Contents

2 Letter To Shareholders
6 Forms Solutions Group
8 Promotional Solutions Group
10 Financial Solutions Group
12 Selected Financial Data
13 Management's Discussion and Analysis
18 Ten-Year Financial Review
20 Consolidated Financial Statements
40 Independent Auditors' Report

Financial Highlights

Annual Summary

Fiscal Year Ended
February 28, February 28, % Increase
2003 2002 (Decrease)
------------ ------------ ---------

Net Sales $240,757,000 $236,923,000 1.6%
Earnings before income
taxes 24,345,000 24,403,000 (.2%)
Income taxes 9,098,000 9,437,000 (3.6%)
Net earnings 15,247,000 14,966,000 1.9%
Dividends 10,093,000 10,089,000 ---
Per share of common stock:
Basic net earnings .94 .92 1.1%
Diluted net earnings .93 .92 1.1%
Dividends .62 .62 ---
Weighted average number
of shares of common
stock outstanding -
basic 16,284,575 16,272,121 .1%
Weighted average number
of shares of common
stock outstanding -
diluted 16,478,140 16,318,718 .1%

Letter to the Shareholders

The economic environment for printing has not fully recovered
from the shocks of last year. The same problems have hindered
the U.S. and world economies in general. But tough market
conditions often separate the strong from the weak companies at
an accelerated pace, providing new opportunities for the
survivors. As a respected and well financed company, we believe
that Ennis is well positioned to continue to gain market-share in
each of our strategic platforms: Forms Solutions, Financial
Solutions and Promotional Solutions.

The Promotional Solutions Group

Ennis has actively moved into faster growing areas of printing or
printing services. The Promotional Solutions Group has played a
major role in this effort through new products and acquisitions.
This group consists of a wide range of products which include
Point of Purchase printing, commercial printing, screen printing,
fulfillment services, tags, labels, Post-it (registered
trademark) Notes (3m), presentation folders, foiling, and many
other printing products or services. As noted in last year's
letter, we wanted to concentrate on improving particularly the
new acquisitions in this group, Adams/McClure. Adams/McClure
consisted of five small businesses which had grown quickly and
needed additional systems and structure. The profitability of
these businesses has improved for the second year in a row and we
still see an upside. These gains have been made in a very tough
advertising market and we feel it bodes well for the future. The
Tag and Label division of this group did not perform to our
expectations this year, which hampered overall group performance.
This division does continue to be solidly profitable and we
expect a return to past profit levels. The Admore division is
the remaining member of Promotional Solutions. We launched a new
marketing initiative this past year and added new emphasis to a
line of lower cost presentation folders to compliment our
industry leading product line. We feel positive about these
changes as we enjoyed growth in the market.

Financial Solutions Group

Ennis' second area of diversification created the Financial
Solutions Group, which consists of the former Northstar Computer
Forms Companies. We are approaching three years since this
acquisition, and the results continue to be favorable. The past
year shows gains in both revenue and profits. A major transition
was accomplished this year when the Nevada, Iowa facility was
moved into a much larger location in Nevada. While the short-
term impact of the disruption was not favorable for their
profitability, they are now well positioned for future
opportunities. The marketing and sales opportunities for the
coming year look positive, and give us comfort of the continuing
success of this platform. The debt which Ennis incurred ($37
million) to acquire the group has been reduced (to $7 million) by
over 80% in less than three years. We expect to totally
eliminate the Northstar debt in the next 18 months. On a less
positive note, another transition will take place this year. Ken
Overstreet, the former President of Northstar, and head of the
Ennis Financial Solutions Group for the past three years, will
begin a well earned retirement in the coming year. Ken is also a
member of the Ennis Board of Directors. Ken's leadership in the
integration process has been invaluable. We wish to thank Ken
for those efforts and best wishes in his retirement. Ken's
replacement will be Ron Graham, a current officer of the
corporation, as well as head of the Promotional Solutions Group.
Ron has been with Ennis for about six years and has extensive
experience in both operations and administrative areas of
business. The transition will be complete by the distribution of
the Annual Report.

The Forms Solutions Group

The forms market continues to be in a period of slow decline.
While these market trends certainly make our job more difficult,
we do believe that Ennis will continue to profitably produce
forms for a number of years. One reason that we feel confident
is our gain of market share in the forms product line year to
year. We have significant advantages over most of our
competitors in several areas, such as, materials, location of
plants, financial health, solid reputation, and the largest
customer base in the industry. The acquisition of Calibrated
Forms Co., Inc. (Calibrated) increases our cost efficiencies in
the forms product line even more. The addition of our internal
control software programs have enhanced our ability to control
costs moving forward. We believe cost control is crucial in a
mature industry such as forms. We will remain committed to the
resellers channel and visualize our value to that channel being
of increasing importance.

Fiscal Year 2003 Results

Revenues for the fiscal year ended in February 2003 were
$240,757,000 compared to $236,923,000 in the prior year. The
acquisition of Calibrated and its inclusion in the operating
results for the final quarter of the fiscal year, was the primary
cause of the revenue increase. Net earnings for the fiscal year
were $15,247,000 compared to $14,966,000 in fiscal year 2002.
Continuing focus on controlling costs has enabled the Company to
maintain margins at a reasonably acceptable level in the face of
revenue declines experienced prior to the Calibrated acquisition.

Financial Condition

Our financial condition continues to be very strong. As of
February 28, 2003 the ratio of current assets to current
liabilities was 2.6 to 1 with a debt to equity ratio of .19 to 1.
Return on Equity amounted to 16%. The Company borrowed an
additional $15,000,000 for the Calibrated acquisition. Including
this additional loan, total debt was $25,173,000. We continue to
expect our cash-flow to comfortably handle repayment of debt,
capital requirements and dividend payments.

Dividend Policy

The Company's dividend policy is an important consideration in
the Board of Directors representation of the Ennis Shareholders.
While not all shareholders agree, the Board feels that the
majority of the current Ennis shareholder base feels that the
dividend payment is an important part of our delivery of value to
the Ennis shareholder. The Board also believes that it is
universally accepted that a substantial dividend is an
unquestioned method of demonstrating the financial health of a
business. In the economic climate of the stock market in recent
times, we believe that extra assurance of the strength of our
company has a benefit. We are proud of the fact that our history
of consecutive dividend payments has now been extended to 30
years. With our continued excellent cash flow, the Board does
not anticipate a change in the dividend policy, but will continue
to review various uses of the Company's cash on a regular basis.

Special Recognition

We are saddened to report the resignation of Mr. Ewell Tankersley
from the Board of Directors and his subsequent death in January
2003. Mr. Tankersley had served on the Board since 1988. At the
time of his resignation Mr. Tankersley was also serving as
Chairman of the Executive Compensation and Stock Option
Committee, and previously for a number of years served as
Chairman of the Audit Committee. Mr. Tankersley served the
Company with distinction, giving freely of his time and efforts
to provide valuable counsel through a critical transition period
in the Company's history, and his presence will be sorely missed.

Looking Forward

We have signed a new long-term agreement with MeadWestvaco. This
agreement will cover all our purchases of carbonless paper,
including most types of security paper. The carbonless line of
paper is Ennis' largest raw material. This agreement assures us
a constant supply of quality paper at a very competitive price.
While the bond paper market is more competitive, we believe a
long-term supply and quality commitment is of equal importance.
To this end, we have signed an agreement with Boise Paper to
supply essential bond paper requirements. This is also a
multiyear agreement.

The acquisition of Calibrated Forms was completed at the end of
our fiscal year. Calibrated was a well respected competitor, but
in a generally larger order size than the Ennis facilities
typical order. Calibrated has a reputation of high quality,
excellent customer service and is very cost competitive. These
are attributes that we believe will sustain the company well,
even in a declining market such as the traditional forms
business. The much larger customer base and buying power of
Ennis should only enhance their future. We are happy to report
that the current owners and management of Calibrated intend to
remain in their roles.

The ERP system that we have been deploying has begun to show
results in several facilities. After our trial plant project, we
are rolling out the system to several plants a year. After
personally experiencing the installation of such systems earlier
in my career, I can say assuredly that the immediate gain is in
the thorough and complete review of every procedure in the
organization. This review always finds room for improvement, and
some changes are made company-wide, even before the new software
is installed in certain facilities. We have identified
improvements in adjusting our

variable cost, which would not have been possible a year ago.
We expect a quicker reaction to changing demand, both up or
down in the coming year.

The Sarbanes-Oxley Act has been a major topic in the arena of
public companies in the past year. While much of the legislation
is still in a proposed form, several things have become clear to
us at Ennis. We see nothing in the legislations that would
require a change in the business ethics that is ingrained as part
of the Ennis culture. In addition, we feel that our historically
conservative accounting approach is being validated by the new
regulations. That is not to say that the new reporting
requirements and time frames will not require some re-tooling of
our finance department. The requirements for constant review of
internal controls can be challenging for a company as wide spread
as Ennis, while maintaining a low SG and A ratio. We believe
these changes demand a hands-on approach to our operations in the
financial area, even greater than in the past.

