-----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, EjepBgX7lRK8If2R4MXRlBoE+Of3lQa/SWEOaQfSjZUeQAAP6OuKhNzk1oNaYXz3 I7w42kRsLNmOPaQNy4/I6Q== 0000033002-03-000059.txt : 20031222 0000033002-03-000059.hdr.sgml : 20031222 20031222164550 ACCESSION NUMBER: 0000033002-03-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20031222 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: 031068076 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 q10main.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, 2003 ----------------------------------------------- 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, 2003 - ----------------------- -------------------------------- Common stock, par value 16,363,623 $2.50 per share ENNIS BUSINESS FORMS, INC. INDEX Part I. Financial information - unaudited Item 1 - Financial Statements Condensed Consolidated Balance Sheets -- November 30, 2003 and February 28, 2003 2 - 3 Condensed Consolidated Statements of Earnings -- Three and Nine Months Ended November 30, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows -- Three and Nine Months Ended November 30, 2003 and 2002 5 Notes to Condensed Consolidated Financial Statements 6 - 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Item 3 - Quantitative and Qualitative Disclosures of Market Risk 14 - 15 Item 4 - Controls and Procedures 15 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 16 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
November 30, February 28, 2003 2003 ---- ---- (unaudited) Assets ------ Current assets: Cash and cash equivalents $ 23,811 $ 13,860 Accounts receivable, net 30,033 32,077 Prepaid expenses 1,720 1,708 Inventories 13,536 13,104 Contract costs in excess of billings 294 967 Other current assets 3,264 3,296 ------- ------- Total current assets 72,658 65,012 ------- ------- Property, plant and equipment, net 47,219 51,264 Goodwill, net 34,269 34,241 Other assets 1,891 2,020 ------- ------- $156,037 $152,537 ======= =======
(Continued) 2 ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Thousands)
November 30, February 28, 2003 2003 ---- ---- (unaudited) Liabilities and Shareholders' Equity -------------------- Current liabilities: Accounts payable $ 7,135 $ 6,644 Accrued expenses: Employee compensation and benefits 9,063 6,784 Federal and state income tax payable 841 -- Taxes other than income 1,941 1,430 Other 3,408 3,398 Current installments of long-term debt 6,335 7,038 ------- ------- Total current liabilities 28,723 25,294 ------- ------- Accrued pension 1,510 2,130 Long-term debt, less current installments 13,300 18,135 Deferred credits, principally income taxes 9,661 10,075 Shareholders' equity: Preferred stock, at par value -- -- Common stock, at par value 53,125 53,125 Additional paid in capital 245 461 Retained earnings 143,319 137,848 Accumulated other comprehensive loss (5,099) (5,225) ------- ------- 191,590 186,209 Treasury stock (88,747) (89,306) ------- ------- Total shareholders' equity 102,843 96,903 ------- ------- $156,037 $152,537 ======= =======
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, 2003 2002 2003 2002 ---- ---- ---- ---- Net sales $66,398 $59,151 $196,275 $173,540 Costs and expenses: Cost of sales 48,824 43,560 144,644 127,349 Selling, general and administrative expenses 9,949 9,331 29,470 27,805 ------ ------ ------- ------- 58,773 52,891 174,114 155,154 ------ ------ ------- ------- Earnings from operations 7,625 6,260 22,161 18,386 ------ ------ ------- ------- Other income (expense): Investment income 6 33 33 147 Interest expense (183) (299) (662) (937) Other expense, net (115) (67) (326) (190) ------ ------ ------- ------- (292) (333) (955) (980) ------ ------ ------- ------- Earnings before income taxes 7,333 5,927 21,206 17,406 Provision for income 2,858 2,252 8,130 6,614 taxes ------ ------ ------- ------- Net earnings $ 4,475 $ 3,675 $ 13,076 $ 10,792 ====== ====== ======= ======= Weighted average number of common shares outstanding - Basic 16,363,391 16,282,938 16,347,768 16,278,938 Plus incremental shares from assumed exercise of stock options 258,853 217,244 230,159 217,244 ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding - Diluted 16,622,244 16,500,182 16,577,927 16,496,182 ========== ========== ========== ========== Per share amounts: Net earnings - basic $.27 $.23 $.80 $.66 ==== ==== ==== ==== Net earnings - diluted $.27 $.22 $.79 $.65 ==== ==== ==== ==== Cash dividends per share $.155 $.155 $.465 $.465 ===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements. 