-----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, SwqylP5eBFGOlKc5qIsqpET8pmqCqsW1lPtPWn/QzLDKdhwCFaw+S6f6yY2ysJha udJljaeCxVbD0AjT92ajqA== 0000033002-05-000004.txt : 20050110 0000033002-05-000004.hdr.sgml : 20050110 20050107180951 ACCESSION NUMBER: 0000033002-05-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041130 FILED AS OF DATE: 20050110 DATE AS OF CHANGE: 20050107 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: 05519232 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 10-Q 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 [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2004 - ----------------------------------------------------------------- [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File Number 1-5807 ------------------------------------------- ENNIS, 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) - ----------------------------------------------------------------- (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 Exchange Act). Yes X No --- --- The number of shares of the registrant's Common Stock, par value $2.50, outstanding at January 7, 2005 was 25,412,999. ENNIS, INC. INDEX Part I. Financial information - unaudited Item 1 - Financial Statements Condensed Consolidated Balance Sheets -- November 30, 2004 and February 29, 2004 2 - 3 Condensed Consolidated Statements of Earnings -- Three and Nine Months Ended November 30, 2004 and 2003 4 Condensed Consolidated Statements of Cash Flows -- Three and Nine Months Ended November 30, 2004 and 2003 5 Notes to Condensed Consolidated Financial Statements 6 - 12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 20 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20 Item 4 - Controls and Procedures 21 Part II. Other Information Item 6 - Exhibits 21 Signatures 22 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) November 30, February 29, 2004 2004 ---- ---- (unaudited) Assets ------ Current assets: Cash and cash equivalents $ 12,023 $ 15,067 Accounts receivable, net 49,487 29,800 Prepaid expenses 6,055 2,022 Inventories, net 79,831 13,721 Other current assets 2,826 2,995 ------- ------- Total current assets 150,222 63,605 ------- ------- Property, plant and equipment, net 71,942 46,480 Goodwill, net 230,795 34,420 Other assets 28,963 9,538 ------- ------- $481,922 $154,043 ======= ======= (Continued) 2 ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Thousands) November 30, February 29, 2004 2004 ---- ---- (unaudited) Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 36,843 $ 5,804 Accrued expenses: Employee compensation and benefits 16,725 10,237 Taxes other than income 2,502 1,427 Other 17,461 1,597 Current installments of long- term debt 19,073 6,335 ------- ------- Total current liabilities 92,604 25,400 ------- ------- Long-term debt, less current installments 110,710 7,800 Deferred credits, principally income taxes 9,906 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 30,053,443 shares at November 30, 2004 and 21,249,860 shares at February 29, 2004 75,134 53,125 Additional paid in capital 123,640 126 Retained earnings 153,750 145,653 Accumulated other comprehensive loss (11) (114) ------- ------- 352,513 198,790 Treasury stock: Cost of 4,640,744 shares at November 30, 2004 and 4,856,626 shares at February 29, 2004 (83,811) (88,208) ------- ------- Total shareholders' equity 268,702 110,582 ------- ------- $481,922 $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 Nine Months Ended November 30, November 30, 2004 2003 2004 2003 ---- ---- ---- ---- Net sales $91,750 $66,398 $230,860 $196,275 Costs and expenses: Cost of sales 68,876 48,824 171,574 144,644 Selling, general and administrative 12,907 9,949 33,106 29,470 ------ ------ ------- ------- 81,783 58,773 204,680 174,114 ------ ------ ------- ------- Earnings from operations 9,967 7,625 26,180 22,161 ------ ------ ------- ------- Other income (expense): Investment income 82 6 224 33 Interest expense (288) (183) (589) (662) Other income (expense), net 108 (115) 106 (326) ------ ------ ------- ------- (98) (292) (259) (955) ------ ------ ------- ------- Earnings before income taxes 9,869 7,333 25,921 21,206 Provision for income taxes 3,765 2,858 9,865 8,130 ------ ------ ------- ------- Net earnings $ 6,104 $ 4,475 $ 16,056 $ 13,076 ------ ------ ------- ------- Weighted average number of common shares outstanding - basic 16,959,463 16,363,391 16,599,542 16,347,768 Plus incremental shares from assumed exercise of stock options 367,117 258,853 324,578 230,159 --------- ---------- ---------- ---------- Weighted average number of common shares outstanding - diluted 17,326,580 16,622,244 16,924,120 16,577,927 ========== ========== ========== ========== Per share amounts: Net earnings - basic $.36 $.27 $.97 $.80 ==== ==== ==== ==== Net earnings - diluted $.35 $.27 $.95 $.79 ==== ==== ==== ==== Cash dividends per share $.155 $.155 $.465 $.465 ===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements. 