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, 1999
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)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (972) 228-7801
Securities registered pursuant to Section 12(b) of the Act:
Number of Shares
Outstanding on Name of each exchange
Title of each clas s April 15, 1999 on which registered
Common Stock, par value $2.50 16,253,444 New York Stock
per share 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 15, 1999 (15,385,151 shares) was $125,965,924.
Document Incorporated by References:
1999 Annual Report to Shareholders - incorporated in Parts I & II
Proxy Statement dated May 17, 1999 - 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 94% 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 providing the Ennis dealer a national network
for meeting users' demands for hand or machine written records and
documents. For the year ended February 28, 1999 the sale of business
products represents approximately 96% 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, 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.
Distribution of business forms and other business products throughout
the United States is primarily through independent dealers, including
business forms distributors, stationers, printers, computer software
developers, etc. No single customer accounts for as much as ten percent of
consolidated net sales.
The Description of Business for the Company and its subsidiaries
(Company) insofar as it relates to industry segments, is incorporated
herein by reference to pages 26 and 27 of the Company's 1999 Annual Report
to Shareholders which is attached as Exhibit (13) hereto.
Raw materials principally consist of a wide variety of weights, widths,
colors, sizes, and qualities of paper for business products purchased from
a number of major suppliers at prevailing market prices.
Business form usage is generally not seasonal. General economic
conditions are the predominant factor in quarterly volume fluctuations.
Competition
The forms industry is divided into two major competitive segments. One
segment sells directly to end users, and is denominated by a few large
manufacturers. The other segment which the Company serves distributes
forms and other business products through a variety of resellers. These
resellers consist of business form brokers, printers, both local and
franchise, and office supply stores. The Company believes it is the largest
forms company, which serves this segment of the market. There are a number
of competitors which operate in this segment ranging in size from single
employee-owner operations to multi-plant organizations. The Company's
strategic plant locations and buying power permit it to compete on a
favorable basis within this segment of the market on the competitive
factors of service, quality and price.
2
Patents, Trademarks, Licenses, Franchises and Concessions:
The Company does not have any significant patents, trademarks,
licenses, franchises or concessions.
Backlog:
At February 28, 1999 the Company's backlog of business forms orders
believed to be firm was approximately $6,810,000 as compared to
approximately $4,914,000 at February 28, 1998. The backlog of orders for
tools, dies and special machinery at February 28, 1999 was approximately
$5,537,000 as compared to approximately $3,603,000 at February 28, 1998.
It is anticipated that all of the backlog of orders will be completed in
the fiscal year ending February 29, 2000.
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, 1999.
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, 1999, the Company had approximately 1,434 employees, of
whom approximately 475 were represented by three unions and under five
separate contracts expiring at various times.
3
Item 2. Properties
The Company operates sixteen manufacturing facilities located in eleven
states as follows:
Square feet
of floor space
--------------------------
Owned Leased Total
Ennis, Texas Manufacturing
Facility
and Administrative
Offices 351,668 351,668
DeSoto, Texas Executive and
Administrative Offices 13,577 13,577
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
Houston, Texas Manufacturin 40,800 40,800
--------- ------- --------
1,154,020 120,663 1,274,683
========= ======= =========
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 anticipate that substantial expansion, refurbishing or
re-equipping will be required in the near future.
All of the rented property is held under leases with original terms of
five or more years, expiring at various times from December 2000 through
October 2003. 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 17, 1999.
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 17, 1999) 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.
5
Keith S. Walters, Chairman of the Board, CEO and President, age 49,
was elected Chief Executive Officer in November 1997, Chairman in June 1998
and President in July 1998. Mr. Walters was employed by the Company in
August 1997 and was elected to the office of Vice President Commercial
Printing Operations at that time. 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.
Ronald M. Graham, Vice President Human Resources, age 51, was elected
Vice President Human Resources in June 1998. Mr. Graham was employed by
the Company in January 1998 as Director of Human Relations. Prior to
joining the Company, Mr. Graham was with E. V. International, Inc.
(formerly Mark IV Industries, Inc.) for 17 years as Corporate Vice
President, Administration. Prior to that time, Mr. Graham was with Sheller-
Globe (door div.) for 3 years as Corporate Director of Human Resources.
David P. Erickson, Vice President-Dealer Relations, age 52, was
elected Vice President Dealer Relations in June 1998. Mr. Erickson was
employed by the Company in December 1997 as Director of Dealer Relations.
Prior to joining the Company, Mr. Erickson was with Atlas/Soundolier, a
division of American Trading and Production Company, for 5 years, most
recently as General Manager. Prior to that time, Mr. Erickson was with
Engineered Polymer for 6 years, and United Technologies Corporation for 19
years, primarily as sales manager.
Robert M. Halowec, Vice President Finance and Chief Financial Officer,
age 44 was elected Vice President Finance and Chief Financial Officer in
January 1999. Mr. Halowec was employed by the Company in January 1999 as
Vice President Finance and Chief Financial Officer. Prior to joining the
Company, Mr. Halowec was with Moore Corporation for 13 years, most recently
as Financial Director of Moore's Cut Products Group in Nacogdoches, Texas.
Harve Cathey, Secretary and Treasurer, age 60, was elected Secretary
October 1998 and Treasurer July 1998. Mr. Cathey has been employed by the
Company continuously since April 1969. Previously, Mr. Cathey served as
Vice President-Finance and Secretary (from September 1983 to September
1996) and Treasurer (from June 1978 to December 1992).
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 table 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, 1999
First Quarter $ 12.6250 $9.7500 2,217 $0.155
Second Quarter 12.0000 9.9375 1,183 0.155
Third Quarter 10.8125 9.3125 1,069 0.155
Fourth Quarter 10.8750 8.8750 1,244 0.155
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
On April 15, 1999, the last sale price of the common stock was $8.1875
per share and the number of shareholders of record was 1,621.