4 PAGE ENNIS BUSINESS FORMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended November 30, 2003 2002 ---- ---- Cash flows from operating activities: Net earnings $13,076 $10,792 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 6,975 6,929 Amortization of trademark 99 -- Gain on the sale of equipment -- (53) Changes in operating assets and liabilities: Receivables 2,044 (814) Prepaid expenses (12) (2,116) Inventories (432) 140 Contract costs in excess of billings 673 (276) Other current assets (45) 204 Accounts payable and accrued expenses 4,335 974 Other assets and liabilities (1,004) 2,861 ------ ------ Net cash provided by operating activities 25,709 18,641 ------ ------ Cash flows from investing activities: Cash acquired from the acquisition of Calibrated -- 1,508 Capital expenditures (3,040) (3,100) Redemption of investments -- 1,802 Proceeds from disposal of property 110 110 Other (28) 6 ------ ------ Net cash (used in) provided by investing activities (2,958) 326 ------ ------ Cash flows from financing activities: Repayment of debt issued to finance acquisition (5,538) (5,690) Dividends (7,605) (7,570) Issue of treasury stock, net 343 103 Other -- (480) ------ ------ Net cash used in financing activities (12,800) (13,637) ------ ------ Net change in cash and cash equivalents 9,951 5,330 Cash and cash equivalents at beginning of period 13,860 16,180 ------ ------ Cash and cash equivalents at end of period $23,811 $21,510 ====== ====== Non-cash activities: Debt issued in connection with acquisition of Calibrated $ -- $22,000 ====== ======
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, 2003 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, 2003, from which the accompanying condensed consolidated balance sheet at February 28, 2003 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 and Stock Based Compensation ----------------------------------------------- The Company has stock options granted to key executive and managerial employees and non-employee directors. At November 30, 2003, the Company has two incentive stock option plans: the 1998 Option and Restricted Stock Plan and the 1991 Incentive Stock Option Plan. The Company has 784,984 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 Company accounts for employee and director stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation and Disclosure." The following table represents the effect on net income and earnings per share as if the Company had applied the fair value based method and recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock- based Employee Compensation (in thousands, except per share amounts): 6 2. Stock Option Plans and Stock Based Compensation (continued) -----------------------------------------------------------
Three Months Nine Months Ended November 30 Ended November 30 2003 2002 2003 2002 ---- ---- ---- ---- Net earnings: As reported $4,475 $3,675 $13,076 $10,792 Deduct: Stock-based Employee compensation expense not included in reported income, net of related tax 14 15 42 45 effects ----- ----- ----- ------ Pro forma $4,461 $3,660 $13,034 $10,747 ===== ===== ====== ====== Net earnings per share: As reported - basic $.27 $.23 $.80 $.66 Pro forma - basic .27 .22 .80 .66 As reported - diluted .27 .22 .79 .65 Pro forma - diluted .27 .22 .79 .65
As required, the pro forma disclosures above include options granted since March 1, 1996. Consequently, the effects of applying SFAS 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation and Disclosure." SFAS No. 148 amends the transition and disclosure provisions of SFAS No. 123. If the Company had adopted the prospective transition method prescribed by SFAS 148 in first quarter 2003, compensation expense of $22,000 and $67,000 would have been recorded for the three and nine months ended November 30, 2003, respectively. After related income tax effects, this would have reduced net income by $14,000 and $42,000 for the three and nine months ended November 30, 2003, respectively. Earnings per share would have remained the same for the three months ended November 30, 2003. For the nine month periods ended November 30, 2003 and 2002, 42,250 and 71,250 of options, respectively, were not included in the diluted earnings per share computation because their exercise price exceeded the average fair market value of the Company's stock for the period. 7 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, 2003 2003 ---- ---- Raw material $ 7,105 $ 6,664 Work-in-process 1,594 1,161 Finished goods 4,837 5,279 ------ ------ $13,536 $13,104 ====== ====== 4. Accumulated other comprehensive loss ------------------------------------ Accumulated other comprehensive loss consists of the unrealized portion of changes in the fair value of the Company's cash flow hedge and the minimum pension liability. Comprehensive income was approximately $13,202,000 for the nine months ended November 30, 2003 and $11,030,744 for the nine months ended November 30, 2002. Amounts charged directly to Shareholder's Equity related to the Company's interest rate swap and pension plan are included in "other comprehensive income." 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. On November 13, 2002, effective November 14, 2002, the Company acquired Calibrated Forms Co., Inc. (Calibrated) which became part of the Forms Solutions Group segment. 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). The Financial Solutions Group is comprised of Northstar Computer Forms which is a manufacturer and seller of official bank checks, money orders, and internal bank forms. 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 three months and nine months ended November 30, 2003 and 2002 were as follows (in thousands): 8 5. Segment Data (continued) ------------------------
