5
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 MAY 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
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(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 report), 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 the latest practicable date.
Class Outstanding at May 31, 1999
- --------------------------------------- ---------------------------
Common stock, par value $2.50 per 16,253,461
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information
Condensed Consolidated Balance Sheets --
May 31, 1999 and February 28, 1999 2
Condensed Consolidated Statements of Earnings --
Three Months Ended May 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash
Flows --Three Months Ended May 31, 1999
and 1998 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 31, February 28,
1999 1999
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and equivalents $ 24,822 20,691
Accounts receivable, net 18,422 18,720
Inventories 7,613 8,533
Other current assets 5,855 4,732
-------- -------
Total current assets 56,712 52,676
-------- -------
Property, plant and equipment, net 33,143 33,911
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 5,663 5,731
Other assets and deferred charges 1,513 2,017
-------- -------
Total assets $ 97,031 94,335
======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 181 199
Accounts payable 3,748 4,107
Accrued expenses 6,366 4,061
-------- -------
Total current liabilities 10,295 8,367
-------- -------
Long-term debt, less current installments -- 7
Deferred credits, principally Federal income taxes 2,522 2,462
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 123,022 122,307
-------- -------
177,187 176,472
Less:
Treasury stock 92,973 92,973
-------- -------
Total shareholders' equity 84,214 83,499
Total liabilities and shareholders' equity $ 97,031 94,335
======== =======
See accompanying notes to condensed consolidated financial statements.
2
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
May 31,
1999 1998
------ ------
Net sales $39,663 36,334
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Costs and expenses:
Cost of sales 27,675 24,812
Selling, general and administrative expenses 7,022 6,741
------- ------
34,697 31,553
------- ------
Earnings from operations 4,966 4,781
Investment and other income 209 325
------- ------
Earnings before income taxes 5,175 5,106
Provision for income taxes 1,941 1,874
------- ------
Net earnings $ 3,234 3,232
======= ======
Weighted average number of common shares
outstanding 16,253,462 16,437,685
========== ==========
Per share amounts:
Net earnings per basic and diluted share
Of common stock $.20 .20
==== ===
Cash dividends $.155 .155
===== ====
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
May 31,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 3,234 3,232
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,387 1,356
Changes in assets and liabilities 2,001 3,234
Other 536 152
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Net cash provided by operating activities 7,158 7,974
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Cash flows from investing activities:
Capital expenditures (501) (571)
Other -- 450
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Net cash used in investing activities (501) (121)
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Cash flows from financing activities:
Dividends (2,519) (2,548)
Other (7) (24)
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Net cash used in financing activities (2,526) (2,572)
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Net changes in cash and equivalents 4,131 5,281
Cash and equivalents at beginning of period 20,691 22,700
------- ------
Cash and equivalents at end of period $24,822 27,981
======= ======
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 May 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 May 31, 1999, the Company has reserved 1,122,712 shares of common
stock under incentive stock options 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):
May 31, February 28,
1999 1999
------ -----------
Raw material $4,223 4,734
Work-in-process 849 951
Finished goods 2,541 2,848
------ -----
$7,613 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 quarters ended May 31, 1999 or 1998. Comprehensive income and
net income are substantially the same.
5
5. Segment Data
------------
Segment data for the three months ended May 31, 1999 and 1998 were as
follows:
Business Forms Consolidated
& Printed Products Tool & Die Totals
------------------ ---------- ------------
Three months ended May 31, 1999:
Net Sales $38,090 $1,573 $39,663
Depreciation and amortization 1,329 58 1,387
Segment earnings before income tax 5,445 (270) 5,175
Segment Assets 90,831 6,200 97,031
Capital Expenditures 501 -- 501
Three months ended May 31, 1998:
Net Sales $35,197 $1,137 $36,334
Depreciation and amortization 1,285 71 1,356
Segment earnings before income tax 5,230 (124) 5,106
Segment Assets 88,633 5,702 94,335
Capital Expenditures 450 121 571
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 quarter ended May 31, 1999 and 1998, the Company has reported its
smaller operating segment separately.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At May 31, 1999, the Company's financial position continues to be
strong. Working capital increased from $44,309,000 at February 28, 1999 to
$46,417,000 at May 31,1999. The increase is due to cash provided by
operating activities. The Company has $24,822,000 in cash and equivalents
and no long-term debt other than current installments.
Results of Operations
- ---------------------
Net sales for the first quarter ended May 31, 1999 increased 9.2% from
the corresponding period in the prior year. The sales increase in the
first quarter was the result of growth in revenue in the company's basic
business forms products segment and revenues contributed by FMI, Inc.; the
Houston, Texas based business forms operation purchased in November 1998.
Gross profit margin excluding the tool and die segment decreased from 32.1%
in the first quarter ended May 31, 1998 to 31.2% in the first quarter ended
May 31, 1999. The tool and die segment experienced a negative gross margin
for the first quarter ended May 31, 1999. Steady sales prices and
increased costs contributed equally to the decline in profit margin.
Selling, general and administrative expenses increased 4.2% in the first
quarter compared to the same period in the prior year. More than half of
this increase was attributable to the acquisition of the new operating
unit. Investment and other income decreased in the first quarter from the
same period in the prior year due to decreased amounts of funds available
for investments. As a result earnings remained flat for the first quarter
from the corresponding period of the prior year. Basic and diluted
earnings per share trended in the same manner as net earnings. The per
share earnings were based on three months weighted average shares
outstanding of 16,253,462 and 16,473,685 for three months ended May 31,
1999 and May 31, 1998. The effective rate of the Federal and state income
tax expense was 37.5% for the first quarter and 36.7% for the same period
in the prior year.
Accounting Standards
- --------------------
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments 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, 2000. It is not
expected to have a material impact on our financial statements.
Year 2000 Issues
- ----------------
The Year 2000 issue 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 preparation 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 technological 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 investments 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's readiness
for Year 2000. The cost of performing these surveys 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 the Year 2000 at this time. Any adverse
consequences to the Company as a result of lack of preparations for the
Year 2000 are
7
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 the
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.
This quarterly report 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 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 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 July 2, 1999.
8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting on June 17, 1999.
(b)Proxies for the meeting were solicited pursuant to Regulation 14; there
was no solicitation in opposition to management's nominees for
directors as listed in the Proxy Statement and all such nominees were
elected.
Directors elected were:
Nominees for Director Votes Cast for Votes Withheld
Joe R. Bouldin 13,931,747 1,146,379
James B. Gardner 13,968,455 1,109,671
Keith S. Walters 13,947,859 1,130,267
(c)Briefly described below are the other matters voted upon at the Annual
Meeting and the number of affirmative votes and negatives votes
respectively.
(1) Selection of KPMG LLP as independent auditors of the Company
for the fiscal year ending February 29, 2000.
For 14,623,628
Against 406,799
Abstain 47,699
Broker - non-votes None
(2) Amendment to the Articles of Incorporation to eliminate
cumulative voting did not pass.
For 7,498,410
Against 5,203,332
Abstain 115,107
Broker - non-votes 2,261,277
9
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 July 2, 1999 /s/Robert M. Halowec
------------------------------------------
Robert M. Halowec
Vice President Finance and Chief Financial
Officer
Date July 2, 1999 /s/Harve Cathey
------------------------------------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
10
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