-----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, Q+sIhEDDuP/rOGzhj67FrmePfC+YWxkFgzoIpQfIykGcadIRl415sMbJiTQfyStl Nzgj45obYy1FgTmo7sv/Vw== 0000033002-05-000036.txt : 20051003 0000033002-05-000036.hdr.sgml : 20051003 20050930175102 ACCESSION NUMBER: 0000033002-05-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051003 DATE AS OF CHANGE: 20050930 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: 051115268 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 qmain.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 For Quarter Ended AUGUST 31, 2005 ----------------------------------------------- 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) 1510 N. Hampton, Suite 300, DeSoto, TX 75115 - ----------------------------------------------------------------- (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 16, 2005 was 25,454,624. ENNIS, INC. INDEX Part I. Financial information Item 1 - Financial Statements Condensed Consolidated Balance Sheets -- August 31, 2005 and February 28, 2005 2 - 3 Condensed Consolidated Statements of Earnings -- Three and Six Months Ended August 31, 2005 and 2004 4 Condensed Consolidated Statements of Cash Flows -- Six Months Ended August 31, 2005 and 2004 5 Notes to Condensed Consolidated Financial Statements 6 - 14 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 26 Item 3 - Quantitative and Qualitative Disclosures of Market Risk 27 Item 4 - Controls and Procedures 287 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 29 Signatures 30 1 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) August 31, February 28, 2005 2005 ---- ---- (unaudited) Assets ------ Current assets: Cash and cash equivalents $ 2,066 $ 10,694 Accounts receivable, net 54,233 46,685 Prepaid expenses 5,614 5,162 Inventories 78,294 79,900 Other current assets 6,625 6,732 ------- ------- Total current assets 146,832 149,173 ------- ------- Property, plant and equipment, net 70,328 72,019 Goodwill, net 178,118 178,472 Trademarks, net 62,016 62,090 Purchased customer list, net 22,454 23,275 Other assets 9,753 12,217 ------- ------- $ 489,501 $ 497,246 ======= ======= (Continued) 2 ENNIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Thousands) August 31, February 28, 2005 2005 ---- ---- (unaudited) Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 29,125 $ 33,887 Accrued expenses: Employee compensation and benefits 14,432 16,135 Federal and state income tax payable 1,431 1,389 Taxes other than income 2,194 3,154 Other 5,547 5,116 Current installments of long- term debt 18,332 21,702 ------- ------- Total current liabilities 71,061 81,383 ------- ------- Long-term debt, less current installments 102,475 112,342 Deferred credits, principally income taxes 30,636 31,790 Shareholders' equity: Series A junior participating preferred stock $10 par value, authorized 1,000,000 shares; None issued -- -- Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at August 31, 2005 and February 28, 2005 75,134 75,134 Additional paid in capital 123,311 123,640 Retained earnings 169,915 156,666 Accumulated other comprehensive income 22 6 ------- ------- 368,382 355,446 Treasury stock: Cost of 4,598,819 shares at August 31, 2005 and 4,635,444 shares at February 28, 2005 (83,053) (83,715) ------- ------- Total shareholders' equity 285,329 271,731 ------- ------- $ 489,501 $ 497,246 ======= ======= 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, 2005 2004 2005 2004 ---- ---- ---- ---- Net sales $148,116 $73,374 $297,229 $139,110 Costs and expenses: Cost of sales 110,864 54,022 222,499 102,698 Selling, general and administrative 17,791 10,813 35,628 20,199 ------- ------- ------- ------- 128,655 64,835 258,127 122,897 ------- ------- ------- ------- Income from operations 19,461 8,539 39,102 16,213 ------- ------- ------- ------- Other income (expense): Interest expense (2,323) (167) (4,566) (301) Other income (expense), net (81) 216 (171) 140 ------- ------- ------- ------- (2,404) 49 (4,737) (161) ------- ------- ------- ------- Earnings before income taxes 17,057 8,588 34,365 16,052 Provision for income taxes 6,481 3,218 13,231 6,100 ------- ------- ------- ------- Net earnings $ 10,576 $ 5,370 $ 21,134 $ 9,952 ======= ======= ======= ======= Weighted average number of common shares outstanding - basic 25,453,566 16,427,776 25,440,230 16,416,737 Plus incremental shares from assumed exercise of stock options 302,849 317,675 284,897 298,908 ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding - diluted 25,756,415 16,745,451 25,725,127 16,715,645 ========== ========== ========== ========== Per share amounts: Net earnings - basic $.42 $.33 $.83 $.61 ==== ==== ==== ==== Net earnings - diluted $.41 $.32 $.82 $.59 ==== ==== ==== ==== 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, 2005 2004 ---- ---- Cash flows from operating activities: Net earnings $21,134 $ 9,952 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 7,847 4,358 Amortization of trademark and customer list 973 66 Gain on the sale of equipment (178) (188) Bad debt expense 747 429 Changes in operating assets and liabilities Accounts Receivable (8,295) 933 Prepaid expenses (452) 295 Inventories 1,606 (958) Other current assets 93 (89) Accounts payable and accrued expenses (6,604) (3,217) Other assets 1,232 (11) ------ ------ Net cash provided by operating activities 18,103 11,570 ------ ------ Cash flows from investing activities: Capital expenditures (6,138) (3,581) Purchase of operating assets, net of cash acquired of $133 -- (17,701) Proceeds from disposal of property 196 235 ------ ------ Net cash used in investing activities (5,942) (21,047) ------ ------ Cash flows from financing activities: Debt issued 9,000 11,000 Repayment of debt (22,237) (3,335) Dividends (7,885) (5,088) Exercise of stock options 333 363 ------ ------ Net cash (used in) provided by financing activities (20,789) 2,940 ------ ------ Net change in cash and cash equivalents (8,628) (6,537) Cash and cash equivalents at beginning of period 10,694 15,067 ------ ------ Cash and cash equivalents at end of period $ 2,066 $ 8,530 ====== ======
Total interest paid was $4,551,000 and $292,000 and taxes paid were $11,000,000 and $4,800,000 for the six months ended August 31, 2005 and 2004 respectively. 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, 2005 have been prepared in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended February 28, 2005, from which the accompanying condensed consolidated balance sheet at February 28, 2005 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, 2005, 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 1,152,477 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." Under APB No. 25, compensation expense for fixed awards is based upon the difference, if any, on the date of the grant between the estimated fair value of the Company's stock and the exercise price and is amortized over the vesting period. All stock-based awards to non-employees, if any, are accounted for at their fair value. The Company is required to disclose the pro forma net income if the fair value method defined in SFAS No. 123 has been applied. 6 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): Three Months Six Months Ended Ended August 31, August 31, (in thousands) 2005 2004 2005 2004 ---- ---- ---- ---- Net earnings: As reported $10,576 $5,370 $21,134 $9,952 Deduct: Stock-based Employee compensation expense not included in reported income, net of related tax 12 11 23 21 effects ------ ----- ------ ----- Pro forma $10,564 $5,359 $21,111 $9,931 ====== ===== ====== ===== Net earnings per share: As reported - basic $.42 $.33 $.83 $.61 Pro forma - basic .42 .33 .83 .60 As reported - diluted .41 .32 .82 .59 Pro forma - diluted .41 .32 .82 .59 For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period. The changes in shareholders' equity during the six months ended August 31, 2005 is from earnings, dividends paid and options exercised. 