-----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, KMYJ60amrqOsN48/iHHeMeyJ7El4X8HP/BM0yCClvjK8K9H/9sCuNIo3TAmV2Q3s 6J0EfjRXPoTGcl1K6v6B0w== 0000033002-97-000006.txt : 19970529 0000033002-97-000006.hdr.sgml : 19970529 ACCESSION NUMBER: 0000033002-97-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970528 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENNIS BUSINESS FORMS INC CENTRAL INDEX KEY: 0000033002 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 750256410 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05807 FILM NUMBER: 97615127 BUSINESS ADDRESS: STREET 1: 107 N SHERMAN ST CITY: ENNIS STATE: TX ZIP: 75119 BUSINESS PHONE: 2148756581 MAIL ADDRESS: STREET 1: 107 NORTH SHERMAN STREET CITY: ENNIS STATE: TX ZIP: 75119 FORMER COMPANY: FORMER CONFORMED NAME: ENNIS TAG & SALESBOOK CO DATE OF NAME CHANGE: 19700805 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 1997 OR [ ] 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 BUSINESS FORMS, INC. (Exact name of registrant as specified in its charter) Texas 75-0256410 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 107 N. Sherman Street, Ennis, Texas 75119 (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (972) 872-3100 Securities registered pursuant to Section 12(b) of the Act: Number of Shares Outstanding on Name of each exchange Title of each class April 15, 1997 on which registered Common Stock, par value $2.50 per share 16,438,235 New York Stock Exchange 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. As to (1) Yes X No As to (2) Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of April 15, 1997 (14,816,410 shares) was $159,276,407. Documents Incorporated by References: 1997 Annual Report to Shareholders - incorporated in Parts I & II Proxy Statement dated May 15, 1997 - incorporated in Parts I & III SECURITIES AND EXCHANGE COMMISSION FORM 10-K PART I Item 1. Business The Description of Business for the Company and its subsidiaries (Company) insofar as it relates to history, products, distribution, competition, raw materials, seasonal fluctuations, and industry segments, is incorporated herein by reference to pages 8 and 16 of the Company's 1997 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Patents, Trademarks, Licenses, Franchises and Concessions: The Company does not have any significant patents, trademarks, licenses, franchises or concessions. Backlog: At February 28, 1997 the Company's backlog of business forms orders believed to be firm was approximately $5,694,000 as compared to approximately $4,459,000 at February 29, 1996. The backlog of orders for tools, dies and special machinery at February 28, 1997 was approximately $3,423,000 as compared to approximately $3,191,000 at February 29, 1996. It is anticipated that all of the backlog of orders will be completed in the fiscal year ended February 28, 1998. Research and Development: While the Company continuously looks for new products to sell through its distribution channel, there have been no material amounts spent on research and development. Environment: There have been no material effects on the Company arising from compliance with Federal, State, and local provisions or regulations relating to the protection of the environment. Employees: At February 28, 1997, the Company had approximately 1,554 employees, of whom approximately 333 were represented by four unions and under five separate contracts expiring at various times. Item 2. Properties The Company operates sixteen manufacturing facilities located in twelve states and Mexico City as follows: Square feet of floor space Owned Leased Total Ennis, Texas Manufacturing 351,668 351,668 and General Offices Chatham, Virginia Manufacturing 127,956 127,956 Paso Robles, California Manufacturing 94,120 94,120 Knoxville, Tennessee Manufacturing 48,057 48,057 Wolfe City, Texas Manufacturing 119, 259 119,259 Portland, Oregon Manufacturing 47,000 47,000 Fort Scott, Kansas Manufacturing 69,000 69,000 DeWitt, Iowa Manufacturing 95,000 95,000 Dallas, Texas Manufacturing 82,400 82,400 Louisville, Kentucky Manufacturing 42,800 42,800 Moultrie, Georgia Manufacturing 25,000 25,000 Coshocton, Ohio Manufacturing 14,000 14,000 Los Angeles, California Manufacturing 29,286 29,286 Macomb, Michigan Manufacturing 56,350 56,350 Seattle, Washington Manufacturing 32,000 32,000 Mexico City, Mexico Manufacturing 4,982 4,982 1,125,610 113,268 1,238,878 All of the above properties are used for the production, warehousing and shipping of business forms and other business products except the Dallas, Texas plant which is used for the production of tools, dies and special machinery. The Boulder City, Nevada plant, 49,600 square feet, was closed in November 1995 and the property and building are being leased to a third party. The plants are being operated at normal productive capacity. Productive capacity fluctuates with the ebb and flow of market demands and depends upon the product mix at a given point in time. Equipment is added as existing machinery becomes obsolete or unrepairable and as new equipment becomes necessary to meet market demands; however, at any given time these additions and replacements are not considered to be material additions to property, plant and equipment, although such additions or replacements may increase a plant's efficiency or capacity. All of the foregoing plants and warehouses are deemed to be in good condition and it is not anticipated that substantial expansion, refurbishing or re-equipping will be required in the near future. The rented property in Oregon is leased through December 2000. The rented property in Mexico City is leased through March 1998. The Company rents two properties in Los Angeles. In January 1997 the Company entered into a five-year lease for 19,286 square feet of manufacturing space. The lease expires in May 2002. While relocating its Los Angeles operation to this new space, the Company continues to lease 10,000 square feet on a short-term basis. The lease for the property in Seattle was re-negotiated in the past year and now expires in March 1999. No difficulties are presently foreseen in maintaining or renewing such leases as they expire. Item 3. Legal Proceedings. There are no material pending legal proceedings or litigation pending or threatened to which the registrant or its subsidiaries are parties or of which property of the registrant or its subsidiaries is the subject. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 19, 1997. The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by each such person and each such person's principal occupation or employment during the past five years. All such persons have been elected to serve until the next annual election of officers (which shall occur on June 19, 1997) and their successors are elected, or until their earlier resignation or removal. No person other than those listed below has been chosen to become an executive officer of the registrant. Kenneth A. McCrady, Chairman of the Board and Chief Executive Officer, age 66, was elected Chairman in April 1985. Mr. McCrady was employed by the Company in 1970 and was elected to the office of Vice President of Finance at that time. In May 1971 he was elected to the offices of Executive Vice President and Treasurer. In August 1971 Mr. McCrady was elected as President and Chief Executive Officer and served in this capacity until his election as Chairman. Nelson D. Ward, President and Chief Operating Officer, age 55, was elected President and Chief Operating Officer in September 1996. Mr. Ward has been continuously employed by the Company since April 1971. Prior to his election as President and Chief Operating Officer, Mr. Ward served as Vice President - Sales and Marketing from September 1992 and President and General