19
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 AUGUST 31, 1999
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Commission File Number 1-5807
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ENNIS BUSINESS FORMS, INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0256410
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(State or other Jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
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(Address of principal executive offices) (Zip Code)
(972) 228-7801
---------------
(Registrant's telephone number, including area code)
No Change
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(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 August 31, 1999
- --------------------------------------- ------------------------------
Common stock, par value $2.50 per share 16,253,410
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information - unaudited
Condensed Consolidated Balance Sheets --
August 31, 1999 and February 28, 1999 2
Condensed Consolidated Statements of Earnings --
Three and Six Months Ended August 31,1999
and 1998 3
Condensed Consolidated Statements of Cash
Flows --Six Months Ended August 31, 1999
and 1998 4
Notes to Condensed Consolidated Financial
Statements 5 - 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 8
Part II. Other Information 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
August 31, February 28,
1999 1999
---------- -----------
Assets
Current assets:
Cash and equivalents $ 28,485 20,691
Accounts receivable, net 21,930 18,720
Inventories 6,799 8,533
Other current assets 3,175 4,732
-------- -------
Total current assets 60,389 52,676
-------- -------
Property, plant and equipment, net 32,051 33,911
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 5,266 5,731
Other assets and deferred charges 832 2,017
-------- -------
Total assets $ 98,538 94,335
======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 273 199
Accounts payable 3,441 4,107
Accrued expenses 6,426 4,061
-------- --------
Total current liabilities 10,140 8,367
-------- --------
Long-term debt, less current installments 217 7
Deferred credits, principally Federal income taxes 2,583 2,462
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 124,407 122,307
-------- -------
178,572 176,472
Less:
Treasury stock 92,974 92,973
-------- -------
Total shareholders' equity 85,598 83,499
-------- -------
Total liabilities and shareholders' equity $ 98,538 94,335
======== =======
See accompanying notes to condensed consolidated financial statements.
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $38,160 36,904 $77,823 73,238
------- ------ ------- ------
Costs and expenses:
Cost of sales 25,752 25,109 53,427 49,921
Selling, general and
Administrative expenses 7,703 6,846 14,725 13,587
------ ------ ------- ------
33,455 31,955 68,152 63,508
------- ------ ------- ------
Earnings from operations 4,705 4,949 9,671 9,730
Investment and other income 1,420 350 1,629 675
------- ------ ------- ------
Earnings before income taxes 6,125 5,299 11,300 10,405
Provision for income taxes 2,220 1,948 4,161 3,822
------- ------ ------- ------
Net earnings $ 3,905 3,351 $ 7,139 6,583
======= ====== ======= ======
Weighted average number of common
shares outstanding 16,253,436 16,362,685 16,253,447 16,394,828
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and diluted
share of common stock $ .24 .20 $.44 .40
===== === ==== ===
Cash dividends $.155 .155 $.31 .31
===== ==== ==== ===
See accompanying notes to condensed consolidated financial statements.
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
August 31,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 7,139 6,583
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,384 2,672
(Gain) loss on the sale of property, plant
and equipment (1,195) (19)
Loss on impairment of long-lived assets 611 --
Changes in operating assets and liabilities 1,207 3,037
Other 850 747
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Net cash provided by operating activities 11,996 13,020
------- ------
Cash flows from investing activities:
Capital expenditures (1,441) (2,012)
Proceeds from disposal of property 1,962 661
------- -------
Net cash (used in) provided by investing
activities 521 (1,351)
------- ------
- -
Cash flows from financing activities:
Purchase of treasury shares (1) (3,300)
Dividends declared (5,039) (5,096)
Other 317 (49)
------- ------
Net cash used in financing activities (4,723) (8,445)
------- -------
Net change in cash and equivalents 7,794 3,224
Cash and equivalents at beginning of period 20,691 22,700
------- ------
Cash and equivalents at end of period $28,485 25,924
======= ======
See accompanying notes to condensed consolidated financial statements.
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 August 31, 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 August 31, 1999, the Company has reserved 1,122,712 shares of
common stock under incentive stock option plans.
