FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended NOVEMBER 30, 2000
---------------------------------------------------------
Commission File Number 1-5807
-----------------------------------------------------
ENNIS BUSINESS FORMS, INC.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0256410
---------------------------------------------------------------------------
(State or other Jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 228-7801
---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
---------------------------------------------------------------------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 30, 2000
--------------------------------------- --------------------------------
Common stock, par value $2.50 per share 16,270,765
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information - unaudited
Condensed Consolidated Balance Sheets --
November 30, 2000 and February 29, 2000 2
Condensed Consolidated Statements of Earnings --
Three and Nine Months Ended November 30, 2000
and 1999 3
Condensed Consolidated Statements of Cash
Flows -- Nine Months Ended November 30, 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)
November 30, February 29,
2000 2000
------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 10,163 2,037
Investment securities 1,079 1,438
Accounts receivable, net 30,118 26,015
Inventories 14,341 9,890
Other current assets 3,152 3,925
------- -------
Total current assets 58,853 43,305
------- -------
Investment securities 2,433 7,565
Property, plant and equipment, net 59,236 41,728
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 23,889 8,680
Other assets and deferred charges 1,335 1,656
------- -------
Total assets $145,746 102,934
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 4,175 302
Accounts payable 4,586 5,380
Accrued expenses 8,037 4,843
------- -------
Total current liabilities 16,798 10,525
------- -------
Long-term debt, less current installments 27,481 462
Deferred credits, principally Federal income taxes 8,921 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 128,823 125,980
------- -------
182,988 180,145
Less: Treasury stock 90,442 91,878
------- -------
Total shareholders' equity 92,546 88,267
------- -------
Total liabilities and shareholders' equity $145,746 102,934
======= =======
See accompanying notes to condensed consolidated financial statements.
2
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $57,688 41,173 $159,557 118,996
------ ------ ------- -------
Costs and expenses:
Cost of sales 40,246 27,561 110,295 80,988
Selling, general and
administrative expenses 10,927 7,472 29,820 22,197
------ ------ ------- -------
51,173 35,033 140,115 103,185
------ ------ ------- -------
Earnings from operations 6,515 6,140 19,442 15,811
Other income (expense):
Interest expense (773) (13) (1,477) (38)
Investment and other income 723 213 996 1,867
------ ------ ------- -------
(50) 200 (481) 1,829
------ ------ ------- -------
Earnings before income taxes 6,465 6,340 18,961 17,640
Provision for income taxes 2,442 2,380 7,299 6,541
------ ------ ------- -------
Net earnings $ 4,023 3,960 $ 11,662 11,099
====== ====== ======= =======
Weighted average number of common
shares outstanding 16,270,876 16,287,986 16,239,279 16,267,266
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and diluted
share of common stock $ .25 .24 $ .72 .68
==== ==== ==== ====
Cash dividends $.155 .155 $.465 .465
==== ==== ==== ====
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
November 30,
-----------------
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $11,662 11,099
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,051 4,870
Gain on sale of property, plant and equipment (706) (1,192)
Impairment of long-lived assets -- 611
Changes in operating assets and liabilities (1,978) 1,234
Other 885 (77)
------ ------
Net cash provided by operating activities 16,914 16,545
------ ------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (34,214) (16,820)
Capital expenditures (2,568) (2,063)
Redemption (purchase) of investments 5,493 (8,641)
Other 945 1,963
------ ------
Net cash used in investing activities (30,344) (25,561)
------ ------
Cash flows from financing activities:
Debt issued to finance Northstar acquisition 36,500 --
Repayment of debt issued to finance Northstar acquisition (7,000) --
Issue (purchase) of treasury shares 171 (1)
Dividends (7,554) (7,558)
Other (561) 287
------ ------
Net cash provided by (used in) financing activities 21,556 (7,272)
------ ------
Net change in cash and cash equivalents 8,126 (16,288)
Cash and cash equivalents at beginning of period 2,037 20,691
------ ------
Cash and cash equivalents at end of period $10,163 4,403
====== ======
See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
These unaudited condensed consolidated financial statements of Ennis
Business Forms, Inc. and its subsidiaries (collectively the "Company"
or "Ennis") for the periods ended November 30, 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
------------------
As of November 30, 2000, the Company has reserved 1,060,000 shares of
common stock under incentive stock option plans. For the three and nine
month periods ended November 30, 2000 and 1999, 197,375 and 194,775
options, respectively, were not included in the diluted earnings per
share computation because their inclusion would be antidilutive.
