-----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, PauxAVbP7L9KWdSK77X6tYfKN6/HH5HYXoRabt05pINs8heAPlvJrunTHPpjFHcb vE6PGl34VDHPykc1ee+Y1w== 0000033002-04-000034.txt : 20040929 0000033002-04-000034.hdr.sgml : 20040929 20040928180717 ACCESSION NUMBER: 0000033002-04-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040831 FILED AS OF DATE: 20040929 DATE AS OF CHANGE: 20040928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENNIS, 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: 041050919 BUSINESS ADDRESS: STREET 1: 2441 PRESIDENTIAL PARKWAY CITY: MIDLOTHIAN STATE: TX ZIP: 76065 BUSINESS PHONE: 9727759801 MAIL ADDRESS: STREET 1: 2441 PRESIDENTIAL PARKWAY CITY: MIDLOTHIAN STATE: TX ZIP: 76065 FORMER COMPANY: FORMER CONFORMED NAME: ENNIS BUSINESS FORMS INC DATE OF NAME CHANGE: 19920703 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 AUGUST 31, 2004 ------------------------------------------------ Commission File Number 1-5807 ------------------------------------------- ENNIS, 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.) 2441 Presidential Pkwy, Midlothian, TX 76065 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (972) 775-9801 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) ENNIS BUSINESS FORMS, INC, - ----------------------------------------------------------------- (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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ----- ----- The number of shares of the registrant's Common Stock, par value $2.50, outstanding at September 24, 2004 was 16,430,713. ENNIS, INC. INDEX Part I. Financial information - unaudited Item 1 - Financial Statements Condensed Consolidated Balance Sheets -- August 31, 2004 and February 29, 2004 2 - 3 Condensed Consolidated Statements of Earnings -- Three and Six Months Ended August 31, 2004 and 2003 4 Condensed Consolidated Statements of Cash Flows -- Three and Six Months Ended August 31, 2004 and 2003 5 Notes to Condensed Consolidated Financial Statements 6 - 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 17 Item 3 - Quantitative and Qualitative Disclosures of Market Risk 17 Item 4 - Controls and Procedures 18 Part II. Other Information Item 6 - Exhibits 18 Signatures 19 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) August 31, February 29, 2004 2004 ---- ---- (unaudited) Assets ------ Current assets: Cash and cash equivalents $ 8,530 $ 15,067 Accounts receivable, net 37,622 29,800 Prepaid expenses 3,202 2,022 Inventories, net 18,742 13,721 Other current assets 3,038 2,995 ------- ------- Total current assets 71,134 63,605 ------- ------- Property, plant and equipment, net 52,308 46,480 Goodwill, net 42,567 34,420 Other assets 9,476 9,538 ------- ------- $175,485 $154,043 ======= ======= (Continued) 2 ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Thousands) August 31, February 29, 2004 2004 ---- ---- (unaudited) Liabilities and Shareholders' Equity -------------------- Current liabilities: Accounts payable $ 10,006 $ 5,804 Accrued expenses: Employee compensation and benefits 9,872 10,237 Federal and state income tax payable 138 -- Taxes other than income 1,996 1,427 Other 5,718 1,597 Current installments of long- term debt 6,237 6,335 ------- ------- Total current liabilities 33,967 25,400 ------- ------- Long-term debt, less current installments 16,000 7,800 Deferred credits, principally income taxes 9,635 10,261 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 126 126 Retained earnings 150,200 145,653 Accumulated other comprehensive loss (40) (114) ------- ------- 203,411 198,790 Treasury stock: Cost of 4,819,147 shares at August 31, 2004 and August 31, 2004 and 4,856,626 shares at February 29, 2004 (87,528) (88,208) ------- ------- Total shareholders' equity 115,883 110,582 ------- ------- $175,485 $154,043 ======= ======= See accompanying notes to condensed consolidated financial statements. 3 ENNIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Thousands Except Share and Per Share Amounts) (Unaudited)
Three Months Ended Six Months Ended August 31, August 31, 2004 2003 2004 2003 ---- ---- ---- ---- Net sales $73,374 $65,003 $139,110 $129,877 Costs and expenses: Cost of sales 54,022 47,496 102,698 95,820 Selling, general and administrative 10,813 9,866 20,199 19,521 ------ ------ ------- ------- 64,835 57,362 122,897 115,341 ------ ------ ------- ------- Earnings from operations 8,539 7,641 16,213 14,536 ------ ------ ------- ------- Other income (expense): Investment income 137 13 142 27 Interest expense (167) (192) (301) (479) Other income (expense), net 79 (208) (2) (211) ------ ------ ------- ------- 49 (387) (161) (663) ------ ------ ------- ------- Earnings before income taxes 8,588 7,254 16,052 13,873 Provision for income taxes 3,218 2,757 6,100 5,272 ------ ------ ------- ------- Net earnings $ 5,370 $ 4,497 $ 9,952 $ 8,601 ====== ====== ======= ======= Weighted average number of common shares outstanding - basic 16,427,776 16,347,228 16,416,737 16,340,968 Plus incremental shares from assumed exercise of stock options 317,675 262,047 298,908 215,605 ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding - diluted 16,745,451 16,609,275 16,715,645 16,556,573 ========== ========== ========== ========== Per share amounts: Net earnings - basic $.33 $.28 $.61 $.53 ==== ==== ==== ==== Net earnings - diluted $.32 $.27 $.59 $.52 ==== ==== ==== ==== Cash dividends per share $.155 $.155 $.310 $.310 ==== ==== ==== ====
