FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended AUGUST 31, 2000
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Commission File Number 1-5807
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ENNIS BUSINESS FORMS, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 75-0256410
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(State or other Jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
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(Address of principal executive offices) (Zip Code)
(972) 228-7801
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter 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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 31, 2000
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Common stock, par value $2.50 per share 16,253,410
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information - unaudited
Condensed Consolidated Balance Sheets --
August 31, 2000 and February 29, 2000 2
Condensed Consolidated Statements of Earnings --
Three and Six Months Ended August 31, 2000
and 1999 3
Condensed Consolidated Statements of Cash
Flows --Six Months Ended August 31, 2000
and 1999 4
Notes to Condensed Consolidated Financial
Statements 5 - 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 10
Part II. Other Information 11
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
August 31, February 29,
2000 2000
---------- ------------
Assets
------
Current assets:
Cash and cash equivalents $ 7,454 2,037
Investment securities 3,590 1,438
Accounts receivable, net 32,177 26,015
Inventories 13,647 9,890
Other current assets 3,876 3,925
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Total current assets 60,744 43,305
------- -------
Investment securities 5,415 7,565
Property, plant and equipment, net 60,897 41,728
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 24,306 8,680
Other assets and deferred charges 1,661 1,656
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Total assets $153,023 102,934
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 5,093 302
Accounts payable 6,786 5,380
Accrued expenses 7,447 4,843
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Total current liabilities 19,326 10,525
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Long-term debt, less current installments 33,637 462
Deferred credits, principally Federal income taxes 9,013 3,680
Shareholders' equity:
Preferred stock, at par value -- --
Common stock, at par value 53,125 53,125
Additional paid in capital 1,040 1,040
Retained earnings 127,322 125,980
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181,487 180,145
Less: Treasury stock 90,440 91,878
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Total shareholders' equity 91,047 88,267
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Total liabilities and shareholders' equity $153,023 102,934
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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 Six Months Ended
August 31, August 31,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $55,131 38,160 $101,869 77,823
------ ------ ------- ------
Costs and expenses:
Cost of sales 37,998 25,752 70,049 53,427
Selling, general and
administrative expenses 10,344 7,703 18,893 14,725
------ ------ ------- ------
48,342 33,455 88,942 68,152
------ ------ ------- ------
Earnings from operations 6,789 4,705 12,927 9,671
Investment and other income
(expense) (507) 1,420 (431) 1,629
------ ------ ------- ------
Earnings before income taxes 6,282 6,125 12,496 11,300
Provision for income taxes 2,497 2,220 4,857 4,161
------ ------ ------- ------
Net earnings $ 3,785 3,905 $ 7,639 7,139
====== ====== ======= ======
Weighted average number of
common shares outstanding 16,251,223 16,253,436 16,225,760 16,253,447
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and diluted
share of common stock $ .23 .24 $.47 .44
==== === === ===
Cash dividends $.155 .155 $.31 .31
==== ==== === ===
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
May 31,
----------------
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $ 7,639 7,139
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,312 3,384
Impairment of long-lived assets -- 611
Changes in operating assets and liabilities (2,787) 12
Other 973 850
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Net cash provided by operating activities 10,137 11,996
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Cash flows from investing activities:
Acquisition of business, net of cash acquired (34,199) --
Capital expenditures (1,720) (1,441)
Other 43 1,962
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Net cash provided by (used in) investing
activities (35,876) 521
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Cash flows from financing activities:
Debt issued to finance Northstar acquisition 36,500 --
Issue (purchase) of treasury shares 173 (1)
Dividends (5,032) (5,039)
Other (485) 317
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Net cash provided by (used in) financing
activities 31,156 (4,723)
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Net change in cash and cash equivalents 5,417 7,794
Cash and cash equivalents at beginning of period 2,037 20,691
------- ------
Cash and cash equivalents at end of period $ 7,454 28,485
======= ======
See accompanying notes to condensed consolidated financial statements.
