-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OeQ2frgySKqTXyQVD86W7VZQqoG/9YMNj0UfH/vGBwn52z/PN1vnLepQJY3dvVpP HJGdIznY5fiCtoW5E2geUQ== 0000033002-01-500005.txt : 20010528 0000033002-01-500005.hdr.sgml : 20010528 ACCESSION NUMBER: 0000033002-01-500005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010525 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENNIS BUSINESS FORMS INC CENTRAL INDEX KEY: 0000033002 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 750256410 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05807 FILM NUMBER: 1647735 BUSINESS ADDRESS: STREET 1: 1510 N HAMPTON SUITE 300 CITY: DESOTO STATE: TX ZIP: 75115 BUSINESS PHONE: 9722287801 MAIL ADDRESS: STREET 1: 1510 N HAMPTON SUITE 300 CITY: DESOTO STATE: TX ZIP: 75115 FORMER COMPANY: FORMER CONFORMED NAME: ENNIS TAG & SALESBOOK CO DATE OF NAME CHANGE: 19700805 10-K405 1 kfeb2001main.txt 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ 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 (IRS Employer incorporation or organization) Identification No.) 1510 N. Hampton, Suite 300, DeSoto, TX 75115 - ---------------------------------------- ------------------ (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (972)228-7801 -------------- Securities registered pursuant to Section 12(b) of the Act: Number of Shares Outstanding on Name of each exchange Title of each class April 16, 2001 on which registered - ------------------- ---------------- ----------------------- Common Stock, par value 16,270,765 New York Stock Exchange $2.50 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of April 16, 2001 (15,400,234 shares) was $123,047,870. Documents Incorporated by Reference: Portions of 2001 Annual Report to Shareholders - Incorporated in Parts I & II Portions of Proxy Statement dated May 21, 2001 - Incorporated in Part III 1 SECURITIES AND EXCHANGE COMMISSION FORM 10-K PART I ------ Item 1. Business. - ------- --------- Ennis Business Forms, Inc. was organized under the laws of Texas in 1909. Ennis Business Forms, Inc. and its subsidiaries (collectively "Ennis" or the "Company") operates in three business segments. The Forms Solutions Group is primarily in the business of manufacturing and selling business forms and other printed business products. The Promotional Solutions Group is primarily in the business of design, production and distribution of printed and electronic media, presentation products, flexographic printing, advertising specialties and Post-it (registered trademark) Notes. The Financial Solutions Group designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. Additional information concerning the segments is incorporated herein by reference to page 33 of the Company's 2001 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Approximately 95% of the business products manufactured by Ennis are custom and semi-custom, constructed in a wide variety of sizes, colors, number of parts and quantities on an individual job basis depending upon the customers' specifications. Ennis operates twenty-nine manufacturing locations in twelve strategically located states providing the Ennis dealer a national network for meeting users' demands for hand or machine written records and documents. For the year ended February 28, 2001 the sale of business products represents approximately 86% of consolidated net sales. While it is not possible, because of the lack of adequate statistical information, to determine Ennis' share of the total business products market, management believes Ennis is one of the largest producers of business forms in the United States distributing primarily through independent dealers, and that its business forms offering is more diversified than that of most companies in the business forms industry. The forms industry is divided into two major competitive segments. One segment sells directly to end users, and is dominated by a few large manufacturers. The other segment, which the Company serves, distributes forms and other business products through a variety of resellers. The Company believes it is the largest forms company which serves this segment of the market. There are a number of competitors which operate in this segment ranging in size from single employee-owner operations to multi- plant organizations. The Company's strategic plant locations and buying power permit it to compete on a favorable basis within this segment of the market on the competitive factors of service, quality and price. Distribution of business forms and other business products throughout the United States is primarily through independent dealers, including business forms distributors, stationers, printers, computer software developers, etc. No single customer accounts for as much as ten percent of consolidated net sales. 2 Raw materials principally consist of a wide variety of weights, widths, colors, sizes and qualities of paper for business products purchased from a number of major suppliers at prevailing market prices. Business form usage is generally not seasonal. General economic conditions are the predominant factor in quarterly volume fluctuations. Patents, Trademarks, Licenses, Franchises and Concessions: - ---------------------------------------------------------- The Company does not have any significant patents, trademarks, licenses, franchises or concessions. Backlog: - -------- At February 28, 2001 the Company's backlog of business forms orders believed to be firm was approximately $4,952,000 as compared to approximately $6,663,000 at February 29, 2000. The backlog of orders for tools, dies and special machinery at February 28, 2001 was approximately $1,896,232 as compared to approximately $2,645,000 at February 29, 2000. The backlog of orders of promotional media at February 28, 2001 was approximately $9,257,065 as compared to approximately $9,340,000 at February 29, 2000. The backlog of financial forms at February 28, 2001 was approximately $2,500,000. Approximately $2,000,000 of the promotional media backlog is not expected to be filled in the fiscal year ending February 28, 2002. Research and Development: - ------------------------- While the Company continuously looks for new products to sell through its distribution channel, there have been no material amounts spent on research and development in the fiscal year ended February 28, 2001. Environment: - ------------ There have been no material effects on the Company arising from compliance with Federal, State or local provisions or regulations relating to the protection of the environment. Employees: - ---------- At February 28, 2001, the Company had approximately 2,181 employees, of whom approximately 502 were represented by three unions and under five separate contracts expiring at various times. 3 Item 2. Properties. - ------- ----------- The Company operates twenty-nine manufacturing facilities located in twelve states as follows: Approximate Square feet of floor space Location Owned Leased Total -------- ------ ------- ----- Forms Solutions Group ---------------------- Ennis, Texas Three Manufacturing Facilities 325,118 - 325,118 Chatham, Manufacturing Virginia 127,956 - 127,956 Paso Robles, Manufacturing California 94,120 - 94,120 Knoxville, Manufacturing Tennessee 48,057 - 48,057 Portland, Manufacturing Oregon - 47,000 47,000 Fort Scott, Manufacturing Kansas 86,660 - 86,660 DeWitt, Iowa Two Manufacturing Facilities 95,000 - 95,000 Dallas, Texas Manufacturing 82,400 - 82,400 Moultrie, Manufacturing Georgia 25,000 - 25,000 Coshocton, Ohio Manufacturing 24,750 - 24,750 Houston, Texas Manufacturing - 40,800 40,800 San Antonio, Manufacturing Texas 47,426 - 47,426 ------- ------- --------- 956,487 87,800 1,044,287 ======= ======= ========= Promotional Solutions Group --------------------------- Wolfe City, Two Manufacturing Texas Facilities 119,259 - 119,259 Macomb, Manufacturing Michigan 56,350 - 56,350 Bell, Manufacturing California - 19,286 19,286 Denver, Four Manufacturing Colorado Facilities and Warehouse - 186,528 186,528 Dallas, Texas Manufacturing - 23,976 23,976 ------- ------- --------- 175,609 229,790 405,399 ======= ======= ========= Financial Solutions Group ------------------------- Brooklyn Park, Manufacturing Minnesota 94,800 - 94,800 Roseville, Manufacturing Minnesota - 42,500 42,500 Arden Hills, Warehouse Minnesota - 23,684 23,684 Nevada, Iowa Manufacturing 48,500 - 48,500 Bridgewater, Manufacturing Virginia - 27,000 27,000 Golden, Manufacturing Colorado - 23,000 23,000 ------- ------- --------- 143,300 116,184 259,484 ======= ======= ========= Administrative Offices ---------------------- DeSoto, Texas Executive and Administrative Offices - 13,577 13,577 Ennis, Texas Administrative Offices 9,300 - 9,300 ------- ------- --------- 9,300 13,577 22,877 ======= ======= ========= 4 All of the Forms Solutions Group properties are used for the production, warehousing and shipping of business forms and other business products except the Dallas, Texas plant, which is used for the production of tools, dies and special machinery. The Promotional Solutions Group properties are used for the production, warehousing and shipping of the following: business forms, flexographic printing, advertising specialties and Post-it (registered trademark) Notes (Wolfe City, Texas); presentation products (Macomb, Michigan and Bell, California); and printed and electronic promotional media (Denver, Colorado). All of the Financial Solutions Group properties are used for the production of warehousing and shipping of forms. The plants are being operated at normal productive capacity. Productive capacity fluctuates with the ebb and flow of market demands and depends upon the product mix at a given point in time. Equipment is added as existing machinery becomes obsolete or unrepairable and as new equipment becomes necessary to meet market demands; however, at any given time these additions and replacements are not considered to be material additions to property, plant and equipment, although such additions or replacements may increase a plant's efficiency or capacity. All of the foregoing facilities are considered to be in good condition. The Company does not anticipate that substantial expansion, refurbishing or re-equipping will be required in the near future. All of the rented property is held under leases with original terms of two or more years, expiring at various times from May 2001 through December 2005. No difficulties are presently foreseen in maintaining or renewing such leases as they expire. Item 3. Legal Proceedings. - ------- ------------------ There are no material pending legal proceedings or litigation pending or threatened to which the registrant or its subsidiaries are parties or of which property of the registrant or its subsidiaries is the subject. Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- None. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 21, 2001. The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by each such person and each such person's principal occupation or employment during the past five years. All such persons have been elected to serve until the next annual election of officers (which shall occur on June 21, 2001) and their successors are elected, or until their earlier resignation or removal. No person other than those listed below has been chosen to become an executive officer of the registrant. 