FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MAY 31, 1998
Commission File Number 1-5807
ENNIS BUSINESS FORMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-0256410
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
107 N. Sherman Street, Ennis, TX 75119
(Address of principal executive offices) (Zip Code)
(972) 872-3100
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter prior that the
registrant was required to file such report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as the latest practicable date.
Class Outstanding at May 31, 1998
Common stock, par value $2.50 per share 16,437,685
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information
Condensed Consolidated Balance Sheets --
May 31, 1998 and February 28, 1998 2
Condensed Consolidated Statements of Earnings --
Three Months Ended May 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash
Flows --Three Months Ended May 31, 1998
and 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 31, February 28,
1998 1998
(Unaudited)
Assets
Current assets:
Cash and equivalents $27,981 22,700
Accounts receivable, net 17,997 17,980
Inventories 6,685 8,063
Other current assets 4,628 4,917
Total current assets 57,291 53,660
Property, plant and equipment, net 33,766 34,852
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 4,528 4,574
Other assets 1,206 1,388
Total assets $96,791 94,474
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 192 191
Accounts payable 4,430 4,759
Accrued expenses 7,301 5,446
Total current liabilities 11,923 10,396
Long-term debt, less current installments 181 206
Deferred credits, principally Federal income taxes 2,331 2,200
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 120,019 119,335
174,184 173,500
Less:
Treasury stock 91,828 91,828
Total shareholders' equity 82,356 81,672
Total liabilities and shareholders' equity $96,791 94,474
See accompanying notes to condensed consolidated financial statements.
2
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
May 31,
1998 1997
Net sales $36,334 37,896
Costs and expenses:
Cost of sales 24,812 27,020
Selling, general and administrative expenses 6,741 7,414
31,553 34,434
Earnings from operations 4,781 3,462
Investment and other income 325 268
Earnings before income taxes 5,106 3,730
Provision for income taxes 1,874 1,390
Net earnings $ 3,232 2,340
Weighted average number of common shares
outstanding 16,437,685 16,438,279
Per share amounts:
Net earnings per basic and diluted share of
common stock $ .20 .14
Cash dividends $.155 .155
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
May 31,
1998 1997
Cash flows from operating activities:
Net earnings $3,232 2,340
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,356 1,460
Changes in assets and liabilities 3,234 2,339
Other 152 504
Net cash provided by operating activities 7,974 6,643
Cash flows from investing activities:
Capital expenditures (571) (4,861)
Other 450 21
Net cash used in investing activities (121) (4,840)
Cash flows from financing activities:
Dividends declared (2,548) (2,548)
Other (24) 271
Net cash used in financing activities (2,572) (2,277)
Net changes in cash and equivalents 5,281 (474)
Cash and equivalents at beginning of period 22,700 18,494
Cash and equivalents at end of period $27,981 18,020
See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These unaudited condensed consolidated financial statements of Ennis
Business Forms, Inc. and its subsidiaries (collectively the "Company"),
for the quarter ended May 31, 1998, have been prepared in accordance
with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended February 28,
1998, from which the accompanying condensed consolidated balance sheet
at February 28, 1998 was derived. All significant intercompany
balances and transactions have been eliminated in consolidation. In
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. The results of
operations for any interim period are not necessarily indicative of the
results of operations for a full year.
2. Earnings Per Common Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings Per Share, in the fourth quarter
of fiscal 1998, which requires companies to present basic earnings per
share and diluted earnings per share. Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company has restated its
May 31, 1997 earnings per share calculation to reflect the adoption of
SFAS 128.
3. Stock Option Plans
As of May 31, 1998, the Company has reserved 308,337 shares of common
stock under incentive stock options plans. On June 18, 1998 the
shareholders approved the Ennis Business Forms, Inc. 1998 Option and
Restricted Stock Plan which reserved an additional 820,000 shares of
common stock.
4. Inventories
The Company uses the Last-In, First-Out (LIFO) method of pricing the
raw material content of its inventories, and the First-In, First-Out
(FIFO) method is used to value the remainder. The following table
summarizes the components of inventory at the different stages of
production (in thousands of dollars):
May 31, February 28,
1998 1998
Raw material $3,847 4,640
Work-in-process 883 1,065
Finished goods 1,955 2,358
$6,685 8,063
5
5. Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income, in the
first quarter of fiscal 1999, which requires companies to disclose
comprehensive income separately of net income from operations.