7
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference to page 10 of the Company's 1999 Annual Report to Shareholders
which is attached as Exhibit (13) hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated herein by
reference to pages 11 through 13 of the Company's 1999 Annual Report to
Shareholders which is attached as Exhibit (13) hereto.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.
The information required by this item is incorporated by reference to
Page 13 of the Company's 1999 Annual Report to Shareholders which is
attached as Exhibit (13) hereto.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated herein by
reference to pages 16 through 28 of the Company's 1999 Annual Report to
Shareholders which is attached as Exhibit (13) hereto.
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
8
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 3 through 5 of the Company's Proxy
Statement dated May 17, 1999, which is attached as Exhibit (22) hereto.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to pages 7 through 12 of the Company's Proxy Statement dated May
17, 1999 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 page 2 of the Company's Proxy Statement dated May 17, 1999
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 13 of the Company's Proxy Statement dated May 17, 1999
which is attached as Exhibit (22) hereto.
9
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) 1. (a) 2. Financial Statements and Financial Statement
Schedules.
See accompanying index to financial statements and
financial statement schedule for a list of all financial
statements and the financial statement schedule filed as part
of this report
(page S-1).
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.
(13) 1999 Annual Report to Shareholders
(21) Subsidiaries of Registrant.
(22) Notice, Proxy Statement and proxy incorporated herein
by reference to the Registrant's Proxy Statement dated
May 17, 1999.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule (submitted for SEC use only).
(b) Reports on Form 8-K:
None
10
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.
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 28, 1999 BY: /s/ Keith S. Walters
Keith S. Walters, Chairman of the Board,
Chief Executive Officer and President
Date: May 28, 1999 BY: /s/ Robert M. Halowec
Robert M. Halowec
Vice President - Finance and Chief
Financial Officer
Date: May 28, 1999 BY: /s/ Harve Cathey
Harve Cathey
Secretary and Treasurer, Principal
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 28, 1999 BY: /s/ Keith S. Walters
Keith S. Walters, Director
Date: May 28, 1999 BY: /s/ Harold W. Hartley
Harold W. Hartley, Director
Date: May 28, 1999 BY: /s/ Robert L. Mitchell
Robert L. Mitchell, Director
Date: May 28, 1999 BY: /s/ James C. Taylor
James C. Taylor, Director
Date: May 28, 1999 BY: /s/ Joe R. Bouldin
Joe R. Bouldin, Director
11
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following is a list of the financial statements and financial
statement schedule which are included in this Form 10-K or which are
incorporated herein by reference. The consolidated financial statements of
the Company included in the Company's 1999 Annual Report to Shareholders
are incorporated herein by reference in Item 8. With the exception of the
pages listed in this index and pages listed in Items 1, 7 and 8
incorporating certain portions of the Company's 1999 Annual Report to
Shareholders, such 1999 Annual Report to Shareholders is not deemed to be
filed as part of this Form 10-K.
1999
Annual
Form Report to
10-K Shareholders
Consolidated financial statements of the Company:
Independent auditors' report 28
Consolidated balance sheets - February 28, 1999
and 1998 18
Consolidated statements of earnings - years ended
February 28, 1999, 1998 and 1997 16
Consolidated statements of cash flows - years ended
February 28, 1999, 1998 and 1997 17
Notes to consolidated financial statements 19 - 27
Independent auditors' report on financial statement
schedule S-2
Financial Statement Schedule for three years ended
February 28, 1999, 1998 and 1997
II - Valuation and qualifying accounts S-3
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statement or
related notes.
S-1
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Ennis Business Forms, Inc.:
Under date of April 15, 1999, we reported on the consolidated balance
sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28,
1999 and 1998 and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended February 28,
1999 which are included in the 1999 annual report to shareholders. These
financial statements and our report thereon are incorporated by reference
in the annual report on Form 10-K for the year 1999. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in
the accompanying index to financial statements and financial statement
schedule on page S-1. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such 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 LLP
Dallas, Texas
April 15, 1999
S-2
Schedule II
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended February 28, 1999
(In thousands)
Additions
---------------
Charged
Balance at to Charged
Description beginning oper- to other at end
of year ations accounts Deductions of year
Year ended February 28, 1999:
Allowance for doubtful
receivables $1,006 582 101 (1) 487 (2) 1,202
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
Notes:
(1) Principally collection of accounts previously charged off.
(2) Charge-off of uncollectible receivables.
S-3
C O N T E N T S
Letter To Shareholders 2
Operations Overview 6
Financial Overview:
Selected Financial Data 10
Management's Discussion and Analysis 11
Ten-Year Financial Review 14
Consolidated Financial Statements 16
Independent Auditors' Report 28
Corporate Information Inside Back
F I N A N C I A L H I G H L I G H T S
Annual Summary Fiscal Year Fiscal Year
Ended Ended Percentage
February 28 February 28, Increase
1999 1998 (Decrease)
Net sales $150,922,000 $154,348,000 (2.2)
Earnings before income taxes 22,558,000 15,805,000 42.7
Income taxes 8,448,000 5,597,000 50.9
Net earnings 14,110,000 10,208,000 38.2
Dividends 10,116,000 10,191,000 (0.7)
Per share of common stock:
Basic and diluted earnings .87 .62 40.3
Dividends .62 .62 -
Weighted average number
of shares of common
stock outstanding 16,311,772 16,437,982 (.7)
Page 1
To Our Shareholders:
The past year was a year of transition for Ennis Business Forms, Inc. This
transition began with the establishment of a new management team. While
this team immediately set both long term and short term goals, emphasis was
put on fiscal year 1999 actions. The goals set forth were to reverse the
trend in earnings, change to a market driven culture, focus manufacturing
to become a low cost producer and create strategies to enhance internal and
external growth. A reflection of this transition is the recent introduction
of our new Ennis logo.