We still enjoy opportunities for growth through acquisitions.
The market price on many candidates has decreased considerably in
the last year. Ennis will continue to pursue properties that
will add value to our product line offering. At the same time,
we will continue to be cautious about the risk of increasing debt
too quickly. We plan to continue our conservative approach to
acquiring companies without endangering our fiscal stability. It
is a path that has served us well.

As always, we would like to thank our shareholders, customers and
employees for their continued support.

Keith S. Walters
Chairman, CEO & President

Forms Solutions Group

Experience-The active participation in events or activities that
leads to the accumulation of knowledge and skills. This simple
definition has shaped the focus of our forms facilities for over
94 years. During that time, and as we move forward, our
commitment to the printing industry has made the Ennis Forms
Solutions Group an experienced source of reliability, quality and
leadership.

Products & Relationships

Experience has enabled the Forms Solutions Group to grow from a
single plant into a nationwide wholesale manufacturer, consisting
of 16 manufacturing locations in 9 states across the country. In
addition to our numerous plant locations, the Forms Solutions
Group also offers our distributors one of the most extensive and
diverse product offerings in the industry.

Since our inception in 1909, we have focused on the printed needs
of our dealer-customer base. Ennis products range from the most
traditional business forms to newer items born out of our
customers' ever-changing needs. One advantage derived from our
many regional facilities is the availability to work hand-in-hand
with our distributors across the nation, learning from their
expectations and concerns and developing solutions that will
provide continued success for both parties. Our growing network
of plant and distribution locations has also enabled Ennis to
consistently provide an expanding range of products and services
without diminishing our focus of unparalleled service to
customers large and small. Along with these dealer-customers,
the Forms Solutions Group is constantly working with trade
partners to provide new opportunities and products to satisfy the
needs of our changing industry.

Quality & Reliability

Ennis is proud of the fact that we have employed several
generations of the same families in many of our facilities. The
experience resulting from this wonderful continuity, blended with
fresh ideas and talents, has allowed us to grow and evolve into
the successful organization that we are today. The knowledge
provided by these employees translates into quality and
reliability in our products and consistent performance from our
customer service teams and operations personnel. The facilities
that make up the Forms Solutions Group focus on quality and
excellence in their products and turnaround times, and back each
order with a 100% guarantee.

A large part of the reliability found at Ennis is our commitment
to the dealer driven channel of distribution.

Our loyal dealers know they will continue to receive the support
that they have obtained from the Ennis family of plants over the
past 10 decades. These expectations have created an attitude of
responsibility and accountability to our customers. Our
facilities go to great lengths to exceed the expectations of our
distributors and consistently provide quality and reliability to
their markets.

Leadership & Stability

Year after year, the Forms Solutions Group has maintained our
position as a leader in the business forms industry, as evidenced
by the fact that our revenue and income figures continue to place
among the best in the marketplace. As a company, Ennis
recognizes that traditional business forms usage will continue to
decline in terms of overall use. We also realize that business
forms will continue to have a significant role in most, if not
all, business operations far into the future. In order to
maintain our growth and continue to offer solutions to the
challenges ahead, Ennis must remain financially strong and
flexible.

This solid financial position has enabled our company to stay
active in mergers and acquisitions. We are optimistic about our
future and as demonstrated in the recent past, timely
acquisitions have increased our commitment to providing products
and services to our loyal dealer base without diluting their
interests.

This year's acquisition of Calibrated Forms Co., Inc., based in
Columbus, Kansas, has added even more experience to Ennis'
traditional forms offering. Calibrated's capabilities compliment
those of the Forms Solutions Group and offer more opportunities
to our customers.

Our large and diverse customer base has long been a strength of
Ennis. These customers have experienced our broad product
offering, reliability and quality, and continue to expect our
best. To continue to grow we must help our distributors in their
sales and marketing efforts and allow them to capitalize on the
strengths that have made us one of the top manufacturers in the
industry. We highly value the good business relationships we
have fostered with each of our 45,000 customers, and we
continually strive to earn their business and do not take any of
them for granted. We have survived through several wars,
business recessions and depressions, the evolution of technology
and are firmly committed to supporting our growing customer base
and providing the business solutions that will enable them to
develop their own successful businesses in the years to come.

Promotional Solutions Group

The Promotional Solutions Group exudes an image of distinction to
customers and competitors alike. The companies that make up this
division of Ennis are viewed as leaders in their industries and
work hard to ensure that their products, capabilities and
relationships are second to none. This attitude of distinction,
mixed with a service-first mindset has led to a history of
success and trust in the industry.

Success & Trust

The Promotional Solutions Group of companies is characterized by
the word Distinction. Our oldest company, Wolfe City Tag and
Label, has been a leading supplier of tags, labels and ad
specialty products to Ennis' customers for over 34 years. This
company has set itself apart by being the largest supplier of
cotton tags in the United States and has excelled in the
manufacture of unique and difficult custom labels for almost any
application. With the addition of new flexographic equipment,
Wolfe City now offers its customers an array of new promotional
label opportunities in vivid color. The focus this past year has
been to enhance the capability to service a wider range of
customers' needs. Whether these needs are for products that offer
more promotion or for a unique environment at higher volume,
Wolfe City has enhanced its product offerings for distributors
with the addition of medium format screen-printing capability.
This division partners with the Forms Solutions Group and the
other divisions within this group to offer customers a broader
range of promotional products. Wolfe City Tag and Label has
distinguished itself and stands ready to do so in the future.

Expansion & Growth

Admore is distinguished as the leading manufacturer of
presentation folders in the nation. What really distinguishes
Admore is the outstanding quality of its products and the people
who manufacture them. The efforts of Admore employees to reduce
costs while maintaining this outstanding quality is allowing the
company to be more aggressive in the market, leading to sales
growth in a challenging economic environment. A focused
marketing effort was initiated at the beginning of the year that
emphasized a renewed push by Admore to distinguish the company as
the leader in its product category.

A successful effort was made to promote the Admore Line of
products to our traditional forms customers. This effort will
continue with the increase in traditional forms distributors
selling commercial color printing. During the year, Admore
introduced the ColorWorx Line, which is designed to serve
the short run color needs of our distributors. We also
introduced a technologically unique series of expansion
products called the Conformer (registered trademark) Line.
Admore experienced significant volume growth during this past
year and expects to continue growth in the coming year.

Development & Promotions

The Adams McClure division has distinguished itself as one of the
leading temporary point-of-purchase product manufacturers in the
commercial printing industry. This profile has continued this
past year with substantial growth with key customers. A
refocusing of attention on the temporary point-of-purchase core
product line resulted in substantial improvement in the
profitability of the division. Less profitable product lines
that were not contributing to our key competency were
discontinued or transferred to other Ennis facilities more
suitable for the manufacture and distribution of these lines.
Another area that distinguished Adams McClure is in the kitting
and fulfillment of complex point-of-purchase promotional programs
for major customers such as 7-Eleven and Sonic. In addition to
these continuing monthly programs, Adams McClure offers many
other programs on a less frequent basis.

A dedicated marketing effort to expand awareness of Adams McClure
in new market regions and with new customers has successfully led
to new business opportunities. This should allow continued
growth in the next year as our new relationships develop.

Adams McClure has improved its cross-selling activity with the
Forms Solutions and Financial Solutions Groups, which has led to
enhanced product offerings for Ennis' customers. With continued
effort to grow profitable sales while operating with greater
efficiencies, Adams McClure will be a strong contributor to
Ennis' growth.

Financial Solutions Group

In order to thrive in the financial printing market, an
organization must be willing to mix traditional business values
such as product quality and customer service with an increasing
focus on technology and innovation. This attention to innovation
is more important than ever before and the companies of the Ennis
Financial Solutions Group have adopted this mindset for their
products, facilities and electronic capabilities.

Performance & Products

Reflecting the industry as a whole, the financial printing market
has been impacted by the downturn in the economy. In spite of
this overall industry slowdown, the Financial Solutions Group was
able to make the necessary changes to increase sales and improve
bottom line profitability. After a slow first half, the group
had an excellent increase in the third and fourth quarters and
finished with a record year in sales and profits. The Financial
Solutions Group is comprised of five plants, acquired by Ennis in
June 2000, and is divided into four business segments which
specialize in internal bank forms, negotiable documents,
specialized business forms and distribution services. The end-
user of our financial products and services include all sizes of
banks, financial institutions and processors of MICR encoded
documents such as official checks and money orders. End users of
our specialized business forms include insurance companies,
health care companies and others whose documents have special
requirements such as bar codes and special number sequencing.

This year, a change of product mix has taken place in our
internal bank forms product line because of changing technology
at the bank operational level. As a result, our facilities are
seeing a decreased use of products such as teller cash tickets
and more extensive use of products such as general ledger debit
and credit tickets and process control documents. By focusing on
innovation, we have taken advantage of this change and have seen
large volume increases in the affected product areas.

Negotiable documents are another product line that has increased
significantly in the past year. The recent addition of a large
MICR processing specialist has contributed significant business
in the production and secure distribution of official checks and
money orders. There is significant opportunity to add additional
volume from this customer because of the products and services
that we offer.

