-----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, GZxDMSJxGMx0R9mbzDvKHDUgM63OZY/dYQ3iaZaWSTy/IFq+bNNSiMC4JG+ZPtzq VeFLyyZndtLilh9Ko6TQ8Q== 0000033002-01-500019.txt : 20020413 0000033002-01-500019.hdr.sgml : 20020413 ACCESSION NUMBER: 0000033002-01-500019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20011221 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05807 FILM NUMBER: 1820246 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-Q 1 qnov2001main.txt 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended NOVEMBER 30, 2001 ------------------------------------------------ Commission File Number 1-5807 ------------------------------------------- ENNIS BUSINESS FORMS, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 75-0256410 - ----------------------------------------------------------------- (State or other Jurisdiction of (I. R. S. Employer Incorporation or organization) Identification No.) 1510 N. Hampton, Suite 300, DeSoto, TX 75115 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (972) 228-7801 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) No Change - ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 30, 2001 - ---------------------------- -------------------------------- Common stock, par value 16,272,938 $2.50 per share ENNIS BUSINESS FORMS, INC. INDEX Part I. Financial information - unaudited Condensed Consolidated Balance Sheets -- November 30, 2001 and February 28, 2001 2 - 3 Condensed Consolidated Statements of Earnings -- Three and Nine Months Ended November 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended November 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 - 9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 Part II. Other Information 13 Signatures 14 PART I. FINANCIAL INFORMATION ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) November 30, February 28, 2001 2001 ------------ ---------- (unaudited) Assets ------ Current assets: Cash and equivalents $14,558 $ 8,964 Investment securities 2,424 980 Accounts receivable, net 29,415 29,957 Inventories 14,086 13,088 Other current assets 5,137 5,274 -------- -------- Total current assets 65,620 58,263 -------- -------- Investment securities -- 2,170 Property, plant and equipment, net 52,803 57,781 Cost of purchased businesses in excess of amounts allocated to tangible net assets, net 22,231 23,615 Other assets and deferred charges 2,120 1,025 -------- -------- Total assets $142,774 $142,854 ======== ======== (Continued) 2 ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Thousands) November 30, February 28, 2001 2001 ------------- ------------ (unaudited) Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current installments of long- term debt $ 4,111 $ 4,176 Accounts payable 6,081 6,067 Accrued expenses 11,781 7,665 -------- -------- Total current liabilities 21,973 17,908 -------- -------- Long-term debt, less current installments 16,035 23,555 Deferred credits, principally Federal income taxes 9,955 9,851 Shareholders' equity: Preferred stock, at par value -- -- Common stock, at par value 53,125 53,125 Additional paid in capital 1,040 1,040 Retained earnings 131,575 127,817 Accumulated other comprehensive loss (506) -- -------- -------- 185,234 181,982 Less: Treasury stock 90,423 90,442 -------- -------- Total shareholders' equity 94,811 91,540 -------- -------- Total liabilities and shareholders' equity $142,774 $142,854 ======== ======== See accompanying notes to condensed consolidated financial statements. 3 ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended November 30, November 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net sales $59,458 $61,381 $177,976 $169,534 Costs and expenses: Cost of sales 42,759 43,939 128,230 120,272 Selling, general and administrative expenses 10,064 10,927 29,952 29,820 ------- ------- -------- -------- 52,823 54,866 158,182 150,092 ------- ------- -------- -------- Earnings from operations 6,635 6,515 19,794 19,442 ------- ------- -------- -------- Other income (expense): Interest expense (422) (773) (1,577) (1,477) Investment and other income 41 723 349 996 ------- ------- -------- -------- (381) (50) (1,228) (481) ------- ------- -------- -------- Earnings before income taxes 6,254 6,465 18,566 18,961 Provision for income taxes 2,384 2,442 7,241 7,299 ------- ------- -------- --------- Net earnings $ 3,870 $ 4,023 $ 11,325 $ 11,662 ======= ======= ======== ========= Weighted average number of common shares outstanding 16,272,984 16,270,876 16,271,876 16,239,279 ========== ========== ========== ========== Per share amounts: Net earnings per basic and diluted share of common stock $ .24 $ .25 $ .70 $ .72 ===== ===== ===== ===== Cash dividends $.155 $.155 $.465 $.465 ===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements. 