Fiscal 1999 Results:
- --------------------
Our primary goal this year was to reverse the earnings decline. We are
pleased to report that we were able to accomplish this objective. The main
components of this earnings turnaround consisted of the elimination of
operating losses previously incurred as a result of investment in Heath
Printers, Inc. and Ennis Mexico. In addition, several of our operating
units became more efficient from cost improvement programs and re-alignment
of the regional sales effort reduced costs significantly.
Specifically, for the fiscal 1999 twelve-month period, the Company reported
net earnings of $14,110,000 or $.87 per diluted share, compared with net
earnings of $10,208,000, or $.62 per diluted share, for the 1998 fiscal
year. This is a 38.2% increase over last year. Net sales amounted to
$150,922,000 as compared to $154,348,000 last year. Fiscal 1998 financial
results include revenues of $5,487,000 related to Heath Printers, Inc.
which was sold in fiscal 1998. Fiscal 1998 financial results include a
$1,994,000 non-cash after-tax charge to earnings or $.12 per diluted share
from the sale of Heath Printers, Inc. in fiscal 1998.
A major change in culture for Ennis was to become a market-driven company.
Ennis was focused on its existing manufacturing capabilities and not
reacting to the needs of a changing marketplace. In 1999 Ennis has reacted
quite differently to customer needs. We have become more sensitive to
market demands and Ennis is capitalizing on its national presence.
Ennis established a low cost producer attitude in our manufacturing
facilities. We focused local management to accept responsibility for
controlling inflation, not through pricing to the customer. All internally
controlled costs are absorbed by the cost reduction programs.
The final goal for Ennis in 1999 was to create an environment for future
growth. For internal growth we must combine the strength of Ennis'
products, customers and plant diversities with the cultural changes like
team selling and a customer driven philosophy. By utilizing both our
existing strengths and a new sense of company-wide cooperation, Ennis will
be able to better serve traditional customers and serve larger customers
who require a national multi-product presence. While this strategy is
ongoing, we have already seen initial success.
Page 2
Ennis is also interested in external growth. We believe that the
consolidating forms market creates opportunities. Our acquisition of FMI in
Houston, TX is an example. Ennis would also consider companies in products
we understand, but outside our core forms market.
Financial Condition
- -------------------
Our financial condition remains strong. At February 28, 1999, the ratio of
current assets to current liabilities was 6.3 to 1 and there was minimal
long-term debt.
Dividend Policy
- ---------------
The Company's dividend policy continues unabated with quarterly cash
dividends totaling to $.62 paid to shareholders during fiscal 1999. We are
dedicated to rewarding our shareholders and we are proud of our 26 years of
consecutive dividend payments. With excellent cash flow, the Board of
Directors does not anticipate a change in the Company's dividend policy.
FUTURE PLANS
Growth:
- -------
Growth with continued improved earnings is our focus moving forward. While
Ennis profit margins will continue well above the industry averages, we
recognize the need to greatly accelerate the revenue line. Internal growth
was positioned last year, and we expect to see gains realized in the coming
year. Our available capacity and national network only enhances our
attractiveness to potential customers.
Page 3
External growth has also progressed well since last year. We now have a
successful acquisition, FMI, and a structured approach for both prospective
opportunities and a proven integration process. We believe this year will
deliver even more successes.
Improved Electronic Infrastructure:
- -----------------------------------
Our plans also include development of both our internal and external
computer systems to enable Ennis to provide new and better service for our
customers. These new services will include expanded use of electronic
commerce for both customer service and actual online ordering. Ennis
recognizes that with today's changing technologies we must be ready to
service our customers in many different ways. Today's customers expect to
be able to do business from the traditional methods to the most user
friendly internet web site.
Cost Competitiveness:
- ---------------------
In addition, we will continue to strengthen our focus on cost
competitiveness. We will accomplish this by developing strategies to
address processes that will enhance our productivity and reduce our cycle
time to market. This will come via internal operation teams designing more
efficient processes as we go forward in implementing and upgrading our
computer systems. Also, the new computer system will enable us to focus on
areas for improvement as a result of more defined and timely information.
Finally, dictated by competitive environment, we will continually review
operating unit results for potential cost reduction opportunities. These
actions will help us to remain competitive in the market place as we go
forward.
Management Appointments
- -----------------------
On June 18, 1998, Mr. Keith S. Walters was elected Chairman of the Board of
Directors. Mr. Walters had been serving as Vice Chairman and Chief
Executive Officer. Mr. Walters was also elected President of the Company on
July 30, 1998 following the retirement of Mr. Nelson Ward.
On July 6, 1998, Mr. David Erickson and Mr. Ronald Graham were elected as
officers of the Company; Vice President of Dealer Relations and Vice
President of Human Resources, respectively.
On January 1, 1999, Mr. Robert M. Halowec was elected Vice President and
Chief Financial Officer of the Company replacing Mr. Victor DiTommaso.
As always, we would like to thank our employees, customers and shareholders
for their continued support. Our commitment to increasing shareholder value
through profitable growth remains our top priority.
Keith S. Walters
Chairman, CEO & President
Page 4 and 5
Financial. Ennis is among the largest private-label printed business
products suppliers in the United States. Founded in 1909, Ennis has
established itself as an industry leader built on quality products and
solid financial ground.