4 ENNIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended November 30, 2004 2003 ---- ---- Cash flows from operating activities: Net earnings $16,056 $13,076 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 6,655 6,975 Amortization of trademark 111 99 Gain on the sale of equipment (239) -- Bad debt expense 657 668 Changes in operating assets and liabilities (net of the effects of acquisitions): Factored receivables, net (212) -- Accounts receivable, net (4,809) 1,376 Prepaid expenses (309) (12) Inventories (3,951) (432) Other current assets 106 628 Accounts payable and accrued expenses 4,424 4,335 Other assets 1,383 (1,004) ------- ------- Net cash provided by operating activities 19,872 25,709 ------- ------- Cash flows from investing activities: Capital expenditures (4,581) (3,040) Purchase of businesses, net of cash acquired of $4,175 (114,620) -- Proceeds from disposal of property 400 110 Other -- (28) ------- ------- Net cash used in investing activities (118,801) (2,958) ------- ------- Cash flows from financing activities: Proceeds from debt issued to finance acquisitions 109,500 -- Repayment of debt related to acquisitions (6,353) (5,538) Dividends (7,634) (7,605) Issuance of treasury stock, net 215,882 shares and 30,650 shares 372 343 ------- ------- Net cash provided by (used in) financing activities 95,885 (12,800) ------- ------- Net change in cash and cash equivalents (3,044) 9,951 Cash and cash equivalents at beginning of period 15,067 13,860 ------- ------- Cash and cash equivalents at end of period $12,023 $23,811 ====== ====== 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 November 30, 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 executives and managerial employees and non-employee directors. At November 30, 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 1,253,123 shares of unissued common stock 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 Nine Months Ended November Ended November 30, 30, (in thousands) 2004 2003 2004 2003 ---- ---- ---- ---- Net earnings: As reported $6,104 $4,475 $16,056 $13,076 Deduct: Stock-based Employee compensation expense not included in reported income, net of related tax 11 7 32 34 effects ----- ----- ------ ------ Pro forma $6,093 $4,468 $16,024 $13,042 ===== ===== ====== ====== Net earnings per share: As reported - basic $.36 $.27 $.97 $.80 Pro forma - basic .36 .27 .97 .80 As reported - diluted .35 .27 .95 .79 Pro forma - diluted .35 .27 .95 .79 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 Financial Accounting Standards Board ("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 $51,000 would have been recorded for the three and nine months ended November 30, 2004, respectively. After related income tax effects, this would have reduced net earnings by $11,000 and $32,000 for the three and nine months ended November 30, 2004, respectively. There would have been no effect to earnings per share. As of November 30, 2004, the Company has issued 700,325 stock options grantedunderunder its incentive stock option plans. For the three and nine months ended November 30, 2004, there were no anti-dilutive stock options. For the three and nine month periods ended November 30, 2003, there were 10,000 and 42,250 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 On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after June 15, 2005. The Company is in the process of determining the impact of the requirements of SFAS No. 123(R) which could have a material impact on its consolidated financial statements. 3. Employee Benefit Plans ---------------------- The following table provides the components of net periodic benefit cost for the three and nine months ended November 30, 2004 and 2003 (in thousands): Three Months Nine Months Ended November Ended November 30, 30, 2004 2003 2004 2003 ---- ---- ---- ---- Components of net periodic benefit cost Service cost $367 $334 $1,101 $1,002 Interest cost 604 589 1,812 1,767 Expected return on assets (666) (548) (1,998) (1,644) Amortization of: Prior service cost (36) (36) (108) (108) Unrecognized net loss 267 262 801 786 ----- ----- ----- ----- Net periodic benefit cost $536 $601 $1,608 $1,803 ===== ===== ====== ====== 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 $2,500,000. 