Comprehensive income is defined as the change in equity during a period
from transactions and other events and circumstances from non-ownership
sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners.
The adoption of this statement had no significant effect on the Company
for the quarters ended May 31, 1998 or 1997.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At May 31, 1998, the Company's financial position continues to be
strong. Working capital increased from $43,264,000 at February 28, 1998 to
$45,368,000 at May 31,1998. The increase is due to cash provided by
operating activities. The Company has $27,981,000 in cash and equivalents
and $181,000 in long-term debt, less current installments.
Results of Operations
Net sales for the first quarter ended May 31, 1998 decreased 4.1% from
the corresponding period in the prior year. The sales decline in the first
quarter is attributable to the sale in January 1998 of the Company's
commercial printing operation in Seattle. Sales for the first quarter, as
compared to the same period last year after excluding the Seattle
operation's sales, were flat. Gross profit margins increased 5.9% in the
first quarter compared to the same period in the prior year. The gross
profit margin increase was the result of increased selling prices and
productivity improvements. Selling, general and administrative expenses
decreased 9.1% in the first quarter compared to the same period in the
prior year. The decrease is primarily due to the sale in January 1998 of
the Company's commercial printing operation in Seattle and restructuring of
the Company's sales force. Investment and other income increased in the
first quarter from the same period in the prior year due to increased
amounts of funds available for investments. Net earnings increased 38.1%
for the first quarter from the corresponding period of the prior year.
Basic and diluted earnings per share increased $.06 for the three months
ended May 31, 1998 from the corresponding period of last year. The per
share earnings were based on three months weighted average shares
outstanding of 16,437,685 and 16,438,279, for three months ended May 31,
1998 and May 31, 1997. Net earnings and earnings per share increased
because of the aforementioned increased selling prices, productivity
improvements and decreased selling, general and administrative expenses.
The effective rate of the Federal and state income tax expense was 36.7%
for the first quarter and 37.3% for the same period in the prior year.
Accounting Standards
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement, effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company is reviewing the provisions of this statement and,
if necessary, will change its current reportable business segments to ones
reflecting the organizational structure of the Company.
Effect of Year 2000 Issue
The Year 2000 issue results from the fact that many computer programs
have been written using two digits rather than four to define the
applicable year. Programs written in this way may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing business delays and disruptions
of operations. The Company has established a committee to oversee Year
2000 compliance. The committee has made a preliminary assessment with
respect to significant financial and accounting systems and determined that
these systems are substantially in compliance. The committee will be
assessing auxillary systems as well as integration with customers and
suppliers. The total cost and time which will be incurred by the Company
associated with the effect of Year 2000 compliance has not been determined
with certainty, but the Company believes that Year 2000 compliance will not
result in a material adverse effect on its financial condition or results
of operations.
7
This quarterly report contains forward-looking statements that reflect the
Company's current view with respect to future revenues and earnings. These
statements are subject to numerous uncertainties, including (but not
limited to) the rate at which the 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 a contracting
market, variability in the prices of paper and other raw materials, and
competitive conditions in the business forms market. Because of such
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of July 14, 1998.
8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting on June 18, 1998.
(b)Proxies for the meeting were solicited pursuant to Regulation 14; there
was no solicitation in opposition to management's nominees for
directors as listed in the Proxy Statement and all such nominees were
elected.
Directors elected were:
Broker -
Nominees for Director Votes Cast for Votes Withheld Non-votes
Harold W. Hartley 13,397,970 574,427 None
Pat G. Sorrells 13,401,176 571,221 None
James C. Taylor 13,390,092 582,306 None
(c)Briefly described below are the other matters voted upon at the Annual
Meeting and the number of affirmative votes and negatives votes
respectively.
(1) Selection of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending February 28, 1999.
For 13,849,057
Against 56,620
Abstain 66,719
Broker - non-votes None
(2) Adoption and approval of the Ennis Business Forms, Inc. 1998
Option and Restricted Stock Plan.
For 11,560,542
Against 1,185,296
Abstain 1,226,559
Broker - non-votes None
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ENNIS BUSINESS FORMS, INC.
Date July 14, 1998 /s/Nelson Ward
Nelson Ward
President and Principal Financial
and Accounting Officer
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ENNIS BUSINESS FORMS, INC.
Date July 14, 1998
Nelson Ward
President and Principal Financial
and Accounting Officer
11