Company as a result of lack of preparations for Year
2000 are expected to occur as a result of external forces. To the extent
that it is possible to determine if any of the Company's suppliers of goods
and services are unprepared for Year 2000, changes in suppliers will be
made where possible. The Company does not expect material disruptions as a
result of any controllable factors relating to preparations for Year 2000.
Forward looking statement
- -------------------------
Management's result of operations 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) the rate at which the 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 a contracting
market, variability in the prices of paper and other raw materials, and
competitive conditions in the business forms market. Because of such
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of December 22, 1999.
9
PART II. OTHER INFORMATION
Item 5. Other Information
- ---------------------------
In order for proposals of shareholders to be considered for inclusion
in the proxy statement and form of Proxy for the 2000 Annual Meeting of
Shareholders, such proposals must be received by the Secretary of the
Company not less than 120 days in advance of May 21, 2000.
The Company intends to exercise discretionary voting authority granted
under any proxy that is executed and returned to the Company on any matter
which may properly come before the 2000 Annual Meeting of Shareholders,
unless written notice of the matter is delivered to the Company at its
principal executive offices in DeSoto, Texas, addressed to the Secretary of
the Company, not later than April 4, 2000.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated November 16, 1999 was filed,
under Item 5 of the form, with its purchase agreement among
Adams McClure, Inc., NAF, Inc., Ennis Business Forms, Inc., and
Ennis Acquisitions, Inc. dated November 4, 1999 and its press
releases dated November 4, 1999 and November 5, 1999 announcing
the acquistion of Adams McClure, Inc. and planned acquisition of
American Forms, Inc.
10
SIGNATURES
Pursuant to the requirements 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.
ENNIS BUSINESS FORMS, INC.
Date December 22, 1999 /s/Robert M. Halowec
----------------- --------------------
Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date December 22, 1999 /s/Harve Cathey
----------------- ---------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
11
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