Forms Promotional Financial Solutions Solutions Solutions Consolidated Group Group Group Corporate Totals ----- ----- ----- --------- ------ Three months ended November 30, 2003: Net sales $ 35,440 $ 17,339 $ 13,619 $ -- $ 66,398 Depreciation 799 587 739 141 2,266 Amortization of trademark 33 -- -- -- 33 Segment earnings (loss) before income tax 5,057 2,190 2,099 (2,013) 7,333 Segment assets 80,101 34,186 36,887 4,863 156,037 Capital expenditures 223 36 176 203 638 Three months ended November 30, 2002: Net sales $ 28,045 $ 17,830 $ 13,276 $ -- $ 59,151 Depreciation 443 579 777 408 2,207 Segment Earnings (loss) before income tax 4,262 1,917 1,399 (1,651) 5,927 Segment assets 81,103 36,880 41,169 4,817 163,969 Capital expenditures 715 115 -- 124 954 Nine months ended November 30, 2003: Net sales $ 107,133 $ 51,406 $ 37,736 $ -- $ 196,275 Depreciation 2,478 1,761 2,238 498 6,975 Amortization of trademark 99 -- -- -- 99 Segment Earnings (loss) before income tax 15,917 5,995 4,838 (5,544) 21,206 Segment assets 80,101 34,186 36,887 4,863 156,037 Capital expenditures 1,221 471 897 451 3,040 Nine months ended November 30, 2002: Net sales $ 82,141 $ 54,077 $ 37,322 $ -- $ 173,540 Depreciation 2,199 1,724 2,404 602 6,929 Segment Earnings (loss) before income tax 13,398 5,892 2,975 (4,859) 17,406 Segment assets 81,103 36,880 41,169 4,817 163,969 Capital expenditures 1,780 611 964 (255) 3,100
"Post-it" is a registered trademark of 3M. 9 6. Purchase of Calibrated ---------------------- On November 14, 2002, the Company completed its acquisition of all of the outstanding stock of Calibrated Forms Co., Inc. (Calibrated), a company which is principally engaged in the design, manufacture and marketing of printed business forms within the wholesale business forms marketplace. Calibrated was acquired to help strengthen the Company in the wholesale business forms marketplace. Calibrated became a wholly owned subsidiary and operated as part of the Forms Solutions Group. The acquisition was financed with an additional $15,000,000 draw against the Company's Revolving Credit Facility. The purchase price for the transaction was $22,038,000 less liabilities excluded of $7,195,060, and the liabilities excluded were evidenced by two promissory notes bearing interest at 3.75% per annum, which were paid January 3, 2003. In addition, the Purchase Agreement provides for additional consideration in the form of an earn-out. The earn-out will be 50% of the amount, if any, of Calibrated's EBITDA, as defined in the Purchase Agreement in excess of $6,300,000 each year, to a maximum amount of $3,000,000. This earn-out will be paid as long as one of the two former shareholders acceptable to the Company, is employed as General Manager of Calibrated on a full-time basis during the entire fiscal year for which the earn-out is paid. Any such earn out will be recorded as compensation expense in the year to which it relates. The acquisition was accounted for by the purchase method. Approximately $2,400,000 of the goodwill related to the Calibrated acquisition is deductible for tax purposes. The accompanying consolidated financial statements include the operations of Calibrated since the date of acquisition. The following table represents certain operating information on a pro forma basis as though Calibrated had been acquired as of March 1, 2002, after the estimated impact of adjustments such as amortization of intangible assets, interest expense, reduced interest income and related tax effects (in thousands except per share amounts): For the Three Months Ended November 30, 2002 Pro forma net sales $ 64,335 Pro forma net earnings 3,767 Pro forma earnings per share - diluted 0.23 For the Nine Months Ended November 30, 2002 Pro forma net sales $202,908 Pro forma net earnings 11,056 Pro forma earnings per share - diluted 0.67 The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented. 