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): November February 30, 29, 2004 2004 ---- ---- Raw material $ 36,887 $ 6,911 Work-in-process 11,140 1,393 Finished goods 31,804 5,417 ------ ----- $79,831 $13,721 ====== ====== 8 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 $16,158,000 for the nine months ended November 30, 2004 and $13,202,000 for the nine months ended November 30, 2003. Amounts charged directly to Shareholders' Equity related to the Company's interest rate swap are included in "other comprehensive income." 6. Acquisitions ------------ Ennis completed its merger with Alstyle Apparel, Inc. ("Alstyle") November 19, 2004. Alstyle shareholders received 8,803,583 shares valued at approximately $145,523,000 and $2,889,000 cash. Debt of approximately $97,891,000 was assumed. Alstyle produces and sells activewear apparel with 6 facilities in California and Mexico and 7 distribution centers located throughout the U.S. and Canada. Alstyle was acquired to supplement and broaden the scope of products offered by Ennis. The purchase price has been allocated to assets acquired and liabilities assumed based on fair market value at the date of acquisition. The Company has temporarily recorded the excess purchase price as goodwill as ongoing efforts are completed to determine the allocation to the identifiable intangible assets, if any. Alstyle operates as a separate segment. The purchase price of Alstyle is calculated as follows (in thousands of dollars): Ennis common stock issued 8,803,583 shares $145,523 Cash 2,889 Alstyle debt assumed 97,891 ------- Purchase price of Alstyle $246,303 ======= On November 1, 2004, the Company acquired 100% of the stock of Royal Business Forms, Inc., ("Royal") a privately held company headquartered in Arlington, Texas for $3,700,000 in Ennis treasury stock (approximately 178,000 shares). Royal has been in existence and operating in Arlington, Texas since 1959 and has customers throughout the United States. The acquisition of Royal continues the Ennis strategy of growth through related manufactured products for Ennis' existing customer base. The acquisition will add additional short-run print products and solutions and financial documents sold through the indirect sales (distributorship) marketplace. The Company has temporarily recorded the excess purchase price as goodwill as ongoing efforts are completed to determine the allocation to the identifiable intangible assets, if any. Effective June 30, 2004, the Company completed its acquisition of all of the outstanding stock of Crabar/GBF for approximately $18,000,000 with consideration in the form of debt assumed and cash million in cash less debt assumed. 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 transaction was financed with $11,000,000 in in bank loansd with the balance being provided by internal cash resources. The Company has temporarily recorded the excess purchase price as goodwill as ongoing efforts are completed to determine the allocation to the identifiable intangible assets, if any. 9 The results of operations for Alstyle, Royal and Crabar/GBF are included in the Company's condensed consolidated financial statements from the dates of acquisition. The following table represents certain operating information on a pro forma basis as though all three companies had been acquired as of March 1, 2003, after the estimated impact of adjustments such as amortization of intangible assets, interest expense, interest income and related tax effects (in thousands except per share amounts): For the Three Months Ended November 30, 2003 2004 ---- ---- Pro forma net sales $136,038 $138,325 Pro forma net earnings 5,191 7,265 Pro forma earnings per share - diluted .21 .28 For the Nine Months Ended November 30, 2003 2004 ---- ---- Pro forma net sales $412,027 $433,207 Pro forma net earnings 19,295 24,776 Pro forma earnings per share - diluted .77 .97 The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the period presented. 7. Segment Data ------------- The Company operates in four business segments. The segment 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 segment Promotional Solutions Group is primarily engaged in the business of design, manufacturing and distribution of printed and electronic media, presentation products, flexoraphic printing, advertising specialties and Post-it (registered trademark) Notes. The segment Financial Solutions Group designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. The segment Alstyle Apparel Group, which consists of the newly acquired Alstyle, is primarily engaged in the production and sales of activewear including t-shirts, fleece goods, and other wearables. 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 nine months ended November 30, 2004 and 2003 were as follows (in thousands): 10