National Coverage. With 16 manufacturing facilities located in 15 cities in
the United States, Ennis has unmatched national coverage to complement its
diverse product offering. This coverage allows Ennis to serve its national
network of dealers. Ennis also maintains highly proficient, regional
customer sales centers to support dealers in their business efforts.
Extensive Product Line. Ennis serves as a "one-stop" source for an
extensive line of traditional as well as non-traditional printed business
products. Products manufactured and offered for sale include stock and
custom business forms and bank checks, as well as, non-traditional products
such as commercial printing, promotional products, awards and ribbons,
office supplies, tags, labels and presentation products.
Cooperative Marketing. In addition to a complete product offering, Ennis
has developed a comprehensive cooperative merchandising program. This
program involves the development and distribution of product training and
marketing literature for use in the education and training of both dealers
and end-consumers.
Page 6
Geographic Location. The geographic location of Ennis' manufacturing
facilities are strategically positioned to provide its dealers efficient
service, low freight cost and fast delivery. Many products are produced in
multiple locations to assure constant flow of production and distribution
of dealer orders.
Customers. With over 46,000 dealers, Ennis' customer diversification
includes: advertising specialty dealers, printing brokers, direct
manufacturers, wholesale/catalogers, commercial printers and franchise
organizations. Ennis has historically served small to medium sized
businesses through its extensive dealer network and is now working to
expand its efforts with larger independents.
Product Lines. Over 26 diversified product lines have been developed to
provide the services and products required by businesses today. This
diversified product offering allows Ennis dealers to enter a multitude of
markets and industries for the sole purpose of developing and growing the
need for printed business products.
Market Expansion. As product development and research continue, Ennis is on
the forefront of diverse market expansion. Marketing programs are being
directed to service industry specific markets and target the printed
business product needs of industries such as automotive, retail,
hospitality and travel.
Page 7
Positive Results. Strength and diversification lead to results. Ennis'
financial strength, national coverage, extensive product lines and
cooperative marketing programs allow Ennis to focus on the continued
diversification and growth of manufacturing locations, customers, product
lines and market expansion.
Product Quality. Through these efforts Ennis is continually improving
product quality and customer service by evaluating each of its facilities
for improved methodologies of both production and administration, resulting
in increased operational efficiencies.
Cost Improvement Strategies. In addition, the company's focus on continuous
cost improvement strategies in its manufacturing plants and administrative
locations enable the company to become even more competitive and enhance
profitable results.
Page 8
Profitable Programs. Ennis continues to obtain profitable results through
the development of programs such as corporate purchasing agreements for
each of its manufacturing facilities. These agreements allow Ennis to
effectively purchase necessary equipment and raw materials in volume, thus
reducing overhead costs for the company.
Competitive Pricing Strategies. The continuous review of competitive
pricing strategies allow Ennis to stay in tune with recent market
developments for the positioning of product sales in the printed business
products market. Effectively stabilizing pricing allows Ennis to remain an
industry leader in the development and manufacturing of a complete line of
printed business products.
Page 9
Selected Financial Data
Years Ended February 28 or 29,
1999 1998 1997 1996 1995
(In thousands, except per share amounts)
Net sales $150,922 $154,348 $153,726 $142,134 $140,097
Net earnings 14,110 10,208 13,493 18,617 20,016
Net earnings per basic
and diluted share of
common stock .87 .62 0.82 1.13 1.22
Total assets 94,335 94,474 94,957 93,662 84,991
Long-term debt 7 206 195 280 360
Cash dividends per share
of common stock .620 .620 .615 .595 .575
Page 10
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, 1999 of $44,309,000 an increase of 2.4% from the
beginning of the year, and a current ratio of 6.3 to 1. The increase is
due to the cash from operations exceeding dividend and capital investment
requirements. The Company has $20,691,000 in cash and equivalents and
$7,000 in long-term debt, less current installments.
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. The provisions of
SFAS No. 133 are effective for financial statements for fiscal years
beginning after June 15, 1999, although early adoption is allowed. We have
not determined the financial impact of adopting this SFAS nor whether we
will adopt its provisions prior to its effective date. It is not expected
to have a material impact on our financial statements.
Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, was issued in
March 1998. This SOP requires that certain costs related to the
development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. The provisions
of this SOP are effective for financial statements issued for fiscal years
beginning after December 15, 1998. We adopted the provisions of this SOP
on March 1, 1999. It is not expected to have a material impact on our
financial statements.
SOP 98-5, Reporting on the Costs of Start-up Activities, was issued in
April 1998. This SOP provides guidance on the financial reporting of start-
up and organization costs and requires that these costs be expensed as
incurred. The provisions of this SOP are effective for financial
statements for fiscal years beginning after December 15, 1998. We adopted
the provisions of this SOP on March 1, 1999. It is not expected to have a
material impact on our financial statements.
Results of Operations
1999 as compared to 1998
Net sales in 1999 decreased 2.2% from 1998. Excluding the net sales
of operations which were sold in 1998, net sales increased slightly. The
increase was primarily the result of revenues contributed by FMI, Inc.; the
Houston, Texas based business forms operation purchased in November 1998.
As a result of achieving some success in its strategy to grow through
partnering arrangements (described in the Revenue Growth section below),
volume in traditional forms product categories increased in 1999. The
Company's pricing strategy for 1999, was to maintain or decrease selling
prices in order to remain competitive in the ever increasing consolidation
of the business forms market. This goal served to minimize overall revenue
growth; however, since the Company was able to increase unit volume while
improving margins, the Company's belief is the goal of this strategy was
met. Gross margins improved 3% in 1999 over 1998, primarily a result of
decreases in raw material prices during the year. Selling, general and
administrative expenses decreased 9.8% from 1998 to 1999 as a result of the
elimination of the Company's field selling function in June 1998, and the
sale of Heath Printer, Inc. in 1998, partially offset by the acquisition
of FMI, Inc. Investment income increased in 1999 due to the availability
f a larger amount of
Page 11
funds available for investment during the year. 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 for 1999 was 37.5%,
as compared to 1998's effective rate of 35.4%. The primary reason for the
increase is due to the recognition in 1998 of $168,000 of tax benefits
associated with foreign net operating losses.
