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, 1998
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)
107 N. Sherman, Ennis, TX 75119
(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 period
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, 1998
Common stock, par value $2.50 per share 16,253,490
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information
Condensed Consolidated Balance Sheets --
November 30, 1998 and February 28, 1998 2
Condensed Consolidated Statements of Earnings --
Three and Nine Months Ended November 30,1998
and 1997 3
Condensed Consolidated Statements of Cash
Flows --Nine Months Ended November 30, 1998
and 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6 - 7
Part II. Other Information 8 - 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
November 30, February 28,
1998 1998
Assets
Current assets:
Cash and equivalents $ 23,309 22,700
Accounts receivable, net 18,467 17,980
Inventories 4,902 8,063
Other current assets 4,264 4,917
-------- -------
Total current assets 50,942 53,660
-------- -------
Property, plant and equipment, net 34,490 34,852
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 5,765 4,574
Other assets and deferred charges 2,445 1,388
-------- -------
Total assets $ 93,642 94,474
======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 197 191
Accounts payable 3,981 4,759
Accrued expenses 5,838 5,446
-------- -------
Total current liabilities 10,016 10,396
-------- -------
Long-term debt, less current installments 32 206
Deferred credits, principally Federal income taxes 1,823 2,200
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 120,579 119,335
-------- -------
174,744 173,500
Less:
Treasury stock 92,973 91,828
-------- -------
Total shareholders' equity 81,771 81,672
-------- -------
Total liabilities and shareholders' equity $ 93,642 94,474
======== =======
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,
1998 1997 1998 1997
Net sales $ 38,800 40,311 $112,038 116,516
-------- ------ -------- -------
Costs and expenses:
Cost of sales 26,939 27,822 76,860 81,404
Selling, general and
Administrative 6,974 7,770 20,561 22,981
Loss on disposal of Heath
Printers, Inc. -- 3,067 -- 3,067
------- ------ -------- -------
33,913 38,659 97,421 107,452
------- ------ -------- -------
Earnings from operations 4,887 1,652 14,617 9,064
Investment and other income 302 284 977 798
------- ------ -------- -------
Earnings before income taxes 5,189 1,936 15,594 9,862
Provision for income taxes 1,909 805 5,731 3,741
-------- ------ -------- -------
Net earnings $ 3,280 1,131 $ 9,863 6,121
======== ====== ======== =======
Weighted average number of common
shares outstanding 16,166,634 16,437,828 16,329,264 16,438,071
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and diluted
share of common stock $ .20 .07 $ .60 .37
===== === ===== ===
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,
1998 1997
Cash flows from operating activities:
Net earnings $ 9,863 6,121
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,980 4,685
Loss on disposal of Heath Printers, Inc. -- 3,067
Changes in operating assets and liabilities 3,902 5,911
Other (1,329) (2,105)
------- ------
Net cash provided by operating activities 16,416 17,679
------- ------
Cash flows from investing activities:
Acquisition of business (2,269) --
Capital expenditures (3,131) (8,916)
Other 664 21
------- ------
Net cash used in investing activities (4,736) (8,895)
------- ------
Cash flows from financing activities:
Purchase of treasury stock (3,300) (7)
Dividends declared (7,597) (7,644)
Other (174) 131
------- ------
Net cash used in financing activities (11,071) (7,520)
Net change in cash and equivalents 609 1,264
Cash and equivalents at beginning of period 22,700 18,494
------- ------
Cash and equivalents at end of period $23,309 19,758
======= ======
See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The information included herein reflects all adjustments (none of which
were other than normal recurring accruals) which, in the opinion of the
Company, are necessary to a fair statement of the financial position as
of November 30, 1998 and February 28, 1998, and the results of
operations and cash flows for the three months and nine months ended
November 30, 1998 and 1997.
Statement of Cash Flow - Acquisition of Business was a purchase price
of $3,400,000. 5,112,186 shares of Treasury stock valued at $1,133,313
was issued as part of payment.
2. Earnings Per Common Share
-------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings Per Share, in the fourth quarter
of fiscal 1998, which requires companies to present basic earnings per
share and diluted earnings per share. Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company has restated its
November 30, 1997 earnings per share calculation to reflect the
adoption of SFAS 128.
3. Stock Option Plans
------------------
As of November 30, 1998, the Company has reserved 1,124,212 shares of
common stock under incentive stock option plans.