See accompanying notes to condensed consolidated financial statements. 4 ENNIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months Ended August 31, 2004 2003 ---- ---- Cash flows from operating activities: Net earnings $9,952 $8,601 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,358 4,709 Amortization of trademark 66 66 Gain on the sale of equipment (188) (4) Bad debt expense 429 440 Other -- (275) Changes in operating assets and liabilities (excluding the effects of acquisitions): Accounts receivable 933 1,824 Prepaid expenses 295 343 Inventories (958) (1,576) Other current assets (89) 525 Accounts payable and accrued expenses (3,217) 2,139 Other assets (11) 1,344 ------ ------ Net cash provided by operating activities 11,570 18,136 ------ ------ Cash flows from investing activities: Capital expenditures (3,581) (2,402) Purchase of operating assets, net of cash acquired of $133 (17,701) -- Proceeds from disposal of property 235 91 Other -- (28) ------ ------ Net cash used in investing activities (21,047) (2,339) ------ ------ Cash flows from financing activities: Proceeds from debt issued to finance acquisitions 11,000 -- Repayment of debt issued to finance acquisition (3,335) (4,037) Dividends (5,088) (5,068) Issuance of treasury stock, net 34,479 shares and 30,686 shares 363 330 ------ ------ Net cash provided by (used in) financing activities 2,940 (8,775) ------ ------ Net change in cash and cash equivalents (6,537) 7,022 Cash and cash equivalents at beginning of period 15,067 13,860 ------ ------ Cash and cash equivalents at end of period $ 8,530 $20,882 ====== ======
See accompanying notes to condensed consolidated financial statements. 5 ENNIS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation --------------------- These unaudited condensed consolidated financial statements of Ennis, Inc. and its subsidiaries (collectively the "Company" or "Ennis"), for the quarter ended August 31, 2004 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 29, 2004, from which the accompanying condensed consolidated balance sheet at February 29, 2004 was derived. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial information have been included. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the disclosure 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. The Company evaluates these estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets and income taxes. The Company bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. 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 August 31, 2004, the Company has two incentive stock option plans: the 1998 Option and Restricted Stock Plan amended and restated as of June 17, 2004 and the 1991 Incentive Stock Option Plan. The Company has reserved 1,254,623 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 earnings 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 Six Months Ended Ended August 31, August 31, (in thousands) 2004 2003 2004 2003 ---- ---- ---- ---- Net earnings: As reported $5,370 $4,497 $9,952 $8,601 Deduct: Stock-based Employee compensation expense not included in reported income, net of related tax 11 14 21 28 effects ----- ------ ------ ------ Pro forma $5,359 $4,483 $9,931 $8,573 ====== ====== ====== ====== Net earnings per share: As reported - basic $.33 $.28 $.61 $.53 Pro forma - basic .33 .27 .60 .52 As reported - diluted .32 .27 .59 .52 Pro forma - diluted .32 .27 .59 .52 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 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 the first quarter of 2004, compensation expense of $17,000 and $34,000 would have been recorded for the three and six months ended August 31, 2004, respectively. After related income tax effects, this would have reduced net earnings by $11,000 and $21,000 for the three and six months ended August 31, 2004, respectively. Basic earnings per share would have decreased one cent for the six months ended August 31, 2004. As of August 31, 2004, the Company has issued 701,325 stock options granted under incentive stock option plans. For the three and six month periods ended August 31, 2004, there were no anti-dilutive stock options. For the three and six month periods ended August 31, 2003, there were 10,000 and 73,250 stock options 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. Employee Benefit Plans ---------------------- The following table provides the components of net periodic benefit cost for the three and six months ended August 31, 2004 and 2003 (in thousands): Three Months Six Months Ended Ended August 31, August 31, 2004 2003 2004 2003 ---- ---- ---- ---- Components of net periodic benefit cost Service cost $367 $334 $ 734 $ 668 Interest cost 604 589 1,208 1,178 Expected return on assets (666) (548) (1,332) (1,096) Amortization of: Prior service cost (36) (36) (72) (72) Unrecognized net loss 267 262 534 524 ---- ---- ------ ------ Net periodic benefit cost $536 $601 $1,072 $1,202 ==== ==== ====== ====== For the current fiscal year ending February 28, 2005, there is not a minimum contribution requirement and no pension payments have been made; however, the Company expects to contribute $2.5 million. 