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. 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. 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 the effective income tax rate
was the recognition in fiscal 1998 of $168,000 of tax benefit associated
with foreign net operating losses.
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 not entered into any partnering
contracts to date, the Company has experienced modest revenue growth in its
West Coast forms manufacturing facilities during the later half of the
fiscal year 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
Page 12
believes this strategy will ultimately have a significant positive impact
on revenue growth.
Year 2000 Issues
The Year 2000 issue will 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 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.
Market Risk
The Company does not have significant market risk exposure since it
does not have any outstanding variable rate debt or derivative financial
and commodity instruments as of February 28, 1999.
Management's letter to shareholders, operations overview and
discussion and analysis of 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 15, 1999.
Page 13
Ten-Year Financial Review
(In thousands, except per share and per dollar of sales amounts)
<TABLE>
Fiscal years ended February 28, or 29,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net sales $150,922 $154,348 $153,726 $142,134 $140,097 $132,945 $129,279 $131,810 $120,159 $122,941
Earnings before
income taxes 22,558 15,805 21,485 30,104 32,041 31,039 32,276 32,303 32,225 32,630
Provision for
income taxes 8,448 5,597 7,992 11,487 12,025 11,582 11,584 11,536 11,489 11,629
Earnings from
continuing
operations 14,110 10,208 13,493 18,617 20,016 19,457 20,692 20,767 20,736 21,001
Per dollar
of sales .093 .066 .088 .131 .143 .146 .160 .158 .173 .171
Basic and
diluted per
common share .87 .62 .82 1.13 1.22 1.16 1.18 1.14 1.10 1.06
Net earnings 14,110 10,208 13,493 18,617 20,016 19,457 21,252 21,216 21,100 21,027
Basic and diluted
per common share .87 .62 .82 1.13 1.22 1.16 1.21 1.16 1.12 1.06
Dividends 10,116 10,191 10,110 9,782 9,453 9,270 9,400 9,310 8,810 8,158
Per share .62 .62 .615 .595 .575 .555 .535 .51 .47 .41
Shareholders'
equity 83,499 81,672 81,586 78,195 69,338 58,897 60,565 66,485 55,830 60,737
Per share 5.12 4.97 4.96 4.76 4.22 3.52 3.52 3.65 3.05 3.10
Current assets 52,676 53,660 52,627 67,544 59,265 48,519 48,928 51,035 50,927 55,527
Current
liabilities 8,367 10,396 10,307 13,054 12,976 12,548 12,087 9,631 10,203 10,074
Net working
capital 44,309 43,264 42,320 54,490 46,289 35,971 36,841 41,404 40,724 45,453
Ratio of current
assets to current
liabilities 6.3:1 5.2:1 5.1:1 5.2:1 4.6:1 3.9:1 4.0:1 5.3:1 5.0:1 5.5:1
Depreciation of
plant and
equipment 4,941 5,634 4,475 3,553 3,499 3,805 4,086 4,368 3,694 3,486
Additions to
property, plant
and equipment 3,663 9,576 13,575 6,106 4,010 2,215 1,315 2,484 3,684 3,639
</TABLE>
Page 14 and 15
Consolidated Statements of Earnings
(In thousands, except per share amounts)
For the years ended February 28,
1999 1998 1997
---- ---- ----
Net sales $150,922 $154,348 $153,726
Costs and expenses:
Cost of sales 101,383 105,337 105,232
Selling, general and
administrative expenses 28,104 31,162 28,320
Loss on disposal of Heath Printers, Inc. -- 3,000 --
-------- -------- --------
129,487 139,499 133,552
-------- -------- --------
Earnings from operations 21,435 14,849 20,174
-------- -------- --------
Other income (expense):
Investment income 1,376 1,048 1,478
Interest expense (57) (60) (68)
Other (196) (32) (99)
-------- -------- ---------
1,123 956 1,311
-------- -------- ---------
Earnings before income taxes 22,558 15,805 21,485
Provision for income taxes (note 6) 8,448 5,597 7,992
-------- -------- --------
Net earnings $ 14,110 $ 10,208 $ 13,493
======== ======== ========
Net earnings per basic and diluted
share of common stock $.87 $.62 $.82
See accompanying notes to consolidated financial statements.
Page 16
Consolidated Statements of Cash Flows
(In thousands)
For the years ended February 28,
1999 1998 1997
Cash flows from operating activities:
Net earnings $14,110 $10,208 $13,493
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,352 6,173 4,935
Deferred income taxes 727 (872) 574
Pension plan expense (864) (548) 365
Loss on disposal of Heath Printers, Inc. -- 3,000 --
Other 43 555 (651)
Changes in operating assets and liabilities:
Receivables 184 320 (1,466)
Inventories (247) 2,329 (1,905)
Other current assets
(net of deferred taxes) (304) 552 (522)
Accounts payable and accrued expenses (1,847) (140) (1,836)
Federal and state income taxes (51) 137 (2,001)
------- ------- -------
Net cash provided by operating
activities 17,103 21,714 10,986
------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,663) (9,576) (13,575)
Purchase of operating assets (2,302) -- (7,342)
Proceeds from disposal of property 468 21 22
Proceeds from sale of Heath Printers, Inc. -- 2,128 --
------- ------- -------
Net cash used in investing activities (5,497) (7,427) (20,895)
------- -------- -------
Cash flows from financing activities:
Dividends (10,116) (10,191) (10,110)
Purchase of treasury stock (3,300) (7) (13)
Other (199) 117 (80)
------- ------- -------
Net cash flows used in financing
Activities (13,615) (10,081) (10,203)
-------- ------- -------
Net change in cash and cash equivalents (2,009) 4,206 (20,112)
Cash and cash equivalents at
beginning of year 22,700 18,494 38,606
------- ------- -------
Cash and cash equivalents at end of year $20,691 $22,700 $18,494
======= ======= =======
See accompanying notes to consolidated financial statements.