4 ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended November 30 2001 2000 ---- ---- Cash flows from operating activities: Net earnings $11,325 $11,662 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 7,719 7,051 Gain on sale of property, plant, and equipment (23) (706) Changes in operating assets and liabilities 3,305 (1,978) Pension plan expense (1,066) 713 Other 50 172 ------- ------- Net cash provided by operating activities 21,310 16,914 ------- ------- Cash flows from investing activities: Acquisition of business, net of cash acquired -- (34,214) Capital expenditures (1,536) (2,568) Redemption of investments 726 5,493 Other 227 945 ------- ------- Net cash used in investing activities (583) (30,344) ------- ------- Cash flows from financing activities: Debt issued to finance Northstar acquisition -- 36,500 Repayment of debt issued to finance Northstar acquisition (7,040) (7,000) Issue of treasury shares 19 171 Dividends declared (7,567) (7,554) Other (545) (561) ------- ------- Net cash provided by (used in) financing activities (15,133) 21,556 -------- ------- Increase in cash and equivalents 5,594 8,126 Cash and equivalents at beginning of period 8,964 2,037 ------- ------- Cash and equivalents at end of period $14,558 $10,163 ======= ======= See accompanying notes to condensed consolidated financial statements. 5 ENNIS BUSINESS FORMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation --------------------- These unaudited condensed consolidated financial statements of Ennis Business Forms, Inc. and its subsidiaries (collectively the "Company" or "Ennis"), for the quarter ended November 30, 2001 have been prepared in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended February 28, 2001, from which the accompanying condensed consolidated balance sheet at February 28, 2001 was derived. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year. 2. Stock Option Plans ------------------ As of November 30, 2001, the Company has reserved 910,277 shares of common stock under incentive stock option plans. For the three and nine month periods ended November 30, 2001 and 2000, 596,250 and 797,750 options, respectively, were not included in the diluted earnings per share computation because their inclusion would not be dilutive. 3. Inventories ----------- The Company uses the Last-In, First-Out (LIFO) method of pricing the raw material content of most of its business forms inventories, and the First-In, First-Out (FIFO) method is used to value the remainder. The following table summarizes the components of inventory at the different stages of production (in thousands of dollars): November 30, February 28, 2001 2001 ---- ---- Raw material $ 7,423 $ 7,159 Work-in-process 1,516 1,220 Finished goods 5,147 4,709 ------- ------- $14,086 $13,088 ======= ======= 4. Accumulated other comprehensive loss ------------------------------------ Accumulated other comprehensive loss consists of the effective unrealized portion of changes in the fair value of the Company's cash flow hedge. Comprehensive income was approximately $10,819,000 for the nine months ended November 30, 2001. There were no differences between net income and comprehensive income in fiscal year 2001. 6 5. Segment Data ------------ 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- itr Notes). On June 6, 2000, the Company acquired Northstar Computer Forms, Inc. (Northstar) which became the Financial Solutions Group. Segment data for the three months and nine months ended November 30, 2001 and 2000 were as follows (in thousands):
Forms Promotional Financial Solutions Solutions Solutions Consolidated Group Group Group Corporate Totals --------- ----------- --------- --------- ------------ Three months ended November 30, 2001: Net sales $28,050 $18,084 $13,324 $ -- $ 59,458 Depreciation and amortization 576 680 1,116 126 2,498 Segment earnings (loss) before income tax 5,318 1,732 814 (1,610) 6,254 Segment assets 55,501 38,424 43,607 5,242 142,774 Capital expenditures 75 61 322 46 504 Three months ended November 30, 2000: Net sales $29,816 $18,084 $13,481 $ -- $ 61,381 Depreciation and amortization 684 716 1,207 132 2,739 Segment earnings (loss) before income tax 5,623 1,831 398 (1,387) 6,465 Segment assets 39,894 41,458 47,685 16,709 145,746 Capital expenditures 363 64 14 407 848 Nine months ended November 30, 2001: Net sales $85,561 $55,664 $36,751 $ -- $177,976 Depreciation and amortization 1,906 2,041 3,376 396 7,719 Segment earnings (loss) before income tax 15,644 5,526 1,904 (4,508) 18,566 Segment assets 55,501 38,424 43,607 5,242 142,774 Capital expenditures 442 310 402 382 1,536 Nine months ended November 30, 2000: Net sales $90,116 $55,598 $23,820 $ -- $169,534 Depreciation and amortization 2,229 2,176 2,249 397 7,051 Segment earnings (loss) before income tax 17,589 5,304 413 (4,345) 18,961 Segment assets 39,894 41,458 47,685 16,709 145,746 Capital expenditures 767 419 354 1,028 2,568