4. Inventories ----------- The Company uses the Last-In, First-Out (LIFO) method of pricing the raw material content of most of its business forms inventories, and the First-In, First-Out (FIFO) method is used to value the remainder. The following table summarizes the components of inventories at the different stages of production (in thousands of dollars): August 31, February 29, 2004 2004 ---- ---- Raw material $ 8,660 $ 6,911 Work-in-process 2,615 1,393 Finished goods 7,467 5,417 ------ ------ $18,742 $13,721 ====== ====== 5. Accumulated other comprehensive income -------------------------------------- Accumulated other comprehensive income consists of the unrealized portion of changes in the fair value of the Company's cash flow hedge. Comprehensive income was approximately $10,026,000 for the six months ended August 31, 2004 and $8,698,000 for the six months ended August 31, 2003. Amounts charged directly to Shareholders' Equity related to the Company's interest rate swap are included in "other comprehensive income." 8 6. Segment Data ------------ The Company operates business units aggregated into three segments on the basis of common customers, products and management. 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 June 30, 2004, the Company acquired Crabar/GBF which became part of the Forms Solution Group segment with the exception of the Cerritos, California facility which became part of the Promotional Solutions Group. The Promotional Solutions Group is comprised of Adams McClure, Admore and Wolfe City and is primarily in the business of manufacturing and selling promotional products. 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 and six months ended August 31, 2004 and 2003 were as follows (in thousands):
Forms Promotional Financial Solutions Solutions Solutions Consolidated Group Group Group Corporate Totals ----- ----- ----- --------- ------ Three months ended August 31, 2004: Net sales $43,227 $19,183 $10,964 $ -- $73,374 Deprecia- tion 841 614 562 132 2,149 Amortiza- tion of trademark 33 -- -- -- 33 Segment earnings (loss) before income tax 6,377 2,723 1,508 (2,020) 8,588 Segment assets 100,085 35,390 31,860 8,150 175,485 Capital expendi- tures 348 471 54 569 1,442 Three months ended August 31, 2003: Net sales $35,784 $17,082 $12,137 $ -- $65,003 Deprecia- tion 802 616 736 178 2,332 Amortiza- 33 -- -- -- 33 tion of trademark Segment earnings (loss) before income tax 5,830 1,856 1,511 (1,943) 7,254 Segment assets 75,720 34,231 40,461 5,066 155,478 Capital expendi- tures 428 281 621 230 1,560 Six months ended August 31, 2004: Net sales $77,790 $38,644 $22,676 $ -- $139,110 Deprecia- tion 1,609 1,241 1,268 240 4,358 Amortiza- tion of trademark 66 -- -- -- 66 Segment earnings (loss) before income tax 11,913 4,886 2,994 (3,741) 16,052 Segment assets 100,085 35,390 31,860 8,150 175,485 Capital expendi- tures 615 712 154 2,100 3,581 9 Six months ended August 31, 2003: Net sales $70,549 $35,211 $24,117 $ -- $129,877 Deprecia- tion 1,616 1,232 1,499 362 4,709 Amortiza- tion of trademark 66 -- -- -- 66 Segment earnings (loss) before income tax 11,148 3,560 2,739 (3,574) 13,873 Segment assets 75,720 34,231 40,461 5,066 155,478 Capital expendi- tures 998 435 721 248 2,402
7. Purchase of Crabar/GBF ---------------------- Effective June 30, 2004, the Company completed its acquisition of all the outstanding stock of Crabar/GBF for approximately $18 million, with consideration in the form of debt assumed and cash. The primary reason for the acquisition was to increase Ennis' market share. However, Crabar/GBF will add high-quality long and medium run print production, along with pressure sensitive label and form-label combinations to Ennis' current line of medium and short run print products and solutions. The results of operations for Crabar/GBF are included in the Company's condensed consolidated financial statements from the date of acquisition. The following table represents certain operating information on a pro forma basis as though Crabar/GBF had been acquired as of March 1, 2003, 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 August 31, 2003 2004 ---- ---- Pro forma net sales $ 81,903 $78,914 Pro forma net earnings 4,640 5,431 Pro forma earnings per share - .28 .32 diluted For the Six Months Ended August 31, 2003 2004 ---- ---- Pro forma net sales $167,680 $160,881 Pro forma net earnings 9,001 11,547 Pro forma earnings per share - .54 .69 diluted The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented. The transaction was accounted for under the purchase method of accounting and was financed with $11,000,000 in bank loans with the balance being provided by internal cash resources. The purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of the acquisition. The Company has temporarily recorded the excess purchase price as goodwill as