3. Employee Benefit Plans ---------------------- The following table provides the components of net periodic benefit cost for the three and six months ended August 31, 2005 and 2004 (in thousands): Three Months Six Months Ended Ended August 31, August 31, 2005 2004 2005 2004 ---- ---- ---- ---- Components of net periodic benefit cost Service cost $355 $367 $ 711 $ 734 Interest cost 611 604 1,222 1,208 Expected return on assets (693) (666) (1,386) (1,332) Amortization of: Prior service cost (36) (36) (72) (72) Unrecognized net loss 264 267 528 534 --- --- ----- ----- Net periodic benefit cost $501 $536 $1,003 $1,072 === === ===== ===== 7 3. Employee Benefit Plans (continued) ---------------------------------- 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, 2006, 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 2006. 4. Due From Factors ---------------- Pursuant to terms of an agreement between the Company and various factors, the Company sells a majority of its trade accounts receivable to the factors on a non-recourse basis. The price at which the accounts are sold is the invoice amount reduced by the factor commission of between 0.25% and0.50% Additionally, some trade accounts receivable are sold to the factors on a recourse basis. Trade accounts receivable not sold to the factor remain in the custody and control of the Company and the Company maintains all credit risk on those accounts as well as accounts which are sold to the factor with recourse. The Company may request payment from the factor in advance of the collection date or maturity. Any such advance payments are assessed in interest charges through the collection date or maturity at the prime rate as published by The Chase Manhattan Bank. The Company's obligations with respect to advances from the factor are limited to the interest charge thereon. Advance payments are limited to a maximum of 90% (ninety percent) of eligible accounts receivable. At August 31, 2005, included in receivables in the balance sheet amounts, due from factors consists of the following (in thousands): Outstanding factored receivables Without recourse $18,776 With recourse 1,675 Advances (18,217) ------ Due from factors $ 2,234 ====== 5. Allowance for Doubtful Accounts and Concentration of Credit Risk ------------------------------------------------------------- Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. Substantially all of the Company's receivables are due from customers in North America. 8 5. Allowance for Doubtful Accounts and Concentration of Credit Risk (continued) ------------------------------------------------------------- The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer's financial condition, (ii) the amount of credit the customer requests and (iii) the customer's actual payment history (which includes disputed invoice resolution). In some cases, the Company extends open credit to customers that refuse to make financial disclosure, but who have an extended history of timely payment and low levels of disputed invoices. The Company does not typically require its customers to post a deposit or supply collateral. The Company's allowance for doubtful accounts reserve is based on an analysis that estimates the amount of its total customer receivable balance that is not collectable. This analysis includes assessing a default probability to customers' receivable balances. The assessed default probability is influenced by several factors including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer receivable aging and payment trends. Credit losses from continuing operations have consistently been within management's expectations. The activity in the Company's allowance for doubtful accounts is as follows (in thousands):
Balance at Additions Balance Beginning Charged at the of the Charged to to Other End of Description Period Operations Accounts Deductions Period ----------- --------- ---------- -------- ---------- ------- Six months ended August 31, 2005 $3,567 747 -- 475(1) 3,839 Year ended February 28, 2005 $1,771 893 1,620(2) 717(1) 3,567 Year ended February 29, 2004 $1,294 890 47(3) 460(1) 1,771
(1) Charge-off of uncollectible receivables. (2) Principally Allowance from Acquisition of Alstyle Apparel, Crabar/GBF, Inc., and Royal Business Forms, Inc. (3) Principally Reserve from Acquisition of Alstyle Apparel. 6. Inventories ----------- The Company values the raw material content of most of its business forms inventories at the lower of last-in, first-out (LIFO) cost or market and all apparel inventory at the lower of first-in, first-out (FIFO) cost or market. The following table summarizes the components of inventory at the different stages of production (in thousands of dollars): August 31, February 28, 2005 2005 ---- ---- Raw material $24,130 $26,717 Work-in-process 14,738 17,669 Finished goods 39,426 35,514 ------ ------ $78,294 $79,900 ====== ====== 9 7. 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. The purchase contract included a holdback provision of $10,000,000 which is included on the consolidated balance sheet at August 31, 2005. Debt of approximately $98,074,000 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 value at the date of acquisition. Customer lists valued at $22,000,000 at date of acquisition are amortized over their useful lives and trademarks valued at $61,000,000 with an indefinite amount is evaluated for impairment on an annual basis. Approximately $37,774,000 of goodwill related to Alstyle acquisition is deductible for tax purposes. 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 98,074 ------- Purchase price of Alstyle $246,486 ======= 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 adds additional short-run print products and solutions and financial documents sold through the indirect sales (distributorship) marketplace. Effective June 30, 2004, the Company completed its acquisition of all of the outstanding stock of Crabar/GBF, Inc. (Crabar/GBF) for approximately $18,000,000 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 adds 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 bank loans with the balance being provided by internal cash resources. The Company has recognized certain costs related to exit activities and integration costs attributable to the Crabar/GBF acquisition. These costs totaling approximately $1,500,000 were recognized as part of the assumed liabilities and included in "Other - Accrued Expenses" in the Consolidated Balance Sheet at acquisition date. The costs were primarily related to contracts related to previous owners. Other costs include lease exit costs and severance payments. The following is a summary of the purchase price allocation at February 28, 2005 (in thousands): 10 Crabar/GBF Royal Alstyle Cash $ 133 $ 601 $ 3,187 Accounts receivable, net 7,553 1,125 4,457 Other receivables 1,082 -- 639 Prepaid expenses 298 76 1,451 Other current assets -- 211 1,697 Inventories 4,435 1,985 55,801 Fixed assets 8,087 808 21,033 Goodwill 5,956 -- 138,134 Trademarks 80 -- 61,000 Customer list 1,760 -- 22,000 Other identifiable intangibles 92 -- 3,763 Accounts payable and accrued liabilities 11,476 1,106 66,676 ------ ----- ------- $ 18,000 $ 3,700 $246,486 ====== ===== ======= 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, 2004, 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 August 31, 2004 2004 ---- Net sales $ 143,597 Net earnings 7,624 Net earnings per share - basic .30 Net earnings per share - diluted .30 For the Six Months Ended August 31, 2004 2004 ---- Net sales $ 294,882 Net earnings 16,652 Net earnings per share - basic .65 Net earnings per share - diluted .65 The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the period presented. 