FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended AUGUST 31, 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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 31, 1998
Common stock, par value $2.50 per share 16,137,685
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial Information
Condensed Consolidated Balance Sheets --
August 31, 1998 and February 28, 1998 2
Condensed Consolidated Statements of Earnings --
Three and Six Months Ended August 31,1998
and 1997 3
Condensed Consolidated Statements of Cash
Flows --Six Months Ended August 31, 1998
and 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6 - 7
Part II. Other Information 8 - 9
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
August 31, February 28,
1998 1998
----------- -----------
Assets
Current assets:
Cash and equivalents $ 25,924 22,700
Accounts receivable, net 18,154 17,980
Inventories 5,705 8,063
Other current assets 3,816 4,917
-------- -------
Total current assets 53,599 53,660
-------- -------
Property, plant and equipment, net 33,776 34,852
Cost of purchased businesses in excess of amounts
allocated to tangible net assets 4,482 4,574
Other assets and deferred charges 1,168 1,388
-------- -------
Total assets $ 93,025 94,474
======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 192 191
Accounts payable 3,831 4,759
Accrued expenses 6,389 5,446
-------- -------
Total current liabilities 10,412 10,396
-------- -------
Long-term debt, less current installments 157 206
Deferred credits, principally Federal income taxes 2,597 2,200
Shareholders' equity:
Common stock, at par value 53,125 53,125
Additional capital 1,040 1,040
Retained earnings 120,822 119,335
-------- -------
174,987 173,500
Less:
Treasury stock 95,128 91,828
-------- -------
Total shareholders' equity 79,859 81,672
-------- -------
Total liabilities and shareholders' equity $ 93,025 94,474
======== =======
See accompanying notes to condensed consolidated financial statements.
2
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $36,904 38,309 $73,238 76,205
------- ------ ------- ------
Costs and expenses:
Cost of sales 25,109 26,562 49,921 53,582
Selling, general and
Administrative expenses 6,846 7,797 13,587 15,211
------- ------ ------- ------
31,955 34,359 63,508 68,793
------- ------ ------- ------
Earnings from operations 4,949 3,950 9,730 7,412
Investment and other income 350 246 675 514
------- ------ ------- ------
Earnings before income taxes 5,299 4,196 10,405 7,926
Provision for income taxes 1,948 1,546 3,822 2,937
------- ------ ------- ------
Net earnings $ 3,351 2,650 $ 6,583 4,989
======= ====== ======= ======
Weighted average number of common
shares outstanding 16,362,685 16,438,126 16,394,828 16,438,199
========== ========== ========== ==========
Per share amounts:
Net earnings per basic and
Diluted share of common stock $ .20 .16 $.40 .30
===== === ==== ===
Cash dividends $.155 .155 $.31 .31
===== ==== ==== ===
See accompanying notes to condensed consolidated financial statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
August 31,
1998 1997
---- ----
Cash flows from operating activities:
Net earnings $ 6,583 4,989
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,672 3,112
Changes in operating assets and liabilities 3,037 4,853
Other 728 812
------- ------
Net cash provided by operating activities 13,020 13,766
------- ------
Cash flows from investing activities:
Capital expenditures (2,012) (7,347)
Other 661 21
------- ------
Net cash used in investing activities (1,351) (7,326)
------- ------
Cash flows from financing activities:
Purchase of treasury shares (3,300) --
Dividends declared (5,096) (5,096)
Other (49) 245
------- ------
Net cash used in financing activities (8,445) (4,851)
------- ------
Net change in cash and equivalents 3,224 1,589
Cash and equivalents at beginning of period 22,700 18,494
------- ------
Cash and equivalents at end of period $25,924 20,083
======= ======
See accompanying notes to condensed consolidated financial statements.
4
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information included herein reflects all adjustments (none of which
were other than normal recurring accruals) which, in the opinion of the
Company, are necessary to a fair statement of the financial position as
of August 31, 1998 and February 28, 1998, and the results of operations
and cash flows for the three months and six months ended August 31,
1998 and 1997.
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
August 31, 1997 earnings per share calculation to reflect the adoption
of SFAS 128.
3. Stock Option Plans
As of August 31, 1998, the Company has reserved 1,127,212 shares of
common stock under incentive stock option plans.
4. Inventories
The Company uses the Last-In, First-Out (LIFO) method of pricing the
raw material content of most of its business forms inventories, and the
First-In, First-Out (FIFO) method is used to value the remainder. The
following table summarizes the components of inventory at the different
stages of production (in thousands of dollars):
August 31, February 28,
1998 1998
---------- -----------
Raw material $3,196 4,640
Work-in-process 768 1,065
Finished goods 1,741 2,358
------ -----
$5,705 8,063
====== =====
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 three months and six months ended August 31, 1998 or 1997.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At August 31, 1998, the Company's financial position continues to be
strong. Working capital decreased from $43,264,000 at February 28, 1998 to
$43,187,000 at August 31,1998. The decrease is due to capital investment
requirements and a $3,300,000 treasury stock purchase. The Company has
$25,924,000 in cash and equivalents and $157,000 in long-term debt, less
current installments.