Manager of a subsidiary of the Company from June 1978. Albert V. Lemieux, Vice President - Tag & Label Operations, age 55, was elected Vice President - Tag and Label Operations in December 1996. Mr. Lemieux has been continuously employed by the Company since August 1975. Prior to his election as Vice President - Tag and Label Operations, Mr. Lemieux served as Vice President - Manufacturing from September 1989, General Manager of the DeWitt, Iowa division of the Company from December 1986 through September 1989 and plant manager of the DeWitt, Iowa continuous forms plant from June 1982 through December 1986. Joe R. Bouldin, Vice President - Forms Operations, age 46, was elected Vice President- Forms Operations in December 1996. Mr. Bouldin has been continuously employed by the Company since 1975. Prior to his election as Vice President - Forms Operations, Mr. Bouldin served as General Manager of the Ennis, Texas division of the Company from May 1989. Charles F. Ray, Vice President - Administration, age 53, was elected Vice President - Administration in September 1996. Mr. Ray has been continuously employed by the Company since June 1964; he served as President and Chief Operating Office from January 1990 until his election as Vice President - Administration. He served as Executive Vice President from June 1986 until January 1990. Betsy D. Yorke, Vice President - Sales and Marketing, age 41, was elected Vice President - Sales and Marketing in December 1996. Ms. Yorke has been continuously employed by the Company since March 1991. Prior to her election as Vice President - Sales and Marketing, Ms. Yorke served as President and General Manager of a subsidiary of the Company from August 1993. Ms. Yorke has served in various management capacities for the subsidiary of the Company (or its predecessor company) since January 1984. Victor V. DiTommaso, Jr., Vice President - Finance, Secretary and Treasurer, age 41, was elected Vice President - Finance and Secretary in September 1996 and Treasurer in December 1992. Mr. DiTommaso has been continuously employed by the Company since July 1991. Prior to his employment by the Company, Mr. DiTommaso maintained a public accounting practice in Dallas, Texas from June 1986. There is no family relationship among or between any executive officers of the registrant, nor any family relationship between any executive officers and directors. PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters. The information required by this item is incorporated herein by reference to page 9 of the Company's 1997 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 6. Selected Financial Data. The information required by this item is incorporated herein by reference to page 6 of the Company's 1997 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item is incorporated herein by reference to pages 6 and 7 of the Company's 1997 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7a. Quantitative and Qualitative Disclosure About Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated herein by reference to page 9 and pages 12 through 20 and the inside back cover of the Company's 1997 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. For information with respect to executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. The information required by this item regarding Directors is incorporated by reference to pages 2 through 4 of the Company's Proxy Statement dated May 15, 1997 which is attached as Exhibit (22) hereto. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference to pages 5 through 9 of the Company's Proxy Statement dated May 15, 1997 which is attached as Exhibit (22) hereto. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated herein by reference to page 2 of the Company's Proxy Statement dated May 15, 1997 which is attached as Exhibit (22) hereto. Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated herein by reference to page 11 of the Company's Proxy Statement dated May 15, 1997 which is attached as Exhibit (22) hereto. PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. Exhibits: (3.(i)) 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. (3.(ii)) Bylaws of the Registrant as amended through May 13, 1977 with attached amendments dated May 3, 1979 and March 2, 1983 incorporated herein by reference to Exhibit 5 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1993. (13) 1997 Annual Report to Shareholders. (21) Subsidiaries of Registrant. (22) Notice, Proxy Statement and proxy incorporated herein by reference to the Registrant's Proxy Statement dated May 15, 1997. (23) Independent Auditors' Consent. Financial Statements and Financial Statement Schedule: See accompanying index to financial statements and financial statement schedule for a list of all financial statements and the financial statement schedule filed as part of this report. Reports on Form 8-K: Not applicable. UNDERTAKINGS WITH RESPECT TO REGISTRANT'S REGISTRATION STATEMENT, FORM S-8, NUMBER 2-81124 (1) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, forming a part of the referenced registration statement, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered, to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (2) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus to each employee to whom the prospectus is sent or given a copy of the registrant's annual report to shareholders for its last fiscal year, unless such employee otherwise has received a copy of such report, in which case the registrant shall state in the prospectus that it will promptly furnish, without charge, a copy of such report on written request of the employee. If the last fiscal year of the registrant has ended within 120 days prior to the use of the prospectus, the annual report of the registrant for the preceding fiscal year may be so delivered, but within such 120 day period the annual report for the last fiscal year will be furnished to each such employee. (3) The undersigned registrant hereby undertakes to transmit or cause to be transmitted to all employees participating in the plan who do not otherwise receive such material as shareholders of the registrant, at the time and in the manner such material is sent to its shareholders, copies of all reports, proxy statements and other communications distributed to its shareholders generally. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following is a list of the financial statements and financial statement schedule which are included in this Form 10-K or which are incorporated herein by reference. The consolidated financial statements of the Company included in the Company's Annual Report for 1997 are incorporated herein by reference in Item 8. With the exception of the pages listed in this index and pages listed in Items 1, 5, 6, 7 and 8 incorporating certain portions of the Company's Annual Report for 1997, such Annual Report for 1997 is not deemed to be filed as part of this Form 10-K. Reference Page 1997 Annual Form Report to 10-K Shareholders Consolidated financial statements of the Company: Independent auditors' report Inside Back Cover Consolidated balance sheets - February 28, 1997 and February 29, 1996 14 - 15 Consolidated statements of earnings - years ended February 28 or 29, 1997, 1996 and 1995 12 Consolidated statements of cash flows - years ended February 28 or 29, 1997, 1996 and 1995 13 Notes to consolidated financial statements 16 - 20 and Inside Back Cover Independent auditors' report on financial statement schedule S-1 Financial Statement Schedule for three years ended February 28, 1997: II - Valuation and qualifying accounts S-2 All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements, related notes or other schedules. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) ENNIS BUSINESS FORMS, INC. Date: May 28, 1997 BY: /s/ Kenneth A. McCrady Kenneth A. McCrady, Chairman of the Board and Chief Executive Officer Date: May 28, 1997 BY: /s/ Victor V. DiTommaso, Jr. Victor V. DiTommaso, Jr. Vice President - Finance, Secretary, Treasurer and Principal Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: May 28, 1997 BY: /s/ Kenneth A. McCrady Kenneth A. McCrady, Director Date: May 28, 1997 BY: /s/ Harold W. Hartley Harold W. Hartley, Director Date: May 28, 1997 BY: /s/ Robert L. Mitchell Robert L. Mitchell, Director Date: May 28, 1997 BY: /s/ Thomas R. Price Thomas R. Price, Director Date: May 28, 1997 BY: /s/ Nelson Ward Nelson Ward, Director INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Stockholders Ennis Business Forms, Inc.: Under date of April 18, 1997, we reported on the consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996 and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended February 28, 1997, as contained in the 1997 annual report to stockholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in the accompanying index to financial statements and financial statement schedule on page 7. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Dallas, Texas April 18, 1997 Schedule II ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended February 28, 1997 (In thousands) Additions Balance at Charged Charged Balance beginning to to other at end Description of year operations accounts Deductions of year Year ended February 28, 1997: Allowance for doubtful receivables $1,085 382 36(1) 413(2) 1,090 Year ended February 29, 1996: Allowance for doubtful receivables $1,030 348 25(1) 318(2) 1,085 Year ended February 28, 1995: Allowance for doubtful receivables $ 845 444 38(1) 297(2) 1,030 Notes: (1) Principally collection of accounts previously charged off. (2) Charge-off of uncollectible receivables. EX-13 2 Financial Highlights Annual Summary Fiscal Year Fiscal Year Ended Ended Percentage February 28, February 29, Increase 1997 1996 (Decrease) Net sales $153,726,000 $142,134,000 8.2 Earnings before income taxes 21,485,000 30,104,000 (28.6) Income taxes 7,992,000 11,487,000 (30.4) Net earnings 13,493,000 18,617,000 (27.5) Dividends 10,110,000 9,782,000 3.4 Per share of common stock: Net earnings .82 1.13 (27.4) Dividends .615 .595 3.4 Weighted average number of shares of common stock outstanding 16,438,817 16,439,645 -- Table of Contents 2 Management's Report to Shareholders 4 Directors and Officers 5 Manufacturing Locations and Executive Offices 6 Selected Financial Data 6 Management's Discussion and Analysis 8 Description of Business 9 Quarterly Information 10 Ten-Year Financial Review 12 Consolidated Statements of Earnings 13 Consolidated Statements of Cash Flows 14 Consolidated Balance Sheets 16 Notes to Consolidated Financial Statements Inside Back Cover Independent Auditors' Report Printed by Ennis Business Forms, Inc. MANAGEMENT'S REPORT TO SHAREHOLDERS As shown in the accompanying financial statements, for the fiscal year ended February 28, 1997 net sales increased 8.2% and were the highest in the Company's history. At the same time, net earnings declined 27.5% as we began actions designed to return the Company to a consistent sales and earnings growth track. Operating Results Net sales for the year ended February 28, 1997 amounted to $153,726,000 compared to $142,134,000 in the prior year, an increase of 8.2%. Net earnings for the year were $13,493,000 compared to $18,617,000 in the prior year, a decrease of 27.5%. Net earnings per share of common stock amounted to $.82 compared to $1.13 in the prior year, a decrease of 27.4%. Per share earnings computations were based on 16,438,817 shares for the year ended February 28, 1997 and 16,439,645 shares for the prior year. The sales increase for the year is primarily attributable to two acquisitions effected on April 1, 1996. Sales of business forms products began to increase in the second half of the fiscal year. Order counts grew more rapidly than sales dollars because of lower selling prices necessary to meet competition. The net earnings decline is primarily attributable to the lower selling prices and higher costs associated with an increase in the number of employees required to produce more orders and improve service time in accordance with the growth plan we announced in May 1996. Financial Condition The Company's financial condition remains strong. At February 28, 1997 the ratio of current assets to current liabilities was 5.1 to 1, and long-term debt was less than 1% of shareholders' equity. Dividends Cash dividends of $.615 per share were paid during the year ended February 28, 1997 compared to $.595 in the prior year, an increase of 3.4%. Acquisitions On April 1, 1996 we purchased a small Los Angeles manufacturer of presentation folders which enhances our growth opportunities in this product line in the large West Coast market. Also, on April 1, 1996 we purchased a commercial printing operation in Seattle which provided the production and marketing knowledge which enabled us to enter the developing market for short-run high-quality process color printing. Outlook In our 1996 Annual Report, which was issued in May 1996, we announced a long-term growth target of 10% per year for the Company as a whole. At that time we indicated that we would initially be emphasizing sales growth, but once we get sales on a growth track our emphasis will shift to profits, with the objective of obtaining average annual increases of 10% in both sales and earnings over the long-term. In view of the maturity of the forms industry, a sales growth target of 10% is an aggressive target because more than half of our current revenues are from products which are declining in usage. Even though the forms market as a whole is shrinking, the market is still estimated by industry trade associations to be in the $7 billion range at retail prices. We have a very small share of the total forms market and believe that our production, distribution and financial strengths will allow us to gain market share. Experience is teaching us that we can reasonably expect 3% to 4% unit sales growth in our traditional business forms products. To achieve our overall goal of 10% sales growth we will need to continue to expand into non-form products and services which we can profitably market through our more than 30,000 dealers. Once again, we strongly emphasize that 10% growth is our target and not a forecast. By summer 1997 we expect to release the initial version of our internally developed computer software program called Printers' Mall. The program allows dealers and their customers to easily design and order process color commercial printing. Over time, Printers' Mall will be expanded to include other of our products. During fiscal 1997 we completed the InstaLink system, a communications network that allows our dealers to conduct business with us quickly and efficiently. Through the Internet, our dealers are able to send us electronic orders, graphic files and make inquiries. In turn, our plants are able to provide proofs, quotes and order status information. We will continue to improve InstaLink and our in-plant order time to provide the fastest service possible. In addition to the acquisitions discussed above, the Company invested $13.6 million in equipment to expand our product offering to include a broader range of process color commercial printing and high value-added products such as label/form combinations, variable data printing and bar codes. We also invested in computer systems to improve customer service activities and production equipment to increase efficiency and capacity in the production of business forms, labels and presentation products. Most of these investments have only