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ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
These unaudited condensed consolidated financial statements of Ennis
Business Forms, Inc. and its subsidiaries (collectively the "Company"
or "Ennis") for the periods ended August 31, 2000 have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended
February 29, 2000, from which the accompanying condensed consolidated
balance sheet at February 29, 2000 was derived. All significant
intercompany balances and transactions have been eliminated in
consolidation. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been
included. The results of operations for any interim period are not
necessarily indicative of the results of operations for a full year.
2. Stock Option Plans
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As of August 31, 2000, the Company has reserved 1,060,000 shares of
common stock under incentive stock option plans. For the periods ended
August 31, 2000 and 1999, 151,625 and 191,150 options, respectively,
were not included in the diluted earnings per share computation because
their inclusion would be antidilutive.
3. Inventories
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The Company uses the Last-In, First-Out (LIFO) method of pricing the
raw material content of most of its business forms inventories, and the
First-In, First-Out (FIFO) method is used to value the remainder. The
following table summarizes the components of inventory at the different
stages of production (in thousands of dollars):
August 31, February 29,
2000 2000
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Raw material $ 7,711 $5,592
Work-in-process 1,524 1,480
Finished goods 4,412 2,818
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$13,647 $9,890
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4. Comprehensive Income
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Comprehensive income and net income are substantially the same.
5. Segment Data
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The Company operates three business segments. The Forms Solutions
Group is primarily in the business of manufacturing and selling
business forms and other printed business products to customers
primarily located in the United States. The Promotional Solutions Group
is comprised of Adams McClure (design, production and distribution of
printed and electronic media), Admore (presentation products) and Wolfe
City (flexographic printing, advertising specialties and Post-it
Notes). On June 6, 2000, the Company acquired Northstar Computer
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Forms, Inc. (Northstar) which became the Financial Solutions Group.
In the comparative prior year periods, the Company reported the Tool &
Die company as a separate segment. The current year's presentation
includes the Tool & Die company as part of the Forms Solutions Group.
All prior year disclosures herein conform to the current year
presentation. Corporate information is included to reconcile segment
data to the consolidated financial statements and includes assets and
expenses related to the Company's corporate headquarters and other
administrative costs. Segment data for the three and six months ended
August 31, 2000 and 1999 were as follows (in thousands):
Forms Promotional Financial
Solutions Solutions Solutions Consolidated
Group Group Group Corporate Totals
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Three months ended August 31, 2000:
Net sales $28,437 $17,330 $ 9,364 $ -- $ 55,131
Depreciation and
amortization 793 726 1,042 123 2,684
Segment earnings before
income tax 5,973 1,729 15 (1,435) 6,282
Segment assets 42,266 43,082 48,444 19,231 153,023
Capital expenditures 203 278 340 232 1,053
Three months ended August 31, 1999:
Net sales $27,727 $10,433 $ -- $ -- $ 38,160
Depreciation and
amortization 772 1,103 -- 122 1,997
Segment earnings before
income tax 5,016 1,071 -- 38 6,125
Segment assets 43,404 23,238 -- 31,896 98,538
Capital expenditures 200 25 -- 715 940
Six months ended August 31, 2000:
Net sales $56,735 $35,770 $ 9,364 $ -- $101,869
Depreciation and
amortization 1,545 1,460 1,042 265 4,312
Segment earnings before
income tax 11,966 3,473 15 (2,958) 12,496
Segment assets 42,266 43,082 48,444 19,231 153,023
Capital expenditures 405 354 340 621 1,720
Six months ended August 31, 1999:
Net sales $56,437 $21,386 $ -- $ -- $ 77,823
Depreciation and
amortization 1,527 1,597 -- 260 3,384
Segment earnings before
income tax 10,177 2,355 -- (1,232) 11,300
Segment assets 43,404 23,238 -- 31,896 98,538
Capital expenditures 463 63 -- 915 1,441
"Post-it" is a registered trademark of 3M.
6. Plant Relocation
----------------
In April 2000, the Company decided to move its Louisville, Kentucky
operations into its current Denver, Colorado facilities in order to take
advantage of synergies identified with our newly acquired business. It
is estimated that 36 employees at the Louisville plant will be
terminated, and the Denver facilities will need to hire 21 additional
employees to cover the added work. The move is expected to be completed
by September 30, 2000. The Company has incurred a $324,000 pre-tax
6
charge related to the shut down of the Louisville plant for the six
months ended August 31, 2000.