5 Keith S. Walters, Chairman of the Board, CEO and President, age 51, was elected Chief Executive Officer in November 1997, Chairman in June 1998 and President in July 1998. Mr. Walters was employed by the Company in August 1997 and was elected to the office of Vice President Commercial Printing Operations at that time. Prior to joining the Company, Mr. Walters was with Atlas/Soundolier, a division of American Trading and Production Company, for 8 years, most recently as Vice President of Manufacturing. Prior to that time, Mr. Walters was with the Automotive Division of United Technologies Corporation for 15 years, primarily in manufacturing and operations. Ronald M. Graham, Vice President Human Resources, age 53, was elected Vice President Human Resources in June 1998. Mr. Graham was employed by the Company in January 1998 as Director of Human Relations. Prior to joining the Company, Mr. Graham was with E. V. International, Inc. (formerly Mark IV Industries, Inc.) for 17 years as Corporate Vice President, Administration. Prior to that time, Mr. Graham was with Sheller-Globe (door div.) for 3 years as Corporate Director of Human Resources. Robert M. Halowec, Vice President Finance and Chief Financial Officer, age 46, was elected Vice President Finance and Chief Financial Officer in January 1999. Mr. Halowec was employed by the Company in January 1999 as Vice President Finance and Chief Financial Officer. Prior to joining the Company, Mr. Halowec was with Moore Corporation for 13 years, most recently as Financial Director of Moore's Cut Products Group in Nacogdoches, Texas. Harve Cathey, Secretary and Treasurer, age 62, was elected Secretary in October 1998 and Treasurer in July 1998. Mr. Cathey has been employed by the Company continuously since April 1969. Previously, Mr. Cathey served as Vice President-Finance and Secretary (from September 1983 to September 1996) and Treasurer (from June 1978 to December 1992). There is no family relationship among or between any executive officers of the registrant, nor any family relationship between any executive officers and directors. 6 PART II ------- Item 5. Market for the Registrant's Common Equity and Related - ------- ----------------------------------------------------- Shareholder Matters. -------------------- The Company's common stock is traded on the New York Stock Exchange. The following table sets forth for the periods indicated: the high and low closing sales prices and the common stock trading volume as reported by the New York Stock Exchange and dividends declared by the Company. Common Stock Trading Common Stock Volume Dividends Price Range (number of per share ----------- shares in of Common High Low Thousands) Stock ---- ---- ---------- ----- Fiscal Year Ended February 28, 2001 First Quarter $8.2500 $6.6875 1,284 $0.155 Second Quarter 8.5000 6.7500 1,461 0.155 Third Quarter 8.0000 6.5625 1,225 0.155 Fourth Quarter 8.4500 7.0000 1,496 0.155 Fiscal Year Ended February 29, 2000 First Quarter $9.0625 $7.8750 1,371 $0.155 Second Quarter 9.7500 8.3125 1,982 0.155 Third Quarter 9.5625 8.0000 1,495 0.155 Fourth Quarter 8.9375 7.2500 925 0.155 On April 16, 2001, the last sale price of the common stock was $7.99 per share and the number of shareholders of record was 1,507. 7 Item 6. Selected Financial Data. - ------- ------------------------ The information required by this item is incorporated herein by reference to page 14 of the Company's 2001 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7. Management's Discussion and Analysis of Financial - ------- ------------------------------------------------- Condition and Results of Operations. - ------------------------------------ The information required by this item is incorporated herein by reference to pages 15 through 17 of the Company's 2001 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7a. Quantitative and Qualitative Disclosure About Market - -------- ---------------------------------------------------- Risk. - ----- The information required by this item is incorporated by reference to pages 16 through 17 of the Company's 2001 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 8. Financial Statements and Supplementary Data. - ------- -------------------------------------------- The information required by this item is incorporated herein by reference to pages 20 through 35 of the Company's 2001 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 9. Changes in and Disagreements with Accountants on - ------- ------------------------------------------------ Accounting and Financial Disclosure. - ------------------------------------ Not applicable. 8 PART III -------- Item 10. Directors and Executive Officers of the Registrant. - -------- --------------------------------------------------- For information with respect to executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. The information required by this item regarding Directors is incorporated by reference to pages 3 through 7 of the Company's Proxy Statement dated May 21, 2001. Item 11. Executive Compensation. - -------- ----------------------- The information required by this item is incorporated herein by reference to pages 6 through 13 of the Company's Proxy Statement dated May 21, 2001. Item 12. Security Ownership of Certain Beneficial Owners and - -------- --------------------------------------------------- Management. - ----------- The information required by this item is incorporated herein by reference to pages 2 through 3 of the Company's Proxy Statement dated May 21, 2001. Item 13. Certain Relationships and Related Transactions. - -------- ----------------------------------------------- There were no significant transactions between the Company and any directors or officers during the past fiscal year. 9 PART IV ------- Item 14. Exhibits, Financial Statement Schedule, and Reports on - -------- ------------------------------------------------------ Form 8-K. --------- (a) 1. (a) 2. Financial Statements and Financial Statement Schedule. See accompanying index to financial statements and financial statement schedule for a list of all financial statements and the financial statement schedule filed as part of this report (page S-1). 3. Exhibits. (i) Restated Articles of Incorporation as amended through June 23, 1983 with attached amendments dated June 20, 1985, July 31, 1985 and June 16, 1988 incorporated herein by reference to Exhibit 5 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1993. (ii) Bylaws of the Registrant as amended through October 15, 1997 incorporated herein by reference to Exhibit 3(ii) to the Registrants Form 10-Q Quarterly Report for the quarter ended November 30, 1997. (13) Portions of 2001 Annual Report to Shareholders. (21) Subsidiaries of Registrant. (23) Independent Auditors' Consent. (b) Reports on Form 8-K: The Company filed a report on Form 8-K on June 19, 2000 (as amended by an Amendment on Form 8-K/A filed on August 9, 2000) regarding the acquisition of Northstar Computer Forms, Inc. pursuant to Item 2 and 7 of such Form. 10 UNDERTAKINGS WITH RESPECT TO REGISTRANT'S REGISTRATION STATEMENTS, FORM S-8 (NUMBERS: 2-81124, 333-58963, 333-44624, 333-38100) (1) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, forming a part of the referenced registration statement, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered, to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (2) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus to each employee to whom the prospectus is sent or given a copy of the registrant's annual report to shareholders for its last fiscal year, unless such employee otherwise has received a copy of such report, in which case the registrant shall state in the prospectus that it will promptly furnish, without charge, a copy of such report on written request of the employee. If the last fiscal year of the registrant has ended within 120 days prior to the use of the prospectus, the annual report of the registrant for the preceding fiscal year may be so delivered, but within such 120 day period the annual report for the last fiscal year will be furnished to each such employee. (3) The undersigned registrant hereby undertakes to transmit or cause to be transmitted to all employees participating in the plan who do not otherwise receive such material as shareholders of the registrant, at the time and in the manner such material is sent to its shareholders, copies of all reports, proxy statements and other communications distributed to its shareholders generally. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) ENNIS BUSINESS FORMS, INC. Date: May 25, 2001 BY: /s/ Keith S. Walters ----------------------------- Keith S. Walters, Chairman of the Board, Chief Executive Officer and President Date: May 25, 2001 BY: /s/ Robert M. Halowec ----------------------------- Robert M. Halowec Vice President - Finance and Chief Financial Officer Date: May 25, 2001 BY: /s/ Harve Cathey ----------------------------- Harve Cathey Secretary and Treasurer, Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: May 25, 2001 BY: /s/ Keith S. Walters ------------------------------ Keith S. Walters, Director Date: May 25, 2001 BY: /s/ Harold W. Hartley ------------------------------ Harold W. Hartley, Director Date: May 25, 2001 BY: /s/ Robert L. Mitchell ------------------------------ Robert L. Mitchell, Director Date: May 25, 2001 BY: /s/ Thomas R. Price ------------------------------ Thomas R. Price, Director Date: May 25, 2001 BY: /s/ Kenneth G. Pritchett ------------------------------ Kenneth G. Pritchett, Director 12 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following is a list of the financial statements and financial statement schedule which are included in this Form 10-K or which are incorporated herein by reference. The consolidated financial statements of the Company included in the Company's 2001 Annual Report to Shareholders are incorporated herein by reference in Item 8. With the exception of the pages listed in this index and pages listed in Items 1, 6, 7 and 8 incorporating certain portions of the Company's 2001 Annual Report to Shareholders, such 2001 Annual Report to Shareholders is not deemed to be filed as part of this Form 10-K. 2001 Annual Report to Form Share- 10-K holders ----- ------- Consolidated Financial Statements of the Company: Consolidated Balance Sheets - February 28 or 29, 2001 and 2000 22 Consolidated Statements of Earnings - years ended February 28 or 29, 2001, 2000 and 1999 20 Consolidated Statements of Cash Flows - years ended February 28 or 29, 2001, 2000 and 1999 21 Notes to Consolidated Financial Statements 23 - 34 Independent Auditors' Report 35 Independent Auditors' Report on Financial Statement Schedule S-2 Financial Statement Schedule for three years ended February 28 or 29, 2001, 2000 and 1999 II - Valuation and qualifying accounts S-3 All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statement or related notes. S-1 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Shareholders Ennis Business Forms, Inc.: Under date of April 12, 2001, we reported on the consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 2001 and February 29, 2000, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended February 28, 2001 which are included in the 2001 annual report to shareholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index to financial statements and financial statement schedule on page S-1. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Dallas, Texas April 12, 2001 S-2 Schedule II ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended February 28, 2001 (In thousands)
Additions Balance at Charged Charged Balance beginning to to other at end Description of year operations accounts Deductions of year Year ended February 28, 2001: Allowance for doubtful receivables $1,263 901 241(1) 921(3) 1,484 ====== === ===== ===== ===== Year ended February 29, 2000: Allowance for doubtful receivables $1,202 481 59(2) 479(3) 1,263 ====== === ===== ===== ===== Year ended February 28, 1999: Allowance for doubtful receivables $1,006 542 96(2) 442(3) 1,202 ====== === ==== ===== =====