ongoing valuation efforts are completed to determine the allocation to the identifiable intangible assets, if any. 10 8. Agreement to Merge with Alstyle Apparel --------------------------------------- Ennis signed a definitive agreement to merge in a tax free exchange of stock with Alstyle Apparel, a privately held manufacturer of t-shirts and fleece goods based in Anaheim, California. This transaction will make Ennis a full-service provider of printed business products and promotional apparel (t-shirts and fleece goods) with over $525,000,000 in annual revenues and approximately 6,000 employees in North America. This merger continues the Ennis strategy of growth through acquiring growing product lines (promotional apparel) for the Company's existing customer base. In the merger, Centrum stockholders will receive a combination of cash and the Company's common stock in exchange for their Centrum shares. At least three business days prior to the closing of the merger, Ennis will notify the Centrum stockholders of the amount of cash that Ennis elects to pay the Centrum stockholders at closing. This amount will not be less than $12,500,000 and not more than $20,000,000. This transaction is subject to SEC and shareholder approval. 9. 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 $9,000,000 at August 31, 2004. The fair value of the swap at August 31, 2004 was approximately ($64,000) and the change in the fair value of the loss from March 1, 2004, net of tax, has been added to accumulated other comprehensive income. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview - -------- Ennis, Inc. was organized under the laws of Texas in 1909. Ennis, Inc. and its subsidiaries (collectively "Ennis" or the "Company") prints and constructs a broad line of business forms and other business products for national distribution. Distribution of business forms and other business products throughout the United States is primarily through independent dealers. These include business forms distributors, stationers, printers, computer software developers and advertising agencies, among others. On June 30, 2004, the Company completed the acquisition of the outstanding stock of Dayton, Ohio based Crabar/GBF for approximately $18 million, with consideration in the form of debt assumed and cash. The purchase was financed with $11,000,000 in bank loans with the balance being provided by internal cash resources. Crabar/GBF produces high-quality long and medium run printing, pressure sensitive labels and form-label combinations in facilities located in Cerritos, California; Bellville, Texas; Princeton, Illinois; Medfield Massachusetts; Edison, New Jersey; El Dorado, Missouri; and Leipsic, Ohio. Crabar/GBF also has an administrative center in Dayton, Ohio. The Carbar/GBF facilities, except the Cerritos, California location, became part of the Forms Solution Group. The Cerritos, California operation became part of the Promotional Solutions Group. The Company operates in three business segments. The first segment, the Forms Solutions Group is primarily in the business of manufacturing and selling business forms and other printed business products primarily to distributors located in the United States. The second segment, the Promotional Solutions Group, is comprised of Adams McClure, Admore and Wolfe City and is primarily in the business of manufacturing and selling promotional products. The third segment, the Financial Solutions Group designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. Economic pressure and the contraction of the traditional business forms industry continue to impact each segment of the Company. As a result, the Company continues to concentrate on reducing other costs where sales are declining. The installation of the Company's Enterprise Resource Planning Software (ERP) System has decreased the waste in materials and improved labor utilization in the plants which have the system. The Company is continuing to install the ERP System throughout the organization. The Company is also focusing on increasing sales where the market is expanding. In addition, the Company will continue to search for acquisition opportunities that will expand our mix of products away from traditional forms, as well as strategic acquisitions within the traditional forms industry. Liquidity and Capital Resources - ------------------------------- Cash Flow Cash provided by operating activities for the six months ended August 31, 2004 was $11,568,000 and represented a decrease of $6,568,000 from the $18,136,000 provided in the comparable period last year. This decrease in cash provided by operating activities was due to the payments of outstanding accounts payable of Crabar/GBF after acquisition. Cash flows used in investing activities for the six months ended August 31, 2004 was $21,047,000 and represented an increase use of $18,708,000 from the $2,339,000 used in the comparable period last year. 12 This increase in cash used was primarily the result of the acquisition of Crabar/GBF. Cash flows provided by financing activities for the six months ended August 31, 2004 was $2,940,000 and represented an increase