Results of Operations
Net sales for the three months and six months ended August 31, 1998
decreased 3.7% and 3.9% respectively from the corresponding period in the
prior year. The sales decline for the three months and six months is
attributable to the sale in January 1998 of the company's commercial
printing operation in Seattle. Sales on a year-to-year basis, excluding
the impact of Seattle sales in the prior year were flat. Gross Profit
Margins increased .4% and 3.1% respectively for the three months and six
months ended August 31, 1998 compared to the same periods in the prior
year. Selling, general and administrative expenses for the three and six
month periods ended August 31, 1998 decreased 12.2% and 10.7% respectively
compared to the corresponding periods in the prior year. The decreases are
primarily due to the restructuring of the Company's sales force and the
January 1998 sale of the Company's commercial printing operation in
Seattle. Net earnings increased 26.5% and 32% respectively for the three
months and six months ended August 31, 1998 from the corresponding period
in the prior year. Basic and diluted earnings per share increased $.04
and $.10, respectively, for the three months and six months ended August
31, 1998 from the corresponding periods of last year. The per share
earnings were based upon three months and six months weighted average
shares outstanding of 16,362,685 and 16,394,828, respectively at August 31,
1998, and 16,438,126 and 16,438,199 weighted average shares outstanding at
August 31, 1997. Net earnings and earnings per share increased because
productivity improvements and decreased selling, general and administrative
expenses. The effective rate of the Federal and state income tax expense
was 36.8% and 36.9% for the three months ended August 31, 1998 and August
31, 1997 respectively, and 36.8% and 37.1% for the six months ended August
31, 1998 and August 31, 1997.
Revenue Growth
One of the Company's strategies for achieving revenue growth is to
seek out partnering arrangements with trade dealers and manufacturers. The
Company is currently in active negotiations with certain of these
manufacturers. As a result of these negotiations, the Company is
processing orders which will result in additional revenues in the fiscal
quarter ending November 30, 1998, the amount of which cannot be determined
at the present time. This partnering arrangement is expected to have a
significant positive impact on revenues in future years, although there can
be no assurance the Company will be able to complete this arrangement.
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
6
change its current reportable business segments to ones
reflecting the organization structure of the Company.
Year 2000 issues
The Year 2000 will have a broad impact on the business environment in
which the Company operates due to the possibility that many computerized
systems across all industries will be unable to process information
containing dates beginning in the Year 2000. In 1995, for reasons
basically unrelated to preparations for the Year 2000, the Company invested
approximately $3,000,000 in a project to replace substantially all of its
existing computer hardware and software. One of the benefits of this
project was to bring a major portion of the Company's technology into Year
2000 readiness.
At the present time, the Company is concentrating its efforts to
insure readiness for the Year 2000 in the areas of determining the state of
readiness of major suppliers of goods and services, and to surveying the
Year 2000 readiness of various ancillary equipment used throughout the
Company in functions generally unrelated to information technology
function. Both of these projects are scheduled to be completed by January
1999. The Company does not expect either of these projects to require any
significant expenditure of funds. Any additional Year 2000 readiness
requirements, which these projects may disclose, will be promptly evaluated
and corrected.
The Company believes that substantially all of its internal
technology systems are prepared for Year 2000 at this time. Any adverse
consequences to the Company as a result of lack of preparations for Year
2000 will occur as a result of external forces. To the extent that it is
possible to determine if any of the Company's suppliers of goods and
services are unprepared for Year 2000, changes in suppliers will be made
where possible. The Company does not expect major disruptions as a result
of any controllable factors relating to preparations for Year 2000.
Forward looking statement
Management's result of operations contains forward-looking statements
that reflect the Company's current view with respect to future revenues and
earnings. These statements are subject to numerous uncertainties,
including (but not limited to) the rate at which the business forms market
is contracting, the application of technology to the production of business
forms, demand for the Company's products in the context of a contracting
market, variability in the prices of paper and other raw materials, and
competitive conditions in the business forms market. Because of such
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of October 15, 1998.
7
PART II. OTHER INFORMATION
Item 5. Other Information
The Company intends to exercise discretionary voting authority granted
under any proxy that is executed and returned to the Company on any matter
which may properly come before the 1999 Annual Meeting of Shareholders,
unless written notice of the matter is delivered to the Company at its
principal executive offices in Ennis, Texas, addressed to the Secretary of
the Company, not later than April 6, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated July 28, 1998 was filed, under
Item 5 of the form, its press release dated July 27, 1998,
announcing early retirement of Nelson Ward, the Company's
President, Chief Operating Officer and Director.
A Current Report on Form 8-K dated August 5, 1998, was filed,
under Item 5 of the form, its press releases dated July 31, 1998
announcing changes in its Board of Directors and a repurchase of
shares. The company also announced appointments to fill the
offices of President and Treasurer.
8
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 October 15, 1998 /s/Harve Cathey
Harve Cathey
Principal Financial and Accounting
Officer and Treasurer