Forms Promotional Financial Alstyle Solutions Solutions Solutions Apparel Consolidated Group Group Group Group Corporate Totals ----- ----- ----- ----- --------- ------ Three months ended November 30, 2004: Net sales $50,361 $24,161 $12,892 $4,336 $ -- $91,750 Depre- ciation 854 618 450 236 139 2,297 Amorti- zation of trade- mark 33 -- -- -- -- 33 Segment earnings (loss) before income tax 5,986 3,515 2,654 258 (2,544) 9,869 Segment assets 100,002 42,662 33,408 297,694 8,156 481,922 Capital expendi- tures 256 129 228 -- 387 1,000 Three months ended November 30, 2003: Net sales $35,440 $17,339 $13,619 $ -- $ -- $66,398 Depre- ciation 799 587 739 -- 141 2,266 Amorti- zation of trade- mark 33 -- -- -- -- 33 Segment earnings (loss) before income tax 5,057 2,190 2,099 -- (2,013) 7,333 Segment assets 78,364 35,923 36,887 -- 4,863 156,037 Capital expendi- tures 223 36 176 -- 203 638 Nine months ended November 30, 2004: Net sales $128,150 $62,805 $35,569 $4,336 $ -- $230,860 Depre- ciation 2,463 1,858 1,718 236 380 6,655 Amorti- zation of trade- mark 111 -- -- -- -- 111 Segment earnings (loss) before income tax 17,899 8,401 5,648 258 (6,285) 25,921 Segment assets 100,002 42,662 33,408 297,694 8,156 481,922 Capital expendi- tures 871 841 382 -- 2,487 4,581 Nine months ended November 30, 2003: Net sales $107,133 $51,406 $37,736 $ -- $ -- $196,275 Depre- ciation 2,478 1,761 2,238 -- 498 6,975 Amorti- zation of trade- mark 99 -- -- -- -- 99 Segment earnings (loss) before income tax 15,917 5,995 4,838 -- (5,544) 21,206 Segment assets 78,364 35,923 36,887 -- 4,863 156,037 Capital expendi- 1,221 471 897 -- 451 3,040 tures
11 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. Currently, the one outstanding 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 a swap agreement 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 loan covered by the current swap agreement declines quarterly in connection with expected principal reductions and totaled $7,500,000 at November 30, 2004. The fair value of the swap at November 30, 2004 was approximately ($19,000) 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. 12 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") is primarily engaged in the production of and sale of a broad line of business forms, promotional products, including activewear apparel, and other business products. Distribution of business forms and other business products throughout the United States is primarily through independent dealers. The other business products include business forms distributors, stationers, printers, computer software developers and advertising agencies, among others. Distribution of activewear apparel is conducted through distribution centers located throughout the U.S. and Canada. Ennis completed its merger with Alstyle Apparel, Inc. ("Alstyle") November 19, 2004. Alstyle shareholders received 8,803,583 shares valued at approximately $145,523,000 and $2,889,000 cash. Debt of approximately $110,572,000 was assumed. Alstyle produces and sells activewear apparel with 6 facilities in California and Mexico and 7 distribution centers located throughout the U.S. and Canada. Alstyle was acquired to supplement and broaden the scope of products offered by Ennis. On November 1, 2004, Ennis acquired all of the outstanding stock of Royal Business Forms, Inc. ("Royal") located in Arlington Texas for $3,700,000 in Ennis Stock. Royal is principally engaged in the design, manufacture and marketing of printed business forms within the wholesale business forms marketplace. Royal was acquired to help strengthen the Company in the wholesale business forms marketplace. On June 30, 2004, the Company completed the acquisition of the outstanding stock of Dayton, Ohio based Crabar/GBF for approximately $18,000,000, with consideration in the form of debt assumed and cash in cash less debt assumed. 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. Crabar was acquired to help strengthen the Company in the wholesale business forms marketplace. 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 four business segments. The segment 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 segment Promotional Solutions Group is primarily engaged in the business of design, manufacturing and distribution of printed and electronic media, presentation products, flexoraphic printing, advertising specialties and Post-it (registered trademark) Notes. The segment Financial Solutions Group designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. The segment Alstyle Apparel is primarily engaged in the production and sales of activewear including t-shirts, fleece goods, and other wearables. 