Custom business forms continue to evolve as part of our product
mix. The production of standard business forms continues to be
replaced with the production of specialized

business forms. The success of the Financial Solutions Group
in this area will continue because of our ability to use the
technologies and processes that we have developed for use in
these specialized business forms.

Due to our customers' desire for centralized forms management and
secure distribution capabilities, this area of our company has
increased over the last several years. This increase has allowed
us to add additional warehouse space, as well as refine systems
and procedures that put us at the forefront of the industry with
secure distribution. This innovation has allowed our facilities
to consistently provide documents with the highest degree of
numbering integrity, decrease on-hand inventory and the amount of
documents that become outdated and unusable.

Online & Electronic Capabilities

Aside from increased innovation in our products, the Financial
Solutions Group has been on the leading edge of printing and
electronic technology for the past decade. We are now in our
third generation of computer-to-plate equipment in our prepress
departments and have the ability to design and proof documents,
enter orders and download directly to our plate-making equipment
from computers. In particular, online proofing has brought new
capabilities to our customers by allowing them access to their
latest designs and revisions in a single depository. There have
been significant increases in the use of the internet for status
updates, order entry, freight and billing information. Our
customers now have 24-hour, password-protected access to their
order information. In our internal bank forms area, we have a
new customized order entry program that makes it easy for our
customers to enter orders directly into our system. Our usage
rates are now averaging 15,000 hits per month and will continue
to grow as we add additional customers to our system.

As we look forward to next year, the Financial Solutions Group
sees a dramatic increase in the use of digital printing for MICR
documents and custom business check programs. We currently
process over 800 orders per week that are digitally printed
without human intervention, and there are reasons to expect an
increase in this demand. Orders are getting smaller and more
complex with additional variable data and MICR quality
necessitates the quality and consistency provided by digital
equipment. Printing facilities must also control costs so that
lower prices can still provide desired profit margins.

The Financial Solutions Group is preparing for another exciting
year and will continue to utilize our innovation and technology
to provide the best possible products and service for our
customers.

Selected Financial Data

Years ended February
28 or 29 2003 2002 2001 2000 1999
(In thousands, except ---- ---- ---- ---- ----
per share amounts)

Net sales $240,757 $236,923 $229,186 $176,600 $159,690
Net earnings 15,247 14,966 13,177 15,123 14,110

Per share of common
stock:
Basic net earnings .94 .92 .81 .93 .87
Diluted net
earnings .93 .92 .81 .93 .87
Dividends .62 .62 .62 .62 .62
Total assets 152,537 139,034 142,854 102,934 94,335
Long-term debt 18,135 9,170 23,555 462 7

- ------------------------------------
Management's Discussion and Analysis

Liquidity and Capital Resources
The Company has maintained a strong financial position with
working capital at February 28, 2003 of $39,718,000, an increase
of 2.7% from the beginning of the year, and a current ratio of
2.6 to 1. The increase in current assets is due to operating
profits less funds used to pay dividends and used in the purchase
of all of the outstanding stock of Calibrated Forms Co., Inc.
(Calibrated) on November 13, 2002, effective as of November 14,
2002. The purchase price for the transaction was $22,038,000,
less liabilities excluded of $7,195,060. The acquisition was
partially financed with two promissory notes totaling $14,805,000
bearing interest at 3.75% per annum and maturing on January 3,
2003. By January 3, 2003, the Company paid off the promissory
notes and the related liabilities of $7,195,060. Effective
January 3, 2003, the Company executed an amendment to its
existing credit facility whereby the Revolving Credit Facility
was increased to $30,000,000 and the outstanding balance of the
term loan was merged into the Revolving Credit Facility with an
interest rate of LIBOR plus .75% and a maturity date of January
3, 2006. The Company has $13,860,000 in cash and equivalents,
and $18,135,000 in long-term debt, less current installments.
The Company made scheduled payments of $5,240,000 and pre-paid
$2,160,000 of the debt financing during the year ended February
28, 2003. The Company anticipates repaying the long-term debt of
$1,850,000 per quarter through June 2003, then $1,500,000 per
quarter thereafter until the debt is extinguished in January
2006. The Company believes current inventory levels are
sufficient to satisfy customer demand and anticipates having
adequate sources of raw materials to meet future business
requirements. The Company recorded a charge to Other
Comprehensive Income in the amount of $4,982,000 related to its
Pension Plan. SFAS No. 87 requires the recognition of a "minimum
pension liability" if, as of a given measurement date, the fair
value of a plan's assets is less than its accumulated benefit
obligation. The decline in recent years of the U.S. equity
markets has reduced the value of the Company's qualified pension
plan assets. The Company estimates the plan assets to exceed the
plan's accumulated benefit obligation in five years with annual
pension plan contributions of approximately $2,500,000. Capital
expenditures for the next fiscal year are expected to be between
$3,000,000 and $5,000,000, which are expected to be financed
through internally generated funds. The Company expects to
generate sufficient cash flow from its operating activities to
more than cover its operating and other capital requirements for
the foreseeable future.

The following table aggregates the Company's expected contractual
obligations and commitments subsequent to February 28, 2003:

Payments due by period (in thousands)
-------------------------------------
2008 and
2004 2005 2006 2007 thereafter
---- ---- ---- ---- ---------

Industrial revenue bonds $ 338 $ 335 $ -- $ -- $ --
and other
Revolving credit 6,700 6,000 11,800 -- --
facility
Operating lease 1,870 1,147 576 268 102
obligations

Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards No. 141,
"Business Combinations" (SFAS No. 141), and No. 142, "Goodwill
and Other Intangible Assets" (SFAS No. 142), effective for fiscal
years beginning after December 15, 2001. Under the new rule,
goodwill and intangible assets deemed to have indefinite lives
are no longer amortized but are subject to annual impairment
tests. Other intangible assets are amortized over their useful
lives. Effective March 1, 2002, the Company adopted the
provisions of SFAS No. 142. Accordingly, the Company ceased
amortization of goodwill effective at the date of adoption.
Adoption of SFAS No. 142 resulted in an increase to after tax
earnings of $.06 per diluted share year ended February 28, 2003.
The Company's initial review for impairment of goodwill and other
intangible assets performed during fiscal year ended February 28,
2002 indicated no impairment of these assets as of March 1, 2002.
During the fourth quarter of fiscal year ended February 28, 2003,
the Company performed its annual review for impairment of
goodwill and other intangible assets as of February 28, 2003 and,
based on this review, no impairment was recorded. The Company
must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective
assets in assessing the recoverability of its goodwill and other
intangibles. If these estimates or the related assumptions
change, the Company may be required to record impairment charges
for these assets in the future.

In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143). SFAS No. 143 applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the normal
operation of a long-lived asset. Under SFAS No. 143, a liability
for an asset retirement obligation should be recognized in the
period in which it is incurred and should be initially measured
at fair value. The offset to the liability should be capitalized
as part of the carrying amount of the related long-lived asset.
SFAS No. 143 is effective for financial statements for fiscal
years beginning after June 15, 2002. The Company does not believe
the adoption of SFAS No. 143 will have a material effect on the
Company's financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) which
became effective for the Company beginning March 1, 2002 and
superceded, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS No. 121).
SFAS No. 144 provides a single method of accounting for long-
lived assets to be disposed of and retains requirements found in
SFAS No. 121 with regard to the impairment of long-lived assets.
The adoption of SFAS No. 144 had no effect on the financial
statements for the year ended February 28, 2003.

In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" (SFAS No. 146), which addresses financial
accounting and reporting for costs associated with exit or
disposal activities. SFAS No. 146 requires that costs related to
an exit or disposal activity can only be accrued when a liability
is actually incurred rather than at the date of commitment to an
exit or disposal plan. SFAS No. 146 is required to be adopted
for exit or disposal activities initiated after December 31,
2002. The Company does not believe the adoption of SFAS 146 will
have a material effect on the Company's financial position or
results of operations.

In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45
requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 also expands the
required disclosures made by a guarantor about its obligations
under certain guarantees that it has issued. Initial recognition
and measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective immediately.
While the Company has various guarantees included in contracts in
the normal course of business, primarily in the form of
indemnities, these guarantees do not represent significant
commitments or contingent liabilities of the indebtedness of
others.

Results of Operations

2003 as compared to 2002

Net sales in 2003 increased 1.6% from 2002. Sales increased
primarily as a result of the inclusion of Calibrated Forms Co.,
Inc. (Calibrated). Calibrated was acquired in November 2002 to
augment the Forms Solutions Group. This Group, excluding
Calibrated, continued to be impacted by both the general economy
and industry declines and accordingly had a decrease in sales of
2.4%. The Financial Solutions Group sales increased slightly and
accounted for .4% of the overall increase in net sales. The
Promotional Solutions Group experienced a decrease in sales of
1.1% due to the general economy and business declines.