7. Purchase of Northstar
---------------------
On June 6, 2000, the Company completed its acquisition of the outstanding
stock of Northstar for approximately $44,300,000. The acquisition was
financed with $36,500,000 in bank loans with the balance being provided
by internal cash resources. Northstar became a wholly owned subsidiary
and operates as the Financial Solutions Group.
Northstar designs, manufactures and markets printed forms with an
emphasis on machine-readable MICR (Magnetic Ink Character Recognition)
printing. Northstar's two business concentrations are custom
business/negotiable forms and internal bank forms.
The acquisition of Northstar was accounted for as a purchase;
accordingly, the accompanying consolidated financial statements include
the operations of Northstar since the date of acquisition. The following
table presents certain information on a pro forma basis as though
Northstar had been acquired as of March 1, 1999, after including the
estimated impact of adjustments such as amortization of goodwill and
depreciation, interest expense, interest income and related tax effects
(in thousands, except per share amounts):
For the Three Months Ended August 31, 2000 1999
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Net sales $55,131 $49,964
Net earnings 3,785 3,895
Earnings per share - basic and diluted 0.23 0.24
For the Six Months Ended August 31, 2000 1999
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Net sales $112,928 $101,505
Net earnings 7,700 7,076
Earnings per share - basic and diluted 0.47 0.44
The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the periods
presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved
from combining the operations.
7
8. Long-Term Debt
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Long-term debt consisted of the following at August 31, 2000 and
February 29, 2000 (dollars in thousands):
August 31, February 29,
2000 2000
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Term loan $25,000 $ --
Revolving loan 11,500 --
Industrial revenue bonds 1,340 --
Other 890 764
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38,730 764
Less current maturities 5,093 302
------ ---
Long-term debt $33,637 $462
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The term loan is due in quarterly installments of $850,000 commencing
on September 30, 2000 and continuing each quarter until the loan is
payable in full on June 30, 2003. Interest payments are required
quarterly at LIBOR plus one percent (7.76% as of August 31, 2000).
The revolving loan is due in quarterly installments of $460,000
commencing on March 31, 2001 and continuing each quarter until the loan
is payable in full on June 30, 2003. Interest payments are required
monthly at LIBOR plus one percent (7.63% as of August 31, 2000).
The industrial revenue bonds are obligations of Northstar and require
annual principal repayments of $335,000 until fully paid in August 2004.
Interest payments are required monthly at a variable rate based upon
comparable tax-exempt issues.
The Company utilizes swap agreements related to the term loan to
effectively fix the interst rate as 6.89% for the $25,000,000 principal
amount of the loan. The carrying value and the fair value of the swap
at August 31, 2000 are substantially the same.
The term loan and the revolving loan contain certain restrictive
covenants, including restrictions on additional indebtedness, investments
in or advances to others, acquisitions of other businesses, declaration
and payment of dividends and repurchase of capital stock. The term loan
and revolving loan are secured by all of the Company's assets including
inventory and accounts receivable.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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At August 31, 2000, the Company's financial position continues to be
strong. Working capital increased from $32,780,000 at February 29, 2000 to
$41,418,000 at August 31, 2000. The increase is due to cash provided by
operating activities. The Company has $7,813,000 in cash and cash
equivalents, $3,231,000 in short term investments, $5,415,000 in long term
investments and $33,637,000 in long-term debt, less current installments.
The Company's acquisition of Northstar for approximately $44,300,000 was
financed with $36,500,000 in bank loans with the balance being provided by
internal cash resources. The Company expects to generate sufficient cash
flow to more than cover its operating and capital requirements for the
foreseeable future.
Results of Operations
---------------------
Net sales for the three months and six months ended August 31, 2000
increased 44.5% and 30.9% respectively from the corresponding periods in
the prior year. The increases for the three and six months were mainly
attributable to revenue from the Company's newly acquired businesses, Adams
McClure LP and American Forms, Inc., both acquired in November 1999, and
Northstar acquired in June 2000. The Forms Solutions Group showed modest
growth in the three months ended August 31, 2000, and is essentially
unchanged for the six months ended August 31, 2000 when compared to the
corresponding period last year.