"Post-it" is a registered trademark of 3M. 7 6. Purchase of Northstar ---------------------- On June 6, 2000, the Company completed its acquisition of Northstar Computer Forms, Inc. (Northstar). The following table presents certain operating information on a pro forma basis as though Northstar had been acquired as of March 1, 2000, 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 amounts): For the Nine Months Ended November 30, 2000 Net sales 173,225 Net earnings 11,577 Earnings per share - basic and diluted 0.71 7. Derivative Financial Instruments and Hedging Activities --------------------------------------------------------- The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, on March 1, 2001. SFAS No. 133 establishes standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It establishes conditions under which a derivative may be designated as a hedge, and establishes standards for reporting changes in the fair value of a derivative. The Company uses principally floating-rate debt to finance its operations. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes it is prudent to limit the variability of its interest payments. To meet this objective and in accordance with the Company's hedging policy, the Company utilizes interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, the Company does not speculate using derivative instruments. The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company has entered into an interest rate swap agreement with a notional amount of $18,750,000 at November 30, 2001. The interest rate swap agreement expires in fiscal 2003 and effectively converts the floating rate debt under the term loan and revolving credit facility to fixed rate debt. The estimated fair value of the swap agreement at November 30, 2001 was a liability of approximately $506,000, net of the related deferred tax asset, which is included in accrued expenses in the accompanying condensed consolidated balance sheet. The transition adjustment recorded upon adoption of SFAS No. 133 on March 1, 2001 was $501,000, net of tax and the change during the nine months ended November 30, 2001 was due to the early extinguishments of a portion of the hedged debt obligation and amounts reclassified into interest expense. 8 Changes in the fair value of interest rate swaps designed as hedging instruments of the variability of cash flows associated with floating rate obligations are reported in accumulated other comprehensive income. These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. During the next twelve months, approximately $276,000 of losses in accumulated other comprehensive income related to the interest rate swap are expected to be reclassified into interest expense as a yield adjustment of the hedged debt obligation. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- At November 30, 2001, the Company's financial position continues to be strong. Working capital increased from $40,355,000 at February 28, 2001 to $43,647,000 at November 30, 2001. The Company has $14,558,000 in cash and equivalents, $2,424,000 in short term investments and $16,035,000 in long-term debt, less current installments. The Company expects to generate sufficient cash flow to more than cover its operating and capital requirements for the foreseeable future. Results of Operations - --------------------- Net sales for the three months ended November 30, 2001 decreased by 3.1%. Net sales for the nine months ended November 30, 2001 increased 5% from the corresponding period in the prior year. The decrease in sales for the three months ended November 30, 2001 was caused by a 2.8% decline in revenue in the Forms Solutions Group and by a 0.3% decrease in the Financial Solutions Group, Northstar Computer Forms, Inc. (Northstar) due to weak economic conditions. The Promotional Solutions Group remained relatively unchanged. The increase for the nine months resulted from Northstar, which we acquired in June 2000 and accounted for an increase of 7.6%. This was mitigated by a 2.7% decline in revenue in the Forms Solutions Group. The decline in the Forms Solution Group was a result of weakness in the general economy. The Promotional Solutions Group remained relatively unchanged. Gross profit margins decreased from 28.4% in the three months ended November 30, 2000 to 28.1% in the three months ended November 30, 2001. Gross profit margins decreased from 29.1% in the nine months ended November 30, 2000 to 28% in the nine months ended November 30, 2001. The decrease for the three months ended November 30, 2001 is the result of margin pressures in the Forms Solutions Group (approximately 0.7 percentage points of the reduction) due to weakened economic conditions, offset by an approximate 0.4% increase from the Financial Solutions Group (Northstar) resulting from no longer incurring integration inefficiencies incurred last year. The Promotional Solutions Group remained relatively unchanged. The decrease for the nine months