10 7. Derivative Financial Instruments and Hedging Activities ------------------------------------------------------- The Company's interest rate swaps are held for purposes other than trading. The Company utilized swap agreements related to its term and revolving loans to effectively fix the interest rate for a specified principal amount of the loans. Amounts receivable or payable under interest rate swap agreements are recorded as adjustments to interest expense. This swap has been designated as a cash flow hedge and the after-tax effect of the mark-to-market valuation that relates to the effective amount of derivative financial instrument is recorded as an adjustment to accumulated other comprehensive income with the offset included in accrued expenses. The Company utilized swap agreements related to the term loan and revolving credit facility to effectively fix the interest rate at 3.2% for a pre-set principal amount of the loans. The pre-set principal amount of the loans covered by the swap agreements declines quarterly in connection with expected principal reductions and totaled $13,500,000 at November 30, 2003. The fair value of the swap at November 30, 2003 was approximately ($189,000) and the change in the fair value of the loss from March 1, 2003, net of tax, has been charged to accumulated other comprehensive loss. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company has maintained a strong financial position with working capital at November 30, 2003, of $43,935,000, an increase of 10.6% from the beginning of the year, and a current ratio of 2.5 to 1. The increase in current assets is due to operating profits less funds used to pay dividends. The Company has $23,811,000 in cash and cash equivalents and $13,300,000 in long- term debt, less current installments. The Company made payments of $5,538,000 of the debt financing for the nine months ended November 30, 2003. The Company anticipates repaying the long- term debt of $1,500,000 per quarter until the debt is extinguished in January 2006. In December 2003, the Company amended its debt agreement to provide more flexibility in its pension plan funding requirements. The Company believes current inventory levels are sufficient to satisfy customer demand and anticipates having adequate sources of supply of raw materials to meet future business requirements. The Company recorded a charge to Other Comprehensive Income in the amount of $4,982,000 related to its pension plan at February 28, 2003. SFAS No. 87 required the recognition of a "minimum pension liability" if, as of a given measurement date, the fair value of the plan's assets is less than its accumulated benefit obligation. The decline in recent years of the U.S. equity markets has reduced the value of the Company's qualified pension plan assets. The Company estimates the plan assets will exceed the plan's accumulated benefit obligation in five years with annual pension plan contributions of approximately $2,500,000. Capital expenditures for the nine months totaled $3,040,000. For the full fiscal year, capital expenditures are expected to be between $6,000,000 and $8,000,000, which are expected to be financed through internally generated funds. The Company expects to generate sufficient cash flow from its operating activities to more than cover its operating and capital requirements for the foreseeable future. 11 Accounting Standards - -------------------- In December 2002, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment to FASB Statement No. 123" (SFAS 148). SFAS 148 provides alternate methods of transition for a voluntary change to the fair value based method of accounting for stock- based employee compensation. In addition, SFAS 148 amends the disclosure requirements of "Accounting for Stock-Based Compensation" (SFAS 123) to require prominent disclosures in both annual and interim financial statements about the method of accounting used in reporting results. SFAS 148 is effective for fiscal years beginning after December 15, 2003. Results of Operations 2003 - -------------------------- Net sales for the three months ended November 30, 2003 increased 12.3% from the corresponding period in the prior year. This increase is the result of the inclusion of Calibrated Forms Co., Inc. (Calibrated) revenues for the full fiscal quarter, offset by a decrease of 2.0% from the remaining portion of the Forms Solutions Group and a .8% decrease in the Promotional Solutions Group. For the nine months ended November 30, 2003, net sales increased 13.1% from the corresponding period in the prior year. This increase is attributed to the inclusion of Calibrated revenues offset by a decrease of 2.0% from the remaining portion of the Forms Solution Group and a 1.5% decrease in the Promotional Solutions Group. Revenues in the Financial Solutions Group increased .5% and .2% respectively for the three months and the nine months ended November 30, 2003. The general economy and industry declines continue to be factors impacting each Group. Gross profit