Notes: (1) Principally Allowance from Acquisition of Northstar Computer Forms, Inc. (2) Principally collection of accounts previously charged off. (3) Charge-off of uncollectible receivables. S-3 EX-13 2 ex13.txt EXHIBIT 13 - ANNUAL REPORT Contents 2 Letter To Shareholders 6 Rewarding Partnerships 8 Forms Solutions Group 10 Promotional Solutions Group 12 Financial Solutions Group 14 Selected Financial Data 15 Management's Discussion and Analysis 18 Ten-Year Financial Review 20 Consolidated Financial Statements 35 Independent Auditors' Report 36 Facility Descriptions Annual Summary Fiscal Year Fiscal Year Ended Ended Percentage February 28, February 29, Increase 2001 2000 (Decrease) Net sales(1) $229,186,000 $176,600,000 29.8 Earnings before income taxes 21,571,000 24,041,000 (10.3) Income taxes 8,394,000 8,918,000 (5.9) Net earnings 13,177,000 15,123,000 (12.9) Dividends 10,075,000 10,068,000 .1 Per share of common stock: Basic and diluted earnings .81 .93 (12.9) Dividends .62 .62 --- Weighted average number of shares of common stock outstanding 16,246,545 16,249,861 --- (1) In accordance with recent accounting requirements, net sales for all periods reported have been restated to include revenues from shipping and handling charges. See accompanying notes to consolidated financial statements. 1 Letter To Shareholders Ennis has been actively engaged with acquisition and major organization change this past year. The Company is now divided into three operating groups: Forms Solutions, Promotional Solutions, and Financial Solutions. Over the past two years, we built a network of Ennis Forms facilities that grew beyond their original local market influence. By developing this ability through our electronic infrastructure, we give our customers a local source of supply, and national production capabilities when needed. We further applied that technology to cross-selling among our various businesses. The result has been a continuing stability in our Forms business, which distinguishes Ennis from the industry trends. These favorable trends are continuing into the new fiscal year, but the market for traditional forms is flat, even the best forms company will eventually need to diversify. Our new structure recognizes this reality. Ennis remains committed to our core business, and we have expanded into related printing products and services. The past year produced mixed results for Ennis Business Forms. Our sales grew by 29.8 percent for the year, a new record for growth, but our profits declined in the fourth quarter. The disappointment in profits came from two primary areas: the consolidation of the Louisville operation into the Promotional Solutions Group and lower than expected sales in our Promotional Solutions and Financial Solutions Groups. The Promotional Solutions Group was created from a combination of a new acquisition (Adams McClure) and previous Ennis plants whose customer base showed more opportunity in this market segment. One of those facilities was the Louisville operation. This business had not been operating profitably. The plant was closed and its activities were consolidated into the Denver facilities. The consolidation into our Denver operations was the largest contributor to our shortfall in profit. The main factors were hiring problems in Denver, equipment damage from the move, excessive waste and obsolescence problems from the Louisville inventory. Also, a new customer contract significantly increased the volume unexpectedly during the move, complicating the process. Currently, we have reorganized the production process and are satisfied that the problems are behind us. We believe that the Promotional Solutions Group will be a significant growth area and profit contributor to Ennis in the future. The Financial Solutions Group, formerly Northstar Computer Forms, which was purchased in June of 2000, is an exciting acquisition for Ennis. Northstar is a well respected business for both 2 its products and use of advanced technology. Ken Overstreet, the former President of Northstar, continues that role with Ennis for the Financial Solutions Group. Since the retirement of Bob Knappe Sr., President of the Promotional Solutions Group, Ken has taken on the additional responsibilities as President of the Promotional Solutions Group. As stated above, the Financial and Promotional Groups each experienced sales levels below our expectations. Both groups have made significant adjustments to their cost structure in adjusting to the lower volume, including closing a small facility in Wisconsin. The sales from this closure were retained and transferred to another Ennis facility in DeWitt, Iowa. The move was completed on time and under budget. We are pleased that the Northstar Company has been able to service the debt Ennis incurred in the acquisition, and has still been accretive to earnings. The acquisition debt has been reduced by $10,850,000 (29.7%) in 9 months. The cash flow from the Financial Solutions Group has exceeded our expectations. In addition, the cross-selling efforts which began in the Forms Solutions Group are now being expanded into the Financial Solutions Group. Several current Ennis customers are now becoming important new customers for the former Northstar Company. More information on the Financial Solutions Group can be found on pages 12 and 13. The Forms Solutions Group experienced another year of excellent profitability. Our gross margin continued to improve from 30.2% to 31.3%. We know that our Forms Solutions Group can meet market prices and still make a good profit. In an industry which is consolidating rapidly, we feel Ennis has a cost advantage on products that are in the medium to short-run market segment. This portion of the forms market is not declining at the rate of the long-run producers. As a trade-only supplier, our customer base is actually growing. The decisions made by several of the large direct selling manufacturers are causing increased outsourcing. The distributor side of the business has been quite active in pursuing the customers affected by this downsizing. Ennis currently does business with the majority of these distributors. We are confident Ennis is a very competitive supplier, and currently we have an aggressive program to pursue this developing business. 3 Fiscal 2001 Results As stated earlier, our goal of revenue growth was achieved, but our profits declined in the fourth quarter. Specifically, for the fiscal 2001 twelve-month period, the Company reported net earnings of $13,177,000 or $.81 per diluted share, compared with net earnings of $15,123,000 or $.93 per diluted share, for the fiscal 2000 year. This is a 12.9% decrease over last year. Net sales amounted to $229,186,000 as compared to $176,600,000 for the fiscal 2000 year. This is a 29.8% increase over last year. Financial Condition Our financial condition remains strong. At February 28, 2001, the ratio of current assets to current liabilities was 3.3 to 1 with a debt to equity ratio of .26. Our Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) or cash flow remains very strong at $33,347,000, an increase of 9% over last year. Finally, our Return on Equity amounted to 14.6%. Electronic Commerce Ennis continues to recognize the importance of electronic commerce in the future. In fiscal year 2001, the Company launched its new business to business (B2B) website. We are pleased to have successfully piloted it to selected customers. In fiscal 2002, the website will be introduced to an expanded group of customers. We have found that such applications do not fit the needs of all our customers, and will continue to offer various modes of transaction processing at the customer's choice. The Company also continues to develop Electronic Data Interchange (EDI) and Internet solutions as an option for a wide range of business transactions with its larger customers. Finally, the Company continues the major upgrade of its computer system infrastructure to an Enterprise Resource Planning (ERP) system. We have successfully installed three operational sites, including our largest facility, and have three currently in development. Ennis has been able to avoid the common business interruption problems that often accompany these improvements. Dividend Policy The Company's dividend policy continues to be an important part of our commitment to rewarding shareholders. The Company paid $.62 a share again in fiscal 2001. We are proud of our 28 years of consecutive dividend payments. While various uses of the Company's cash are considered on a regular basis by the Board of Directors, it continues to be the Board and Management's belief that the dividend is of great importance to the majority of our shareholders. With our excellent cash flow, the Board of Directors does not anticipate a change in the Company's dividend policy. 4 Management Changes In October, Ken Overstreet was appointed to the Board of Directors. As stated earlier, upon the retirement of Bob Knappe Sr., Ken was also named President of the Promotional Solutions Group. Future We see our fiscal year 2002 as one of capitalizing on the new opportunities this structure has created. Ennis now has an extensive product line to offer to our distributors. The integration of Northstar has gone smoothly. The cultures of our two companies have complemented each other quite well. Ennis has established a new image in our marketplace, which is opening sales possibilities. Our presence in the industry with expanded product lines, and a strong competitive price and quality, have been well received. The challenge of a mature product line in forms is being addressed with higher growth opportunities, such as point-of- purchase products, screen-printed large format products, holograms for security documents, gift certificates and many others. The state of the general economy is always a concern, but demand for our products has historically fallen less than typical consumer goods. As the consolidation of the printing industry continues, we believe there will be companies available of interest to our three groups, but our focus continues to be solid integration before moving aggressively into acquisitions again. We will not be a consolidator without a plan for profitability. We would like to thank our employees, customers and shareholders for their continued support. We would particularly like to welcome the large number of new customers and employees. Our commitment to increasing shareholder value through profitable growth remains our top priority. /s/ Keith S. Walters Keith S. Walters Chairman, CEO and President 5 Rewarding Partnerships The new millennium has brought with it many new key words and phrases not only to the printing industry, but also to the business world in general. Relationship selling, strategic partnerships, solutions, customer relationship marketing (CRM), and E-Commerce have all affected the way we continue to conduct business. Ennis has incorporated many new programs that focus on the above concepts, but none more important than strategic partnerships. Ennis Business Forms continues to thrive due to the relationships developed through our distributor customer base, internal manufacturing capabilities and key vendors. These relationships have solidified existing accounts while allowing expansion into new or underdeveloped accounts. Rewarding partnerships are built when units come together to the benefit of both. The relationships and partnerships built by Ennis are of the rewarding type. Not only does Ennis succeed, but our customers and vendors also join us in success. Partnerships with Customers Over the last few years, new and exciting key relationships have been developed within our distributor base. An example of a