Page 17
Consolidated Balance Sheets
(In thousands, except share amounts)
February 28, February 28,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 20,691 $ 22,700
Receivables, principally trade, less allowance
for doubtful receivables of $1,202 in 1999 and
$1,006 in 1998 18,720 17,980
Inventories, at lower of cost (principally
last-in, first-out) or market (note 2) 8,533 8,063
Unbilled contract revenues 3,367 2,633
Other current assets 1,365 2,284
-------- --------
Total current assets 52,676 53,660
-------- --------
Property, plant and equipment, at cost:
Plant machinery and equipment 65,389 64,049
Land and buildings 17,926 16,957
Other 8,870 9,193
-------- --------
92,185 90,199
Less accumulated depreciation 58,274 55,347
-------- --------
Net property, plant and equipment 33,911 34,852
Cost of purchased businesses in excess of
amounts allocated to net identifiable assets, net 5,731 4,574
Other assets and deferred charges 2,017 1,388
-------- --------
$ 94,335 $ 94,474
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 199 $ 191
Accounts payable 4,107 4,759
Accrued expenses:
Employee compensation and benefits 3,336 4,086
Taxes other than income 526 463
Other 113 760
Federal and state income taxes payable (note 6) 86 137
-------- --------
Total current liabilities 8,367 10,396
-------- --------
Long-term debt, less current installments 7 206
Deferred credits, principally Federal
income taxes (note 6) 2,462 2,200
Shareholders' equity (notes 3 and 5):
Series A junior participating 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 shares in 1999 and 1998 53,125 53,125
Additional paid in capital 1,040 1,040
Retained earnings 122,307 119,335
-------- --------
176,472 173,500
Less cost of 4,996,397 shares in 1999 and
4,812,175 shares in 1998 of common stock
in treasury 92,973 91,828
-------- --------
Total shareholders' equity 83,499 81,672
-------- --------
$ 94,335 $ 94,474
======== ========
See accompanying notes to consolidated financial statements.
Page 18
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.
Cash and Cash Equivalents. The Company invests cash in excess of daily
operating requirements in income producing investments. Such amounts, at
February 28, 1999 and 1998, were $22,116,000 and $24,594,000, 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 cash equivalents at
February 28, 1999 and 1998, 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 10 to 33 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.
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 5 to 8 years. At February 28, 1999
and 1998, accumulated amortization of intangible assets amounted to
$1,651,000 and $1,236,000, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
Long-lived assets and certain identifiable intangibles are 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 exceeds the 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. 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, receivables
and accounts payable approximates fair value because of the short maturity
of these instruments.
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 $2,310,000, $2,741,000 and $2,141,000 during the
years ended February 28, 1999, 1998, and 1997, respectively. Included in
advertising expense is amortization related to direct response advertising
of $1,169,000, $1,202,000 and $945,000 for the years ended February 28,
1999, 1998, and 1997, respectively. Unamortized direct response
advertising costs included in other current assets at February 28, 1999 and
1998 were $533,000 and $518,000, 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.
Page 19
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 primarily within the
continental United States 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. 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. The
Company's Mexico operations were not material to consolidated earnings or
financial position for the periods presented.
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 issued.
Comprehensive Income. On March 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and presentation
of comprehensive income and its components in a full set of financial
statements. Comprehensive income is materially the same as net earnings
for all periods presented.
Foreign Currency Translation Adjustments. Financial position and results
of operations of the Company's foreign, 70% owned subsidiary were 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, the cumulative
translation adjustments were reflected in net earnings for that year.
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, 1999 and 1998, approximately 75% and 78%, 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,
1999 1998
Raw material $4,734 $4,640
Work-in-process 951 1,065
Finished goods 2,848 2,358
------ ------
$8,533 $8,063
====== ======
The excess of current costs over LIFO stated values amounts to
approximately $5,093,000 and $5,504,000 at February 28, 1999 and 1998,
respectively.
Page 20
(3) Shareholders' Equity
Following is a summary of transactions in shareholders' equity
accounts for the three years ended February 28, 1999 (in thousands, except
share amounts):
Fiscal Year Ended February 28
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated Treasury
Additional Other Stock
Common Stock Paid-in Retained Comprehensive (at cost)
Shares Amount Capital Earnings Income Shares Amount
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) $(91,828)
Net earnings -- -- -- 14,110 -- -- --
Dividends declared ($.62 per share) -- -- -- (10,116) -- -- --
Treasury stock issued -- -- -- (1,022) -- 115,81 2,155
Treasury stock purchases -- -- -- -- -- (300,038) (3,300)
---------- ------- ----- ------- -- ---------- -------
Balance February 28, 1999 21,249,860 $53,125 1,040 122,307 -- (4,996,397) $(92,973)
</TABLE>
In fiscal 1999, the Company adopted a Shareholder Rights Plan, which
provides that the holders of the Company's common stock receive one
preferred share purchase right (a "Right") for each share of the Company's
common stock they own. Each Right entitles the holder to buy one one-
thousandth of a share of Series A Junior Participating Preferred Stock, par
value $10.00 per share, at a purchase price of $27.50 per one one-
thousandth of a share, subject to adjustment. The Rights are not currently
exercisable, but would become exercisable if certain events occurred
relating to a person or group acquiring or attempting to acquire 15% or
more of the outstanding shares of common stock of the Company. Under those
circumstances, the holders of Rights would be entitled to buy shares of the
Company's common stock or stock of an acquiror of the Company at a 50%
discount. The Rights expire on November 4, 2008, unless earlier redeemed
by the Company.