8. Intangible Assets ----------------- The Company has adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and other intangible assets be tested for impairment annually and when an event occurs indicating that it is possible an impairment exists. Intangible assets with determinable lives are amortized on a straight-line basis over the estimated useful life. The cost of trademarks is recorded at the lower of cost or fair value. Trade names with determinable lives have an aggregate value of $1,234,000, less accumulated amortization of $218,000 and $144,000 as of August 31, 2005 and February 28, 2005, respectively. Amortization expense for these intangibles will be $149,000 in each of the five succeeding years. Trademarks with indefinite-lived lives with a net book value of $61,000,000 at August 31, 2005 are evaluated for impairment on an annual basis. 11 Purchased customer lists have an aggregate value of $23,760,000, less accumulated amortization of $1,306,000 and $485,000 as of August 31, 2005 and February 28, 2005, respectively. Amortization expense for these intangibles will be $1,643,000 in each of the five succeeding years. The change in goodwill is the result of liabilities of the Alstyle acquisition settled at less than originally estimated. 9. Shareholders' Equity -------------------- Accumulated other comprehensive income (loss) consists of the unrealized portion of changes in the fair value of the Company's cash flow hedge and foreign currency translation. Comprehensive income was approximately $21,150,000 1for the six months ended August 31, 2005 and $10,026,000 for the six months ended August 31, 2004. Amounts charged directly to Shareholder's Equity related to the Company's interest rate swap and foreign currency translation are included in "other comprehensive income." Changes in Retained Earnings are as follows: Retained Earnings February 28, 2005 $156,666,000 Net Earnings 21,134,000 Cash dividends declared and paid (7,885,000) ----------- Retained Earnings August 31, 2005 $169,915,000 =========== 10.Segment Data ------------ The Company operates in two segments - the Printing Segment and the Apparel Segment. The first group in the Printing 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. Assets in this group at August 31, 2005 decreased from August 31, 2004 primarily from improved accounts receivable collections and inventory management of Crabar/GBF assets. The second group in the Printing Segment, the Promotional Solutions Group is primarily engaged in the business of design, manufacturing, and distribution of printed and electronic media, presentation products, flexographic printing, advertising specialties and Post-it (registered trademark) Notes. Assets in this group at August 31, 2005 increased from August 31, 2004 primarily from increased accounts receivable and inventory requirements from Adams McClure sales increases. The third group in the Printing Segment, the Financial Solutions Group, designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. The second segment, the Apparel Solutions Group, which consists of Alstyle acquired in November 2004, is primarily engaged in the production and sale of activewear including t-shirts, fleece goods and other wearables. Alstyle sales are seasonal, with sales in the first and second quarters generally being the highest. 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. 12 Segment data for the three and six months ended August 31, 2005 and 2004 were as follows (in thousands):
Apparel Printing Segment Segment ---------------- ------- Forms Promotional Financial Apparel Solutions Solutions Solutions Solutions Consolidated Group Group Group Group Corporate Totals ----- ----- ----- ----- --------- ------ Three months ended August 31, 2005: Net sales $48,868 $23,901 $11,129 $ 64,218 $ -- $ 148,116 Depreciation 799 598 408 1,974 160 3,939 Amortization of Trademark 89 -- -- 405 -- 494 Segment earnings (loss) before 7,344 1,671 1,894 8,085 (1,937) 17,057 income tax Segment assets 86,988 47,339 32,688 314,037 8,449 489,501 Capital expenditures 210 1,085 64 205 53 1,617 Three months ended August 31, 2004: Net sales $43,227 $19,183 $10,964 $ -- $ -- $ 73,374 Depreciation 841 614 562 -- 132 2,149 Amortization 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 expenditures 348 471 54 -- 569 1,442 Six months ended August 31, 2005: Net sales $95,347 $46,423 $22,852 $132,607 $ -- $ 297,229 Depreciation 1,636 1,191 817 3,883 320 7,847 Amortization of trademark 179 -- -- 794 -- 973 Segment earnings (loss) before income tax 12,625 5,557 3,818 16,452 (4,087) 34,365 Segment assets 86,988 47,339 32,688 314,037 8,449 489,501 Capital 317 1,206 165 4,073 377 6,138 expenditures Six months ended August 31, 2004: Net sales $77,790 $38,644 $22,676 $ -- $ -- $139,110 Depreciation 1,609 1,241 1,268 -- 240 4,358 Amortization 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 expenditures 615 712 154 -- 2,100 3,581
"Post-it" is a registered trademark of 3M. 13 11.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. The 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 loans covered by the swap agreements declines quarterly in connection with expected principal reductions and totaled $3,000,000 at August 31, 2005. The fair value of the swap at August 31, 2005 was approximately $4,000 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.Recent Accounting Requirements In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections". SFAS No. 154 amends Accounting Principles Board (APB) Opinion 20, concerning the accounting for changes in accounting principles, requiring retrospective application to prior periods' financial statements of changes in an accounting principle, unless it is impracticable to do so. The effective date of SFAS No. 154 is for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 in fiscal 2007 and does not expect it to have a significant impact on the Company's financial statements. 14 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview - -------- Ennis, Inc. (formerly Ennis Business Forms, Inc.) was organized under the laws of Texas in 1909. Ennis, Inc. and its subsidiaries (collectively known as "Ennis" or the "Company") prints and constructs a broad line of business forms and other business products and also manufactures a line of activewear for distribution throughout North America. Distribution of all of these products throughout the United States and Canada is primarily through independent dealers and with respect to activewear products, through sales representatives. This distributor group encompasses print distributors, stationers, quick printers, computer software developers, activewear wholesalers, screen printers and advertising agencies, among others. During the fiscal year ended February 28, 2005, the Company acquired Crabar/GBF, Inc. (Crabar/GBF) and Royal Business Forms, Inc. (Royal) and merged with Centrum Acquisition, Inc. and its wholly owned subsidiary, which did business under the name of Alstyle Apparel, Inc. (collectively Alstyle). Alstyle was merged into a wholly owned subsidiary of the Company. Crabar/GBF was a privately owned business forms manufacturer with $69 million in revenues in its most recent fiscal year. The purchase price of this transaction was $18 million in cash and assumed debt. The transaction closed as of June 30, 2004. On November 1, 2004 the Company announced an agreement to acquire Royal, an Arlington, Texas based manufacturer of business forms for $3.7 million in Ennis stock. Approximately 178,000 shares of treasury stock were issued in this transaction. Royal had revenues of $12.1 million in its most recent fiscal year. Alstyle, an Anaheim, California based company had approximately $200 million in annual revenues and 3,500 employees in North America at the time of the announcement of the merger on June 25, 2004. The transaction provided that the Alstyle shareholders would receive Ennis shares based upon a $242 million valuation of Alstyle less debt outstanding as of the day of the merger (approximately $104 million). This