of $11,715,000 from the $(8,775,000) used in the comparable period last year. The increase in financing activities was primarily the result of the debt issued to finance the acquisition of Crabar/GBF. Working Capital The Company has maintained a strong financial position with working capital at August 31, 2004, of $37,167,000, remaining relatively constant with a slight decrease of 2.7% from the beginning of the year, and a current ratio of 2.1 to 1. The Company has $8,530,000 in cash and cash equivalents. Credit Facility The Company has $22,237,000 in total long-term debt of which $11,000,000 was recently borrowed to finance the Crabar/GBF acquisition. This transaction resulted in the Fourth Amendment to the Original Credit Agreement dated June 6, 2000. The Company made payments of $3,335,000 for the six months ended August 31, 2004. The Company anticipates repaying the long-term debt at $1,500,000 per quarter with a final payment of $12,800,000 in January 2006. The available line of credit at August 31, 2004 was approximately $8,163,000. Pension The Company is required to make contributions to its defined benefit pension plan. These contributions are required under the minimum funding requirements of the Employee Retirement Pension Plan Income Security Act (ERISA). For the current fiscal year ending February 28, 2005, there is not a minimum contribution requirement and no pension payments have been made; however, the Company anticipates it will pay $2,500,000. Inventories 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. Capital Expenditures Capital expenditures for the three and six months totaled $1,442,000 and $3,581,000, respectively. For the full fiscal year, capital expenditures are expected to be between $5,000,000 and $6,000,000, 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. These amounts do not take into consideration the pending merger with Alstyle apparel as referred to in the financial statements. Commitments There have been no material changes in our contractual obligations since fiscal year-end 2004 outside the normal course of business. 13 Accounting Standards - -------------------- On May 19, 2004, the Financial Accounting Standards Board (FASB) issued an FSP regarding SFAS No. 106. FSP 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" discusses the effect of the Act. FSP 162-2 considers the effect of the two new features introduced in the Act in determining APBO and net periodic postretirement benefit cost. The adoption of FSP 106-2 is required in the Company's third quarter of fiscal 2005 and is not expected to have a material impact on the Company's financial position or results of operations. In December 2002, the (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. To date, the Company has not adopted SFAS 123 utilizing any of the transition methods of SFAS 148 but does apply the disclosure requirements. The FASB recently issued an exposure for public comment and a final standard is expected in the second half of 2004. Tentative decisions by the FASB indicate that expensing of stock options will be required for fiscal years beginning after December 15, 2004. Results of Operations 2004 - -------------------------- Net sales for the three months ended August 31, 2004 increased 12.9% from the corresponding period in the prior year. This increase is the result of the inclusion of Crabar/GBF, Inc. (Crabar/GBF) for July and August which increased sales 15.5% and 1.2% increase from the remaining portion of the Promotional Solutions Group, offset by decreases in the remaining Forms Solutions Group 2.0% and the Financial Solutions Group 1.8%. The Promotional Solutions Group added new customers resulting in increased sales volume. The Forms Solutions Group and the Financial Solutions Group continue to be impacted by the general economy and industry decline. The declines are primarily caused by decreased volume. For the six months ended August 31, 2004, net sales increased 7.1% from the corresponding period in the prior year. This increase is attributed to the inclusion of Crabar/GBF which increased sales 7.7%, and 1.6% increase from the remaining portion of the Promotional Solutions Group, offset by a decrease of 1.2% from the remaining portion of the Forms Solution Group and a 1.1% decrease in the Financial Solutions Group. The Promotional Solutions Group added new customers resulting in increased sales volume. The Forms Solutions Group and the Financial Solutions Group continue to be impacted by the general economy and industry decline. The declines are primarily caused by decreased volume. 14
Forms Promotional Financial Solutions Solutions Solutions Consolidated Group Group Group Totals ----- ----- ----- ------ Three months ended August 31, 2004: Net sales without $34,475 $17,872 $10,964 $63,311 Crabar/GBF Net sales Crabar/GBF 8,752 1,311 -- 10,063 ------- ------- ------- -------- Total net Sales $43,227 $19,183 $10,964 $ 73,374 ======= ======= ======= ======== Three months ended August 31, 2003 Total net Sales $35,784 $17,082 $12,137 $ 65,003 ======= ======= ======= ======== Six months ended August 31, 2004: Net sales without $69,038 $37,333 $22,676 $129,047 Crabar/GBF Net sales Crabar/GBF 8,752 1,311 -- 10,063 ------- ------- ------- -------- Total net Sales $77,790 $38,644 $22,676 $139,110 ======= ======= ======= ======== Six months ended August 31, 2003 Total net Sales $70,549 $35,211 $24,117 $129,877 ======= ======= ======= ========