rewarding partnership is Ennis' relationship with Safeguard Business Systems. Safeguard Business Systems, a distributor based company focusing on small businesses, selected Ennis as a strategic partner in January 2000. This partnership has allowed Safeguard to strengthen its financial standing while offering their distributors an expanded product offering. The results for FY 2001 have been promising, with year-to-year sales increasing by 145%. The increase in sales and efficiencies benefited both Ennis and Safeguard. In FY 2002, efforts will be targeted to increase sales within additional product categories such as tags, labels, and a specialized bank marketing program that was developed through the Financial Solutions Group. Partnerships with Suppliers We rely on our suppliers to provide us with the tools to produce our industry leading products. A normal customer/supplier relationship would not allow Ennis to meet the expectations 6 of our customers. Partnerships developed between Ennis and our suppliers have given us an advantage in the marketplace. These advantages can be found through long term supply contracts, cooperative advertising funds, and the many smaller programs developed especially for Ennis. Assistance in marketing the vendor's product, forecasting usage, and other tools allow Ennis to stay competitive in a time when many companies in our industry are having difficulties. The partnership forged between Ennis and Mead Carbonless Papers is a fine example. This relationship benefits both companies. Both companies are trying to increase market share in a very competitive market. The partnership developing between Ennis and Mead will assist in helping both companies meet the expectations of their customers and the industry. Partnerships Among Ennis Locations With the addition of Northstar and Adams McClure, Ennis has entered into another form of relationship, internal partnerships. This type of partnership is found among the three Solutions Groups. Ennis' 29 manufacturing facilities rely on each other for assistance each day. Partnerships have been developed among several of our original locations and our newest acquisition, Northstar. In addition to the opportunities within Northstar, Adams McClure has been able to move production of several previously outsourced items into our Admore facility in Macomb, MI. Joint sales calls, transferring of orders, and sharing of knowledge have benefited the combined Ennis. We have only just begun to tap into the opportunities available through cross-selling the three different groups. It is our focus to continue to develop these types of relationships among each of our plants over the next year. Rewarding partnerships have been developed with our manufacturing locations, vendors, and most importantly numerous customers. As our product line continues to grow and the industry continues to consolidate, developing rewarding partnerships becomes more important. Ennis' focus over the next year will be to develop these existing relationships to the optimum level, while searching for new relationships that would be beneficial to both parties. 7 Forms Solutions Group Ennis Business Forms for many years has been a leading wholesale manufacturer of business forms and related products. Ennis continues this tradition through its Forms Solutions Group. This Group remains a vibrant and encouraging fixture for the more than 50,000 distributors, printers, dealers, and manufacturers who have grown to depend on Ennis' stability. The Forms Solutions Group offers not only one of the most extensive product offerings available, but also enables customers to chose from plants nationwide to best serve their geographic needs. The Forms Group now consists of 12 manufacturing facilities in 9 states. Stability The fundamental task of the Forms Solutions Group is to insure that its manufacturing plants provide firm financial stability for Ennis as the Company expands into products and markets outside of the traditional forms industry. Ennis' Forms Solutions Group has again, this year with the support of its loyal customers and vendors, provided a solid financial base in both revenues and income for the corporation. It is not an accident that the Forms Group has outperformed its competitors in a year when most print manufacturers were struggling. The diverse make- up and nationwide expanse of the Ennis customer base serves to insulate the Forms Solutions Group to a degree from the negative pressures other competitors experience within the industry. As we look to the future, the Forms Solutions Group plants will continue to build relationships that are more than simply a customer/vendor. They will become partnerships. Ennis will provide not only the products and services necessary for our partners to succeed, but the security that the Forms Solutions Group will continue to meet their ever-changing needs. Integration FY 2001 has seen the initial rollout of our ERP system, which will be extended to all of the Forms Solutions Group plants within the next 16 months. It is our belief that this system, once fully implemented, will provide a distinct competitive advantage in servicing our 50,000 customers, whether by phone, fax, email or the Internet. This software package offers Ennis a comprehensive view of every aspect of sales and production, and we believe it to be a state-of-the-art system that will be seldom matched or surpassed in our industry. The development of the Promotional and Financial Solutions Group will continue to benefit the Forms Group. Cross-selling opportunities exist between both our internal manufacturing capabilities and our expansive customer bases. We will continue focusing on additional opportunities among the three Solutions Groups in FY 2002. Growth The Forms Solutions Group customer base continues to grow with more than 3,000 new traditional and non-traditional accounts opening in a year, which has seen continued consolidation within the industry. In the coming year, it is the Group's intent to offer more 8 specialized service to all customer classes. The Forms Group will focus increased efforts on the fastest growing customer classes of dealers and distributors. Utilizing the strengths of both a National and Regional presence, our plants can offer competitive advantages to customers looking to form long-term alliances with the industry's leading wholesale manufacturer. To meet the growing demand for e-commerce, Ennis is now providing three of its catalogs and over 750 products for on-line Internet ordering. The Forms Solutions Group has been very proactive in developing an interactive website, www.ennis.com, which we expect to provide a solid platform for growth, not only for our own company, but for our customers as well. Pricing, product information, and online catalogs are currently available on the site. A well-funded professional effort is continuously active in monitoring, updating and expanding the website to insure that it is one of the most useful, secure and customer-friendly sites available in the industry. Ennis has been a lead company in the development of an Internet site that is specific to our industry and to the enhancement of the supply chain to which Ennis is committed. These efforts will be expanded in 2001 with customers soon having the ability to track orders and even place custom repeat orders on-line. Ennis' Forms Solutions Group is confident that our strong financial position, our national network of manufacturing plants, our extensive mix of quality products, and our loyal and diverse customer base will enable us to improve our market share. Our internal programs including both comprehensive cost reduction and vendor or supply chain alliances will insure that the Forms Group not only remains competitive but also profitable. 9 Promotional Solutions Group Ennis' recent acquisition, Adams McClure, is one of the industry's leading single source specialists in the design, production, and distribution of printed and electronic promotional media. Adams McClure is using a full-service, integrated capabilities approach to provide the production and distribution of point-of-sale programs for manufacturers, retailers, and advertising agencies. Their customers have come to depend on a unique combination of innovation, responsiveness and experience that are required for the successful execution of promotional programs. Adams McClure is a seven-year old company that has enjoyed significant revenue growth. Today, the Adams McClure companies have joined with two other manufacturing locations, Admore (presentation products) and Wolfe City Tag and Label (flexoprinting, advertising specialties, and Post-it (registered trademark) Notes), to form the Promotional Solutions Group. This is a time of dynamic change for the Group. The Promotional Solutions Group is privileged to serve some well- known key accounts in satisfying point-of-sale promotional products. These companies include 7-Eleven, Coors Brewing Company, BP/Amoco Oil Company, Burger King Corporation, Sonic Industries, Walt Disney, and the Pepsi-Cola Company as well as several of the top advertising agencies in the United States. This year the Promotional Solutions Group concentrated on providing additional products and services for existing customers. In addition, all product lines and services were introduced to other Ennis resellers. Stability In the process of combining the various business units, Adams McClure encountered several growth and control problems. New control procedures were instituted to provide accountability and cost control in order to maximize current profits as well as manage future growth. The product mix has been changed to delete unprofitable items and add new innovative products and services to enhance promotional programs. By combining existing capabilities with experience and new ideas, Adams McClure has become an industry leader in lithographic and screen printing on plastic. In addition to indoor and outdoor signage, they have developed capabilities in lenticular (multi- dimensional) printing which is unmatched in the industry. The Promotional Group facilities in Macomb, MI (Admore) and Wolfe City, TX continue to excel in their respective product lines. Providing resources and capabilities at every stage of development and production, our customers have come to depend on Adams McClure to provide a unique level of account management and services. Working together with our clients, we develop a partnership with a mutual goal of success. Helping our customers be successful with their promotional programs provides stability in existing as well as future client relationships. Integration The Promotional Solutions Group consists of eight production facilities and four distribution centers. These facilities work together in the design, production, and distribution of complex 10 promotional programs. Promotional Group customers can now turn to one company for all of their promotional needs. Customers can now come to Adams McClure and have an account manager that will provide assistance in creative services, design expertise, production supervision, multiple printing methods, finishing, assembly, and fulfillment services. As a part of the Ennis Promotional Solutions Group, Adams McClure can now combine unique capabilities for promotional printing and programs with a solid foundation of business related printed media including brochures, tags, labels, stationery, forms, folders and advertising specialties. Our customers are provided with integrated resources and products that not only help promote products and services, but also support continuing operations. Specialized customer orders have already been shared among the three primary Promotional Group locations. Orders previously outsourced by Adams McClure can now be printed within Ennis' Promotional Solutions Group. For example, large fulfillment orders can be printed at the most efficient location, then combined to offer the complete solution to the customer. Growth Adams McClure is in a unique position of furnishing printed materials and services with three important mediums: paper, plastic and packaging. This expertise has allowed Adams McClure to offer expanded services to existing customers and to tap into a $14 billion market that is growing annually. The integration of the different printing technologies has enabled the Company to furnish consistency of imaging while using different printing methods. Much of the print production, finishing and distribution of point- of-sale programs is done on tight schedules that have to meet the customers' mailing or distribution dates. When major promotions are coordinated with electronic media placement, such as radio and television, having a program executed on time at the point-of- sale is imperative. Adams McClure has developed a reputation for quality and dependability when it comes to getting the job done fast, doing it right and on time. For example, 7-Eleven Corporation depends on Adams McClure to produce and distribute up to 200 various promotional elements to more than 5,000 stores nationwide every month. Sonic Industries counts on Adams McClure when it comes to outdoor banners and backlit menu boards that promote new food products as well as old favorites at more than 2,000 restaurants every month. Burger King uses Adams McClure for the production and distribution of national promotional programs. A recent Coors alliance with Molson has provided additional business in three operating units of Adams McClure due to an integration of products and services, which include the fulfillment of product packaging and the production and distribution of point-of-sale promotional products. The Promotional Solutions Group, anchored by Adams McClure and completed by the established Admore and Wolfe City locations, is poised for growth. Relying on a strong reputation for quality and dependability, diversified capabilities, and an eye on new technology, the Promotional Solutions Group is prepared to provide a complement of promotional products and services that will position the Company for significant growth in an expanding promotional marketplace. 11 Financial Solutions Group This is a dynamic time in the financial marketplace with many changes in customer requirements, product mix, and operations. Ennis' newly formed Financial Solutions Group is comprised entirely of the former Northstar Computer Forms, which was acquired by Ennis in June 2000. Northstar designs, manufactures, and markets internal bank forms, negotiable documents, and custom business forms and services. The Financial Solutions Group works through strategic business alliances and distributor/business partners to provide full support to customers and coverage of market opportunities throughout the country. Northstar sells its products nationally through distributors with direct marketing to the nation's 200 largest banks, which are serviced by manufacturer's representatives. The Company's primary emphasis is MICR (Magnetic Ink Character Recognition) printing. Our customers include financial institutions and processors of MICR encoded documents. Stability The financial industry is rapidly changing as traditional institutions extend their reach into new markets through consolidation and e-commerce. These changes require Northstar to use leading-edge technology and industry knowledge to meet customer demands. These demands include extra capacity for conversions, MICR readability rates that approach 100 percent, and expanded services to include automated order entry, production, and billing. With five plants placed throughout the United States, Northstar has developed strategic relationships with business partners, distributors, and major customers. We are the leading provider of internal bank forms and negotiable products to the industry. Founded in 1962, Northstar has grown steadily to gain approximately 20 percent market share. Integration Northstar joined the Ennis family in June of 2000 and became the Financial Solutions Group. This strategic fit is bringing combined advantages to our customers. Northstar's financial expertise complements both the Forms Solutions and Promotional Solutions Groups. This allows all of Ennis' customers to do one- stop shopping by providing them with customer service, order entry, production, and distribution of an expanded product line that can truly serve all sizes of customers in multiple industries. Northstar distinguishes itself from the competition through technology and capabilities that enhance customer support: Leadership in Optical Character Recognition (OCR), Optical Mark Read (OMR), and bar coding. Electronic Data Interchange (EDI) enabling customers to place and verify order status and receive billing on-line. Compatibility with banks' image processing systems. 12 Complete forms management programs. Summary billing and ACH options. Pre-press technology systems enabling direct computer-to-plate composition. Growth With the acquisition of Northstar, Ennis now has the most complete product line in the industry. Northstar's family of products include internal bank forms, negotiable documents, digital printing, and secured distribution. Internal bank forms are documents used by all banks for daily reconciliation. This is a market that exceeds $300 million in annual shipments. Northstar serves approximately 7600 banks and branches. The negotiable document market consists of money orders, official checks, cashier's checks, and gift certificates, which represents annual shipments approaching $150 million on a national basis. Northstar addresses security issues such as fraud and counterfeiting while making it easy to do business with our Company. Even with the apparent continued consolidation in the industry, Northstar is in a position for growth within this specialized market. Several new exciting products and services are currently being introduced to the marketplace. Of particular interest is the use of holograms on negotiable documents such as cashier's checks, certificates of title, and gift certificates. Northstar is the first industry leader to put holograms on bank documents in order to reduce fraud and counterfeiting. These holograms can be custom designed to indicate the name of the customer or generic to indicate a business segment. Used in conjunction with watermarks and thermochromic inks, Northstar provides the most secure documents available in the market. Another new technology is the ability to go from computer design directly to laser print. This technology bypasses proofs, film, and printing plates and allows Northstar to be a true print-on- demand center that can change variable information on every document. Northstar is also a leader in image compatible forms. The American National Standards Institute (ANSI) has just changed requirements for all financial documents to become more compatible with image processing. Northstar has acquired additional testing equipment to enable compliance with these new financial requirements. Northstar continues to use technology to become the low-cost leader and thus increase profits for existing products. Northstar has a rich history that continues to transform itself into a technology driven company enabling it to be an industry leader. 13 Selected Financial Data YEARS ENDED FEBRUARY 28 OR 29 FY2001 FY2000 FY1999 FY1998 FY1997 (In thousands, except per share amounts) Net sales (1) $229,186 $176,600 $159,690 $162,962 $161,969 Net earnings 13,177 15,123 14,110 10,208 13,493 per basic and diluted share of common stock .81 .93 .87 .62 .82 Total assets 142,854 102,934 94,335 94,474 94,957 Long-term debt 23,555 462 7 206 195 Cash dividends per share of common stock .620 .620 .620 .620 .615 (1) In accordance with recent accounting requirements, net sales for all periods reported have been restated to include revenues from shipping and handling charges. See accompanying notes to consolidated financial statements. 14 Management's Discussion and Analysis Liquidity and Capital Resources The Company has maintained a strong financial position with working capital at February 28, 2001 of $40,355,000, an increase of 23.1% from the beginning of the year, and a current ratio of 3.25 to 1. The increase is due to the reinvesting of long term investments in short term securities. The Company has $8,964,000 in cash and equivalents, $980,000 in short term investments, $2,170,000 in long term investments and $23,555,000 in long-term debt, less current installments. The Company's acquisition of Northstar Computer Forms, Inc. (Northstar) for approximately $44,153,000 was financed with $36,500,000 in bank loans with the balance being provided by internal cash resources. The Company made scheduled payments of $1,700,000 and pre-paid $9,150,000 of the debt financing during the year ended February 28, 2001. The Company expects to generate sufficient cash flow to more than cover its operating and other capital requirements for the foreseeable future. Accounting Standards Statement of Financial Accounting Standards ("SFAS") No 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, will require the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged item through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The March 1, 2001 adoption of SFAS No. 133 and SFAS No. 138 is not expected to have a material effect on the Company's financial position or results of operations. Results of Operations 2001 as compared to 2000 Net sales in 2001 increased 29.8% from 2000. In accordance with recent accounting requirements, net sales for all periods reported have been restated to include revenues from shipping and handling charges. See accompanying notes to consolidated financial statements. The increase was attributable to revenue from the Company's newly acquired businesses. Northstar, acquired June 6, 2000, which operates as our Financial Solutions Group accounted for 19.0% of the increase in net sales. Adams McClure L.P. (Adams McClure), acquired November 4, 1999, part of our Promotional Solutions Group accounted for 10.6% of the increase in net sales. The gross profit margin decreased from 29.9% in fiscal 2000 to 27.4% in fiscal 2001. The decrease in gross profit margin is primarily as a result of the consolidation and integration of our Louisville operations with our Adams McClure operations in Denver. In addition, the decrease in gross margin is attributable to the fact that our acquisitions, as reflected in the Promotional Solutions Group and the Financial Solutions Group, typically have lower gross profit margins than that of the Forms Solution Group. Selling, general and administrative expenses increased 30.8% during fiscal 2001 as compared to 2000. The increase in selling, general and administrative expenses was attributable to the acquisition of Northstar and Adams McClure. Investment income decreased 28.2% in 2001 as compared to 2000 as a result of using funds previously available for investment for the Company's recent acquisitions. Interest expense increased from $40,000 in fiscal 2000 to $2,046,000 in fiscal 2001 as a result of the $36,500,000 debt issued to finance the Northstar Acquisition. Other income decreased 70% in 2001 as compared to 2000. Other income in 2001 includes a pre-tax gain of $653,000 resulting from the sale of the Louisville facility while other income in 2000 included a pre- tax gain of $1,182,000 from the sale of rental property in Boulder City, Nevada. The Company's effective Federal and state income tax rate for 2001 was 38.9%, as compared to 2000's effective rate of 37.1%. The primary reason for the increase is due to non-deductible goodwill from the acquisition of Northstar in fiscal 2001 and the recognition of tax benefits related to the charitable contribution of one of the Company's office buildings in fiscal 2000. 