Page 21
(4) Earnings Per Share The following table reconciles the numerators and
denominators of basic and diluted earnings per share for fiscal years ended
1999, 1998 and 1997: (in thousands, except share amounts)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
February 28, February 28, February 28,
1999 1998 1997
---------------- -------------- ----------------
Net Net Net
Earnings Shares Earnings Shares Earnings Shares
Basic - earnings
Available for
common shareholders
based on weighted
average common
shares
outstanding $14,110 16,311,772 $10,208 16,437,982 $13,493 16,438,817
Effect of dilutive
securities -
stock options -- -- -- -- -- 6,112
Diluted - earnings
Available for common
Shareholders plus
assumed dilution$14,110 16,311,772 $10,208 16,437,982 $13,493 16,444,929
At February 28, 1999 and 1998, 499,962 and 295,837 options were not
considered in the diluted earnings per share computation because the
exercise price for such options exceeded the average market price of the
Company's common stock for these years, and accordingly, the potential
effect would be antidilutive.
(5) Stock Options
At February 28, 1999, the Company has two incentive stock option
plans: the 1998 Option and Restricted Stock plan and the 1991 Incentive Stock
Option Plan. The Company has 1,122,712 shares of unissued common stock
reserved under the stock option plans for issuance to officers and directors,
and supervisory employees of the Company and its subsidiaries. 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, 1999, 1998, and 1997 was $1.25, $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
1999 1998 1997
Expected dividend yield 6.02% 5.98% 6.15%
Stock price volatility 22.14% 23.40% 22.00%
Risk-free interest rate 4.53% 5.70% 6.67%
Expected option term 6 years 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 SFAS 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):
Page 22
For the years ended February 28
1999 1998 1997
Earnings available for common shareholders:
As reported $14,110 $10,208 $13,493
Pro forma 14,062 10,169 13,472
Earnings per share:
As reported - basic and diluted .87 .62 .82
Pro forma -basic and diluted .86 .62 .82
Pro forma net earnings reflects only options granted in fiscal years
after February 28, 1995 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.
Following is a summary of transactions of incentive stock options
during the three fiscal years ended in 1999:
For the years ended February 28 Weighted
Number Average
of Exercise
Shares Price
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 13.75
Granted 239,750 10.12
Terminated (35,625) 13.10
-------
Outstanding at February 28, 1999
(170,774 shares exercisable) 499,962 12.17
=======
The following table summarizes information about incentive stock
options outstanding at February 28, 1999:
Options Outstanding Options Exercisable
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
$10.06 to $12.00 350,500 9.0 $10.43 21,813 $11.19
13.81 to 15.63 103,962 2.4 14.93 103,461 14.94
19.25 45,500 2.8 19.25 45,500 19.25
------- -------
$10.06 to 19.25 499,962 7.1 $12.17 170,774 $15.61
======= =======
Page 23
(6) Income Taxes
The components of the provision for income taxes for fiscal years
1999, 1998 and 1997 are (in thousands):
For the years ended February 28 1999 1998 1997
Current:
Federal $6,785 $5,894 $6,664
State and local 936 575 754
Deferred Federal 727 (872) 574
------ ------ ------
Total provision for income taxes $8,448 $5,597 $7,992
====== ====== ======
Total income taxes paid $7,488 $5,218 $9,500
====== ====== ======
The following summary reconciles the statutory U. S. Federal income
tax rate to the Company's effective tax rate:
For the years ended February 28 1999 1998 1997
Statutory rate 35.0% 35.0% 35.0%
Provision for state income taxes,
net of Federal income tax benefit 2.7 2.4 2.3
Foreign net operating losses -- (0.8) 0.3
ESOP pass-through dividend deduction (.7) (1.1) (0.9)
Other 0.5 (0.1) 0.5
---- ---- ----
Effective tax rate 37.5% 35.4% 37.2%
==== ==== ====
The Federal and state income tax assets and liabilities are summarized
as follows (in thousands):
February 28,
For the years ended February 28 1999 1998
Current:
Currently payable $86 $137
Deferred:
Current asset 1,713 2,192
Noncurrent liability 2,209 1,962
Page 24
The components of deferred income tax assets and liabilities are
summarized as follows (in thousands):
February 28,
For the years ended February 28 1999 1998
Current deferred asset:
Allowance for doubtful receivables $ 416 $ 478
Inventory valuation 544 499
Employee compensation and benefits 572 911
Foreign net operating loss carryforwards -- 228
Other 181 304
----- -----
Subtotal 1,713 2,420
Valuation allowance -- (228)
------ ------
$1,713 $2,192
======= ======
Noncurrent deferred liability:
Depreciation $2,355 $2,015
Intangibles amortization and impairments (1,133) (1,181)
Prepaid pension cost 655 796
Other 332 332
------ ------
$2,209 $1,962
====== ======
(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 cost of the plan
and the February 28 balances of plan assets and obligations are shown
below:
Pension Expense for fiscal years 1999, 1998 and 1997 included the following
components (in thousands):
For the years ended February 28, 1999 1998 1997
---- ---- ----
Service cost - benefits earned during
the current period $1,761 $1,734 $1,668
Interest cost on projected benefit
Obligation 2,960 2,836 2,800
Expected return on plan assets (3,005) (2,697) (3,051)
Net amortization and deferral (202) (152) 135
------ ------ ------
Net periodic pension cost $1,514 $1,721 $1,552
====== ====== ======
Assumptions used in accounting for the defined benefit plans for fiscal
years 1999, 1998 and 1997 are as follows:
For the years ended February 28, 1999 1998 1997
---- ---- ----
Weighted average discount rate 7.25% 7.25% 7.50%
Earnings progression 4.50% 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.25% 9.25% 9.25%
Page 25
Assets and obligations for fiscal years 1999 and 1998 are as follows (in
thousands):
For the years ended February 28 1999 1998
---- ----
Projected benefit obligation
Beginning of year $41,370 $36,877
Service and Interest cost 4,928 4,570
Actuarial (gain)/loss (2,146) 2,941
Benefits paid (4,786) (3,018)
------- -------
End of year 39,366 41,370
======= =======
Fair value of plan assets
Beginning of year $32,255 $28,860
Company contributions 2,378 2,269
Net (gains)/losses 967 4,114
Benefits paid (4,786) (3,018)
------- ------
End of year 30,784 32,255
======= ======
Excess of projected benefit
obligation over plan assets (8,582) (9,145)
Unrecognized losses and prior service cost 11,709 12,100
Unrecognized net transition asset being
recognized over the average
remaining service life (2,131) (2,823)
------- -------
Prepaid pension cost $ 996 $ 132
======= =======
(8) Acquisitions and Disposal
During the fiscal year ended February 28, 1998, the Company elected to
sell one of its 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 $2,128,000. The charge recorded
in the third quarter approximated the loss realized from the sale in the
fourth quarter.