amount, plus the cost of the acquisition, totaled $246.5 million. On November 4, 2004, Ennis shareholders approved the issuance of 8,803,583 shares of Ennis common stock to enable the completion of this merger that was closed on November 19, 2004. The Company also entered into a new $150 million financing facility with LaSalle Bank, N.A. providing a $50 million term loan and a $100 million revolver in conjunction with the Alstyle merger. All of these transactions are explained in more detail in Management's Discussion and Analysis and Footnotes of the Company's 2005 Annual Report. In February of 2005, the Company announced a change in management in which the Forms Solutions, Promotional Solutions and Financial Solutions Groups began reporting to a newly created executive officer position. This officer reports to the President and CEO, as does the President of the Apparel Group. As discussed in the Form 10-K filed on May 17, 2005, beginning in the prior fiscal quarter the Company reports on two operational segments - the Printing Segment and the Apparel Segment. The Printing Segment combines all of the Company's printing operations into a single segment for both management and reporting purposes. 15 Business Segment Overview - ------------------------- Printing Segment - ---------------- Forms Solutions Group - The Forms Solutions Group operates through 16 manufacturing locations throughout the United States. The Forms Solutions Group sells through approximately 40,000 private printers and independent distributors and therefore sales reflect a smaller percentage of selling expense than would exist in companies who market directly to the end use. The products sold include snap sets, continuous forms, laser cut sheets, tags, labels, integrated products, jumbo rolls and pressure sensitive products in short, medium and long runs. The Group sells under the Ennis, Royal, Witt Printing and Calibrated brand names. Promotional Solutions Group - The Promotional Solutions Group operates 7 facilities in four states. The group operates under the Adams-McClure brand (which provides Point of Purchase advertising for large franchise and fast food chains as well as kitting and fulfillment); the Admore brand (which provides presentation folders and document folders); Ennis Tag & Label (which provides tags and labels, promotional products and advertising concept products) and GenForms (which provides short- run and long-run label production). With respect to Adams- McClure, the business is generally provided through advertising agencies. The other facilities receive business through independent distributors. Financial Solutions Group - The Financial Solutions Group operates in 4 facilities located in three states. The Financial Group sells directly to customers and to resellers through a sales staff (Northstar) as well as through distributors (Northstar and GFS). Northstar has redirected its focus to large banking organizations on a direct basis (where a distributor is not acceptable or available to the end-user) and has acquired several of the top 200 banks in the United States and is actively working on other large banks within the top 200 tier of banks in the United States. Apparel Segment - --------------- Apparel Solutions Group - The Apparel Segment operates through 6 manufacturing facilities in California and Mexico. Alstyle markets high quality knit basic activewear (t-shirts, tank tops and fleece) across all market segments. Approximately 88% of Alstyle's revenues are derived from t-shirt sales, and 94% of those are domestic sales. Alstyle's branded product lines are AAA, Gaziani, Diamond Star and Tennessee River. Alstyle is headquartered in Anaheim, California where they knit domestic cotton yarn and some polyester fibers are knitted into tubular material. The material is dyed at that facility and then shipped to plants in Ensenada or Hermosillo, Mexico to be cut and sewn into finished goods. Alstyle also ships a small amount of their dyed and cut product to El Salvador or Costa Rica for sewing. After sewing and packaging is completed, product is reshipped to Anaheim where it is either stored at the distribution center in Anaheim, or re-directed to distribution centers in Los Angeles, California; Chicago, Illinois; Dallas, Texas; Philadelphia, Pennsylvania; Atlanta, Georgia or Mississauga, Canada. Alstyle utilizes a customer-focused internal sales team comprised of 19 sales representatives assigned to specific geographic territories in the United States and Canada. Sales representatives are allocated performance objectives for their respective territories and are provided financial incentives for achievement of their target objective. Sales representatives are responsible for developing business with large accounts and spend approximately half their time in the field. 16 Alstyle employs a staff of customer service representatives that handle call-in orders from smaller customers. Sales personnel sell directly to Alstyle's customer base, which consists primarily of screen printers, embellishers, retailers, and mass marketers. A majority of Alstyle's sales are related to direct customer, branded products and the remainder relate to private label and re- label programs. Generally, sales to screen printers and mass marketers are driven by the availability of competitive products and price considerations, while sales in the private label business are characterized by slightly higher customer loyalty. Alstyle's most popular styles are produced based on forecasts to permit quick shipment and to level production schedules. Alstyle offers same-day shipping and uses third party carriers to ship products to its customers. Alstyle's sales are seasonal, with sales in the first and second quarters generally being the highest. The general apparel industry is characterized by rapid shifts in fashion, consumer demand and competitive pressures, resulting in both price and demand volatility. However, the imprinted activewear market that Alstyle sells to is "event" driven. Blank t-shirts can be thought of as "walking billboards" promoting movies, concerts, sports teams, and "image" brands. Still, the demand for any particular product varies from time to time based largely upon changes in consumer preferences and general economic conditions affecting the apparel industry. Liquidity and Capital Resources - ----------------------------- Cash Flow Cash provided by operating activities for the six months ended in August 2005 was $18,103,000 an increase of 56.5% from the same period in the prior year. The increase is the result of acquisitions of Crabar/GBF, Royal and Alstyle Apparel in the prior year. Cash provided by operations, along with some additional borrowing under the revolving credit arrangement and existing cash balances was utilized for capital expenditures, debt repayment and dividends. Working Capital Working capital increased during the six months ended in August 2005 from $67,790,000 at February 2005 to $75,771,000. The current ratio improved to 2.1 to 1. The Company has $2,066,000 in cash and cash equivalents at the end of the six-month period. Credit Facility During the six months ended in August 2005, the Company has drawn $9,000,000 from the revolving credit facility and repaid $5,000,000 on the term note, $10,000,000 to the revolver and $7,237,000 other debt. It is anticipated that the available line of credit is sufficient to cover, should it be required, working capital requirements for the foreseeable future. As previously reported, Alstyle continues to sell substantially all of its account receivable to factors based upon agreements with various financial institutions. $4,000,000 of the total amount drawn under the revolver during the quarter ended in August 2005 was used to finance the growth in accounts receivable the Company is not factoring. The Company continues with plans to fund these receivables through the existing bank line or from working capital generated by Alstyle over the next twelve to eighteen months. 