13 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 nine months ended November 30, 2004 was approximately $19,872,000 and represented a decrease of $5,837,000 from the $25,709,000 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 nine months ended November 30, 2004 was $118,801,000 and represented an increased use of $115,843,000 from the $2,958,000 used in the comparable period last year. This increase in cash used was primarily the result of the acquisition of Crabar/GBF. Cash flowsCash flows provided by financing activities for the nine months ended November 30, 2004 was $95,885,000 and represented an increase of $108,685,000 from the $12,800,000 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 Alstyle and Crabar/GBF. Working Capital The Company maintains a stable financial position with working capital at November 30, 2004, of $57,618,000. The current ratio decreased to 1.6 to 1 at the current period compared to the current ratio at the beginning of the year at 2.5 to 1. The decline is primarily the result of debt assumed with the Alstyle acquisition. The Company has $12,023,000 in cash and cash equivalents. Credit Facility The Company has approximately $129,783,000 in total long-term debt. The Company entered into a $150,000,000 term/revolver facility on November 19, 2004 with the acquisition of Alstyle and immediately borrowed $108,800,000 to finance the acquisition and refinance existing debt. The agreement, which matures in November 2009, provides for a five-year commitment. The credit facility incurs interest at a floating rate of the London Interbank Offered Rate ("LIBOR") plus a spread dependent upon the Company's total funded debt level to cash flows as defined. The secured credit facility contains financial covenants which were in compliance. Common Stock Shares outstanding were increased at November 30, 2004 to 25,412,999 from 16,393,234 at the beginning of the year. In November 2004, the company issued 8,803,583 shares to Alstyle shareholders and 177,458 shares to Royal shareholders. 14 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 in the fourth quarter of fiscal year 2005. 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 nine months totaled $2,442,000 and $4,581,000, 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. Commitments There have been no material changes in our contractual obligations since fiscal year-end 2004 outside the normal course of business. Accounting Standards - -------------------- On May 19, 2004, the 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 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. 15 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. On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after June 15, 2005. The Company is in the process of determining the impact of the requirements of SFAS No. 123(R) which could have a material impact on its consolidated financial statements. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS 151"). This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory costs incurred in fiscal years beginning after June 15, 2005. As such, the company is required to adopt these provisions at the beginning of fiscal year 2007. The company is currently evaluating the impact of SFAS 151 on its consolidated financial statements. Results of Operations 2004 - -------------------------- Net sales for the three months ended November 30, 2004 increased 38.2% from the corresponding period in the prior year. The Company's recent acquisitions: Alstyle Apparel, Inc. ("Alstyle") acquired November 19, 2004, Royal Business Forms, Inc. ("Royal") acquired November 1, 2004 and Crabar/GBF, Inc. ("Crabar") acquired June 30, 2004 accounted for 33.7% of this increase. The remaining increase resulted from the Promotional Solutions Group sales increase of 6.2%, offset by decreases in the remaining Forms Solutions Group 0.6% and the Financial Solutions Group 1.1%. 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 nine months ended November 30, 2004, net sales increased 17.6% from the corresponding period in the prior year. The Company's recent acquisitions accounted for 16.5% of the increase. The remaining increase resulted from the Promotional Solutions Group sales increased of 3.2%, offset by decreases in the remaining Forms Solutions Group 1.0% and the Financial Solutions Group 1.1%. 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. 16