ended November 30, 2001 is the result of margin pressures in the Forms Solutions Group (approximately 2.3 percentage points of the reduction), and in the Promotional Solutions Group (approximately 1.1 percentage points of the reduction) due to weakened economic conditions noted above, offset by an approximate 2.3% increase from the Financial Solutions Group (Northstar) resulting from no longer incurring integration inefficiencies incurred last year. Selling, general and administrative expenses decreased 7.9% for the three months ended November 30, 2001 and increased 0.4% for the nine months ended November 30, 2001when compared to the corresponding period in the prior year. The decrease for the three months ended November 30, 2001 resulted from cost reductions in the Forms Solutions Group of 2.3% and Promotional Solutions Group of 7.4% less an increase in Corporate of 1.8%. The increase for the nine months was mainly attributable to the acquisition of Northstar in June 2000 which accounted for an increase of 9.1%. This was mitigated by cost reductions in the Forms Solutions Group of 1.6%, the Promotional Solutions Group of 6.9% and in Corporate of 0.2%. 10 Interest expense decreased from $773,000 in the three months ended November 30, 2000 to $422,000 in the three months ended November 30, 2001 as a result of repayment of debt. Interest expense increased from $1,477,000 in the nine months ended November 30, 2000 to $1,577,000 in the nine months ended November 30, 2001 as a result of the $36,500,000 debt incurred on June 6, 2000 to finance the Northstar Acquisition. Investment and other income decreased for the three months and nine months ended November 30, 2001 from the same period in the prior year. This was a result of recording a pre-tax gain of $661,000 in the quarter ended November 30, 2000 due to the sale of our Louisville, Kentucky plant facility. The effective rate of the Federal and state income tax expense was 39.00% and 38.5% for the nine months ended November 30, 2001 and November 30, 2000, respectively. The primary reason for the increase is due to non-deductible goodwill from the acquisition of Northstar. Recent Accounting Pronouncements - -------------------------------- In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." Statement 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. Statement 142, which is effective for the Company March 1, 2002, requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The Company is currently assessing the impact of this statement on its financial statements. In June 2001, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long- lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Statement No. 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of this statement on its financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 144 "Accounting for the Impairment or Disposal of Long- Lived Assets". This statement supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". Statement No. 144 retains the fundamental provisions of Statement No. 121 but eliminates the requirement to allocate goodwill to long-lived assets to be tested for impairment. This statement also requires discontinued operations to be carried at the lower of cost or fair value less costs to sell and broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. Statement No. 144 is effective for 11 fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, with early application encouraged. The Company does not expect the adoption of this statement to have a material impact on its results of operations or financial position. Forward looking statement - ------------------------- Management's result of operations contains forward-looking statements that reflect the Company's current view with respect to future revenues and earnings. These statements are subject to numerous uncertainties, including (but not limited to) the rate at which the business forms market is contracting, the application of technology to the production of business forms, demand for the Company's products in the context of a contracting market, variability in the prices of paper and other raw materials, and competitive conditions in the business forms market. Because of such uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of December 21, 2001. 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-k - ----------------------------------------------------------------- (b) Reports on Form 8-K None 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENNIS BUSINESS FORMS, INC. Date December 21, 2001 /s/Robert M. Halowec ----------------- -------------------------------- Robert M. Halowec Vice President Finance and Chief Financial Officer Date December 21, 2001 /s/Harve Cathey ----------------- -------------------------------- Harve Cathey Secretary and Treasurer Principal Accounting Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----