17 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, 2006, there is not a minimum contribution requirement and no pension payments have been made; however, the Company anticipates it will contribute approximately $2,500,000 in the fourth quarter of fiscal year 2006. Inventories The Company believes current inventory levels are sufficient to satisfy customer demand and anticipates having adequate sources of raw materials to meet future business requirements. The previously reported long-term contracts with paper and yarn suppliers continue to be in effect. Inventory values declined during the quarter primarily as a result of Alstyle sales exceeding their production of finished goods in each month of the quarter. Capital Expenditures In March 2005, the Company acquired ownership of certain assets, which had been held by Alstyle under operating leases. These capital expenditures of approximately $3.8 million were above and beyond the previously reported expected capital expenditures of $5 million to $7 million for the current fiscal year. Including these expenditures, the Company continues to expect capital requirements for the fiscal year to be between $9 million and $11 million, and expects to generate sufficient cash flow from operating activities to fund any capital requirements. Commitments There have been no material changes in our contractual obligations since fiscal year-end 2005 outside the normal course of business. Accounting Standards In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections". SFAS No. 154 amends Accounting Principles Board (APB) Opinion 20, concerning the accounting for changes in accounting principles, requiring retrospective application to prior periods' financial statements of changes in an accounting principle, unless it is impracticable to do so. The effective date of SFAS No. 154 is for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 in fiscal 2007 and does not expect it to have a significant impact on the Company's financial statements. 18 Results of Operations - Consolidated - ------------------------------------ Net sales for the quarter and six months ended in August 2005 were $148.1 million and $297.2 million respectively. This is an increase of 101.9% for the quarter and 113.7% for the six-month period. Acquisitions provided 94.0% and 109.1% of the respective increases. Gross margins for the current quarter were 25.2% compared to 26.4% in the prior year quarter. For the six-month period, gross margins were 25.1% compared to 26.2% in the prior year six-month period. The overall decline in gross margin for the current quarter and the six-month period is the result of acquisitions in the prior year. These acquisitions, Crabar/GBF, Royal and Alstyle, generally produce gross margins which are less than those produced by the pre-acquisition units. In addition, the current quarter and the six-month period are impacted by weakened gross margins in the Promotional Group, as discussed below. Selling, general and administrative expenses were $17.8 million and $35.6 million for the quarter and six months ended in August 2005. The increases of 64.5% and 76.4% for the respective periods are attributable to the prior year acquisitions. Selling, general and administrative expenses declined as a percent of revenues 2.7% for the quarter and 2.5% for the six- month period. The increase in interest expense from the prior year quarter to the current year is the result of the debt incurred or assumed from the Alstyle transaction. The slight increase in interest expense from the prior quarter is the result of interest penalties from the early pay-off of certain capitalized leases. The effective income tax rate in the current year quarter is slightly higher than the prior year quarter and less than the prior quarter. Going forward it is expected that the effective tax rate will be approximately 38.5% Results of Operations - Printing Segment - ---------------------------------------- Forms Solutions Group -- Net sales for the group were $48.9 million and $95.3 million for the quarter and six months ended in August 2005, compared to $43.2 million and $77.8 million in the prior year periods. The $5.7 million increase from the prior year quarter was the result of $.9 million incremental sales from the Crabar/GBF units in the group, $3.0 million from Royal and $1.8 million from the pre- acquisition units. The $17.5 million increase for the six-month period came from $10.3 million in incremental sales from Crabar/GBF units, $5.8 million from Royal and $1.4 million from the pre-acquisition units. . Gross margins in the group declined from the prior year quarter to the current year. The decline is the result of the addition of the Crabar/GBF units to the group. Margins at the Crabar/GBF units, primarily due to the long-run nature of their business, were generally 10% to 14% less than the margins historically earned by the pre-acquisition units of the group. Since Royal and all of the Crabar/GBF units were in the group in both the current quarter and the prior quarter, the change in margins for those two periods was less significant. Promotional Solutions Group -- Net sales for the group were $23.9 million in the quarter, compared to $19.2 million in the prior year and $22.5 million in the prior quarter. The increase from the prior year quarter was primarily attributable to the increased sales from the Adams McClure facility to the group. The increase from the prior quarter was the result of increased sales in all of the group's operating units. Gross margins for this group were negatively impacted by operational performance issues encountered by the Adams McClure facility in executing a large contract. Management has evaluated the causes of the operational problems, and is implementing changes in both personnel and processes to prevent the recurrence of this event. 19 Financial Solutions Group -- Net sales for the group were $11.1 million in the quarter compared to $11.0 million in the prior year and $11.7 million and the prior year quarter. Gross margins for the current quarter were 29.5% compared to 27.2% in the prior year quarter. The improvement in gross margins was the result of cost saving programs, which were implemented during the second quarter of the past fiscal year. Gross margins were relatively unchanged from the prior quarter. Results of Operations - Apparel Segment - --------------------------------------- Apparel Solutions Group -- Net sales of the group were $64.2 million and $132.6 million for the quarter and six months ended in August 2005. Since the Apparel Group was not included in either of the prior year periods, these amounts represent a major portion of the current year net sales increase on a consolidated basis. Historically, the Company's first and second fiscal quarters have been the Apparel Group's highest revenue quarters. Gross margins for the quarter were 26.0% and for the six month period were 25.2%. The improvement in margins is the result of the influence from favorably priced product mix along with ongoing cost savings from efforts to reduce raw material costs and change manufacturing processes to improve efficiency since the Apparel Group was acquired by the Company. Critical Accounting Policies and Judgments - ------------------------------------------ In preparing our consolidated 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 consolidated 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 allowance for doubtful accounts, inventory valuations, property, plant and equipment, intangible assets, accrued liabilities 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 materially 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 that are measured using actuarial valuations. The actuarial assumptions used may differ from actual results. Intangibles generated through acquisitions are based upon independent appraisals of their values and are either amortized over their useful life, or evaluated periodically (at least once a year) to determine whether the value has been impaired by events occurring during the fiscal year. We exercise judgment in evaluating our long-lived assets for impairment. The Company assesses the impairment of long-lived assets that include other intangible assets, goodwill, and plant and equipment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In performing tests of impairment, the Company must make assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets in assessing the recoverability of its goodwill and other intangibles. If these estimates or the related assumptions change, the Company may be required 20 to record impairment charges for these assets in the future. Actual results could differ from assumptions made by management. We believe our businesses will generate sufficient undiscounted cash flow to more than recover the investments we have made in property, plant and equipment, as well as the goodwill and other intangibles recorded as a result of our acquisitions. The Company cannot predict the occurrence of future impairment triggering events nor the impact such events might have on its reported asset values. Revenue is generally recognized upon shipment of products. Net sales consist of gross sales invoiced to customers, less certain related charges, including discounts, returns and other allowances. Returns, discounts and other allowances have historically been insignificant. In some cases and upon customer request, the Company prints and stores custom print product for customer specified future delivery, generally within six months. In this case, risk of loss from obsolescence passes to the customer, the customer is invoiced under normal credit terms and revenue is recognized when manufacturing is complete. Approximately $3,344,000 and $6,673,000 of revenue was recognized under these agreements during quarter and six months ended August 31, 2005. Sales in foreign countries were not significant for the quarter or six month periods ended August 31, 2005. 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 swap is 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. The 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. 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 not likely, 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. In view of such uncertainties, investors should not place undue reliance on our forward-looking statements since such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 21 Risk Factors - ------------ You should carefully consider the risks described below, as well as the other information included or incorporated by reference in our Annual Report on Form 10-K, before making an investment in the Company's common stock. The risks described below are not the only ones we face in our business. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operating results could be materially harmed. In such an event, our common stock could decline in price and you may lose all or part of your investment. Ennis may be required to write down goodwill and other intangible assets in the future, which could cause its financial condition and results of operations to be negatively affected in the future When Ennis acquires a business, a portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price, which is allocated to goodwill and other intangible assets, is determined by the excess of the purchase price over the net identifiable assets acquired. At August 31, 2005, Ennis' goodwill and intangible assets were approximately $263 million. Under current accounting standards, if Ennis determines goodwill or intangible assets are impaired, it would be required to write down the value of these assets. Ennis conducts an annual review to determine whether goodwill and other identifiable intangible assets are impaired. Ennis completed such an impairment analysis for its fiscal year ended February 28, 2005, and concluded that no impairment charge was necessary. Ennis cannot provide assurance that it will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on its shareholders' equity and financial results and may cause a decline in Ennis' stock price. Printed business forms may be superceded over time by "paperless" business forms or otherwise affected by technological obsolescence and changing customer preferences, which could reduce our sales and profits Printed business forms and checks may eventually be superceded by "paperless" business forms, which could have a material adverse effect on Ennis' business over time. The price and performance capabilities of personal computers and related printers now provide a cost-competitive means to print low-quality versions of many of our business forms on plain paper. In addition, electronic transaction systems and off-the-shelf business software applications have been designed to automate several of the functions performed by our business form and check products. In response to the gradual obsolescence of our standardized forms business, we continue to develop our capability to provide custom and full-color products. We are also seeking to introduce new products and services that may be less susceptible to technological obsolescence. If new printing capabilities and new product introductions do not continue to offset the obsolescence of our standardized business forms products, there is a risk that the number of new customers we attract and existing customers we retain may diminish, which could reduce our sales and profits. Decreases in sales of our standardized business forms and products due to obsolescence could also reduce our gross margins. This reduction could in turn adversely impact our profits, unless we are able to offset the reduction through the introduction of new high margin products and services or realize cost savings in other areas. 22 Our distributors face increased competition from various sources, such as office supply superstores. Increased competition may require Ennis to reduce prices or to offer other incentives in order to enable its distributors to attract new customers and retain existing customers Low price, high value office supply chain stores offer standardized business forms, checks and related products. Because of their size, these superstores have the buying power to offer many of these products at competitive prices. These superstores also offer the convenience of "one-stop" shopping for a broad array of office supplies that our distributors do not offer. In addition, superstores have the financial strength to reduce prices or increase promotional discounts to expand market share. This could result in our reducing our prices or offering incentives in order to enable our distributors to attract new customers and retain existing customers. Technological improvements may reduce our competitive advantage over some of our competitors, which could reduce our profits Improvements in the cost and quality of printing technology are enabling some of our competitors to gain access to products of complex design and functionality at competitive costs. Increased competition from these competitors could force us to reduce our prices in order to attract and retain customers, which could reduce our profits. Concentration of Business Form and Apparel Vendors and Suppliers We use a limited number of vendors and suppliers to provide ink for our printing segment, and we use as sole sources for paper and for delivery services. We contract with a mill for our supplies of yarn. If there are interruptions in supplies or service from these vendors or suppliers, it could result in a disruption to our business, if we are unable to readily find alternative service providers at comparable rates. Ennis could