The gross profit margin decreased to 26.3% in 2003 as compared to
27.4% in 2002. The Forms Solutions Group, the Financial
Solutions Group, and the Promotional Solutions Group gross profit
margin all decreased from 29.6%, 27.5%, and 23.1% in fiscal 2002
to 28.0%, 26.6%, and 21.9%, respectively, in fiscal 2003.
Excluding Calibrated, the decrease in the Forms Solutions Group
resulted from less fixed cost absorption due to the net sales
decrease as noted above. In addition, the general weakness in
the economy and the decline in the forms industry contributed to
lower prices in the Forms Solutions Group. The Financial
Solutions Group gross profit margin decreased due to a
combination of lower fixed cost absorption resulting from
decreased sales volumes in certain plants and a shift in mix to
lower margin products. In addition, a move to a new operating
facility in one of the locations, which was completed in July of
2002, exacerbated the reduction in margins due to costs incurred
for the move and incurrence of operational inefficiencies during
the move period. The Promotional Solutions Group gross profit
margin decreased due to less fixed cost absorption resulting
from sales decline.

Selling, general and administrative expenses decreased 3.7%
during fiscal 2003 as compared to 2002. The Financial Solutions
Group and Promotional Solutions Group accounted for a 4.1% and
2.2% decrease in selling, general and administrative expenses,
respectively. The elimination of goodwill expense in the
Financial Solutions Group and Promotional Solutions Group
resulting from the adoption of SFAS No. 142 accounted for 2.9%
and .9% respectively of the total decrease in selling, general
and administrative expenses. Effective cost reduction programs
implemented in the groups accounted for the remainder of the
reduction. The Forms Solutions Group and Corporate selling,
general administrative expenses increased and offset the total
decrease 1.3% and 1.3%, respectively. The increase in the Forms
Solutions Group is primarily a result of the Calibrated
acquisition. The increase in the Corporate expenses is primarily
a result of an increase in depreciation related to the Company's
Enterprise Resource Planning Software (ERP) System that continues
to be placed in service company-wide.

Investment income decreased 72.5% in 2003 as compared to 2002 due
to declines in interest rates. Interest expense decreased from
$1,949,000 in fiscal 2002 to $1,306,000 in fiscal 2003 due to the
reduction of Northstar Computer Forms, Inc. (Northstar) financial
debt and to declines in interest rates. Other expenses decreased
6.1% in 2003 as compared to 2002 primarily due to a higher gain
on sale of assets in 2003 as compared to 2002.

The Company's effective federal and state income tax rate for
2003 was 37.4%, as compared to 2002's effective rate of 38.7%.
The primary reason for the decrease is due to the elimination of
non-deductible goodwill expense for the year ended February 28,
2003 as a result of the adoption of SFAS No. 142.

2002 as compared to 2001

Net sales in 2002 increased 3.4% from 2001. Sales increased
primarily as a result of the inclusion of Northstar for the full
fiscal year 2002 compared to the nine month period subsequent to
its acquisition in fiscal 2001. Northstar, now known as the
Financial Solutions Group, was acquired in June of 2000.
Northstar accounted for a 5.8% increase in sales. The
Promotional Solutions Group sales increased slightly and
accounted for .4% of the increase. The Forms Solutions Group
experienced a decrease in sales of 2.8% due to the general
economy and business declines.

The gross profit margin remained constant at 27.4% in fiscal
years 2001 and 2002. The Financial Solutions Group and
Promotional Solutions Group gross profit margin increased from
25.7% and 21.3%, respectively, in fiscal 2001 to 27.5% and 23.1%,
respectively, in fiscal 2002. The increase in profit margin at
Adams McClure, a member of the Promotional Solutions Group, is a
result of operating initiatives implemented by management to
address inefficiencies resulting from consolidation and
integration. The increase in profit margin in the Financial
Solutions Group results from better fixed cost absorption due to
increased sales. The Forms Solutions Group gross profit margin
decreased from 31.1% in fiscal 2001 to 29.6% in fiscal 2002. The
decrease is a result of less fixed cost absorption due to
decreased sales as noted above.

Selling, general and administrative expenses decreased 3.4%
during fiscal 2002 as compared to 2001. The decrease in selling,
general and administrative expenses was primarily attributable to
successful consolidation and integration initiatives implemented
by management in the Promotional Solutions Group accounting for a
6.6% reduction. Selling, general and administrative expenses in
the Corporate segment and Forms Solutions Group accounted for
1.1% and 1.9% of the reduction, respectively, due to cost
reduction programs. The inclusion of Northstar for the full
fiscal year 2002 offset the total decrease by 6.2%.

Investment and other income decreased 26.3% in 2002 as compared
to 2001 due to decreases in interest rates for the year.
Interest expense decreased from $2,046,000 in fiscal 2001 to
$1,949,000 in fiscal 2002 as a result of reductions of Northstar
financial debt. Other income (expense) decreased 181% in 2002 as
compared to 2001. Other income in 2001 included a pre-tax gain
of $653,000 resulting from the sale of the Louisville facility.

The Company's effective federal and state income tax rate for
2002 was 38.7%, as compared to 2001's effective rate of 38.9%.
The primary reason for the decrease is the recognition of tax
benefits related to the charitable contribution of one of the
Company's warehouse buildings in fiscal 2002.

Critical Accounting Policies and Judgments

In preparing our financial statements, we are required to make
estimates and assumptions that affect the disclosures and
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. We evaluate our estimates
and judgments on an ongoing basis, including those related to bad
debts, inventory valuations, property, plant and equipment,
intangible assets and income taxes. We base our estimates and
judgments on historical experience and on various other factors
that we believe to be reasonable under the circumstances. Actual
results may differ from these estimates.

We exercise judgment in evaluating our long-lived assets for
impairment. The Company assesses the impairment of long-lived
assets which includes other intangible assets, goodwill and plant
and equipment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The
Company assesses the impairment of goodwill annually. In
performing tests of impairment, the Company estimates future cash
flows that are expected to result from the operating segments.
Actual results could differ from assumptions made by management.
We believe our businesses will generate sufficient undiscounted
cash flow to more than recover the investments we have made in
property, plant and equipment, as well as the goodwill and other
intangibles recorded as a result of our acquisitions. The
Company cannot predict the occurrence of future impairment
triggering events nor the impact such events might have on its
reported asset values.

Revenue is generally recognized upon shipment for all printed
products. Revenue from fixed price contracts for the design and
construction of tools, dies and special machinery is recognized
using the percentage of completion method of accounting.

Derivative instruments are recognized on the balance sheet at
fair value. Changes in fair values of derivatives are accounted
for based upon their intended use and designation. The Company's
interest rate swaps are held for purposes other than trading.
The Company utilized swap agreements related to its term and
revolving loans to effectively fix the interest rate for a
specified principal amount of the loans. Amounts receivable or
payable under interest rate swap agreements are recorded as
adjustments to interest expense. The swaps have been designated
as a cash flow hedge, and the after tax effect of the mark-to-
market valuation that relates to the effective amount of
derivative financial instrument is recorded as an adjustment to
accumulated other comprehensive income with the offset included
in accrued expenses.

Certain Factors That May Affect Future Results

The Forms Solutions Group sells a mature product line of business
forms and other printed business products. The demand for this
product line may decrease with increasing electronic and
paperless forms and filings.

The Promotional and Financial Solutions Groups are dependent upon
certain major customers. The loss of such customers may affect
the revenue and earnings of the Groups.

The Company has various contracts with suppliers that are subject
to change upon renewal and may not provide the same cost ratios
for future periods.

Market Risk

The Company is exposed to market risk from changes in interest
rates on debt. A discussion of the Company's accounting policies
for derivative instruments is included in the Summary of
Significant Accounting Policies in the Notes to the Consolidated
Financial Statements.

The Company's net exposure to interest rate risk consists of a
floating rate debt instrument that is benchmarked to U.S. and
European short-term interest rates. The Company may from time to
time utilize interest rate swaps to manage overall borrowing
costs and reduce exposure to adverse fluctuations in interest
rates. The Company does not use derivative instruments for
trading purposes. The Company is exposed to interest rate risk
on short-term and long-term financial instruments carrying
variable interest rates. The Company's variable rate financial
instruments, including the outstanding credit facilities, totaled
$24.5 million at February 28, 2003. The impact on the Company's
results of operations of a one-point interest rate change on the
outstanding balance of the variable rate financial instruments as
of February 28, 2003 would be immaterial. This market risk
discussion contains forward-looking statements. Actual results
may differ materially from this discussion based upon general
market conditions and changes in domestic and global financial
markets.

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 14, 2003.