recently or are just now being put into production. For the fiscal year ending February 28, 1998, the Board of Directors has approved an additional capital investment budget of $6.9 million to provide for continued improvements in production. The decline in net earnings in fiscal 1997 was greater than we had anticipated and is a significant disappointment. Quarterly net earnings trended downward all year as we reduced selling prices and improved customer service, actions consistent with our stated goal of sales growth. This earnings trend may continue through the first quarter of fiscal 1998. We are optimistic that as we improve operating efficiencies and continue to grow sales that net earnings for the second quarter of fiscal 1998 will improve over earnings for the quarter ended February 28, 1997 and probable net earnings for the quarter ending May 31, 1997. We have substantial cash reserves and expect to continue the dividend at the current rate. We are undertaking a major transformation of the Company to lessen our dependence on the business forms market and there are substantial risks associated with this transformation. We will continue aggressively marketing our present products and services and search for acquisitions which meet our strategic requirements. We will also continue to improve efficiencies in all respects. Your Board of Directors, management and employees are firmly committed to profitable long-term growth, and we are confident in our growth strategy. We appreciate the support of our dealer customers, employees and shareholders. Kenneth A. McCrady Nelson Ward Chairman of the Board President and Chief Executive Officer and Chief Operating Officer April 15, 1997 Management's report to shareholders 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) demand for the Company's products and competitive conditions. Because of such uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of the report. Directors and Officers Directors Officers Harry M. Cornell, Jr. (c) Kenneth A. McCrady Chairman of the Board and Chief Chairman of the Board and Executive Officer of Leggett & Platt, Inc. Chief Executive Officer Carthage, Missouri Nelson Ward James B. Gardner (b) (c) President and Managing Director Chief Operating Officer Service Asset Management Company Dallas, Texas Victor V. DiTommaso Vice President-Finance, Harold W. Hartley (a) Secretary and Treasurer Retired Mabank, Texas Joe Bouldin Vice President - Kenneth A. McCrady Forms Operations Chairman of the Board and Chief Executive Officer of Al Lemieux the Company Vice President - Tag and Label Operations Robert L. Mitchell (a) Retired Charles F. Ray Ennis, Texas Vice President - Administration Thomas R. Price (b) Betsy D. Yorke Owner and President Vice President - Sales Price Industries and Marketing Ennis, Texas Pat G. Sorrells (b)(c) Ranching and Investments Kingsland, Texas Ewell L. Tankersley (a) Ranching and Investments Austin, Texas (a) Member of Audit Committee Nelson Ward (b) Member of Executive Compensation President and Chief Operating and Stock Option Committee Officer of the Company (c) Member of Nominating Committee Manufacturing Locations and Executive Offices Manufacturing Locations Executive Offices Los Angeles, California 107 N. Sherman Street Paso Robles, California Ennis, TX 75119 Moultrie, Georgia (972) 872-3100 DeWitt, Iowa Fort Scott, Kansas Internet: http://www.ennis.com Louisville, Kentucky Shareholders' e-mail: Macomb, Michigan owners@ennis.com Coshocton, Ohio Portland, Oregon Registrar and Transfer Agent Knoxville, Tennessee Harris Trust and Savings Bank Dallas, Texas Attention: Shareholder Services Ennis, Texas P. O. Box A3504 Wolfe City, Texas Chicago, IL 60690-3504 Chatham, Virginia Seattle, Washington Independent Auditors Mexico City, Mexico KPMG Peat Marwick LLP Dallas, Texas Annual Meeting 10:00 a.m. June 19, 1997 Fairmont Hotel Parisian Room 1717 N. Akard Street Dallas, Texas Stock Exchange Listing New York Stock Exchange Symbol: EBF The Company's Form 10-K as filed with the Securities and Exchange Commission will be provided to shareholders upon written request therefor. Selected Financial Data Years Ended February 28 or 29, 1997 1996 1995 1994 1993 (In thousands, except per share amounts) Net sales from continuing operations $153,726 142,134 140,097 132,945 129,279 Earnings from continuing operations 13,493 18,617 20,016 19,457 20,692 Earnings from continuing operations per share of common stock 0.82 1.13 1.22 1.16 1.18 Net earnings 13,493 18,617 20,016 19,457 21,252 Net earnings per share of common stock 0.82 1.13 1.22 1.16 1.21 Total assets 94,957 93,662 84,991 74,499 75,923 Long-term debt 195 280 360 435 505 Cash dividends per share of common stock .615 .595 .575 .555 .535 Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company has maintained a strong financial position with working capital at February 28, 1997 of $42,320,000, a decrease of 22.3% from the beginning of the year, and a current ratio of 5.1 to 1. The decrease is due to acquisitions in April 1996 (see note 7 to the Company's Consolidated Financial Statements) and a large capital investment program. The Company funded the acquisitions and capital investments from available cash. Accounting Standards In March 1995, the Financial Accounting Standards Board (the Board) issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. The provisions of Statement No. 121 were effective for fiscal year 1997 and did not have a significant impact on the Company's Consolidated Financial Statements. In October 1995, the Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Statement gives companies the option to adopt the fair value method for expense recognition of employee stock options or to continue to account for stock options and stock based awards using the intrinsic value method as outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and to make pro forma disclosures of net income and net income per share as if the fair value method had been applied. The provisions of Statement No. 123 are effective for fiscal year 1997 and the Company has elected to continue to apply APB 25 for future stock options and stock based awards. The required pro forma disclosures of net earnings and net earnings per share using the fair value method are in note 4 to the Company's Consolidated Financial Statements. In February 1997, the Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The Statement specifies the computation, presentation and disclosure requirements for earnings per share. The Company will adopt the Statement in the fourth quarter of fiscal 1998. Had the Company adopted the Statement for fiscal 1997, the impact on earnings per share would not have been material. Results of Operations 1997 as compared to 1996 Net sales increased 8.2% in fiscal 1997 compared to 1996. The majority of the increase is due to acquisitions in separate transactions of two specialty printing companies on April 1, 1996. In the second half of the year the Company began to achieve sales growth in its business forms products. Many of the equipment additions under the $16,500,000 capital investment program announced in April 1996 were not placed into service until late in the year and did not contribute meaningfully to fiscal 1997 sales. Cost of sales increased 18.6% in fiscal 1997 compared to 1996, a greater percentage increase than was experienced in net sales for the same period. Gross margins decreased 9.2%. In accordance with the Company's growth strategy announced in May 1996, the Company reduced selling prices and enhanced customer service, including providing improved delivery schedules for its custom products. New employees were hired and trained to produce an increasing volume of business. All of these measures substantially reduced gross profit margins. Selling, general and administrative expenses increased 13.5% over the prior year because of additional expenses from the acquired companies and depreciation and other expenses related to a new management and customer service information system. Investment and other income decreased 21.7% due to a decreased amount of funds available for investment. The acquisitions and capital investment program were both funded from available cash. The overall effective income tax rate decreased 1% due primarily to lower state and local income taxes and the ESOP dividend pass-through deduction increasing as a percentage of income. Net earnings decreased 27.5% due to the increase in cost of sales and selling, general and administrative expenses and the decrease in investment and other income. Earnings per share decreased 27.4%, substantially the same percentage decrease as net earnings. 