Gross profit margins decreased from 26.9% in the three months ended August 31, 2003 to 26.4% in the three months ended August 31, 2004 and remained flat at 26.2% for the six months ended August 31, 2003 and August 31, 2004. The decrease in the three months ended August 31, 2004 is the result of a combination of factors. The Forms Solutions Group gross profit margin decreased from 27.8% in the three months ended August 31, 2003 to 26.3% in the three months ended August 31, 2004. While the general weakness in the economy and the decline in the forms industry contributed to decreased volume, prices were able to be increased in the Forms Solutions Group by controlling variable costs and maintaining efficient fixed cost absorption. The Financial Solutions Group and the Promotional Solutions Group had relatively consistent gross profit margins for the three months ended August 31, 2004 and 2003. Selling, general and administrative expenses increased 9.6% for the three months ended August 31, 2004 and 3.5% for the six months ended August 31, 2004 when compared to the corresponding periods in the prior year. The acquisition of Carbar/GBF accounted for the increase in administrative personnel in the Forms Solutions Group. Interest expense decreased from $192,000 in the three months ended August 31, 2003 to $167,000 in the three months ended August 31, 2004 and from $479,000 for the six months ended August 31, 2003 to $301,000 for the six months ended August 31, 2004 primarily as a result of the reduction of long-term financial debt, prior to the acquisition of Crabar/GBF. The Company's effective federal and state income tax rate remained relatively constant at 38% for the six months ended August 31, 2004 and August 31, 2003. 15 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 under different assumptions or conditions. The Company believes the following accounting policies are the most critical due to their affect on the Company's more significant estimates and judgments used in preparation of its consolidated financial statements. The Company maintains a defined-benefit pension plan for employees. Included in our financial results are pension costs which are measured using actuarial valuations. The actuarial assumptions used may differ from actual results. We exercise judgment in evaluating our long-lived assets for impairment. The Company assesses the impairment of long-lived assets, which include 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 recognized upon shipment for all printed products. 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 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. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each jurisdiction in which we operate that imposes a tax on income. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will 16 be recovered from future taxable income and to the extent we believe that recovery is more likely than not, we must establish a valuation allowance. To the extent we establish a valuation allowance, we must include an expense within the tax provision in the consolidated statements of income. In the event that actual results differ from these estimates, our provision for income taxes could be materially impacted. 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 September 28, 2004. 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 the period ended August 31, 2004. 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 $9,000,000 at August 31, 2004. The impact on the Company's statement of earnings of a one-point interest rate change on the outstanding balance of the variable rate financial instruments as of August 31, 2004 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. 17 Item 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. (b) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company is continuing to integrate the operations of the newly acquired operations of Crabar/GBF into its current internal control environment and procedures that are currently in place at the Company. It is expected this integration will be completed by the end of the Company's fiscal year and will result in changes in changes to virtually all areas of the Company's internal controls in order to provide effective monitoring and control of the newly integrated operations. PART II. OTHER INFORMATION Item 6. EXHIBITS Exhibits The exhibits as listed on the accompanying index to exhibits on page 20 are filed as part of this Form 10-Q. 18 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, INC. Date September 28, 2004 /s/Harve Cathey ------------------- ------------------------------- Harve Cathey Vice President - Finance and CFO, Secretary and Principal Financial and Accounting Officer 19 INDEX TO EXHIBITS Exhibit 2.1 Agreement and Plan of Merger dated as of June 25, 2004 by and among Ennis Inc., Midlothian