Ten-Year Financial Review
(In thousands, except per share and per
dollar of sales amounts)

Fiscal years 2003 2002 2001 2000
---- ---- ---- ----

Net sales $240,757 $236,923 $229,186 $176,600

Earnings before 24,345 24,403 21,571 24,041
income taxes

Provision for 9,098 9,437 8,394 8,918
income taxes

Net earnings 15,247 14,966 13,177 15,123

Per dollar of .063 .063 .057 .086
sales

Per common .93 .92 .81 .93
share -
diluted

Dividends 10,093 10,089 10,075 10,068

Per share .62 .62 .62 .62

Shareholders' 96,903 96,035 91,540 88,267
equity

Per share - 5.95 5.89 5.63 5.45
basic

Current assets 65,012 62,646 58,263 43,305

Current 25,294 23,966 17,908 10,525
liabilities

Net working 39,718 38,680 40,355 32,780
capital

Ratio of current
assets to
current 2.6:1 2.6:1 3.3:1 4.1:1
liabilities

Depreciation of 9,156 8,683 8,313 5,389
plant and
equipment

Additions to 3,763 2,254 3,594 2,988
property,plant
and equipment

Ten-Year Financial Review
(In thousands, except per share and per
dollar of sales amounts)

1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
$159,690 $162,962 $161,969 $150,071 $147,920 $140,369

22,558 15,805 21,485 30,104 32,041 31,039

8,448 5,597 7,992 11,487 12,025 11,582

14,110 10,208 13,493 18,617 20,016 19,457

.088 .063 .083 .124 .135 .139

.87 .62 .82 1.13 1.22 1.16

10,116 10,191 10,110 9,782 9,453 9,270

.62 .62 .615 .595 .575 .555

83,499 81,672 81,586 78,195 69,338 58,897

5.12 4.97 4.96 4.76 4.22 3.52

52,676 53,660 52,627 67,544 59,265 48,519

8,367 10,396 10,307 13,054 12,976 12,548

44,309 43,264 42,320 54,490 46,289 35,971

6.3:1 5.2:1 5.1:1 5.2:1 4.6:1 3.9:1

4,941 5,634 4,475 3,553 3,499 3,805

3,663 9,576 13,575 6,106 4,010 2,215

Consolidated Statements of Earnings
(In thousands, except share and
per share amounts)

For the years ended February 28,
2003 2002 2001
---- ---- ----

Net sales $240,757 $236,923 $229,186
Costs and expenses:
Cost of sales 177,485 171,935 166,340
Selling, general and
administrative expenses 37,559 39,000 40,356
------- ------- -------
215,044 210,935 206,696
------- ------- -------
Earnings from operations 25,713 25,988 22,490
------- ------- -------
Other income (expense):
Investment income 167 608 826
Interest expense (1,306) (1,949) (2,046)
Other (229) (244) 301
------- ------- -------

(1,368) (1,585) (919)
------- ------- -------
Earnings before income taxes 24,345 24,403 21,571
Provision for income taxes 9,098 9,437 8,394
------- ------- -------
Net earnings $ 15,247 $ 14,966 $ 13,177
======= ======= =======

Net earnings per share of common
stock - basic $ .94 $ .92 $ .81
======= ======= =======
Net earnings per share of common
stock - diluted $ .93 $ .92 $ .81
======= ======= =======

Weighted average number of
common shares outstanding -
basic 16,284,575 16,272,121 16,257,897

Weighted average number of
common shares outstanding -
diluted 16,478,140 16,318,718 16,257,897

See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity
(In thousands, except share amounts)

Accumulated
Common Stock Additional Other Treasury Stock
------------ Paid-in Retained Comprehensive --------------
Shares Amount Capital Earnings Income (Loss) Shares Amount Total
------ ----- ------- -------- ------------- ------ ------ -----

Balance
February 29,
2000 21,249,860 $53,125 $1,040 $125,980 $ -- (5,058,048) $(91,878) $88,267
Net earnings -- -- -- 13,177 -- -- -- 13,177
Dividends
declared
($.62 per
share) -- -- -- (10,075) -- -- -- (10,075)
Treasury
stock
issued -- -- -- (1,265) -- 79,223 1,438 173
Treasury
stock
purchases -- -- -- -- -- (270) (2) (2)
---------- ------ ----- ------- ------ ---------- ------ ------
Balance
February 28,
2001 21,249,860 $53,125 $1,040 $127,817 $ -- (4,979,095) $(90,442) $91,540
Net earnings -- -- -- 14,966 -- -- -- 14,966
Cumulative
effect of
accounting
change for
derivative
instruments -- -- -- -- (504) -- -- (504)
Unrealized
gain on
derivative
instruments 103 103
------
Comprehensive
income 14,565
Dividends
declared
($.62 per
share) -- -- -- (10,089) -- -- -- (10,089)
Treasury
stock
issued -- -- -- -- -- 2,500 22 22
Treasury
stock
purchases -- -- -- -- -- (327) (3) (3)
---------- ------ ------ ------- ------ ------ ------ ------
Balance
February 28,
2002 21,249,860 $53,125 $1,040 $132,694 $ (401) (4,976,922) $(90,423) $96,035
Net earnings -- -- -- 15,247 -- -- -- 15,247
Unrealized
gain on
derivative
instruments 158 158
Minimum
pension
liability,
net of tax
effect (4,982) (4,982)
------
Comprehensive
income 10,423
Dividends
declared
($.62 per
share) -- -- -- (10,093) -- -- -- (10,093)
Treasury
stock
issued -- -- (579) -- -- 64,500 1,172 593
Treasury
stock
purchases -- -- -- -- -- (4,465) (55) (55)
---------- ------ ------ ------- ----- --------- ------ ------
Balance
February 28,
2003 21,249,860 $53,125 $ 461 $137,848 $(5,225) (4,916,887) $(89,306) $96,903
========== ====== ====== ======= ===== ========= ====== ======

See accompanying notes to consolidated financial statements.
21

Consolidated Statements of Cash Flows
(In thousands)

For the years ended February 28
2003 2002 2001
---- ---- ----

Cash flows from operating
activities:
Net earnings $ 15,247 $ 14,966 $ 13,177
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation 9,156 8,683 8,313
Amortization 38 1,613 1,417
Gain on the sale of
equipment (93) (26) (709)
Deferred income taxes (971) (160) (169)
Other 613 (28) 474
Changes in operating assets
and liabilities:
Receivables (48) 1,244 1,128
Prepaid expenses (98) (5) (293)
Inventories (42) 866 (1,117)
Other current assets (608) 1,711 1,852
Other assets -- (2,069) 950
Accounts payable and
accrued expenses (578) 798 (2,266)
------ ------ -------
Net cash provided by
operating activities 22,616 27,593 22,757
------ ------ -------

Cash flows from investing
activities:
Capital expenditures (3,763) (2,254) (3,594)
Purchase of operating
assets, net of cash acquired (20,522) -- (34,339)
Proceeds from disposal of
property 176 35 1,141
Redemption of investments 1,802 1,348 5,853
Other (38) 90 --
------ ------ ------
Net cash used in
investing activities (22,345) (781) (30,939)
------ ------ ------

Cash flows from financing
activities:
Debt issued to finance
acquisitions 15,000 -- 36,500
Repayment of debt issued to
finance acquisitions (7,540) (8,890) (10,850)
Dividends (10,093) (10,089) (10,075)
Purchase of treasury stock (55) (3) (2)
Proceeds from exercise of
stock options 593 22 173
Other (496) (636) (637)
------ ------ -------
Net cash provided by
(used in) financing
activities (2,591) (19,596) 15,109
------ ------ -------

Net change in cash and cash
equivalents (2,320) 7,216 6,927
Cash and cash equivalents at
beginning of year 16,180 8,964 2,037
------ ------ -------

Cash and cash equivalents at
end of year $ 13,860 $ 16,180 $ 8,964
====== ====== ======

See accompanying notes to consolidated financial statements.
22

Consolidated Balance Sheets
(In thousands, except share and par value amounts)

For the years ended
February 28,
2003 2002
---- ----

Assets
Current assets:
Cash and cash equivalents $ 13,860 $ 16,180
Investment securities -- 1,802
Receivables, principally trade, less
allowance for doubtful receivables of
$1,294 in 2003 and $1,486 in 2002 32,077 28,713
Prepaid expenses 1,708 814
Inventories 13,104 12,222
Contract costs in excess of billings 967 256
Other current assets 3,296 2,659
------- -------

Total current assets 65,012 62,646
------- -------

Property, plant and equipment, at cost:
Plant, machinery and equipment 94,350 91,679
Land and buildings 26,653 22,564
Other 16,507 14,934
------- -------
137,510 129,177
Less accumulated depreciation 86,246 77,834
------- -------

Net property, plant and equipment 51,264 51,343
------- -------

Goodwill 34,241 21,951

Other assets 2,020 3,094
------- -------

$152,537 $139,034
======= =======

Consolidated Balance Sheets
(In thousands, except share and par value amounts)

For the years ended
February 28,
2003 2002
---- ----

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,644 $ 5,568
Accrued expenses:
Employee compensation and benefits 6,784 4,770
Taxes other than income 1,430 970
Other 3,398 3,623
Current installments of long-term debt 7,038 9,035
------ ------
Total current liabilities 25,294 23,966
------ ------

Accrued pension 2,130 --
Long-term debt, less current installments 18,135 9,170
Deferred credits, principally income taxes 10,075 9,863

Shareholders' equity:
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 53,125 53,125
Additional paid in capital 461 1,040
Retained earnings 137,848 132,694
Accumulated other comprehensive income
(loss):
Minimum pension liability, net of
deferred taxes of $3,005 and $0. (4,982) --
Unrealized gain (loss) on derivative
instruments, net of deferred taxes of
$149 and $257. (243) (401)
------- -------
Total accumulated other
comprehensive loss (5,225) (401)
------- -------

186,209 186,458

Treasury stock, 4,916,887 and 4,976,922
shares, respectively 89,306 90,423
------- -------

Total shareholders' equity 96,903 96,035
------- -------

$152,537 $139,034
======= =======

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(1) Significant Accounting Policies and General Matters

Nature of Operations. Ennis Business Forms, Inc. and its wholly
owned subsidiaries (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.