15 2000 as compared to 1999 Net sales in 2000 increased 10.6% from 1999. In accordance with recent accounting requirements, net sales for all periods reported have been restated to include revenues from shipping and handling charges. See accompanying notes to consolidated financial statements. The increase was attributable to revenue from the Company's newly acquired businesses and increases from the Company's business forms product segment. Our newly acquired platform of Adams McClure, now part of our Promotional Solutions Group effective March 1, 2000, accounted for 5.4% of the increase. Our newly acquired businesses in the business forms product segment, now the Forms Solutions Group accounted for 3.6%. The Company continues to believe there are growth opportunities in many of its product lines. The gross profit margin decreased from 31.0% in fiscal 1999 to 29.9 % in fiscal 2000. The following items contributed to the decrease in profit margins: increased labor costs in the business forms product segment, the effect of the acquisition of Adams McClure, as this business has lower profit margins than the business forms product segment, and to adverse operating results from the Tool & Die segment in the first quarter. A reduction of inventory quantities during the fiscal year (see Note 3 to the consolidated financial statements) resulted in a LIFO inventory decrement of $1,222,000 which had a positive impact on gross margins. Selling, general and administrative expenses increased 9.8% during fiscal 2000 as compared to 1999. The increase was attributable to the acquisition of the Houston, Texas business forms operating unit in November 1998, the acquisitions of American Forms, Inc. and Adams McClure in November 1999 and to a pre-tax charge of $611,000 (included in selling, general and administrative expenses) resulting from the impairment of intangible assets relating to the Company's InstaColor (registered trademark) product line which occurred in the second fiscal quarter of 2000. Investment and other income increased in 2000 primarily as the result of a pre-tax gain of $1,182,000 from the sale of rental property in Boulder City, Nevada. Earnings per basic and diluted share trended in the same manner as net earnings. The Company's effective Federal and state income tax rate for 2000 was 37.1%, as compared to 1999's effective rate of 37.5%. The primary reason for the decrease is due to the recognition of tax benefits related to the charitable contribution of one of the Company's office buildings. Revenue Growth The Company continues to be confident of its strategy to achieve revenue growth through partnering arrangements with trade distributors and manufacturers. The Company also continues its partnering contracts with various customers. With the Company's new acquisitions, these partnering strategies can be expanded further over more diverse product lines and brings about more cross-selling opportunities to existing and potential customers. 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 and interest rate swap, totaled $26.99 million at February 28, 2001. The impact on the Company's results of operations of a 16 one-point interest rate change on the outstanding balance of the variable rate financial instruments as of February 28, 2001 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 12, 2001. 17 FINANCIAL DATA Ten-Year Financial Review (In thousands, except per share and per dollar of sales amounts)
FISCAL YEARS FY2001 FY2000 FY1999 FY1998 FY1997 FY1996 FY1995 FY1994 FY1993 FY1992 Net sales (1) $229,186 $176,600 $159,690 $162,962 $161,969 $150,071 $147,920 $140,369 $136,498 $139,170 Earnings before income taxes 21,571 24,041 22,558 15,805 21,485 30,104 32,041 31,039 32,276 32,303 Provision for income taxes 8,394 8,918 8,448 5,597 7,992 11,487 12,025 11,582 11,584 11,536 Earnings from continuing operations 13,177 15,123 14,110 10,208 13,493 18,617 20,016 19,457 20,692 20,767 Per dollar of sales .057 .086 .088 .063 .083 .124 .135 .139 .152 .149 Basic and diluted per common share .81 .93 .87 .62 .82 1.13 1.22 1.16 1.18 1.14 Net earnings 13,177 15,123 14,110 10,208 13,493 18,617 20,016 19,457 21,252 21,216 Basic and diluted per common share .81 .93 .87 .62 .82 1.13 1.22 1.16 1.21 1.16 Dividends 10,075 10,068 10,116 10,191 10,110 9,782 9,453 9,270 9,400 9,310 Per share .62 .62 .62 .62 .615 .595 .575 .555 .535 .51 Shareholders' equity 91,540 88,267 83,499 81,672 81,586 78,195 69,338 58,897 60,565 66,485 Per share 5.63 5.43 5.12 4.97 4.96 4.76 4.22 3.52 3.52 3.65 Current assets 58,263 43,305 52,676 53,660 52,627 67,544 59,265 48,519 48,928 51,035 Current liabilities 17,908 10,525 8,367 10,396 10,307 13,054 12,976 12,548 12,087 9,631 Net working capital 40,355 32,780 44,309 43,264 42,320 54,490 46,289 35,971 36,841 41,404 Ratio of current assets to current liabilities 3.3:1 4.1:1 6.3:1 5.2:1 5.1:1 5.2:1 4.6:1 3.9:1 4.0:1 5.3:1 Depreciation of plant and equipment 8,313 5,394 4,941 5,634 4,475 3,553 3,499 3,805 4,086 4,368 Additions to property, plant and equipment 3,594 2,988 3,663 9,576 13,575 6,106 4,010 2,215 1,315 2,484
(1) In accordance with recent accounting requirements, net sales for all periods reported have been restated to include revenues from shipping and handling charges. See accompanying notes to consolidated financial statements. 18 & 19 Consolidated Statements of Earnings (In thousands, except share and per share amounts) FOR THE YEARS ENDED FEBRUARY 28 OR 29 FY2001 FY2000 FY1999 (In thousands, except share and per share amounts) Net sales $229,186 $176,600 $159,690 Costs and expenses: Cost of sales 166,340 123,815 110,151 Selling, general and administrative expenses 40,356 30,856 28,104 ------- ------- ------- 206,696 154,671 138,255 ------- ------- ------- Earnings from operations 22,490 21,929 21,435 ------- ------- ------- Other income (expense): Investment income 826 1,150 1,376 Interest expense (2,046) (40) (57) Other, principally gain on sale of assets in 2000 and 2001 301 1,002 (196) ------- ------- ------- (919) 2,112 1,123 ------- ------- ------- Earnings before income taxes 21,571 24,041 22,558 Provision for income taxes 8,394 8,918 8,448 ------- ------- ------- Net earnings $ 13,177 $ 15,123 $ 14,110 ======= ======= ======= Net earnings per basic and diluted share of common stock $.81 $.93 $.87 Weighted average number of common shares outstanding 16,246,545 16,249,861 16,311,772 See accompanying notes to consolidated financial statements. 20 Consolidated Statements of Cash Flows FOR THE YEARS ENDED FEBRUARY 28 OR 29 FY2001 FY2000 FY1999 (in thousands) Cash flows from operating activities: Net earnings $13,177 $15,123 $14,110 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,730 5,874 5,352 Impairment of long-lived assets -- 611 -- (Gain) loss on the sale of equipment (709) (1,234) 30 Deferred income taxes (169) 1,721 727 Pension plan expense 950 (181) (864) Other 474 97 13 Changes in operating assets and liabilities: Receivables 1,128 (4,620) 184 Inventories (1,117) 573 (247) Other current assets, including deferred taxes 1,559 178 (355) Accounts payable and accrued expenses (2,266) 1,935 (1,847) ------ ------ ------ Net cash provided by operating activities 22,757 20,077 17,103 ------ ------ ------ Cash flows from investing activities: Capital expenditures (3,594) (2,988) (3,663) Purchase of operating assets, net of cash acquired (34,339) (17,319) (2,302) Proceeds from disposal of property 1,141 1,971 468 Redemption (purchase) of investments 5,853 (9,003) -- ------ ------ ------ Net cash used in investing activities (30,939) (27,339) (5,497) ------ ------ ------ Cash flows from financing activities: Debt issued to finance Northstar acquisition 36,500 -- -- Repayment of debt issued to finance Northstar acquisition (10,850) -- -- Dividends (10,075) (10,068) (10,116) Purchase of treasury stock (2) (1,537) (3,300) Proceeds from exercise of stock options 173 -- -- Other (637) 213 (199) ------ ------ ------ Net cash provided by (used in) financing activities 15,109 (11,392) (13,615) ------ ------ ------ Net change in cash and cash equivalents 6,927 (18,654) (2,009) Cash and cash equivalents at beginning of year 2,037 20,691 22,700 ------ ------ ------ Cash and cash equivalents at end of year $ 8,964 $ 2,037 $ 20,691 ====== ====== ====== See accompanying notes to consolidated financial statements. 21 Consolidated Balance Sheets FOR THE YEARS ENDED FEBRUARY 28 OR 29 FY2001 FY2000 (In thousands, except share and par value amounts) Assets Current assets: Cash and cash equivalents $ 8,964 $ 2,037 Investment securities 980 1,438 Receivables, principally trade, less allowance for doubtful receivables of $1,484 in 2001 and $1,263 in 2000 29,957 26,015 Inventories, at lower of cost (principally last-in, first-out) or market 13,088 9,890 Unbilled contract revenues 364 2,058 Other current assets 4,910 1,867 -------- ------- Total current assets 58,263 43,305 -------- ------- Investment securities 2,170 7,565 Property, plant and equipment, at cost: Plant machinery and equipment 90,927 75,326 Land and buildings 22,504 17,811 Other 13,944 11,192 ------- ------- 127,375 104,329 Less accumulated depreciation 69,594 62,601 ------- ------- Net property, plant and equipment 57,781 41,728 ------- ------- Cost of purchased businesses in excess of amounts allocated to net identifiable assets, net 23,615 8,680 Other assets 1,025 1,656 ------- ------- $142,854 $102,934 ======= ======== Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt $ 4,176 $ 302 Accounts payable 6,067 5,380 Accrued expenses: Employee compensation and benefits 4,161 3,862 Taxes other than income 870 762 Other 2,634 219 ------- ------- Total current liabilities 17,908 10,525 ------- ------- Long-term debt, less current installments 23,555 462 Deferred credits, principally deferred income taxes 9,851 3,680 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 1,040 1,040 Retained earnings 127,817 125,980 ------- ------- 181,982 180,145 Less cost of 4,979,095 shares in 2001 and 5,058,048 shares in 2000 of common stock in treasury 90,442 91,878 ------- ------- Total shareholders' equity 91,540 88,267 ------- ------- $142,854 $102,934 ======= ======= See accompanying notes to consolidated financial statements. 22 Notes to Consolidated Financial Statements NOTE 1 Significant Accounting Policies and General Matters Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents. The Company invests cash in excess of daily operating requirements in income producing investments. Such amounts, at February 28 or 29, 2001 and 2000, were $5,475,000 and $1,874,000, respectively. 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. Such investments exceed total cash and cash equivalents at February 28, 2001 and February 29, 2000 due to outstanding checks issued in the normal course of business. Investment Securities. Investment securities at February 28, 2001 consist of U.S. Treasury Notes and U.S. Treasury Bills. The Company has the ability and intent to hold these securities until maturity; therefore, they are classified as held-to-maturity 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. Intangible Assets. The excess of cost over amounts assigned to net identifiable assets of purchased subsidiaries is amortized on the straight-line basis over periods from 15 to 40 years. Other acquired intangibles are principally non-compete agreements and are being amortized on the straight-line basis over 5 years. At February 28 or 29, 2001 and 2000, accumulated amortization of intangible assets amounted to $3,219,000 and $1,802,000, respectively. The Company assesses the recoverability of intangible assets, including goodwill, by determining whether the asset balance can be recovered over its remaining life through undiscounted future cash flows of the acquired asset. The amount of impairment if any, is measured based on projected discounted future operating cash flows. