FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MAY 31, 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 May 31, 2000
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Common stock, par value $2.50 per share 16,191,806
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information - unaudited
Condensed Consolidated Balance Sheets --
May 31, 2000 and February 29, 2000 2
Condensed Consolidated Statements of Earnings --
Three Months Ended May 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash
Flows --Three Months Ended May 31, 2000
and 1999 4
Notes to Condensed Consolidated Financial
Statements 5 - 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 8
Part II. Other Information 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
May 31, February 29,
2000 2000
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Assets
------
Current assets:
Cash and cash equivalents $ 5,273 2,037
Investment securities 2,511 1,438
Accounts receivable, net 27,378 26,015
Inventories 10,148 9,890
Other current assets 3,670 3,925
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Total current assets 48,980 43,305
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Investment securities 6,493 7,565
Property, plant and equipment, net 40,915 41,728
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 8,514 8,680
Other assets and deferred charges 1,401 1,656
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Total assets $106,303 102,934
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Liabilities and Shareholders' Equity
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Current liabilities:
Current installments of long-term debt $ 296 302
Accounts payable 4,990 5,380
Accrued expenses 7,288 4,843
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Total current liabilities 12,574 10,525
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Long-term debt, less current installments 388 462
Deferred credits, principally Federal income taxes 3,730 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 127,324 125,980
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181,489 180,145
Less: Treasury stock 91,878 91,878
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Total shareholders' equity 89,611 88,267
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Total liabilities and shareholders' equity $106,303 102,934
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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
May 31,
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2000 1999
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Net sales $46,738 39,663
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Costs and expenses:
Cost of sales 32,051 27,675
Selling, general and administrative expenses 8,549 7,022
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40,600 34,697
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Earnings from operations 6,138 4,966
Investment and other income 76 209
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Earnings before income taxes 6,214 5,175
Provision for income taxes 2,360 1,941
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Net earnings $ 3,854 3,234
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Weighted average number of common shares
outstanding 16,191,808 16,253,462
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Per share amounts:
Net earnings per basic and diluted
share of common stock $ .24 .20
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Cash dividends $.155 .155
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See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
May 31,
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2000 1999
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Cash flows from operating activities:
Net earnings $ 3,854 3,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,628 1,387
Changes in operating assets and liabilities 612 2,001
Other 340 536
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Net cash provided by operating activities 6,434 7,158
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Cash flows from investing activities:
Capital expenditures (667) (501)
Other 53 --
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Net cash used in investing activities (614) (501)
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Cash flows from financing activities:
Dividends declared (2,510) (2,519)
Other (74) (7)
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Net cash used in financing activities (2,584) (2,526)
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Net change in cash and cash equivalents 3,236 4,131
Cash and cash equivalents at beginning of period 2,037 20,691
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Cash and cash equivalents at end of period $ 5,273 24,822
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See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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These unaudited condensed consolidated financial statements of Ennis
Business Forms, Inc. and its subsidiaries (collectively the "Company" or
"Ennis"), for the quarter ended May 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 May 31, 2000, the Company has reserved 1,060,000 shares of common
stock under incentive stock option plans. Stock options are
antidilutive for each period presented and, therefore, have been
excluded from the earnings per share calculation.
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):
May 31, February 29,
2000 2000
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Raw material $ 5,738 $5,592
Work-in-process 1,519 1,480
Finished goods 2,891 2,818
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$10,148 $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 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). The Company previously reported Adams McClure and our Tool &
Die company as separate segments. The current year's presentation
includes Adams McClure as part of the Promotional Solutions Group and
5
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 months ended May 31, 2000 and 1999
were as follows (in thousands):
Forms Promotional
Solutions Solutions Consolidated
Group Group Corporate Totals
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Three months ended May 31, 2000:
Net sales $28,299 $18,439 $ -- $ 46,738
Depreciation and
amortization 752 734 142 1,628
Segment earnings before
income tax 5,993 1,744 (1,523) 6,214
Segment assets 57,602 3,251 5,450 106,303
Capital expenditures 202 76 389 667
Three months ended May 31, 1999:
Net sales $28,710 $10,953 $ -- $39,663
Depreciation and
amortization 755 494 138 1,387
Segment earnings before
income tax 5,161 1,284 (1,270) 5,175
Segment assets 70,226 23,746 3,059 97,031
Capital expenditures 262 38 201 501
"Post-it" is a registered trademark of 3M.