Holdings LLC, and Centrum Acquisition, Inc., incorporated herein by reference to Exhibit Q to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 2.2 First Amendment to Agreement and Plan of Merger dated as of August 23, 2004 by and among Ennis, Inc., Midlothian Holdings LLC, and Centrum Acquisition, Inc., incorporated herein by reference to Exhibit Q to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 3.1 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. Exhibit 3.2 Bylaws of the Registrant as amended through October 15, 1997 incorporated herein by reference to Exhibit 3(ii) to the registrant's Form 10-Q Quarterly Report for the quarter ended November 30, 1997. Exhibit 10.1 Employee Agreement between Ennis, Inc. and Keith S. Walters dated May 1, 2003 incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 29, 2004. Exhibit 10.2 Employee Agreement between Ennis, Inc. and Ronald M. Graham dated May 1, 2003 incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 29, 2004. Exhibit 10.3 Employee Agreement between Ennis, Inc. and Michael D. Magill dated October 7, 2003 incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 29, 2004. Exhibit 10.4 2004 Long-Term Incentive Plan incorporated herein by reference to Appendix C to the Registrant's Definitive Proxy Statement on Schedule 14A filed on May 17, 2004. Exhibit 10.5 Stock Purchase Agreement dated as of June 25, 2004, among Crabar/GBF, Inc. the shareholders of Crabar/GBF, Inc. and Ennis, Inc. incorporated herein by reference to Exhibit 2 to the Registrant's Current Report on Form 8- K filed on July 15, 2004. Exhibit 10.6 First Amendment Agreement dated as of June 25, 2004, by and among Amin Amdani, Rauf Gajiani, Centrum Acquisition, Inc., Ennis, Inc. and Midlothian Holdings LLC incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004. 20 Exhibit 10.7 Indemnity Agreement dated as of June 25, 2004, by and among Laurence Ashkin, Roger Brown, John McLinden, Arthur Slaven, Ennis, Inc. and Midlothian Holdings LLC incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 10.8 Indemnity Agreement dated as of June 25, 2004, by and among Laurence Ashkin, Roger Brown, John McLinden, Arthur Slaven, Ennis, Inc. and Midlothian Holdings LLC incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 10.9 UPS Ground, Air Hundredweight and Sonicair Incentive Program Carrier Agreement incorporated herein by reference to Exhibit 10 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 29, 2003. Exhibit 10.10 Addendum to UPS Ground, Air and Sonicair Incentive Program Carrier Agreement dated as of August 9, 2004, between Ennis, Inc. and United Parcel Service, Inc. incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004.* Exhibit 10.11 Carbonless Paper Agreement dated as of July 13, 2004 between Ennis, Inc & MeadWestvaco Corporation incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004.* Exhibit 10.12 Fourth Amendment to Credit Agreement dated as of June 25, 2004, between Ennis, Inc. and Bank One, NA incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 10.13 Assignment Agreement dated as of June 30, 2004, between U.S. Bank National Association and Compass Bank incorporated herein by reference to the Registrant's Form S-4 filed on September 3, 2004. Exhibit 31.1 Certification Pursuant to Rule 13a-14(a)/15d- 14(a) (Chief Executive Officer) Exhibit 31.2 Certification Pursuant to Rule 13a-14(a)/15d- 14(a) (Chief Financial Officer) Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99 Charter of the Audit Committee of The Board of Directors of Ennis Business Forms, Inc. as amended June 21, 2001 incorporated herein by refere3nce to exhibit 99 to the Registrant's Form 10-Q Quarterly Report for the quarter ended May 31, 2001. * Portions of Exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. 21 EX-31 2 ex311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Keith S. Walters, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ennis, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 the 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 registrant's board of directors (or persons performing the equivalent function): 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 data; 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 September 28, 2004 EX-31 3 ex312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Harve Cathey, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ennis, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 the 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 registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies 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 data; 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 September 28, 2004 EX-32 4 ex32.txt EXHIBIT 32 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Ennis, Inc. (the "Company"), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (the Form 10-Q) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Keith S. Walters Keith S. Walters Chief Executive Officer September 28, 2004 /s/ Harve Cathey Harve Cathey Chief Financial Officer September 28, 2004 The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----