Basis of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain accounts have been
reclassified to present comparable results.

Cash and Cash Equivalents. The Company invests cash in excess of
daily operating requirements in income producing investments.
There were no investments at February 28, 2003, and $13,200,000
at February 28, 2002. 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.

Investment Securities. Investment securities held at February
28, 2002 consist of U.S. Treasury Notes. The Company held these
securities until maturity; therefore, they were classified as
held-to-maturity as either current or non-current assets
depending on maturity dates and are reflected at amortized cost
in the accompanying consolidated financial statements.

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 40 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.

Goodwill and Other Intangible Assets. Effective March 1, 2002,
the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
Under this standard, goodwill and intangibles with indefinite
useful lives are no longer amortized. Instead, SFAS No. 142
requires that goodwill and intangible assets deemed to have an
indefinite useful life be tested for impairment (by reporting
unit) upon adoption of SFAS No. 142 and annually thereafter. The
Company performs its annual impairment analysis during the third
quarter of each year. The Company has determined that there are
three reporting units, as defined by SFAS 142, including the
Forms Solutions Group, Promotional Solutions Group and Financial
Solutions Group. Other acquired intangibles are primarily trade
names and are being amortized on a straight-line basis over ten
years.

Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of. In August 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144) which became effective for the Company
beginning March 1, 2002 and superceded, Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121). SFAS No. 144 provides a single method of
accounting for long-lived assets to be disposed of and retains
requirements found in SFAS No. 121 with regard to the impairment
of long-lived assets. The adoption of SFAS No. 144 had no effect
on the financial statements for the year ended February 28, 2003.
Long-lived assets, including intangible assets 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
undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is based upon future discounts net
cash flows. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.

Fair Value of Financial Instruments. The carrying amount of cash
and cash equivalents, investment securities, receivables and
accounts payable approximates fair value because of the short
maturity of these instruments. Long-term debt as of February 28,
2003, 2002 and 2001, approximates its fair value. The related
interest rate swaps were recorded at fair value at February 28,
2003 and 2002. See also Notes 2 and 4.

Derivative Financial Instruments. The Company's interest rate
swaps are held for purposes other than trading. The Company
utilized swap agreements related to its term and revolving loans
to effectively fix the interest rate for a specified principal
amount of the loans. Amounts receivable or payable under
interest rate swap agreements are recorded as adjustments to
interest expense. This swap has been designated as a cash flow
hedge and the after-tax effect of the mark-to-market valuation
that relates to the effective amount of derivative financial
instrument is recorded as an adjustment to accumulated other
comprehensive income with the offset included in accrued
expenses.
25

Revenue Recognition. Revenue is generally recognized upon
shipment of all printed products. Revenue 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 $1,528,000, $1,207,000, and $1,847,000 during the
years ended February 28, 2003, 2002 and 2001, respectively.
Included in advertising expense is amortization related to direct
response advertising of $474,000, $415,000, and $840,000 for the
years ended February 28, 2003, 2002, and 2001, respectively.
Unamortized direct response advertising costs included in other
current assets at February 28, 2003 and 2002 were $53,000 and
$117,000, respectively.

Income Taxes. Deferred tax assets and liabilities are recognized
for the estimated 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.

Credit Risk. The Company's financial instruments which are
exposed to credit risk consist of its trade receivables. The
trade receivables are geographically dispersed primarily within
the continental United States and the investment securities are
generally restricted to investment grade commercial paper,
Eurodollar deposits of U.S. banks, and U.S. Government
obligations. Accounts receivable are net of a valuation reserve
that represents an estimate of amounts considered uncollectible.
One customer accounts for 10.7% of accounts receivable at
February 28, 2003.

Earnings Per Share. Basic earnings per share is computed by
dividing earnings by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed by dividing earnings by the weighted average number of
common shares outstanding plus the number of additional shares
that would have been outstanding if potentially dilutive
securities had been issued using the Treasury stock method. At
February 28, 2003, 2002, and 2001, 767,750, 804,000, and 794,500
of options, respectively, were not included in the diluted
earnings per share computation because their exercise price
exceeded the average fair market value for the Company's stock
for the year. There is no difference in the denominator used for
basic and diluted earnings per share for all periods presented.

Comprehensive Income. Amounts charged directly to Shareholders'
Equity related to the Company's interest rate swap and pension
plan are included in "other comprehensive income."

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.

Shipping and Handling Costs. Amounts billed to customers for
shipping and handling costs are included in revenue and related
costs are included in cost of sales.

Stock Based Compensation. The Company accounts for employee and
director stock-based compensation arrangements in accordance with
the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and
related interpretations, and complies with the disclosure
provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123) and
SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure." Under APB No. 25, compensation
expense for fixed awards is based upon the difference, if any, on
the date of grant between the estimated fair value of the
Company's stock and the exercise price and is amortized over the
vesting period. All stock-based awards to non-employees, if any,
are accounted for at their fair value. The Company is required
to disclose the pro forma net income as if the fair value method
defined in SFAS No. 123 had been applied.

Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net
earnings and net earnings per share would have been reduced to
the pro forma amounts indicated below for the years ended
February 28, (in thousands, except per share amounts):

2003 2002 2001
---- ---- ----

Net earnings, as reported $15,247 $14,966 $13,177
Deduct total stock-based
employee compensation
expense determined
under fair value based
methods for all awards,
net of related tax (138) (138) (143)
effects
------ ------ ------
Pro forma net earnings $15,109 $14,828 $13,034
====== ====== ======

Earnings per share:
As reported - diluted $.93 $.92 $.81
Pro forma - diluted .92 .91 .80

Recent Accounting Pronouncements. In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset.
Under SFAS No. 143, a liability for an asset retirement
obligation should be recognized in the period in which it is
incurred and should be initially measured at fair value.
The offset to the liability should be capitalized as part of the
carrying amount of the related long-lived asset. SFAS No. 143 is
effective for financial statements for fiscal years beginning
after June 15, 2002. The Company does not believe the adoption of
SFAS No. 143 will have a material effect on the Company's
financial position or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" (SFAS No. 146), which addresses financial
accounting and reporting for costs associated with exit or
disposal activities. SFAS No. 146 requires that costs related to
an exit or disposal activity can only be accrued when a liability
is actually incurred rather than at the date of commitment to an
exit or disposal plan. SFAS No. 146 is required to be adopted
for exit or disposal activities initiated after December 31,
2002. The Company does not believe the adoption of SFAS No. 146
will have a material effect on the Company's financial position
or results of operations.

(2) Investment Securities
Amortized cost and estimated fair value of investment
securities classified as held-to-maturity were as follows at
February 28, 2002 (in thousands):

Amortized Gross Unrealized Estimated
Cost Holding Gains Fair Value
---- ------------- ----------

Investment securities
due in less than
one year $1,802 $20 $1,822
===== == =====

There were no investment securities at February 28, 2003.

(3) 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, 2003 and 2002,
approximately 75% and 67%, respectively, of business forms
inventories are valued at LIFO with the remainder of inventories
valued at the lower of first-in, first-out (FIFO) cost or market.
The following table summarizes the components of inventory at the
different stages of production at February 28, (in thousands):

2003 2002
---- ----
Raw material $ 6,664 $ 6,065
Work-in-process 1,161 1,216
Finished goods 5,279 4,941
------ ------
$13,104 $12,222
====== ======

The excess of current costs over LIFO stated values was
approximately $3,877,000 and $3,904,000 at February 28, 2003 and
2002, respectively.

There were no significant liquidations of LIFO inventories
during the years ended February 28, 2003 and 2002. During Fiscal
2001 inventory quantities were reduced. This reduction resulted
in a liquidation of LIFO inventory quantities carried at lower
costs prevailing in prior years as compared with the cost of
fiscal year 2001 purchases, the effect of which decreased cost of
sales by approximately $151,000 and increased net earnings by
approximately $95,000 ($0.01 per share).

(4) Long-Term Debt
Long-term debt consisted of the following at February 28,
2003 and 2002 (in thousands):

2003 2002
---- ----

Term loan $ -- $11,900
Revolving credit facility 24,500 5,000
Industrial revenue bonds 670 1,005
Other 3 300
------ ------
25,173 18,205
Less current installments 7,038 9,035
------ ------
Long-term debt $18,135 $ 9,170
====== ======

The availability under the revolving credit facility is
reduced quarterly by $1,850,000 through March 31, 2003, and
thereafter reduced $1,500,000 continuing each quarter until the
loan matures on January 3, 2006, at which time all amounts
outstanding are payable in full. Interest payments are required
monthly at LIBOR plus .75 percent (2.09% as of February 28,
2003). Availability under the revolving credit facility at
February 28, 2003 is $5,500,000.

The industrial revenue bonds are obligations of Northstar
Computer Forms, Inc. (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 Revenue Bonds are
collateralized by an outstanding irrevocable direct-pay letter of
credit with a financial institution equal to the outstanding
principal amount of the Revenue Bonds.