Forms Promotional Financial Alstyle Consoli- Solutions Solutions Solutions Apparel dated Group Group Group Group Totals ----- ----- ----- ----- ------ Three months ended November 30, 2004: Net sales excluding acquisitions $34,555 $21,927 $12,892 $ -- $69,375 Net sales from acquisitions 15,806 2,234 -- 4,336 22,375 ------- ------- ------- ------ -------- Total net sales $50,361 $24,161 $12,892 $4,336 $ 91,750 ======= ======= ======= ====== ======== Three months ended November 30, 2003: Total net sales $35,440 $17,339 $13,619 $ -- $ 66,398 ======= ======= ======= ====== ======== Nine months ended November 30, 2004: Net sales excluding acquisitions $103,593 $59,260 $35,569 $ -- $198,422 Net sales from acquisitions 24,557 3,545 -- 4,336 32,438 ------- ------- ------- ------ -------- Total net sales $128,150 $62,805 $35,569 $4,336 $230,860 ======= ======= ======= ====== ======== Nine months ended November 30, 2003: Total net sales $107,133 $51,406 $37,736 $ -- $196,275 ======= ======= ======= ====== ========
Gross profit margins decreased from 26.5% in the three months ended November 30, 2003 to 24.9% in the three months ended November 30, 2004 and decreased from 26.3% in the nine months ended November 30, 2003 to 25.7% in the nine months ended November 30, 2004. The decrease in the three months and nine months ended November 30, 2004 is primarily the result of recently acquired companies which yield lower profit margins. The Forms Solutions Group and Financial Solutions Group, excluding recent corporate acquisitions, experienced increases in gross profit margin for the three months and nine months ended when compared to the same period in the prior year. While the general weakness in the economy and the decline in the forms industry contributed to decreased volume, profits were able to be increased by controlling variable costs and maintaining efficient fixed cost absorption. The Promotional Solutions Group had relatively consistent gross profit margins for the three months and nine months ended November 30, 2004 when compared to the same period in the prior year. Selling, general and administrative expenses increased 29.7% for the three months ended November 30, 2004 and 12.3% for the nine months ended November 30, 2004 when compared to the corresponding periods in the prior year. The Company's recent corporate acquisitions accounted for increases in administrative personnel in the Forms Solutions Group and Alstyle Apparel Group. Interest expense increased from $183,000 in the three months ended November 30, 2003 to $288,000 in the three months ended November 30, 2004 primarily as a result of increased debt resulting from the corporate acquisitions. Interest expensed decreased from $662,000 for the nine months ended November 30, 2003 to $589,000 for the nine months ended November 30, 2004 primarily as a result of the reduction of long-term financial debt, prior to the corporate acquisitions. 17 The Company's effective federal and state income tax rate remained relatively constant at approximately 38% for the nine months ended November 30, 2004 and November 30, 2003. 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. The Company's accounts receivable are primarily due from distributors of the Company's business forms and other printed business products. Credit is extended based on evaluation of each customer's financial condition. Accounts receivable are generally due within 30 days and are stated net of an allowance for doubtful accounts. Accounts outstanding longer than contractual payment terms are considered past due. The Company records an allowance on a specific basis by considering a number of factors, including the length of time trade accounts are past due, the Company's previous loss history, the credit-worthiness of individual customers, economic conditions affecting specific customer industries and economic conditions in general. The Company writes-off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited against write-offs in the period the payment is received. The Company values the raw material content of most of its business forms inventories at the lower of last-in, first-out ("LIFO") cost or market. At fiscal years ended 2004 and 2003, approximately 75% of business forms inventories are valued at LIFO with the remainder of inventories valued at the lower of first-in, first-out ("FIFO") cost or market. The Company provides reserves for excess and obsolete inventory based upon analysis of quantities on hand, recent sales volumes and reference to market prices. 18 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 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 mMay 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. 19 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 January 7, 2005. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 November 30, 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 $108,000,000 at November 30, 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 November 30, 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. 