Gross profit margins decreased from 32.5% in the three months ended
August 31, 1999 to 31.1% in the three months ended August 31, 2000. Gross
profit margins decreased from 31.3% in the six months ended August 31,
1999 to 31.2% in the six months ended August 31, 2000. The decrease in
gross margin is attributable to the fact that our acquisitions, as
reflected in the Promotional Solutions Group and the Financial Solutions
Group, typically have lower gross profit margins than gross profit margins
in the Forms Solutions Group.
Selling, general and administrative expenses for the three and six
months ended August 31, 2000 increased 34.3% and 28.3% respectively
compared to the corresponding period in the prior year. This increase was
mainly attributable to the acquisitions described above.
Investment and other income (expense) decreased in the three and
six months ended August 31, 2000 from the same periods in the prior year
due to the increase in interest expense related to our loans for the
Northstar acquisition.
Earnings before income taxes for the three and six months ended
August 31, 2000 increased 2.6% and 10.6% respectively from the corresponding
periods in the prior year. Basic and diluted earnings per share decreased
$0.01 and increased $0.03 respectively for the three and six months ended
August 31, 2000 from the corresponding periods in the prior year.
Excluding non-recurring events in the quarter and six months ended August
31, 1999 which contributed $0.02 per share, and the impact of the Louisville
project which represented a $0.01 per share charge in the current year
quarter and six months, basic and diluted earnings per share increased
$0.02 and $0.06 in the current year quarter and six months periods compared
to the prior year. The per share earnings were based upon three months and
six months weighted average shares outstanding of 16,251,223 and 16,225,760,
respectively, for the periods ended August 31, 2000 and weighted average
shares outstanding of 16,253,436 and 16,253,447, respectively, for the
periods ended August 31, 1999.
9
The effective rate of Federal and state income tax expense was
39.7% and 36.2% for the three months ended August 31, 2000 and August 31,
1999, respectively, and 38.9% and 36.8% for the six months ended August
31, 2000 and August 31, 1999. The effective rate increased principally
as a result of an increase in non-deductible expenses relating to the
acquisitons.
Accounting Standards
--------------------
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. This statement will be
effective for the Company beginning March 1, 2001. It is not expected to
have a material impact on our financial statements.
FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25" in March 2000. Among other issues, this interpretation
clarifies the definition of employee for purposes of applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees", the criteria for
determining whether a plan qualifies as a non-compensatory plan, the
accounting consequence of various modifications to the terms of previously
fixed stock options or awards and the accounting for an exchange of stock
compensation awards in a business combination. The Interpretation became
effective July 1, 2000, but certain conclusions in the Interpretation
cover specific events that occurred after either December 15, 1998, or
January 12, 2000. It did not have a material impact on our financial
statements.
Forward looking statement
-------------------------
Management's result of operations contains forward-looking statements
that reflect the Company's current view with respect to future revenues and
earnings. These statements are subject to numerous uncertainties,
including (but not limited to) the rate at which the business forms market
is contracting, the application of technology to the production of business
forms, demand for the Company's products in the context of a contracting
market, variability in the prices of paper and other raw materials, and
competitive conditions in the business forms market. Because of such
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of September 26, 2000.
10
PART II. OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
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(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated June 6, 2000 was filed, under
items 2 and 7 of the form, reporting the acquisition of Northstar
Computer Forms, Inc. and included the Agreement and Plan of
Merger, Amendment No. 1 to Agreement and Plan of Merger, Articles
of Merger of Polaris Acquisition Corp into Northstar Computer
Forms, Inc., Credit Agreement, Consent, Assumption and Amendment
Agreement and Press Release.
A Current Report on Form 8-K/A dated June 6, 2000 was filed,
under item 7 of the form, reporting the financial statements and
pro forma financial information with the consent of
PriceWaterhouseCoopers LLP related to the Northstar Computer
Forms, Inc. acquisition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ENNIS BUSINESS FORMS, INC.
Date September 26, 2000 /s/Robert M. Halowec
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Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date September 26, 2000 /s/Harve Cathey
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Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
12