The Company utilized swap agreements related to the term
loan and revolving credit facility to effectively fix the
interest rate at 6.89% and 3.20% for a pre-set principal amount
of the loans. The pre-set principal amount of the loans covered
by the swap agreements declines quarterly in connection with
expected principal reductions and totaled $9,500,000 and
$15,000,000 at February 28, 2003. The fair value of the swap
agreements at February 28, 2003 is approximately $(392,000).

The revolving credit facility is unsecured and contains
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.

Total interest paid in fiscal 2003, 2002 and 2001 was $1,291,000,
$1,702,000 and $2,014,000, respectively.

(5) Shareholders' Equity
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.

(6) Stock Options
At February 28, 2003, 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 800,027 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
common 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, 2003, 2002, and 2001 was
$1.96, $0.91, and $0.72, 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:

2003 2002 2001
---- ---- ----

Expected dividend yield 5.01% 7.03% 8.26%
Stock price volatility 22.50% 23.40% 21.92%
Risk-free interest rate 4.64% 4.86% 6.24%
Expected option term 5 years 5 years 5 years

Following is a summary of transactions of incentive stock
options during the three fiscal years ended in 2003:

Weighted
Number Average
of Exercise
Shares Price
------ -----

Outstanding at February 29, 2000
(132,375 shares exercisable) 611,750 $10.78
Granted 271,723 7.12
Terminated (88,973) 7.79
-------

Outstanding at February 28, 2001
(211,688 shares exercisable) 794,500 9.86
Granted 65,000 7.90
Terminated (55,500) 17.21
-------

Outstanding at February 28, 2002
(291,375 shares exercisable) 804,000 9.20
Granted 35,000 13.28
Terminated (6,750) 10.84
Exercised (64,500) 9.19
-------
Outstanding at February 28, 2003
(376,438 shares exercisable) 767,750 $9.37
======= ====

The following table summarizes information about incentive
stock options outstanding at February 28, 2003:

Options Outstanding
-------------------
Weighted Options Exercisable
Average -------------------
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life (In Exercise Number Exercise
Prices Outstanding Years) Price Exercisable Price
-------- ----------- ---------- -------- ----------- ---------

$7.06 to
$10.31 599,000 6.5 $ 8.59 238,938 $ 9.26
11.06 to
12.00 98,500 3.5 11.14 97,250 11.14
13.28 to
15.63 70,250 4.9 13.55 40,250 13.75
------- -------
7.06 to 15.63 767,750 6.0 9.37 376,438 10.23
======= =======

(7) Income Taxes
The components of the provision for income taxes for fiscal
years 2003, 2002, and 2001 are (in thousands):

2003 2002 2001
---- ---- ----
Current:
Federal $ 8,688 $8,546 $7,661
State and local 1,040 1,051 902
Deferred (630) (160) (169)
------ ----- -----
Total provision for income taxes $ 9,098 $9,437 $8,394
====== ===== =====
Total income taxes paid $10,088 $8,085 $9,503
====== ===== =====

The following summary reconciles the statutory U.S. Federal
income tax rate to the Company's effective tax rate:

2003 2002 2001
---- ---- ----

Statutory rate 35.0% 35.0% 35.0%
Provision for state income taxes,
net of Federal income tax benefit 2.8 2.8 2.7
ESOP pass-through dividend deduction -- (0.5) (0.6)
Goodwill non-deductible -- 1.6 1.3
Other (0.4) (0.2) .5
---- ---- ----
Effective tax rate 37.4% 38.7% 38.9%
==== ==== ====

The components of deferred income tax assets and liabilities
are summarized as follows (in thousands) for the years ended
February 28:

2003 2002
---- ----
Current deferred asset:
Allowance for doubtful receivables $ 486 $ 559
Inventory valuation 392 380
Employee compensation and benefits 1,797 1,460
Other 396 (11)
----- -----
$3,071 $2,388
===== =====
Noncurrent deferred liability:
Depreciation $7,197 $7,735
Intangibles amortization and impairments (856) (297)
Prepaid pension cost 966 762
Partnership interest 200 199
Other 357 357
----- -----
$7,864 $8,756
===== =====

(8) 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 balances of plan
assets and obligations are shown below:

Pension expense for fiscal years 2003, 2002, and 2001 included
the following components (in thousands):

2003 2002 2001
---- ---- ----
Service cost-benefits earned during
the current period $1,475 $1,520 $1,474
Interest cost on projected benefit
obligation 2,554 2,739 2,439
Expected return on plan assets (2,483) (2,391) (2,496)
Net amortization and deferral 368 (236) (467)
----- ----- -----

Net periodic pension cost $1,914 $1,632 $ 950
===== ===== =====

Assumptions used in accounting for the defined benefit plans for
fiscal years 2003, 2002, and 2001 are as follows:

2003 2002 2001
---- ---- ----

Weighted average discount rate 6.50% to
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%

Assets and obligations for fiscal years 2003 and 2002 are as
follows (in thousands):

2003 2002
---- ----
Projected benefit obligation
Beginning of year $36,101 $36,888
Service and interest cost 4,029 4,259
Actuarial gain (166) (3,299)
Benefits paid (2,518) (1,747)
------ ------

End of year $37,446 $36,101
------ ------

Fair value of plan assets
Beginning of year $27,714 $26,210
Company contributions 2,500 3,672
Net losses (1,480) (420)
Benefits paid (2,518) (1,747)
------- ------

End of year 26,216 27,715
------- ------

Excess of projected benefit obligation over
plan assets (11,230) (8,386)
Unrecognized losses and prior service cost 14,082 10,708
Additional minimum pension liability (4,982) --
Unrecognized net transition asset being
recognized over the average remaining
service life -- (56)
------- ------

Total pension (liability) asset $ (2,130) $ 2,266
======= ======

(9) Acquisitions and Disposal
On June 6, 2000, the Company purchased the outstanding stock
of Northstar for approximately $44,153,000. 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.
The acquisition was accounted for by the purchase method and
goodwill of approximately $14,644,000 was originally recorded and
amortized through February 28, 2002. Net goodwill of the
Financial Solutions Group as of February 28, 2003 is $14,014,000.
In accordance with SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (SFAS No. 144), the Company
tested for impairment at the end of its third quarter using
projected cash flows and representative earnings multiples for
the industry. Based on the test, no impairment of goodwill was
indicated or recorded.

On November 14, 2002, the Company completed its acquisition
of all of the outstanding stock of Calibrated Forms Co., Inc.
(Calibrated) a company which is principally engaged in the
design, manufacture and marketing of printed business forms
within the wholesale business forms marketplace. Calibrated was
acquired to help strengthen the Company in the wholesale business
forms marketplace. Calibrated became a wholly owned subsidiary
and operates as part of the Forms Solutions Group. The
acquisition was financed with an additional $15,000,000 draw
against the Company's Revolving Credit Facility. The purchase
price for the transaction was $22,038,000, less liabilities
excluded of $7,195,060, and the liabilities excluded were
evidenced by two promissory notes bearing interest at 3.75% per
annum which were paid January 3, 2003. In addition, the Purchase
Agreement provides for additional consideration in the form of an
earn out. The earn out will be 50% of the amount, if any, of
Calibrated's EBITDA, as defined in the Purchase Agreement in
excess of $6,300,000 each year, to a maximum amount of
$3,000,000. This earn out will be paid as long as one of the two
former shareholders acceptable to the Company, is employed as
General Manager of Calibrated on a full-time basis during the
entire fiscal year for which the earn out is paid. Any such earn
out will be recorded as compensation expense in the year to which
it relates. The acquisition was accounted for by the purchase
method. Approximately $2,400,000 of the goodwill related to the
Calibrated acquisition is deductible for tax purposes.

The following is a summary of the purchase price allocation (in
thousands):

Cash $ 1,516
Accounts receivable 3,573
Inventory 840
Other assets 1,308
Fixed assets 5,397
Goodwill 12,252
Trade name 1,325
Accounts payable and accrued
liabilities (4,173)
------

Total purchase price $22,038
======

The accompanying consolidated financial statements include
the operations of Calibrated since the date of acquisition. The
following table presents certain operating information on a pro
forma basis as though Calibrated had been acquired as of March 1,
2001, after including the estimated impact of adjustments such as
amortization of intangible assets, interest expense, reduced
interest income and related tax effects (in thousands, except per
share amount) for the fiscal years ended:

Unaudited
---------
February 28,
------------
2003 2002
---- ----
Pro forma net sales $270,125 $281,386
Pro forma net earnings 15,581 14,863
Pro forma net earnings per share-diluted .95 .91

The pro forma results are not necessarily indicative of what
would have occurred if the acquisition had been in effect for the
period presented.

(10) Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over
the fair value of net assets of acquired businesses. Effective
March 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and other Intangible
Assets" (SFAS No. 142). Under the provision of SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives
are no longer amortized but are subject to annual impairment
tests in accordance with the statement.