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. During the quarter ended November 30, 2004, the Company implemented certain controls in conjunction with its project related to reporting on internal controls in compliance with The Sarbanes- Oxley Act of 2002. The Company is continuing to integrate the operations of the newly acquired operations of Alstyle 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 to virtually all areas of the Company's internal controls in order to provide effective monitoring and control of the newly integrated operations. 20 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 5, 2004, the Company held a special meeting of its shareholders to approve the issuance of shares of the Company's common stock to holders of all of the capital stock of Centrum Acquisition, Inc. in connection with the merger of Centrum with and into a subsidiary of the Company pursuant to the terms of the Agreement and Plan of Merger dated as of June 25, 2004 among Company, Centrum and Midlothian Holdings LLC, a subsidiary of the Company. The issuance was approved at the special meeting with 11,578,636 shares cast "for" the issuance, 433,907 shares cast "against" the issuance and 58,666 shares withheld. Item 6. EXHIBITS Exhibits The exhibits as listed on the accompanying index to exhibits on page 23 are filed as part of this Form 10-Q. 21 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 January 7, 2005 /s/Harve Cathey ------------------- ------------------------------- Harve Cathey Vice President - Finance and CFO, Secretary and Principal Financial and Accounting Officer 22 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 2.1 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 2.2 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 3.3 Articles of Amendment to the Articles of Incorporation of Ennis Business Forms, Inc. filed on June 17, 2004. 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 Exhibit 4.1 of the Registrant's Form S-8 filed on January 5, 2005. 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 Exhibit 10.6 to the Registrant's Form S-4 filed on September 3, 2004. 23 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 Exhibit 10.7 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 Exhibit 10.8 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 Exhibit 10.10 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 Exhibit 10.11 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 Exhibit 10.12 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 Exhibit 10.13 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 reference 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. 24 * Portions of Exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. EX-3 2 exh33.txt EXHIBIT 3.3 Exhibit 3.3 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF ENNIS BUSINESS FORMS, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation act, the undersigned corporation adopts the following articles of amendment to its articles of incorporation: ARTICLE ONE The name of the corporation is Ennis Business Forms, Inc. ARTICLE TWO The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation effective on June 17, 2004. The amendment to the Articles of Incorporation alters or changes Article One of the original Articles of Incorporation and the full test of the Article is amended to read as follows: The name of the corporation is: Ennis, Inc. ARTICLE THREE The number of shares of the corporation outstanding at the time of such adoption was 16,393,157, and the number of shares entitled to vote thereon was 16,393,157. The number of shares voted for such amendment was 14,876,196, and the number of shares voted against such amendment was 1,516,961. ARTICLE FOUR The holders of all of the shares outstanding and entitled to vote on said amendment have signed a consent in writing pursuant to Article 9.10 adopting said amendment, and any written notice required by Article 9.10 has been given. Dated effective: June 17, 2004 ENNIS BUSINESS FORMS, INC. By: /s/ Harve Cathey ------------------------------ Harve Cathey, Vice President and Secretary EX-31 3 exh311.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 January 7, 2005 EX-31 4 exh312.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 January 7, 2005 EX-32 5 exh32.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 November 30, 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 the 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 January 7, 2005 /s/ Harve Cathey Harve Cathey Chief Financial Officer January 7, 2005 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-----