margins increased from 26.4% in the three months ended November 30, 2002 to 26.5% in the three months ended November 30, 2003 and decreased from 26.6% in the nine months ended November 30, 2002 to 26.3% in the nine months ended November 30, 2003. The decrease is the result of a combination of factors. The Forms Solutions Group gross profit margin decreased from 27.8% in the three months ended November 30, 2002 to 25.3% in the three months ended November 30, 2003 and from 29.2% for the nine months ended November 30, 2002 to 26.4% for the nine months ended November 30, 2003. The general weakness in the economy and the decline in the forms industry contributed to lower prices in the Forms Solutions Group. In addition, the gross profit margin decreased due to a combination of lower fixed cost absorption resulting from decreased sales volumes in certain plants and a shift in mix to lower margin products. The Promotional Solutions Group had relatively flat gross profit margins for the three and nine months ended November 30, 2003 when compared to the prior respective period. The Financial Solutions Group experienced a slight increase in gross profit margins for the three and nine months ended November 30, 2003 due to more efficient fixed cost absorption and an increase in the volume of profitable sales. Selling, general and administrative expenses increased 6.6% for the three months ended November 30, 2003 and 6.0% for the nine months ended November 30, 2003 when compared to the corresponding periods in the prior year. The increase is primarily the result of the inclusion of Calibrated. 12 Interest expense decreased from $299,000 in the three months ended November 30, 2002 to $183,000 in the three months ended November 30, 2003 and from $937,000 in the nine months ended November 30, 2002 to $662,000 in the nine months ended November 30, 2003 due to a decline in interest rates. Investment income decreased from $33,000 in the three months ended November 30, 2002 to $6,000 in the three months ended November 30, 2003 and from $147,000 in the nine months ended November 30, 2002 to $33,000 in the nine months ended November 30, 2003 due to the decline in interest rates. The effective rate of the Federal and state income tax expense was 38.0% for the nine months ended November 30, 2003 and November 30, 2002. Critical Accounting Policies and Judgments - ------------------------------------------ In preparing our financial statements, we are required to make estimates and assumptions that affect the disclosures and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We exercise judgment in evaluating our long-lived assets for impairment. The Company assesses the impairment of long-lived assets, which includes other intangible assets, goodwill and plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses the impairment of goodwill annually. In performing tests of impairment, the Company estimates future cash flows that are expected to result from the operating segments. Actual results could differ from assumptions made by management. We believe our businesses will generate sufficient undiscounted cash flow to more than recover the investments we have made in property, plant and equipment, as well as the goodwill and other intangibles recorded as a result of our acquisitions. The Company cannot predict the occurrence of future impairment triggering events nor the impact such events might have on its reported asset values. Revenue is generally recognized upon shipment for all printed products. Revenue from fixed price contracts for the design and construction of tools, dies and special machinery is recognized using the percentage of completion method of accounting. Derivative instruments are recognized on the balance sheet at fair value. Changes in fair values of derivatives are accounted for based upon their intended use and designation. The Company's interest rate swaps are held for purposes other than trading. The Company utilized swap agreements related to its term and revolving loans to effectively fix the interest rate for a specified principal amount of the loans. Amounts receivable or payable under interest rate swap 13 agreements are recorded as adjustments to interest expense. This swap has been designated as a cash flow hedge and the after tax effect of the mark-to-market valuation that relates to the effective amount of derivative financial instrument is recorded as an adjustment to accumulated other comprehensive income with the offset included in accrued expenses. Certain Factors That May Affect Future Results - ---------------------------------------------- The Forms Solutions Group sells a mature product line of business forms and other printed business products. The demand for this product line may decrease with increasing electronic and paperless forms and filings. The Promotional and Financial Solutions Groups are dependent upon certain major customers. The loss of such customers may affect the revenue and earnings of the Groups. The Company has various contracts with suppliers that are subject to change upon renewal and may not provide the same cost ratios for future periods. 