1996 as compared to 1995 Net sales increased 1.5% in fiscal 1996 compared to 1995. Cost of sales increased 2.6% in fiscal 1996 compared to 1995, a greater percentage increase than was experienced in net sales for the same period. The gross margin decreased .4%. Competitive market conditions prohibited the Company from obtaining price increases sufficient to fully offset the increased raw material costs of the business forms printing operations. Selling, general and administrative expenses increased 9% over the prior year because of additional marketing costs and customer service expenses. Investment and other income increased in fiscal 1996 over the previous year due to increased amounts of funds available for investment. The overall effective income tax rate increased .5% primarily due to nondeductible foreign operating losses. Net earnings decreased 7.0% due to unrecoverable increased raw material costs in the business forms operations, increased selling, general, and administrative expenses, and the write-off of impaired intangible assets. Earnings per share decreased 7.4%, substantially the same percentage decrease as net earnings. 1995 as compared to 1994 Net sales increased 5.4% in fiscal 1995 compared to 1994. Most of the increase is attributable to additional business from two significant customers in the business forms printing operations and sales from an award ribbon company acquired in June 1993. The Company's tool and die subsidiary, Connolly Tool and Machine Company, also had a significant increase in net sales over the prior year. The upturn in the economy, additional marketing activities, and improved customer service further contributed to the increase in net sales. Cost of sales increased 7.1% in fiscal 1995 compared to 1994, a greater percentage increase than was experienced in net sales for the same period. Accordingly, gross profit increased only 2.7%, less than the increase in sales. Competitive market conditions have prohibited the Company from obtaining price increases sufficient to fully offset the increased raw material costs of the business forms printing operations. Selling, general and administrative expenses increased 6.4% over the prior year because of additional marketing costs, customer service expenses and startup costs associated with a new manufacturing facility in Mexico City. Interest expense continues to decline due to scheduled decreases in outstanding long-term debt. Investment and other income increased over the prior year due to gains from asset sales, increased amounts of funds available for investments and a steady increase in interest rates throughout the year. The overall effective income tax rate remained substantially unchanged from fiscal 1994. Net earnings increased 2.9%, comparable to the increase in gross profits. The increased selling, general and administrative expenses were largely offset by the higher investment income. Earnings per share increased by a greater percentage than net earnings because the weighted average number of shares of common stock outstanding decreased in fiscal 1995 compared to the prior year. This decrease in the weighted average number of shares of common stock outstanding is because of treasury stock purchases in the first half of fiscal 1994. Description of Business Ennis Business Forms, Inc. was organized under the laws of Texas in 1909. Except for one subsidiary, Ennis (the Company and all of its other subsidiaries) prints and constructs a broad line of business forms and other business products for national distribution. Approximately 92% of the business products manufactured by Ennis are custom and semi-custom, constructed in a wide variety of sizes, colors, number of parts and quantities on an individual job basis depending upon the customers' specifications. Ennis operates fifteen manufacturing locations in twelve strategically located states and Mexico City, providing the Ennis dealer a national network for meeting users' demands for hand or machine written records and documents. The Company's other subsidiary, Connolly Tool and Machine Company (Connolly), is located in Dallas, Texas and designs and manufactures tools, dies and special machinery, all to customers' specifications, for customers located primarily in the Southwestern part of the United States. For the year ended February 28, 1997 the sale of business products represents approximately 96% of consolidated net sales with Connolly's operations accounting for the balance of consolidated net sales. While it is not possible, because of the lack of adequate statistical information, to determine Ennis' share of the total business products market or Connolly's share of the total tool, dies and special machinery market, or their positions in their respective industries, management believes Ennis is one of the largest producers of business forms in the United States distributing primarily through independent dealers, and that its business forms offering is more diversified than that of most companies in the business forms industry. Also, Connolly is believed to be one of the leading independent designers and manufacturers of tools, dies and special machinery in the Southwest. Distribution of business forms and other business products throughout the United States and Mexico is primarily through independent dealers, including business forms distributors, stationers, printers, computer software developers, etc. Distribution of tools, dies and special machinery is on a contract basis with individual customers. No single customer accounts for as much as ten percent of consolidated net sales. Raw materials principally consist of a wide variety of weights, widths, colors, sizes, and qualities of paper for business products and a variety of types and grades of metals and electrical and mechanical components for tools, dies and special machinery purchased from a number of major suppliers at prevailing market prices. Seasonal fluctuations in business forms usage have historically caused a decline in sales during the first quarter, and operations are further affected by the seasonal pattern of business forms used in the raw cotton industry, which forms are generally sold during the months immediately preceding the harvesting of cotton. However, recent experience indicates that general economic conditions are the predominant factor in quarterly volume fluctuations, not only in the business forms market, but also in the markets in which Connolly participates. Quarterly Information (Unaudited) (In thousands, except per share amounts) Quarter Ended May August November February Fiscal year ended February 28, 1997: Net sales $36,924 38,715 40,210 37,877 Gross margin 12,773 12,293 12,224 11,204 Net earnings (note 1) 4,222 3,595 3,117 2,559 Dividends paid 2,466 2,548 2,548 2,548 Per share of common stock: Net earnings .26 .22 .19 .15 Dividends .15 .155 .155 .155 Common stock price range per share10.375 to 12.00 10.375 to 11.75 9.875 to 11.625 9.625 to 11.625 Common stock trading volume, number of shares 1,894 1,735 1,161 1,845 Fiscal year ended February 29, 1996: Net sales $35,109 35,707 36,827 34,491 Gross margin 12,834 12,939 13,670 13,944 Net earnings (notes 1 and 2) 4,490 4,641 4,840 4,646 Dividends paid 2,384 2,466 2,466 2,466 Per share of common stock: Net earnings .27 .29 .29 .28 Dividends .145 .15 .15 .15 Common stock price range per share12.25 to 13.75 12.25 to 13.25 12.00 to 14.50 11.00 to 13.00 Common stock trading volume, number of shares 844 1,074 1,496 1,227 The Company's common stock is traded on the New York Stock Exchange. The number of common shareholders of record as of the close of business on April 15, 1997 was 1,832. Notes: 1. Year-end adjustments related to physical inventory counts and LIFO valuation increased net earnings for the fourth quarter of fiscal 1997 by approximately $545,000 (3 cents a share) as compared to an increase in net earnings of approximately $820,000 (5 cents a share) from comparable adjustments in the fourth quarter of fiscal 1996. 