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):
August 31, February 28,
1999 1999
Raw material $3,882 4,734
Work-in-process 773 951
Finished goods 2,144 2,848
------ -----
$6,799 8,533
====== =====
4. Comprehensive Income
--------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income, in the
first quarter of fiscal 1999, which requires companies to disclose
comprehensive income separate from net income from operations.
Comprehensive income is defined as the change in equity during a period
from transactions and other events and circumstances from non-ownership
sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners.
The adoption of this statement had no significant effect on the Company
for the three months and six months ended August 31, 1999 or 1998.
Comprehensive income and net income are substantially the same.
5. Segment Data
------------
Segment data for the three months and six months ended August 31, 1999
and 1998 were as follows (in thousands):
Business
Forms
& Printed Consolidated
Products Tool & Die Totals
-------- ---------- ------
Three months ended August 31, 1999:
Net Sales $36,999 $1,161 $38,160
Depreciation and amortization 1,945 52 1,997
Segment earnings before income tax 6,078 47 6,125
Segment Assets 91,973 6,565 98,538
Capital Expenditures 893 47 940
Three months ended August 31, 1998:
Net Sales $35,458 $1,446 $36,904
Depreciation and amortization 1,251 65 1,316
Segment earnings before income tax 10,144 261 10,405
Segment Assets 88,145 4,880 93,025
Capital Expenditures 1,399 42 1,441
Six months ended August 31, 1999:
Net Sales $75,089 $2,734 $77,823
Depreciation and amortization 3,274 110 3,384
Segment earnings before income tax 11,513 (213) 11,300
Segment Assets 91,973 6,565 98,538
Capital Expenditures 1,394 47 1,441
Six months ended August 31, 1998:
Net Sales $70,655 $2,583 $73,238
Depreciation and amortization 2,536 136 2,672
Segment earnings before income tax 10,193 212 10,405
Segment Assets 88,145 4,880 93,025
Capital Expenditures 1,849 163 2,012
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 six months ended August 31, 1999 and 1998, the
Company has reported its smaller operating segment separately.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At August 31, 1999, the Company's financial position continues to be
strong. Working capital increased from $44,309,000 at February 28, 1999 to
$50,249,000 at August 31,1999. The increase is due to cash provided by
operating activities and the sale of a facility in Boulder City, Nevada.
The Company has $28,485,000 in cash and equivalents and $217,000, in long-
term debt, less current installments.
Results of Operations
- ---------------------
Net sales for the three months and six months ended August 31, 1999
increased 3.4% and 6.3% respectively form the corresponding periods in the
prior year. The sales increase for the three months and six months is
attributable to overall growth mainly in the Company's business forms and
printed products segment. Gross profit margins increased from 32.0% in the
three months August 31, 1998 to 32.5% in the three months ended August 31,
1999. Gross profit margin decreased from 31.8% in the six months ended
August 31, 1998 to 31.3% in the six months ended August 31, 1999. 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 six months ended August 31, 1999 increased 12.5% and 8.4%
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. Excluding the pre-tax charge related to
the impairment of the InstaColor product line, selling, general and
administrative expenses for the three and six months ended August 31, 1999
increased 3.6% and 3.9% respectively compared to the corresponding periods
in the prior year. Investment and other income increased in the three and
six months ended August 31, 1999 for the same periods 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 six months ended August 31,
1999 increased 15.6% and 8.6% 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 for
both the three and six month periods ended August 31, 1999 from the
corresponding periods in the prior year. The per share earnings were based
upon three months and six months weighted average shares outstanding of
16,253,436 and 16,253,447 respectively at August 31, 1999 and 16,362,685
and 16,394,828 weighted average shares outstanding at August 31, 1998. The
effective rate of the Federal and state income tax expense was 36.2% and
36.8% for the three months ended August 31, 1999 and August 31, 1998,
respectively, and 36.8% and 36.7% for six months ended August 31, 1999 and
August 31, 1998.
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. 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 September 23, 1999.
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
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(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
None
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 September 23, 1999 /s/Robert M. Halowec
------------------ --------------------
Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date September 23, 1999 /s/Harve Cathey
------------------ ---------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
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