4. 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,
1998 1998
Raw material $2,746 4,640
Work-in-process 660 1,065
Finished goods 1,496 2,358
$4,902 8,063
5. 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 separately of 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 nine months ended November 30, 1998 or 1997.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At November 30, 1998, the Company's financial position continues to be
strong. Working capital decreased from $43,264,000 at February 28, 1998 to
$40,926,000 at November 30,1998. The decrease is due to the purchase of
treasury stock of $3,300,000, to the $2,269,000 cash requirement for the
acquisition of Forms Manufacturing Inc. and to capital expenditures of
$3,131,000. The Company has $23,309,000 in cash and equivalents and
$32,000 in long-term debt, less current installments.
Results of Operations
- ---------------------
Net sales for the three months and nine months ended November 30, 1998
decreased 3.7% and 3.8% respectively from the corresponding periods of last
year. The sales decline for the three months and nine months is
attributable to the sale in January 1998 of the Company's commercial
printing operation in Seattle. Sales on a year-to-year basis, excluding
the impact of Seattle sales in the prior year were flat. The gross profit
margins decreased 5% for the three months ended November 30, 1998 and
increased .2% for the nine months ended November 30, 1998 compared to the
corresponding periods in the prior year. The gross profit margin for the
three months ended November 30, 1998 decreased due to decreased sales
volume. The Company has shifted its strategy to continuous cost improvement
one form that of a price improvement one in order to improve profit margin.
This strategy will give the Company a distinct competitive advantage as it
goes forward. Selling, general and administrative expenses for the three
and nine month periods ended November 30, 1998 decreased 10.2% and 10.5%;
respectively, compared to the corresponding periods in the prior year. The
decreases are primarily due to the restructuring of the Company's sales
force and the January 1998 sale of the Company's commercial printing
operation in Seattle. Net earnings increased 190% and 61% respectively for
the three months and nine months ended November 30, 1998 from the
corresponding period in the prior year. Basic and diluted earnings per
share increased $.13 and $.23, respectively, for the three months and nine
months ended November 30, 1998 from the corresponding periods of last year.
The $.13 per share increase in earnings from the quarter ended November 30,
1998 compared to the corresponding period in the prior year was due to a
1997 $1,994,000 after-tax charge associated with the decision to sell the
commercial printing operation in Seattle. Net earnings and earnings per
share also increased because of productivity improvements and decreased
selling, general and administrative expenses. The effective rate of the
Federal and state income tax expense was 36.8% and 41.6% for the three
months ended November 30, 1998 and November 30, 1997 respectively, and
36.8% and 37.9% for the nine months ended November 30, 1998 and November
30, 1997.
Revenue Growth
- --------------
The Company continues to be confident of its strategy to achieve
revenue growth through partnering arrangements with trade dealers and
manufacturers. While the Company has entered in no actual partnering
contracts to date, the Company has experienced modest revenue growth in
it's West Coast forms manufacturing facilities during the past quarter as a
result of business obtained from informal partnering agreements with
certain manufacturers. While there can be no assurance the informal
arrangements will evolve into firm contracts, the Company believes this
strategy will ultimately have a significant positive impact on revenue
growth.
6
Accounting Standards
- --------------------
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 allocating resources to segments. The
Company is reviewing the provisions of this statement and, if necessary,
will change its current reportable business segments to reflect the
organization structure of the Company.
Year 2000 issues
- ----------------
The Year 2000 will have a broad impact on the business environment in
which the Company operates due to the possibility that many computerized
systems across all industries will be unable to process information
containing dates beginning in the Year 2000. In 1995, for reasons
basically 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 into Year
2000 readiness.
At the present time, the Company is concentrating its efforts to
insure readiness for the Year 2000 in the areas of determining the state of
readiness of major suppliers of goods and services, and to surveying the
Year 2000 readiness of various ancillary equipment used throughout the
Company in functions generally unrelated to information technology
function. Both of these projects are scheduled to be completed by January
1999. The Company does not expect either of these projects to require any
significant expenditure of funds. Any additional Year 2000 readiness
requirements, which these projects may disclose, will be promptly evaluated
and corrected.
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 will 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 major 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 January 13, 1999.
7
PART II. OTHER INFORMATION
Item 5. Other Information
- ---------------------------
On January 11, 1999, the Board of Directors elected Robert M. Halowec
to the position of Vice President - Finance and Chief Financial Officer.
Prior to joining the Company, Mr. Halowec was employed by Moore Corporation
since 1986, most recently as Finance Director of its Cut Products Group in
Nacogdoches, Texas.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
None.
8
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 January 13, 1999 /s/Robert M. Halowec
---------------- --------------------
Robert M. Halowec
Vice-President Finance and Chief Financial
Officer
/s/Harve Cathey
---------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
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