2. The fourth quarter of fiscal 1996 includes a decrease in net earnings of approximately $504,000 (3 cents a share) due to a charge for the impairment of certain assets. Ten-Year Financial Review (In thousands, except per share and per dollar of sales amounts)
Fiscal years ended 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 February 28 or 29 Net sales from $153,726 $142,134 $140,097 $132,945 $129,279 $131,810 $120,159 $122,941 $120,016 $110,002 continuing operations Earnings from continuing operations before income taxes 21,485 30,104 32,041 31,039 32,276 32,303 32,225 32,630 28,735 25,614 Federal and state 7,992 11,487 12,025 11,582 11,584 11,536 11,489 11,629 10,259 10,008 income taxes Earnings from 13,493 18,617 20,016 19,457 20,692 20,767 20,736 21,001 18,476 15,606 continuing operations Per dollar of sales .088 .131 .143 .146 .160 .158 .173 .171 .154 .142 Per share(a) .82 1.13 1.22 1.16 1.18 1.14 1.10 1.06 .91 .73 Net earnings 13,493 18,617 20,016 19,457 21,252 21,216 21,100 21,027 18,839 15,751 Per share(a) .82 1.13 1.22 1.16 1.21 1.16 1.12 1.06 .92 .74 Dividends 10,110 9,782 9,453 9,270 9,400 9,310 8,810 8,158 6,609 4,761 Per share(a) .615 .595 .575 .555 .535 .51 .47 .41 .32 .22 Shareholders' equity 81,586 78,195 69,338 58,897 60,565 66,485 55,830 60,737 52,954 49,586 Per share(a) 4.96 4.76 4.22 3.52 3.52 3.65 3.05 3.10 2.66 2.41 Current assets 52,627 67,544 59,265 48,519 48,928 51,035 50,927 55,527 46,797 45,600 Current liabilities 10,307 13,054 12,976 12,548 12,087 9,631 10,203 10,074 10,080 12,619 Net working capital 42,320 54,490 46,289 35,971 36,841 41,404 40,724 45,453 36,717 32,981 Ratio of current assets to current liabilities 5.1:1 5.2:1 4.6:1 3.9:1 4.0:1 5.3:1 5.0:1 5.5:1 4.6:1 3.6:1 Depreciation of plant 4,475 3,553 3,499 3,805 4,086 4,368 3,694 3,486 3,372 3,249 and equipment Additions to property, 13,575 6,106 4,010 2,215 1,315 2,484 3,684 3,639 2,096 2,563 plant and equipment (a) Earnings from continuing operations per share, net earnings per share, dividends per share and shareholders' equity per share figures have been adjusted to reflect the following stock distributions: July 1991 3 for 2 July 1989 3 for 2
Consolidated Statements of Earnings (In thousands, except per share amounts) For the years ended February 28 or 29, 1997 1996 1995 Net sales $153,726 142,134 140,097 Costs and expenses: Cost of sales 105,232 88,747 86,488 Selling, general and administrative expenses 28,320 24,943 22,893 Interest expense 68 102 87 133,620 113,792 109,468 Earnings from operations 20,106 28,342 30,629 Investment and other income - net 1,379 1,762 1,412 Earnings before income taxes 21,485 30,104 32,041 Provision for income taxes (note 5) 7,992 11,487 12,025 Net earnings $ 13,493 18,617 20,016 Net earnings per share of common stock $ .82 1.13 1.22 See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows (In thousands) For the years ended February 28 or 29, 1997 1996 1995 Cash flows from operating activities: Net earnings $ 13,493 18,617 20,016 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 4,935 4,511 3,657 Deferred income taxes 574 (295) (272) Pension plan expense 365 827 524 Other (651) 437 (308) Changes in assets and liabilities: Receivables (1,466) 1,304 (3,185) Inventories (1,905) 1,926 (1,553) Other current assets (net of deferred taxes) (522) (1,023) 344 Accounts payable and accrued expenses (1,836) 134 1,188 Federal and state income taxes (2,001) (93) (688) Net cash provided by operating activities 10,986 26,345 19,723 Cash flows from investing activities: Capital expenditures (13,575) (6,106) (4,010) Purchase of operating assets (7,342) -- -- Purchase of short-term investments -- (6,064) (17,600) Maturities of short-term investments -- 23,742 -- Proceeds from disposal of property 22 11 379 Net cash provided by (used in) investing activities (20,895) 11,583 21,231) Cash flows from financing activities: Dividends (10,110) (9,782) (9,453) Other (93) (81) (67) Net cash flows used in financing activities (10,203) (9,863) (9,520) Effect of exchange rate changes on cash -- -- (8) Net change in cash and equivalents (20,112) 28,065 (11,036) Cash and equivalents at beginning of year 38,606 10,541 21,577 Cash and equivalents at end of year $18,494 38,606 10,541 See accompanying notes to consolidated financial statements. Consolidated Balance Sheets (In thousands, except share amounts) February 28, February 29, 1997 1996 Assets Current assets: Cash and equivalents $18,494 38,606 Receivables, principally trade, less allowance for doubtful receivables of $1,090 in 1997 and $1,085 in 1996 18,600 16,975 Inventories, at lower of cost (principally last-in, first-out) or market (note 2) 10,500 8,298 Other current assets (note 5) 5,033 3,665 Total current assets 52,627 67,544 Property, plant and equipment, at cost: Plant, machinery and equipment 62,587 49,563 Land and buildings 15,957 15,010 Other 8,869 7,079 87,413 71,652 Less accumulated depreciation 53,853 49,795 Net property, plant and equipment 33,560 21,857 Cost of purchased businesses in excess of amounts allocated to tangible net assets 5,942 3,861 Other assets and deferred charges 2,828 400 $94,957 93,662 See accompanying notes to consolidated financial statements. February 28, February 29, 1997 1996 Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt $ 85 80 Accounts payable 5,234 5,144 Accrued expenses: Employee compensation and benefits 3,942 5,702 Taxes other than income 375 348 Other 671 793 Federal and state income taxes payable (note 5) -- 987 Total current liabilities 10,307 13,054 Long-term debt, less current installments 195 280 Deferred credits, principally Federal income taxes (note 5) 2,869 2,133 Shareholders' equity (notes 3 and 4): Preferred stock of $10 par value. Authorized 1,000,000 shares; none issued -- -- Common stock of $2.50 par value. Authorized 40,000,000 shares; issued 21,249,860 in 1997 and 1996 53,125 53,125 Additional capital 1,040 1,040 Retained earnings 119,318 115,935 Cumulative foreign currency translation adjustments (76) (97) 173,407 170,003 Less cost of 4,811,506 shares in 1997 and 4,810,389 shares in 1996 of common stock in treasury 91,821 91,808 Total shareholders' equity 81,586 78,195 $94,957 93,662 Notes to Consolidated Financial Statements (1) Significant Accounting Policies and General Matters Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Intangible Assets. The excess of cost over amounts assigned to tangible assets of purchased subsidiaries is amortized on the straight-line basis over periods from 3 to 40 years. The Company periodically evaluates the net carrying value of such assets based on expectations of