3. Inventories
-----------
The Company uses the Last-In, First-Out (LIFO) method of pricing the
raw material content of most of its business forms inventories, and the
First-In, First-Out (FIFO) method is used to value the remainder. The
following table summarizes the components of inventory at the different
stages of production (in thousands of dollars):
November 30, February 29,
2000 2000
------------ ------------
Raw material $ 8,103 $5,592
Work-in-process 1,602 1,480
Finished goods 4,636 2,818
------ -----
$14,341 $9,890
====== =====
4. Comprehensive Income
--------------------
Comprehensive income and net income are substantially the same.
5. Segment Data
------------
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
5
City (flexographic printing, advertising specialties and Post-it
Notes). On June 6, 2000, the Company acquired Northstar Computer
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 nine months ended
November 30, 2000 and 1999 were as follows (in thousands):
Forms Promotional Financial
Solutions Solutions Solutions Consolidated
Group Group Group Corporate Totals
--------- ----------- --------- --------- ------------
Three months ended November 30, 2000:
Net sales $28,092 $17,294 $12,302 $ -- $ 57,688
Depreciation and
amortization 684 716 1,207 132 2,739
Segment earnings before
income tax 5,623 1,831 398 (1,387) 6,465
Segment assets 39,894 41,458 47,685 16,709 145,746
Capital expenditures 363 64 14 407 848
Three months ended November 30, 1999:
Net sales $27,655 $13,518 $ -- $ -- $ 41,173
Depreciation and
amortization 869 483 -- 134 1,486
Segment earnings before
income tax 5,815 1,921 -- (1,396) 6,340
Segment assets 41,719 40,628 -- 18,940 101,287
Capital expenditures 118 37 -- 467 622
Nine months ended November 30, 2000:
Net sales $84,827 $53,063 $21,667 $ -- $159,557
Depreciation and
amortization 2,229 2,176 2,249 397 7,051
Segment earnings before
income tax 17,589 5,304 413 (4,345) 18,961
Segment assets 39,894 41,458 47,685 16,709 145,746
Capital expenditures 767 419 354 1,028 2,568
Nine months ended November 30, 1999:
Net sales $84,092 $34,904 $ -- $ -- $118,996
Depreciation and
amortization 2,395 2,081 -- 394 4,870
Segment earnings before
income tax 15,992 4,276 -- (2,628) 17,640
Segment assets 41,719 40,628 -- 18,940 101,287
Capital expenditures 581 100 -- 1,382 2,063
"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.
Thirty-seven employees at the Louisville plant have been terminated, and
the Denver facilities have hired twenty-one additional employees to cover
the added work. The move was completed in the quarter ended November
6
30, 2000. The Company has incurred a $652,000 pre-tax charge related to
the shut down of the Louisville plant for the nine months ended November
30, 2000. In the quarter ending November 30, 2000, we sold our
Louisville facility for a pre-tax gain of $661,000.