6. Plant Relocation
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In April 2000, the Company decided to move its Louisville, Kentucky
operations into its current Denver, Colorado facilities. It is
estimated that 31 employees at the Louisville plant will be terminated,
and the Denver facilities will need to hire 19 additional employees to
cover the added work. The move is expected to be completed by August
31, 2000. The impact to the financial statements for the three months
ended May 31, 2000 is immaterial.
7. Subsequent Events
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On June 6, 2000, the Company announced the completion of its acquisition
of the outstanding stock of Northstar Computer Forms, Inc (Northstar)
for approximately $42,700,000. The acquisition is being financed with
$36,500,000 in bank loans with the balance being provided by internal
cash resources.
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.
Northstar becomes a wholly owned subsidiary and will operate as the
Financial Solutions Group within Ennis.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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At May 31, 2000, the Company's financial position continues to be
strong. Working capital increased from $32,780,000 at February 29, 2000 to
$36,406,000 at May 31, 2000. The increase is due to cash provided by
operating activities. The Company has $5,273,000 in cash and cash
equivalents, $2,511,000 in short term investments, $6,493,000 in long term
investments and $388,000 in long-term debt, less current installments. The
Company's acquisition of Northstar Computer Forms, Inc. for approximately
$42,700,000 will be 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
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Net sales for the first quarter ended May 31, 2000 increased 17.8%
from the corresponding period in the prior year. The increase in the first
quarter was mainly attributable to revenue from the Company's newly
acquired businesses. Gross profit margins increased from 30.2% in the
first quarter ended May 31, 1999 to 31.4% in the first quarter ended May
31, 2000. The increase in gross margin is mainly the result of the Tool &
Die company experiencing a positive gross margin, versus a negative gross
margin for the first quarter ended May 31, 1999. In addition, margin
improvement was attained by the remaining operating units in the Forms
Solutions Group. Selling, general and administrative expenses for the
first quarter ended May 31, 2000 increased 21.7% compared to the
corresponding period in the prior year. This increase was mainly
attributable to the acquisition of the American Forms and Adams McClure in
November 1999. Investment and other income decreased in the first quarter
ended May 31, 2000 from the same period in the prior year due to decreased
amounts of funds available for investment. As a result, earnings before
income taxes for the first quarter ended May 31, 2000 increased 20.1% from
the corresponding period in the prior year. Basic and diluted earnings per
share increased $0.04 for the first quarter ended May 31, 2000 from the
corresponding period in the prior year. The per share earnings were based
upon three months weighted average shares outstanding of 16,191,808 and
16,253,462 for the three months ended May 31, 2000 and May 31, 1999,
respectively. The effective rate of the Federal and state income tax
expense was 38.0% and 37.5% for the first quarter ended May 31, 2000 and
May 31, 1999, respectively.
Accounting Standards
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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" ("FIN 44") 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"
("APB 25"), 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.
7
The Interpretation is effective July 1, 2000, but certain conclusions in
the Interpretation cover specific events that occurred after either
December 15, 1998, or January 12, 2000. Management believes that FIN 44
will not have a material effect on the financial position or the results of
operations of the Company upon adoption.
Forward looking statement
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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 June 23, 2000.
8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Company held its Annual Meeting of Shareholders on June 15, 2000.
(b) Proxies for the meeting were solicited pursuant to Regulation 14;
there was no solicitation in opposition to management's nominees for
directors listed in the Proxy Statement and all such nominee's were
elected.
Directors elected were:
Nominees for Director Votes Cast for Votes Withheld
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Robert L. Mitchell 14,161,174 464,303
Thomas R. Price 14,174,655 450,822
Ewell L. Tankersley 14,150,893 474,584
(c) Briefly described below are the other matters voted upon at the
Annual Meeting and the number of affirmative votes and negatives votes
respectively.
(1) Selection of KPMG LLP as independent auditors of the Company
for the fiscal year ending February 28, 2001.
For 14,235,745
Against 340,003
Abstain 49,729
Broker - non-votes None
(2) Authorization of the proxies to vote, in their discretion, upon
such other business as may properly come before the meeting
For 11,774,011
Against 2,000,282
Abstain 851,183
Broker - non-votes None
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
None
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ENNIS BUSINESS FORMS, INC.
Date June 23, 2000 /s/Robert M. Halowec
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Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date June 23, 2000 /s/Harve Cathey
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Harve Cathey
Secretary and Treasurer
Principal Accounting Officer