cash flows of each subsidiary for which such assets are recorded. To the extent such estimated cash flows are not adequate to recover the carrying amount of the related assets, the assets are written down by a charge to expense. For the fiscal year ended February 29, 1996 the Company charged to expense $775,000 of intangible assets believed to be impaired. Cash and Equivalents. Investments with original maturities of less than three months are classified as cash equivalents. Investments are carried at cost, which approximates fair market value, in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Property, Plant and Equipment. Depreciation of property, plant and equipment is provided by the straight-line method at rates presently considered adequate to amortize the total cost over the useful lives of the assets. Repairs and maintenance are expensed as incurred. Renewals and betterments are capitalized and depreciated over the remaining life of the specific property unit. The Company capitalizes all significant leases which are in substance acquisitions of property. Investment Income. Investment income was approximately $1,478,000, $1,872,000 and $1,215,000 for fiscal years 1997, 1996 and 1995, respectively. Income Taxes. The Company complies with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Statement requires the use of the asset and liability method of accounting for income taxes. Accordingly, changes in statutory income tax rates increase or decrease deferred income tax expense in the period of enactment. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Credit Risk. The Company's financial instruments which are exposed to credit risk consist of its trade receivables and short term investments. The trade receivables are geographically dispersed within the continental United States and Mexico and the short term investments are generally restricted to investment grade commercial paper, Eurodollar deposits of U.S. banks, and U.S. Government obligations. Nature of Operations and Business Segment. The Company is principally in the business of manufacturing and selling business forms and other printed business products to customers primarily located in the United States and Mexico. For the fiscal years 1997, 1996 and 1995, business forms and other printed business products operations represented approximately 90% to 96% of net sales, operating profits, depreciation and identifiable assets in each year. Capital expenditures attributable to business forms and other printed business products operations for the same years were 93%, 100% and 100%, respectively. The Company's Mexico operations are not material to consolidated earnings or financial position for fiscal years 1997, 1996 or 1995. Net Earnings Per Common Share. Net earnings per common share amounts are based on the weighted average number of shares outstanding during each year. Common stock equivalents (options) have not been included in determining earnings per common share amounts because their inclusion would not materially dilute the amounts shown. The weighted average number of shares outstanding for the fiscal years 1997, 1996 and 1995 were 16,438,817, 16,439,645 and 16,439,844, respectively. Foreign Currency Translation Adjustments. Financial position and results of operations of the Company's foreign, 70% - owned, subsidiary are measured using the local currency as the functional currency. Assets and liabilities of this operation were translated at the exchange rates in effect at the balance sheet dates. Income statement accounts were translated at the average exchange rates prevailing during the year. Translation adjustments are included in shareholders' equity. Gains and losses that result from foreign currency transactions are included in earnings. Such amounts were not material in any of the years presented. Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. (2) 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. At February 28, 1997 and February 29, 1996 approximately 71% and 70%, respectively, of business forms inventories are valued at LIFO with the remainder of inventories valued at the lower of first-in, first-out cost or market. The following table summarizes the components of inventory at the different stages of production (in thousands): February 28, February 29, 1997 1996 Raw material $6,394 5,073 Work-in-process 1,127 679 Finished goods 2,979 2,546 $10,500 8,298 The excess of current costs over LIFO stated values amounts to approximately $5,565,000 and $6,084,000 at February 28, 1997 and February 29, 1996, respectively. (3) Shareholders' Equity Following is a summary of transactions in shareholders' equity accounts for the three years ended February 28, 1997 (amounts in thousands, except share amounts): Cumulative Foreign Currency Treasury Stock Common Stock Additional Retained Translation (at cost) Shares Amount Capital Earnings Adjustments Shares Amount Balance February 28, 1994 21,249,860 $53,125 1,095 96,537 -- (4,812,663) $(91,860) Net earnings -- -- -- 20,016 -- -- -- Dividends declared ($.575 per share) -- -- -- (9,453) -- -- -- Foreign currency translation adjustment -- -- -- -- (125) -- -- Treasury stock transactions: Purchases -- -- -- -- -- (1,037) (15) Exercise of stock options -- -- (55) -- -- 3,871 73 Balance February 28, 1995 21,249,860 53,125 1,040 107,100 (125) (4,809,829) (91,802) Net earnings -- -- -- 18,617 -- -- -- Dividends declared ($.595 per share) -- -- -- (9,782) -- -- -- Foreign currency translation adjustment -- -- -- -- 28 -- -- Treasury stock purchases -- -- -- -- -- (560) (6) Balance February 29, 1996 21,249,860 53,125 1,040 115,935 (97) (4,810,389) (91,808) Net earnings -- -- -- 13,493 -- -- -- Dividends declared ($.615 per share) -- -- -- (10,110) -- -- -- Foreign currency translation adjustment -- -- -- -- 21 -- -- Treasury stock purchases -- -- -- -- -- (1,117) (13) Balance February 28, 1997 21,249,860 $53,125 1,040 119,318 (76) (4,811,506) $(91,821)
(4) Stock Options At February 28, 1997, the Company has two incentive stock option plans, the 1991 Incentive Stock Option Plan and the 1980 Incentive Stock Option Plan. The Company has 378,958 shares of unissued common stock reserved under the incentive stock option plans for issuance to officers and supervisory employees of the Company and its subsidiaries. All available options under the 1980 Incentive Stock Option Plan have been granted prior to fiscal year 1997. The exercise price of each option granted equals the market price of the Company's 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 applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its incentive stock option plans. Had compensation cost for the Company's incentive stock option plans been determined consistent with FASB Statement No. 123, the Company's reported net earnings and earnings per share would have been substantially unchanged. The fair value of the option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions used for grants in 1997: dividend yield of 6.15 %; expected volatility of 22 %; risk-free interest rate of 6.67 %; expected life of seven years. Following is a summary of transactions of incentive stock options during the three fiscal years ended in 1997: Weighted Number Average of Exercise Shares Price Outstanding at February 28, 1994 (166,119 shares exercisable) 256,390 $14.03 Exercised (3,557) 3.60 Granted 5,750 12.78 Terminated (2,375) 15.24 Outstanding at February 28, 1995 (189,763 shares exercisable) 256,208 14.13 Outstanding at February 29, 1996 (216,708 shares exercisable) 256,208 14.13 Granted 92,500 11.10 Outstanding at February 28, 1997 (229,396 shares exercisable) 348,708 13.33 Weighted Average Fair Value of Options granted during 1997 1.69 The following table summarizes information about