During the third quarter of fiscal year ended February 28, 1999, the
Company purchased the assets and business of Forms Manufacturing Inc., a
Houston based manufacturer of business forms, for an acquisition cost of
$3,435,000. Payment was made with $2,302,000 cash and 115,816 shares of
treasury stock valued at $1,133,000. The acquisition was accounted for by
the purchase method and the Company recognized the excess amounts allocated
to net identifiable assets of the $1,333,000, which is being amortized over
15 years. The proforma effects of this acquisition are immaterial.
(9) Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which the Company has adopted in the current year. Statement
No. 131 requires the reporting of information about operating segments
determined by using the "management approach," as opposed to the "industry
approach" as was previously required. 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. The
business forms and printed products segment is comprised of fourteen
manufacturing facilities which have been aggregated as they have similar
economic characteristics. Management makes its decisions based on this
segment as a whole. The Company applies the same accounting measurements
as described in Note 1 for each of its segments. All Other includes
smaller operating segments and corporate and financing activities.
Page 26
Business
Forms &
Printed All Consolidated
Products Other Totals
Fiscal Year ended February 28, 1999:
Net Sales $144,964,000 $5,958,000 $150,922,000
Depreciation and amortization 4,534,000 818,000 5,352,000
Segment earnings before income tax 28,165,000 (5,607,000) 22,558,000
Segment Assets 86,040,000 8,295,000 94,335,000
Capital expenditures 3,147,000 516,000 3,663,000
Fiscal Year ended February 28, 1998:
Net Sales $148,324,000 $6,024,000 $154,348,000
Depreciation and amortization 5,318,000 855,000 6,173,000
Segment earnings before income tax 20,009,000 (4,204,000) 15,805,000
Segment Assets 86,377,000 8,097,000 94,474,000
Capital expenditures 9,036,000 540,000 9,576,000
Fiscal Year ended February 28, 1997:
Net Sales $147,592,000 $6,134,000 $153,726,000
Depreciation and amortization 4,196,000 739,000 4,935,000
Segment earnings before income tax 25,744,000 (4,259,000) 21,485,000
Segment Assets 86,783,000 8,174,000 94,957,000
Capital expenditures 11,545,000 2,030,000 13,575,000
(10) Quarterly Information (Unaudited)
(In thousands, except per share amounts)
Quarter Ended
May August November February
Fiscal year ended February 28, 1999:
Net sales $36,334 $36,904 $38,800 $38,884
Gross margin 11,522 11,795 11,861 14,361
Net earnings (note 1) 3,232 3,351 3,280 4,247
Dividends paid 2,548 2,548 2,501 2,519
Per share of common stock:
Basic and diluted net
earnings .20 .20 .20 .27
Dividends .155 .155 .155 .155
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 (note 1) 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 .14 .16 .07 .25
Dividends .155 .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 1999 by approximately $3,109,000 (19 cents a share) as
compared to an increase in net earnings of approximately
$1,404,000 (9 cents a share) from comparable adjustments in the
fourth quarter of fiscal 1998.
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.
Page 27
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, 1999 and 1998, and
the related consolidated statements of earnings and cash flows for each of
the years in the three-year period ended February 28, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements 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, 1999 and
1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended February 28, 1999, in conformity
with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
April 15, 1999
Page 28
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. Tennessee
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
FMI Acquisition, Inc. Delaware
* A wholly-owned subsidiary of Admore, Inc.
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ennis Business Forms, Inc.
We consent to the incorporation by reference in the registration statement
(No. 2-81124) on Form S-8 of Ennis Business Forms, Inc. of our reports
dated April 15, 1999, relating to the consolidated balance sheets of Ennis
Business Forms, Inc. and subsidiaries as of February 28, 1999 and 1998 and
the related statements of earnings and cash flows and related financial
statement schedule for each of the years in the three-year period ended
February 28, 1999, which reports appears in or are incorporated by reference
in the 1999 annual report on Form 10-K of Ennis Business Forms, Inc.
KPMG LLP
Dallas, Texas
May 28, 1999
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