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. Long-lived assets and certain identifiable intangibles 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 net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In the second quarter of the fiscal year ended February 29, 2000, the Company charged to expense $611,000 resulting from the impairment of intangible assets relating to the Company's InstaColor (Registered Trademark) product line. Fair Value of Financial Instruments. The carrying amount of cash and cash equivalents, receivables and accounts payable approximates fair value because of the short maturity of these instruments. Long-term debt as of February 28, 2001 approximates its fair value. See also Notes 2 and 4. Derivative Financial Instruments. Interest rate swaps are held for purposes other than trading. The Company utilized swap agreements related to its term loan to effectively fix the interest rate. Amounts receivable or payable under interest rate swap agreements are recorded as adjustments to interest expense. 23 Revenue Recognition. Revenue is 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 $1,847,000 $2,014,000, and $2,310,000 during the years ended February 28 or 29, 2001, 2000, and 1999, respectively. Included in advertising expense is amortization related to direct response advertising of $840,000, $976,000 and $1,169,000 for the years ended February 28 or 29, 2001, 2000, and 1999, respectively. Unamortized direct response advertising costs included in other current assets at February 28 or 29, 2001 and 2000 were $164,000 and $590,000, respectively. Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the 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 and investment securities. 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. Nature of Operations. 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. Earnings Per Share. Basic earnings per share is computed by dividing earnings available for common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing earnings available for common shareholders by the weighted average number of shares outstanding plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued. At February 28 or 29, 2001, 2000 and 1999, 794,500; 611,750 and 499,962 options were not included in the diluted earnings per share computation because their inclusion would be antidilutive. There is no difference in the denominator used for basic and diluted earnings per share for all periods presented. Comprehensive Income. Comprehensive income is materially the same as net earnings for all periods presented. 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. During September 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") released Issue No. 00-10, Accounting for "Shipping and Handling Fees and Costs." This standard states that a company may adopt a policy of including shipping and handling costs in cost of sales. Previously, the Company netted shipping and handling costs against shipping and handling revenues. Accordingly, shipping and handling costs have been restated as Cost of Goods Sold and Net Sales and Cost of Goods Sold amounts have been restated for the periods presented. This change in accounting treatment has no effect on net earnings. 24 NOTE 2 Investment Securities Amortized cost and estimated fair value of investment securities classified as held-to-maturity were as follows at February 28 or 29, 2001 and 2000 (in thousands): GROSS UNREALIZED HOLDING AMORTIZED GAINS ESTIMATED COST (LOSSES) FAIR VALUE February 28, 2001 Investment securities: Due in less than one year $ 980 $ (4) $ 976 Due in one to two years 2,170 37 2,207 ------ ---- ----- Total investment securities $3,150 $ 33 $3,183 ====== ==== ===== February 29, 2000 Investment securities: Due in less than one year $1,438 $ (7) $1,431 Due in one to two years 7,565 (75) 7,490 ------ --- ------ Total investment securities $9,003 $(82) $8,921 ====== === ====== NOTE 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 or 29, 2001 and 2000, approximately 65% and 81%, 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 (in thousands): FEBRUARY 28 OR 29 FY2001 FY2000 Raw material $ 7,159 $5,592 Work-in-process 1,220 1,480 Finished goods 4,709 2,818 ------- ------ $13,088 $9,890 ======= ====== The excess of current costs over LIFO stated values was approximately $3,730,000 and $4,033,000 at February 28, 2001 and February 29, 2000, respectively. During Fiscal 2001 and 2000, 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 and 2000 purchases, the effect of which decreased cost of sales by approximately $151,000 in 2001 and $1,222,000 in 2000 and increased net earnings by approximately $95,000 ($0.01 per share) in 2001 and $768,000 ($0.05 per share) in 2000. There were no significant liquidations of LIFO inventories during the year ended February 28, 1999. NOTE 4 Long-Term Debt Long-term debt consisted of the following at February 28, 2001 and February 29, 2000 (in thousands): FEBRUARY 28 OR 29 FY2001 FY2000 Term loan $20,150 $ -- Revolving credit facility 5,500 -- Industrial revenue bonds 1,340 -- Other 741 764 ------ --- 27,731 764 Less current installments 4,176 302 ------ --- Long-term debt $23,555 $462 ====== === The term loan is due in quarterly installments of $850,000 commencing on September 30, 2000 and continuing each quarter until the loan is payable in full on June 30, 2003. Interest payments are required monthly at LIBOR plus one percent (5.38% as of February 28, 2001). The availability under the revolving credit facility is reduced quarterly by $460,000 commencing on March 31, 2001 and continuing each quarter until the loan matures on June 30, 2003, at which time all amounts outstanding are payable in 25 full. Interest payments are required monthly at LIBOR plus one percent (5.38% as of February 28, 2001). Availability under the revolving credit facility at February 28, 2001 is $6,000,000. 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 to effectively fix the interest rate at 6.89% for $25,000,000 of the principal amount of the loan. The fair value of the swap at February 28, 2001 is approximately ($825,000). The term loan and revolving credit facility are unsecured and contain certain restrictive covenants, including restrictions on additional indebtedness, investments in or advances to others, acquisitions of other businesses, declaration and payment of dividends and repurchase of capital stock. FY2001 FY2000 FY1999 Total interest paid $2,050,000 $48,000 $48,000 26 NOTE 5 Shareholders' Equity Following is a summary of transactions in shareholders' equity accounts for the three years ended February 28, 2001 (in thousands, except share amounts):
ACCUMULATED ADDITIONAL OTHER COMMON STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK SHARES AMOUNT CAPITAL EARNINGS INCOME SHARES AMOUNT Balance February 28, 1998 21,249,860 $53,125 $1,040 $119,335 $ -- (4,812,175) $(91,828) Net earnings -- -- -- 14,110 -- -- -- Dividends declared ($.62 per share) -- -- -- (10,116) -- -- -- Treasury stock issued -- -- -- (1,022) -- 115,816 2,155 Treasury stock purchases -- -- -- -- -- (300,038) (3,300) ---------- ------ ----- ------- ----- ---------- ------ Balance February 28, 1999 21,249,860 $53,125 $1,040 $122,307 $ -- (4,996,397) $(92,973) Net earnings -- -- -- 15,123 -- -- -- Dividends declared ($.62 per share) -- -- -- (10,068) -- -- -- Treasury stock issued -- -- -- (1,382) -- 138,599 2,632 Treasury stock purchases -- -- -- -- -- (200,250) (1,537) ---------- ------ ----- ------- ----- ---------- ------ Balance February 29, 2000 21,249,860 $53,125 $1,040 $125,980 $ -- (5,058,048) $(91,878) Net earnings -- -- -- 13,177 -- -- -- Dividends declared ($.62 per share) -- -- -- (10,075) -- -- -- Treasury stock issued -- -- -- (1,265) -- 79,223 1,438 Treasury stock purchases -- -- -- -- -- (270) (2) ---------- ------ ----- ------- ----- --------- ------ Balance February 28, 2001 21,249,860 $53,125 $1,040 $127,817 $ -- (4,979,095) $(90,442) ========== ====== ===== ======= ===== ========= ======
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. 27 NOTE 6 Stock Options At February 28, 2001, 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 980,777 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 or 29, 2001, 2000, and 1999, was $0.72, $0.73, and $1.25, 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 or 29 FY2001 FY2000 FY1999 Expected dividend yield 8.26% 8.90% 6.02% Stock price volatility 21.92% 22.15% 22.14% Risk-free interest rate 6.24% 5.25% 4.53% Expected option term 6 years 6 years 6 years The Company applies Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its incentive stock option plans. Had compensation cost for the Company's incentive stock option plans been determined consistent with Statement of Financial Accounting Standards (SFAS) No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts): FOR THE YEARS ENDED FEBRUARY 28 OR 29 FY2001 FY2000 FY1999 Net earnings: As reported $13,177 $15,123 $14,110 Pro forma 13,034 15,006 14,062 Earnings per share: As reported - basic and .81 .93 .87 diluted Pro forma - basic and .80 .92 .86 diluted 28 Following is a summary of transactions of incentive stock options during the three fiscal years ended in 2001: WEIGHTED NUMBER AVERAGE OF EXERCISE FOR THE YEARS ENDED FEBRUARY 28 OR 29 SHARES PRICE Outstanding at February 28, 1998 (154,522 shares exercisable) 295,837 $13.75 Granted 239,750 10.12 Terminated (35,625) 13.10 ------- Outstanding at February 28, 1999 (170,774 shares exercisable) 499,962 12.17 Granted 185,000 8.69 Terminated (73,212) 14.98 ------- 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 ======= The following table summarizes information about incentive stock options outstanding at February 28, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- --------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED EXERCISE NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE PRICES OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE $ 7.06 to $10.31 614,250 8.3 $ 8.73 60,813 $10.13 11.06 to 12.00 98,750 5.5 11.15 69,375 11.14 13.81 to 15.63 36,750 2.8 13.86 36,750 13.86 19.25 44,750 .8 19.25 44,750 19.25 ------- ------- $ 7.06 to 19.25 794,500 5.0 $ 9.86 211,688 $13.03 ======= =======