7. Purchase of Northstar
---------------------
On June 6, 2000, the Company completed its acquisition of the
outstanding stock of Northstar for approximately $44,200,000. 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 by the purchase method and
the Company recognized the excess of amounts allocated to net identifiable
assets of approximately $15,700,000 which is being amortized over a period
of 15 years. The accompanying consolidated financial statements include
the operations of Northstar since the date of acquisition. The
following table presents certain operating 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, reduced interest income and
related tax effects (in thousands, except per share amounts):
For the Three Months Ended November 30, 2000 1999
--------------------------------------- ---- ----
Net sales $57,688 $53,186
Net earnings 4,023 3,751
Earnings per share - basic and diluted 0.25 0.23
For the Nine Months Ended November 30, 2000 1999
-------------------------------------- ---- ----
Net sales $170,616 $154,691
Net earnings 11,795 10,827
Earnings per share - basic and diluted 0.73 0.67
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
--------------
Long-term debt consisted of the following at November 30, 2000 and
February 29, 2000 (dollars in thousands):
November 30, February 29,
2000 2000
------------ ------------
Term loan $21,000 $ --
Revolving credit facility 8,500 --
Industrial revenue bonds 1,340 --
Other 816 764
------ ---
31,656 764
Less current installments 4,175 302
------ ---
Long-term debt $27,481 $462
====== ===
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 monthly at
LIBOR plus one percent (7.62% as of November 30, 2000).
The availability under the revolving credit facility is reduced by
$460,000 commencing on March 31, 2001 and continuing each quarter until
the loan matures on June 30, 2003, at which time all amounts outstanding
are payable in full. Interest payments are required monthly at LIBOR
plus one percent (7.62% as of November 30, 2000). Availability under
the revolving credit facility at November 30, 2000 is $3,000,000.
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 interest rate at 6.89% for $25,000,000 of the
principal amount of the loan. The fair value of the swap at November
30, 2000 is not material.
The term loan and the revolving credit facility 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 credit facility are unsecured.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
-------------------------------
At November 30, 2000, the Company's financial position continues to be
strong. Working capital increased from $32,780,000 at February 29, 2000 to
$42,055,000 at November 30, 2000. The increase is due to cash provided by
operating activities. The Company has $10,163,000 in cash and cash
equivalents, $1,079,000 in short term investments, $2,433,000 in long term
investments and $27,481,000 in long-term debt, less current installments.
The Company's acquisition of Northstar for approximately $44,200,000 was
financed with $36,500,000 in bank loans with the balance being provided by
internal cash resources. The Company made a scheduled payment of $850,000
and pre-paid $6,150,000 of the debt financing during the quarter ended
November 30, 2000. 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 nine months ended November 30, 2000
increased 40.1% and 34.1% respectively from the corresponding periods in
the prior year. The increases for the three and nine 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.
Gross profit margins decreased from 33.1% in the three months ended
November 30, 1999 to 30.2% in the three months ended November 30, 2000.
Gross profit margins decreased from 31.9% in the nine months ended November
30, 1999 to 30.9% in the nine months ended November 30, 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 nine
months ended November 30, 2000 increased 46.2% and 34.3% respectively
compared to the corresponding period in the prior year. This increase was
mainly attributable to the acquisitions described above.
Other income (expense) decreased in the three and nine months ended
November 30, 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 increased 2.0% and 7.5% for the three and
nine months ended November 30, 2000 from the corresponding periods in the
prior year. Basic and diluted earnings per share increased $0.01 and $0.04
respectively for the three and nine months ended November 30, 2000 from the
corresponding periods in the prior year. The per share earnings were based
upon three months and nine months weighted average shares outstanding of
16,270,876 and 16,239,279, respectively, for the periods ended November 30,
2000 and weighted average shares outstanding of 16,287,986 and 16,267,266,
respectively, for the periods ended November 30, 1999.
The effective rate of Federal and state income tax expense was 37.8%
and 37.5% for the three months ended November 30, 2000 and November 30,
1999, respectively, and 38.5% and 37.1% for the nine months ended November
9
30, 2000 and November 30, 1999. The effective rate increased principally
as a result of an increase in non-deductible expenses relating to the
acquisitions.
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. The adoption of SFAS
No. 133 is not expected to 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 December 22, 2000.
10
PART II. OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
None
11
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 December 22, 2000 /s/Robert M. Halowec
----------------- -------------------------------
Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date December 22, 2000 /s/Harve Cathey
----------------- -------------------------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
12