experience labor disputes that could disrupt its business in the future As of August 31, 2005, approximately 18% of Ennis' domestic employees are represented by labor unions under collective bargaining agreements, which are subject to periodic renegotiations. Two unions represent all of the approximately 3,000 hourly employees in Mexico. Although Ennis has not experienced any labor stoppages in the last 10 years, there can be no assurance that any future labor negotiations may not prove successful, may result in a significant increase in the cost of labor or may break down and result in the disruption of our business forms and apparel operations. Alstyle obtains its raw materials from a limited number of suppliers and any disruption in its relationships with these suppliers, or any substantial increase in the price of raw materials, could have a material adverse effect on Alstyle Cotton yarn is the primary raw material used in Alstyle's manufacturing processes. Cotton accounts for approximately 40% of the manufactured product cost. Alstyle acquires its yarn from five major sources that meet stringent quality and on-time delivery requirements. The largest supplier provides over 50% of Alstyle's yarn requirements and has an entire yarn mill dedicated to Alstyle's production. The other major raw material components used in Alstyle's manufacturing processes are chemicals used to treat the fabric during the dyeing process. Alstyle sole-sources the supply of these chemicals from one supplier. If Alstyle's relations with its suppliers are disrupted, Alstyle may not be able to enter into arrangements with substitute suppliers on terms as favorable as its current terms and our results of operations could be materially adversely affected. 23 Alstyle generally acquires its cotton yarn under short-term purchase orders with its suppliers, and has exposure to swings in cotton market prices. Alstyle does not use derivative instruments, including cotton option contracts, to manage its exposure to movements in cotton market prices. Alstyle may use such derivative instruments in the future. While we believe that Alstyle will be competitive with other companies in the United States apparel industry in negotiating the price of cotton purchased for future production use, any significant increase in the price of cotton could have a material adverse effect on our results of operations. Alstyle faces intense competition to gain market share, which may lead some competitors to sell substantial amounts of goods at prices against which Alstyle cannot profitably compete Demand for Alstyle's products is dependent on the general demand for T-shirts and the availability of alternative sources of supply. Alstyle's strategy in this market environment is to be a low cost producer and to differentiate itself by providing quality service to its customers. Even if this strategy is successful, its results may be offset by reductions in demand or price declines. Apparel industry cyclicality The United States apparel industry is sensitive to the business cycle of the national economy. Moreover, the popularity, supply and demand for particular apparel products can change significantly from year to year. Alstyle may be unable to compete successfully in any industry downturn due to excess capacity. Foreign political and economic risk Alstyle operates cutting and sewing facilities in Mexico, and sources certain product manufacturing and purchases in El Salvador, Pakistan, China and Southeast Asia. Alstyle's foreign operations could be subject to unexpected changes in regulatory requirements, tariffs and other market barriers and political and economic instability in the countries where it operates. The impact of any such events that may occur in the future could subject Alstyle to additional costs or loss of sales, which could adversely affect its operating results. In particular, Alstyle operates its facilities in Mexico pursuant to the "maquiladora" duty-free program established by the Mexican and United States governments. This program enables Alstyle to take advantage of generally lower costs in Mexico, without paying duty on inventory shipped into or out of Mexico. There can be no assurance that the government of Mexico will continue the program currently in place or that Alstyle will continue to be able to benefit from this program. The loss of these benefits could have an adverse effect on our business. Alstyle's products are subject to foreign competition, which in the past has been faced with significant U.S. government import restrictions Foreign producers of apparel often have significant labor cost advantages. Given the number of these foreign producers, the substantial elimination of import protections that protect domestic apparel producers could materially adversely affect Alstyle's business. The extent of import protection afforded to domestic apparel producers has been, and is likely to remain, subject to considerable political considerations. The North American Free Trade Agreement (NAFTA) became effective on January 1, 1994 and has created a free-trade zone among Canada, Mexico and the United States. NAFTA contains a rule of origin requirement that products be produced in one of the three countries in order to benefit from the agreement. NAFTA has phased out all trade restrictions and tariffs among the three countries on apparel products competitive with those of Alstyle. Alstyle performs 24 substantially all of its cutting and sewing in five plants located in Mexico in order to take advantage of the NAFTA benefits. Subsequent repeal or alteration of NAFTA could seriously adversely affect our business. The Central American Free Trade Agreement (CAFTA) became effective May 28, 2004 and retroactive to January 1, 2004 for textiles and apparel. It creates a free trade zone similar to NAFTA by and between the United States and Central American countries (El Salvador, Honduras, Costa Rica, Nicaragua and Dominican Republic.) Textiles and apparel will be duty-free and quota-free immediately if they meet the agreement's rule of origin, promoting new opportunities for U.S. and Central American fiber, yarn, fabric and apparel manufacturing. The agreement will also give duty-free benefits to some apparel made in Central America that contains certain fabrics from NAFTA partners Mexico and Canada. Alstyle sources approximately 5% of its sewing to a contract manufacturer in El Salvador, and we do not anticipate that this will have a material effect on its operations. The World Trade Organization (WTO), a multilateral trade organization, was formed in January 1995 and is the successor to the General Agreement on Tariffs and Trade (GATT). This multilateral trade organization has set forth mechanisms by which world trade in clothing is being progressively liberalized by phasing-out quotas and reducing duties over a period of time that began in January of 1995. As it implements the WTO mechanisms, the U.S. government is negotiating bilateral trade agreements with developing countries (which are generally exporters of textile and apparel products) that are members of the WTO to get them to reduce their tariffs on imports of textiles and apparel in exchange for reductions by the United States in tariffs on imports of textiles and apparel. In January 2005, United States import quotas have been removed on knitted shirts from China. The elimination of quotas and the reduction of tariffs under the WTO may result in increased imports of certain apparel products into North America. In May 2005, quotas on three categories of clothing imports, including knitted shirts, from China were re-imposed. These factors could make Alstyle's products less competitive against low cost imports from developing countries. Environmental regulations We are subject to extensive and changing federal, state and foreign laws and regulations establishing health and environmental quality standards, and may be subject to liability or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we may acquire. We depend upon the talents and contributions of a limited number of individuals, many of who would be difficult to replace The loss or interruption of the services of these executives could have a material adverse effect on our business, financial condition and results of operations. Although we maintain employment agreements with certain members of key management, it cannot be assured that the services of such personnel will continue. 