The Company's initial review for impairment of goodwill and
other intangible assets performed during fiscal year ended
February 28, 2002 indicated no impairment of these assets as of
March 1, 2002. During the fourth quarter of fiscal year ended
February 28, 2003, the Company performed its annual review for
impairment of goodwill and other intangible assets as of February
28, 2003, and, based on this review, no impairment was recorded.
The Company must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the
respective assets in assessing the recoverability of its goodwill
and other intangibles. If these estimates or the related
assumptions change, the Company may be required to record
impairment charges for these assets in the future.

Prior to the adoption of SFAS No. 142, amortization expense
was recorded for goodwill and other intangibles with indefinite
lives. The following table sets forth a reconciliation of net
earnings (in thousands) and net earnings per share information
for the three years ended February 28, 2003 as though SFAS No.
142 had been in effect at the beginning of fiscal year ended
February 28, 2001.

2003 2002 2001
---- ---- ----

Reported net income $15,247 $14,966 $13,177
Goodwill amortization, net
of tax benefit -- 973 780
------ ------ ------

Adjusted net income $15,247 $15,939 $13,957
====== ====== ======

Diluted earnings per share:
Reported net income
$ .93 $ .92 $ .81
Goodwill amortization, net
of tax benefit -- .06 .05
------ ------ ------

Adjusted diluted earnings
per share $ .93 $ .98 $ .86
====== ====== ======

The cost of purchased trade names is based on appraised
values at the date of acquisition and is amortized on a straight-
line basis over the estimated useful life (10 years) of such
trade names. The Company assesses the recoverability of its
definite-lived intangible assets primarily based on its current
and anticipated future undiscounted cash flows. At February 28,
2003, the Company does not believe there has been any impairment
of its intangible assets. The Company expects to record annual
amortization expense of approximately $132,000 in fiscal year
ended 2004, $132,000 in 2005, $132,000 in 2006, $132,000 in 2007
and $132,000 in 2008 related to its intangible assets as of
February 28, 2003.

The changes in the carrying amount of goodwill for the year
ended February 28, 2003 are as follows:

Forms Promotional Financial
Solutions Solutions Solutions
Group Group Group Total
----- ----- ----- -----
Balance as of
March 1, 2002 $ 1,358 $6,579 $14,014 $21,951
Goodwill acquired
during the year 12,290 -- -- 12,290
------ ----- ------ ------

Balance as of
February 28, 2003 $13,648 $6,579 $14,014 $34,241
====== ===== ====== ======

(11) Related Party Transaction
In connection with its determination that Mr. Pritchett, a
director of the Company, has no material relationships with the
Company, the Board reviewed the Company's purchase of its new
headquarters site from the Corporation for the Economic
Development of Midlothian, a special purpose corporation (the
"Corporation") which is an affiliate of the city of Midlothian,
Texas. This site was formerly owned by a corporation which is an
affiliate of Mr. Pritchett and is located in a business park
which is being developed by Mr. Pritchett. Mr. Pritchett has
owned and developed a substantial amount of commercial real
estate in this area for many years. A committee of the Board, of
which Mr. Pritchett was a non-voting member, conducted an
extensive search for a new site in the area and concluded that
this site is the most suitable for the Company. The Company
previously held discussions with the Corporation regarding its
policy of purchasing, developing and re-selling business sites as
a matter of policy to attract new businesses to the city to
increase its tax base. After the site was identified by the
Committee and approved by the Board, the Company indicated its
interest in purchasing the property from the Corporation, and the
Corporation then purchased the property from Mr. Pritchett for
$780,000 on December 12, 2002, below independently appraised
value. Subsequently, on December 18, 2002, the Corporation sold
the property to the Company at the same price, but the Company
will receive a $300,000 cash incentive from the Corporation on
occupancy. Mr. Pritchett is not a member of the Midlothian city
council nor an officer or director of the Corporation and did not
participate in the negotiation of the price of the property to
the Company. The Corporation had the power and authority to make
an independent decision to sell the property to the Company and
to determine the sale price. The selection and purchase of the
site was unanimously approved by the Board, with Mr. Pritchett
abstaining. In determining that Mr. Pritchett has no material
relationships with the Company, the Board reviewed supporting
documentation from Mr. Pritchett as to the cost of the property
and the Company's financial statements.

(12) Segment Information
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 (registered trademark) Notes). On June 6, 2000, the
Company acquired Northstar (manufacturer and seller of official bank checks,
money orders, and internal bank forms) which became the Financial Solutions
Group. On November 14, 2002, the Company acquired Calibrated which became
part of the Forms Solutions Group. 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 fiscal years ended February 28,
2003, 2002, and 2001 were as follows (in thousands):

Forms Promotional Financial
Solutions Solutions Solutions Consolidated
Group Group Group Corporate Totals
----- ----- ----- --------- ------

Fiscal year ended
February 28, 2003:
Net sales $118,763 $70,847 $51,147 $ -- $240,757
Depreciation 2,829 2,320 3,174 833 9,156
Amortization 38 -- -- -- 38
Segment earnings
(loss) before
imcome taxes 18,850 6,670 4,916 (6,091) 24,345
Segment assets 71,595 36,355 39,730 4,857 152,537
Capital expenditures 631 699 772 1,661 3,763

Fiscal year ended
February 28, 2002:
Net sales $113,390 $73,496 $50,037 $ -- $236,923
Depreciation 2,460 2,322 3,378 523 8,683
Amortization 106 392 1,115 -- 1,613
Segment earnings
(loss)before
income taxes 20,514 7,354 2,422 (5,887) 24,403
Segment assets 55,260 36,671 41,831 5,272 139,034
Capital expenditures 685 416 734 419 2,254

Fiscal year ended
February 28, 2001:
Net sales $119,857 $72,642 $36,687 $ -- $229,186
Depreciation 2,788 2,377 2,623 525 8,313
Amortization 912 505 -- -- 1,417
Segment earnings
(loss)before
income taxes 22,782 3,763 753 (5,727) 21,571
Segment assets 43,738 40,213 45,490 13,413 142,854
Capital expenditures 1,993 458 -- 1,143 3,594

"Post-it" is a registered trademark of 3M.

(13) Quarterly Information (Unaudited)
(In thousands, except per share amounts)

May August November February
--- ------ -------- --------
Fiscal year ended February 28,
2003:
Net sales $57,743 $56,646 $59,151 $67,217
Gross profit 15,004 15,596 15,591 17,081
Net earnings 3,300 3,817 3,675 4,455
Dividends paid 2,522 2,524 2,524 2,523
Per share of common stock:
Basic net earnings .20 .24 .23 .27
Diluted net earnings .20 .23 .23 .27
Dividends .155 .155 .155 .155

Fiscal year ended February 28,
2002:
Net sales $59,823 $58,695 $59,458 $58,947
Gross profit 16,081 16,966 16,699 15,242
Net earnings 3,408 4,047 3,870 3,641
Dividends paid 2,522 2,522 2,523 2,522
Per share of common stock:
Basic net earnings .21 .25 .24 .22
Diluted net earnings .21 .25 .24 .22
Dividends .155 .155 .155 .155

(14) Commitments
The Company leases its facilities under operating leases
that expire on various dates through fiscal 2008. Future minimum
lease commitments required under noncancelable operating leases
for each of the fiscal years ending are as follows (in
thousands):

2004 1,870
2005 1,147
2006 576
2007 268
2008 102
--------------
Total $ 3,963
==============

Rent expense attributable to such leases totaled $2,120,000,
$1,971,000, and $1,695,000 for the years ended February 28, 2003,
2002, and 2001, respectively.

In the ordinary course of business the Company also enters
into real property leases, which require the Company as lessee to
indemnify the lessor from liabilities arising out of the
Company's occupancy of the properties. The Company's
indemnification obligations are generally covered under the
Company's general insurance policies.

The Company is party to various claims, legal actions, and
complaints arising in the ordinary course of business. The
Company is self-insured with respect to potential losses related
to workers' compensation claims. The Company maintains reserves
for anticipated self-insurance losses. Although the results of
any litigation or claim cannot be predicted with certainty,
management believes that the outcome of pending litigation and
claims, when considered in conjunction with self-insurance
reserves established, will not have a material adverse effect on
the Company's financial position, results of operations or cash
flows.
39

Report of Independent Auditors

Board of Directors and Shareholders
Ennis Business Forms, Inc.

We have audited the accompanying consolidated balance sheets of
Ennis Business Forms, Inc. and subsidiaries (the Company) as of
February 28, 2003 and 2002, and the related consolidated
statements of earnings, shareholders' equity and cash flows for
the two years in the period ended February 28, 2003. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated
financial statements of the Company for the year ended February
28, 2001 were audited by other auditors whose report, dated April
12, 2001, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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.

In our opinion, the 2003 and 2002 consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Ennis Business
Forms, Inc. and subsidiaries as of February 28, 2003 and 2002,
and the consolidated results of their operations and their cash
flows for the two years in the period ended February 28, 2003, in
conformity with accounting principles generally accepted in the
United States.

As discussed in Notes 1 and 10 to the financial statements, in
2003 the Company changed its method of accounting for goodwill.

/s/ Ernst & Young LLP

Dallas, Texas
April 14, 2003