incentive stock options outstanding at February 28, 1997: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Price Exercisable Exercise Prices Life Price $10.17 to 12.00 181,496 5.2 years $10.68 86,184 $10.19 13.81 to 15.63 117,212 4.3 14.91 93,212 15.18 19.25 50,000 4.8 19.25 50,000 19.25 10.17 to 19.25 348,708 4.9 13.33 229,396 14.19 (5) Income Taxes The components of the provision for income taxes for fiscal years 1997, 1996 and 1995 are (in thousands): 1997 1996 1995 Current: Federal $6,664 10,523 11,029 State and local 754 1,259 1,268 Deferred Federal 574 (295) (272) Total provision for income taxes $7,992 11,487 12,025 Total income taxes paid $9,500 12,377 12,986 The following summary for the three fiscal years ended in 1997 reconciles the statutory U. S. Federal income tax rate to the Company's effective tax rate: 1997 1996 1995 Statutory rate 35.0% 35.0% 35.0% Provision for state income taxes, net of Federal income tax benefit 2.3 2.7 2.5 Nondeductible foreign net operating loss 0.3 0.7 0.3 ESOP pass-through dividend deduction (0.9) (0.6) (0.6) Other 0.5 0.4 0.3 Effective tax rate 37.2% 38.2% 37.5% The Federal and state income tax assets and liabilities are summarized as follows (in thousands): February 28 or 29, 1997 1996 Current: Current asset $1,014 -- Currently payable -- 987 Deferred: Current asset 1,611 1,792 Noncurrent liability 2,253 1,860 The components of deferred income tax assets and liabilities are summarized as follows (in thousands): February 28 or 29, 1997 1996 Current deferred asset: Allowance for doubtful receivables $ 518 489 Employee compensation and benefits 813 949 Foreign net operating loss carryforwards 393 324 Other 280 354 Subtotal 2,004 2,116 Valuation allowance (393) (324) $1,611 1,792 Noncurrent deferred liability: Depreciation $1,631 1,453 Prepaid pension cost 579 303 Other 43 104 $2,253 1,860 The valuation allowance of $393,000 at February 28, 1997 has been provided to reduce the total tax asset to $1,611,000 because it is likely that a portion of the tax asset will not be realized. The net increases in the valuation allowance for fiscal years 1997, 1996 and 1995 were $69,000, $212,000 and $112,000, respectively. All increases relate to the valuation allowance for foreign net operating loss carryforwards. (6) Employee Benefit Plans The Company and certain subsidiaries have a noncontributory defined benefit retirement plan covering substantially all of their employees. Benefits are based on years of service and the employee's average compensation for the highest five compensation years preceding retirement or termination. The Company's funding policy is to contribute annually an amount in accordance with the requirements of ERISA. The following table sets forth the Plans' funded status and amounts recognized in the Company's consolidated balance sheets at February 28, 1997 and February 29, 1996 (in thousands): 1997 1996 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $24,379 and $24,647 in 1997 and 1996, respectively $ 27,027 27,311 Projected benefit obligation for service rendered to date $(36,877) (37,702) Plan assets at fair value 28,860 29,325 Plan assets (less than) projected benefit obligation (8,017) (8,377) Unrecognized net loss 11,116 12,533 Unrecognized net transition asset being recognized over the average remaining service life (3,515) (4,207) Accrued pension liability $ (416) (51) Net pension cost for fiscal years 1997, 1996 and 1995 included the following components (in thousands): 1997 1996 1995 Service cost - benefits earned during the current period $ 1,668 1,355 1,520 Interest cost on projected benefit obligation 2,800 2,478 2,563 Actual (return) loss on plan assets (3,051) (3,182) 119 Net amortization and deferral 135 178 (3,490) Net periodic pension cost $1,552 829 712 Assumptions used in accounting for the defined benefit plans for fiscal years 1997, 1996 and 1995 are as follows: 1997 1996 1995 Weighted average discount rate 7.50% 7.50% 8.25% Earnings progression 4.50% 4.50% 4.50% Expected long-term rate of return on plan assets 9.25% 9.50% 10.00% (7) Acquisitions On April 1, 1996, the Company purchased in separate transactions the operating assets and operations of two privately-owned specialty printing companies for approximately $7,300,000 in cash. The acquisitions were accounted for by the purchase method; therefore the following Consolidated Statement of Earnings for the year ended February 28, 1997 includes the results of operations of the two companies from the date of acquisition. The cost of the acquired companies in excess of the amounts allocated to tangible net assets is being amortized over 25 years from the date of acquisition. The Company also entered into non-competition agreements for $2,580,000 with the principals of the selling companies. The cost of these agreements is being amortized over the related non-competition periods. Additionally, the Company entered into employment agreements with certain of the principals of the selling companies. Following are unaudited condensed pro forma consolidated results of operations for the fiscal years ended February 28, 1997 and February 29, 1996 which reflects inclusion of the companies as if they had been acquired on March 1, 1995 (in thousands, except per share amounts): Fiscal Year Ended Fiscal Year Ended February 28, 1997 February 29, 1996 Net sales $154,653 152,450 Net income $ 13,479 18,155 Earnings per share $ .82 1.10 Independent Auditors' Report The Board of Directors and Shareholders Ennis Business Forms, Inc.: We have audited the accompanying consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended February 28, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ennis Business Forms, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended February 28, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas April 18, 1997 EX-21 3 Exhibit (21) Subsidiaries of the Registrant The registrant directly or indirectly owns 100 percent of the outstanding voting securities of the following subsidiary companies. Name of Company Jurisdiction Ennis Tag & Label Company Delaware Ennis Business Forms of Georgia, Inc. Georgia Ennis Business Forms of Ohio, Inc. Ohio Ennis Business Forms of Kentucky, Inc. Kentucky Ennis Business Forms of Oregon, Inc. Oregon Ennis Business Forms of Kansas, Inc. Kansas Ennis Business Forms of Tennessee, Inc. Texas Ennis Business Forms of Texas, Inc. Delaware Connolly Tool and Machine Company Delaware United Continental Leasing Co. Delaware Star Award Ribbon Company, Inc. Texas Admore, Inc. Texas PFC Products, Inc. * Delaware Heath Printers, Inc. Delaware Dunlee Marketing, Inc. Delaware * A wholly-owned subsidiary of Admore, Inc. The registrant owns 70 percent of the outstanding voting securities of the following subsidiary company. Name of Company Jurisdiction Formas Para Negocios Ennis, S.A. DE C.V. Mexico EX-23 4 Exhibit (23) INDEPENDENT AUDITORS' CONSENT The Board of Directors Ennis Business Forms, Inc.: We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 2-81124) of Ennis Business Forms, Inc. of our reports dated April 18, 1997, relating to the consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996 and the related consolidated statements of earnings and cash flows and the related schedule for each of the years in the three-year period ended February 28, 1997, which reports appear, or are incorporated by reference in, the February 28, 1997 Annual Report on Form 10-K of Ennis Business Forms, Inc. KPMG Peat Marwick LLP Dallas, Texas May 28, 1997 EX-27 5
5 1000 YEAR FEB-28-1997 FEB-28-1997 18494 0 19690 1090 10500 52627 87413 53853 94957 10307 195 0 0 53125 120282 94957 153726 153726 105232 105232 28320 0 68 21485 7992 13493 0 0 0 13493 .82 .82
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