25 Cautionary Statements Certain statements in this report, and in particular, statements found in Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe these forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of Ennis. All such statements involve risks and uncertainties, and as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including but not limited to, general economic, business and labor conditions; the ability to implement our strategic initiatives; the ability to be profitable on a consistent basis; dependence on sales that are not subject to long-term contracts; dependence on suppliers; the ability to recover the rising cost of key raw materials in markets that are highly price competitive; the ability to meet customer demand for additional value-added products and services; the ability to timely or adequately respond to technological changes in the industry; the impact of the Internet and other electronic media on the demand for forms and printed materials; postage rates; the ability to manage operating expenses; the ability to manage financing costs and interest rate risk; a decline in business volume and profitability could result in a further impairment of goodwill; the ability to retain key management personnel; the ability to identify, manage or integrate future acquisitions; the costs associated with and the outcome of outstanding and future litigation; and changes in government regulations. In view of such uncertainties, investors should not place undue reliance on our forward-looking statements since such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward looking statement - ------------------------- Statements made in the Management's result of operations concerning the Company's or management's intentions, expectations, or predictions about future results or events are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management's current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to the following: the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Company's control; developments in the demand for the Company's products and services; relationships with the Company's major customers and suppliers; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services; risks and uncertainties associated with the successful integration of the acquisition of Alstyle Apparel; the impact of governmental laws and regulations; and competitive factors. The Company's cash dividends are declared by the board of directors on a current basis, and therefore may be subject to change. Because of such uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of September 30, 2005. 26 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 Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements. The Company's net exposure to interest rate risk consists of a floating rate debt instrument that is benchmarked to U.S. and European short-term interest rates. The Company may from time to time utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. The Company does not use derivative instruments for trading purposes. The Company is exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest rates. The Company's variable rate financial instruments, including the outstanding credit facilities, totaled $107 million at August 31, 2005. The impact on the Company's results of operations of a one-point interest rate change on the outstanding balance of the variable rate financial instruments as of fiscal year ended 2006 would be approximately $1,000,000 before income taxes. 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. 27 Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures over financial reporting that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a- 15(e)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective. Changes in Internal Control During the three months ended August 31, 2005, the Company implemented the first phase of its conversion to the JDEdwards financial accounting system for its Apparel Segment. This implementation provided conversion of the payroll and fixed assets systems to the Company's JDEdwards ERP platform. The remainder of the conversion will be completed in the third quarter of fiscal year 2006. Except for the described system conversion, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended August 31, 2005, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company believes the conversion and implementation to this fully integrated financial system will further strengthen its existing internal control over financial reporting, as well as automate a number of its administrative processes and activities, and enhance other operational management processes. 28 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits as listed on the accompanying index to exhibits on pages 31 through 33 are filed as part of this Form 10-Q. (b) Reports on Form 8-K The Company filed a report on Form 8-K on June 17, 2005 regarding election of directors, a press release dated June 15, 2005 announcing first quarter operating results and a press release dated June 17, 2005 announcing CFO retirement. 29 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 30, 2005 /s/Harve Cathey ---------------------- -------------------------------- Harve Cathey Vice President - Finance and CFO, Secretary and Principal Financial and Accounting Officer 30 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 incorporated herein by reference to Exhibit 3.3 to the registrant's Form 10-Q Quarterly Report for the quarter ended November 30, 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. 31 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. 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 Credit Agreement dated as of November 19, 2004 among Ennis, Inc., various other co- borrowers and lenders that sign and become a party to the credit agreement, LaSalle Bank National Association, as Administrative Agent, Documentation Agent and Arranger, and Compass Bank and JP Morgan Chase Bank, N.A., as Co-Syndication Agents incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 19, 2004. Exhibit 10.13 Security Agreement dated as of November 19, 2004 among Ennis, Inc., various other parties that sign and become a party to the security agreement and LaSalle Bank National Association, as the Administrative Agent incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on November 19, 2004. Exhibit 10.14 Mutual Agreement, dated January 10, 2005, between Parkdale and Alstyle Apparel, Inc. incorporated herein by reference to Exhibit 10.14 to the Registrant's Form 10-K/A filed on June 20, 2005. 32 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. 33 EX-31 2 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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 30, 2005 EX-31 3 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation off financial statements for eternal purposes in accordance with generally accepted accounting principles. c) 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 d) 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 30, 2005 EX-32 4 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 August 31, 2005 (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 30, 2005 /s/ Harve Cathey Harve Cathey Chief Financial Officer September 30, 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-----