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 22, 2003. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK 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 Notes to the Consolidated Financial Statements for period ended November 30, 2003. The Company's net exposure to interest rate risk consists of a floating rate debt instrument that is benchmarked to U.S. and European short-term interest rates. The Company may from time to time utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. The Company does not use derivative instruments for trading purposes. The Company is exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest rates. The Company's variable rate financial instruments, including the outstanding credit facilities, totaled $19,300,000 at November 30, 2003. The impact on the Company's results of operations of a one-point interest rate change on the 14 outstanding balance of the variable rate financial instruments as of November 30, 2003 would be immaterial. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets. Item 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission (SEC), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on their evaluation of the Company's disclosure controls and procedures which took place as of a date within 90 days of the filing date of this report, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that the Company is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods. The Company also maintains a system of internal controls designed to provide reasonable assurance that: transactions are executed in accordance with management's general or specific authorization; transactions are recorded as necessary (1) to permit preparation of financial statements in conformity with generally accepted accounting principles, and (2) to maintain accountability for assets; access to assets is permitted only in accordance with management's general or specific authorization; and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Since the date of the most recent evaluation of the Company's internal controls by the Chief Executive and Chief Financial Officers, there have been no significant changes in such controls or in the other factors that could have significantly affected those controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits as listed on the accompanying index to exhibits on page 17 are filed as part of this Form 10-Q. (b) Reports on Form 8-K The Company filed a report on Form 8-K on December 22, 2003 regarding the press release announcing its third quarter operating results. 15 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 22, 2003 /s/ Harve Cathey ------------------- ------------------------------- Harve Cathey Vice President - Finance and CFO, Secretary Principal Financial and Accounting Officer 16 INDEX TO EXHIBITS Exhibit 31.1 Section 302 Certification of the CEO Exhibit 31.2 Section 302 Certification of the CFO Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 Certification Pursuant to 18.U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 17 EX-31 3 ex311.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION ------------- I, Keith S. Walters, certify that: 1. I have reviewed this report on Form 10-Q of Ennis Business Forms, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)), for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ Keith S. Walters Keith S. Walters Chief Executive Officer December 22, 2003 EX-31 4 ex312.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION ------------- I, Harve Cathey, certify that: 1. I have reviewed this report on Form 10-Q of Ennis Business Forms, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)), for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Harve Cathey Harve Cathey Chief Financial Officer December 22, 2003 EX-32 5 ex321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ennis Business Forms, Inc. (the "Company") on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Keith S. Walters, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Keith S. Walters Keith S. Walters Chief Executive Officer December 22, 2003 EX-32 6 ex322.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ennis Business Forms, Inc. (the "Company") on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harve Cathey, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Harve Cathey Harve Cathey Chief Financial Officer December 22, 2003 -----END PRIVACY-ENHANCED MESSAGE-----