29 NOTE 7 INCOME TAXES The components of the provision for income taxes for fiscal years 2001, 2000 and 1999 are (in thousands): FY2001 FY2000 FY1999 Current: Federal $7,661 $6,195 $6,785 State and local 902 1,002 936 Deferred (169) 1,721 727 Total provision for income taxes $8,394 $8,918 $8,448 ------ ------ ------ Total income taxes paid $9,503 $7,609 $7,488 ====== ====== ====== The following summary reconciles the statutory U.S. Federal income tax rate to the Company's effective tax rate: FY2001 FY2000 FY1999 Statutory rate 35.0% 35.0% 35.0% Provision for state income taxes, net of Federal income tax benefit 2.7 2.7 2.7 ESOP pass-through dividend deduction (0.6) (0.5) (0.7) Goodwill non-deductible 1.3 -- -- Other 0.5 (0.1) 0.5 --- --- --- Effective tax rate 38.9% 37.1% 37.5% ==== ==== ==== The components of deferred income tax assets and liabilities are summarized as follows (in thousands): FEBRUARY 28 OR 28 FY2001 FY2000 Current deferred asset: Allowance for doubtful receivables $ 558 $ 442 Inventory valuation 290 356 Employee compensation and benefits 1,408 305 Other (32) 97 ----- ----- $2,224 $1,200 ===== ===== Noncurrent deferred liability: Depreciation $8,166 $3,060 Intangibles amortization and impairments (344) (296) Prepaid pension cost 563 321 Partnership interest 199 -- Other 169 332 ----- ----- $8,753 $3,417 ===== ===== 30 NOTE 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 2001, 2000 and 1999 included the following components (in thousands): FY2001 FY2000 FY1999 Service cost - benefits earned during the current period $1,474 $1,478 $1,761 Interest cost on projected benefit obligation 2,439 2,658 2,960 Expected return on plan assets (2,496) (2,846) (3,005) Net amortization and deferral (467) (348) (202) ----- ----- ----- Net periodic pension cost $ 950 $ 942 $1,514 ===== ===== ====== Assumptions used in accounting for the defined benefit plans for fiscal years 2001, 2000 and 1999 are as follows: FY2001 FY2000 FY1999 Weighted average discount rate 7.50% 7.75% 7.25% 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 2001 and 2000 are as follows (in thousands): FEBRUARY 28 or 29 FY2001 FY2000 Projected benefit obligation Beginning of year $31,875 $39,366 Service and interest cost 3,912 4,136 Actuarial (gain) loss 2,141 (5,706) Benefits paid (1,040) (5,921) ------ ------ End of year 36,888 31,875 ====== ====== Fair value of plan assets Beginning of year $27,380 $30,784 Company contributions -- 1,123 Net gains (130) 1,394 Benefits paid (1,040) (5,921) ------ ------ End of year 26,210 27,380 ====== ====== Excess of projected benefit obligation over plan assets (10,678) (4,495) Unrecognized losses and prior service cost 11,652 7,111 Unrecognized net transition asset being recognized over the average remaining service life (748) (1,439) ----- ------ Prepaid pension cost $ 226 $ 1,177 ===== ====== 31 NOTE 9 Acquisitions and Disposal During the third quarter of fiscal 1999, the Company purchased the assets and business of Forms Manufacturing, Inc., a Houston based manufacturer of business forms, for an acquisition cost of $3,435,000. Payment was made with $2,302,000 cash and 115,816 shares of treasury stock valued at $1,133,000. The acquisition was accounted for by the purchase method and the excess of cost over amounts allocated to net identifiable assets of $1,333,000, is being amortized over 15 years. On November 4, 1999, the Company purchased the general and limited partnership interests in Adams McClure, L.P. The $16,926,000 purchase price for this transaction consisted of $1,250,000 in cash, $1,250,000 in stock (138,599 shares of the Company's common stock) and assumption of certain liabilities of Adams McClure, L.P. amounting to approximately $14,426,000 which were immediately paid by the Company. The acquisition was accounted for by the purchase method and the excess of cost over amounts allocated to net identifiable assets of $3,467,000 is being amortized over a period of 15 years. On November 15, 1999, the Company purchased the production equipment, furniture and fixtures, name and operations of American Forms, Inc. In a separate transaction, the Company purchased the land and building currently occupied by American Forms, Inc. The $2,248,000 purchase price of these transactions included a promissory note to pay $525,000 over three years. The excess of cost over amounts allocated to net identifiable assets of $197,000 is being amortized over a period of 15 years. On June 6, 2000, the Company completed its acquisition of 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 excess of cost over amounts allocated to net identifiable assets of approximately $14,644,000 is being amortized over a period of 15 years. The accompanying consolidated financial statements include the operations of Northstar since the date of acquisition. The following table presents certain operating information on a pro forma basis as though Northstar had been acquired as of March 1, 1999, after including the estimated impact of adjustments such as amortization of goodwill and depreciation, interest expense, reduced interest income and related tax effects (in thousands, except per share amount): FEBRUARY 28 or 29 FY2001 FY2000 Net sales $240,000 $223,907 Net earnings 13,350 14,540 Earnings per share - basic and diluted .82 .89 The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combining the operations. 32 NOTE 10 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 which became the Financial Solutions Group. In the comparative prior year periods, the Company reported its Tool & Die Company as a separate segment. The current year's presentation includes the Tool & Die Company as part of the Forms Solutions Group. All prior year disclosures herein conform to the current year presentation. Corporate information is included to reconcile segment data to the consolidated financial statements and includes assets and expenses related to the Company's corporate headquarters and other administrative costs. Segment data for the fiscal years ended February 28 or 29, 2001, 2000 and 1999 were as follows (in thousands):
FORMS PROMOTIONAL FINANCIAL SOLUTIONS SOLUTIONS SOLUTIONS CONSOLIDATED GROUP GROUP GROUP CORPORATE TOTALS Fiscal year ended February 28, 2001: Net sales $119,857 $72,642 $36,687 $ -- $229,186 Depreciation and amortization 3,699 2,883 2,623 525 9,730 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 Fiscal year ended February 29,2000: Net sales $121,451 $55,149 $ -- $ -- $176,600 Depreciation and amortization 2,458 2,888 -- 528 5,874 Segment earnings (loss) before income taxes 22,300 5,985 -- (4,244) 24,041 Segment asset 42,950 43,332 -- 16,652 102,934 Capital expenditures 829 169 -- 1,990 2,988 Fiscal year ended February 28, 1999: Net sales $113,212 $46,478 $ -- $ -- $159,690 Depreciation and amortization 2,841 1,985 -- 526 5,352 Segment earnings (loss) before income taxes 20,752 5,841 -- (4,035) 22,558 Segment assets 46,121 24,361 -- 23,853 94,335 Capital expenditures 2,922 411 -- 330 3,663
"Post-it" is a registered trademark of 3M. 33 NOTE 11
Quarterly Information (Unaudited) QUARTER ENDED MAY AUGUST NOVEMBER FEBRUARY (in thousands, except per share amounts) Fiscal year ended February 28, 2001: Net sales $49,347 $58,805 $61,382 $59,652 Gross profit 14,687 17,133 17,442 13,584 Net earnings 3,854 3,785 4,023 1,515 Dividends paid 2,510 2,522 2,522 2,521 Per share of common stock: Basic and diluted net earnings .24 .23 .25 .09 Dividends .155 .155 .155 .155 Fiscal year ended February 29, 2000: Net sales $42,114 $40,519 $43,450 $50,517 Gross profit 11,988 12,408 13,612 14,777 Net earnings 3,234 3,905 3,960 4,024 Dividends paid 2,519 2,520 2,519 2,510 Per share of common stock: Basic and diluted net earnings .20 .24 .24 .25 Dividends .155 .155 .155 .155
Notes: Gross profit and net earnings for the fourth quarter of fiscal 2001 were adversely affected by the consolidation and integration of the Company's Louisville operations with its Adams McClure operations in Denver. The impact of this event reduced net earnings approximately $0.10 per share. Year end adjustments related to physical inventory counts and LIFO Valuation were negligible. Revenue in the Forms Solutions Group, like the economy, reflected weakness resulting in lower than expected earnings in the quarter. The fourth quarter of fiscal 2000 earnings benefited from year-end adjustments related to physical inventory counts and LIFO valuation of approximately $434,000, net of income taxes, ($.03 per diluted share). The second quarter of fiscal 2000 includes a charge of $384,000, net of income taxes, ($0.02 per share) resulting from the impairment of intangible assets relating to the Company's InstaColor (registered trademark) product line and a gain of $743,000, net of income taxes, ($0.05 per share) from the sale of rental property in Boulder City, Nevada. 34 Independent Auditors' Report The Board of Directors and Shareholders Ennis Business Forms, Inc.: We have audited the accompanying consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 2001 and February 29, 2000, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended February 28, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ennis Business Forms, Inc. and subsidiaries as of February 28, 2001 and February 29, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended February 28, 2001, in conformity with accounting principles generally accepted in the United States of America. /S/ KPMG LLP Dallas, Texas April 12, 2001 35 FACILITY DESCRIPTIONS PROMOTIONAL FORMS Bell, California Paso Robles, California Presentation Products & Packaging Custom Forms & Bank Checks Promotional Products Guest Checks Denver, Colorado Custom Labels Boxes & Dies Software Compatible Forms & Bank Checks(Imprinted) Graphic Design & Prepress Moultrie, Georgia Point of Purchase Displays Custom Forms & Bank Checks Macomb, Michigan DeWitt, Iowa Presentation Products & Packaging Custom Forms & Bank Checks Promotional Products Custom Labels Dallas, Texas Software Compatible Forms & Bank Checks (Imprinted) Fulfillment Tags Wolfe City, Texas Ft. Scott, Kansas Advertising Specialties Business Forms & Supplies (Imprinted) Labels Guest checks Post-it(registered trademark) Coshocton, Ohio Notes Custom Forms & Bank Checks Promotional Products Portland, Oregon Tags Custom Forms & Bank Checks Knoxville, Tennessee Custom Forms & Bank Checks Dallas, Texas Connolly Tool & Die Ennis, Texas FINANCIAL Award Ribbons Golden, Colorado Copier & Computer Supplies Internal Bank Forms Custom Forms & Bank Checks Negotiable Documents Guest Checks Nevada, Iowa Register Forms & Sales Books Internal Bank Forms Software Compatible Forms & Bank Checks (Imprinted) Negotiable documents Houston, Texas Brooklyn Park, Minnesota Custom Forms & Bank Checks Negotiable Documents San Antonio, Texas Roseville, Minnesota Custom Forms & Bank Checks Internal Bank Forms Chatham, Virginia Negotiable Documents Custom Forms & Bank Checks Bridgewater, Virginia Guest Checks Internal Bank Forms Register Forms & Sales Books Negotiable Documents Software Compatible Forms & Bank Checks (Imprinted) 36 EX-21 3 ex21.txt EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT Exhibit (21) Subsidiaries of the Registrant The registrant directly or indirectly owns 100 percent of the outstanding voting securities of the following subsidiary companies. Name of Company Jurisdiction --------------- ------------ Ennis Business Forms of Kansas, Kansas Inc. Connolly Tool and Machine Delaware Company Admore, Inc Texas PFC Products, Inc.(1) Delaware Ennis Acquisitions, Inc. Nevada Texas EBF, LP Texas Ennis Sales, LP Texas Ennis Management, LP Texas Adams McClure, LP Texas American Forms I, LP Texas Northstar Computer Forms, Inc. Minnesota General Financial Supply, Inc.(2) Iowa (1) A wholly-owned subsidiary of Admore, Inc. (2) A wholly-owned subsidiary of Northstar Computer Forms, Inc. EX-23 4 ex23.txt EXHIBIT 23 - AUDITORS' CONSENT (Exhibit 23) INDEPENDENT AUDITORS' CONSENT The Board of Directors Ennis Business Forms, Inc. We consent to the incorporation by reference in the registration statements on Form S-8 (numbers: 2-81124, 333-58963, 333-44624, 333-38100) of Ennis Business Forms, Inc. of our reports dated April 12, 2001, relating to the consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 2001 and February 29, 2000 and the related consolidated statements of earnings and cash flows and related financial statement schedule for each of the years in the three-year period ended February 28, 2001, which reports appear in or are incorporated by reference in the 2001 annual report on Form 10-K of Ennis Business Forms, Inc. /s/ KPMG LLP Dallas, Texas May 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----