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, 2002
------------------------------------------------
Commission File Number 1-5807
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ENNIS BUSINESS FORMS, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0256410
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(State or other Jurisdiction of (I. R. S. Employer
Incorporation or organization) Identification No.)
1510 N. Hampton, Suite 300, DeSoto, TX 75115
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 228-7801
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 31, 2002
- --------------------------- ------------------------------
Common stock, par value 16,277,224
$2.50 per share
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial information - unaudited
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets --
August 31, 2002 and February 28, 2002 2 - 3
Condensed Consolidated Statements of
Earnings -- Three and Six Months Ended
August 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash
Flows -- Six Months Ended August 31, 2002
and 2001 5
Notes to Condensed Consolidated Financial
Statements 6 - 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
Item 3 - Quantitative and Qualitative
Disclosures of Market Risk 13
Item 4 - Controls and Procedures 14
Part II. Other Information 15
Signatures 16
PART I. FINANCIAL INFORMATION
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
August 31, February 28,
2002 2002
---- ----
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 18,242 $ 16,180
Investment securities 360 1,802
Accounts receivable, net 29,450 28,713
Prepaid expenses 2,118 814
Inventories 12,693 12,222
Contract costs in excess of billings 601 256
Other current assets 2,494 2,659
------- -------
Total current assets 65,958 62,646
------- -------
Property, plant and equipment, net 48,712 51,343
Goodwill, net 21,945 21,951
Other assets 2,093 3,094
------- -------
$138,708 $139,034
======= =======
(Continued)
2
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
August 31, February 28,
2002 2002
---- ----
(unaudited)
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 6,673 $ 5,568
Accrued expenses:
Employee compensation and
benefits 5,150 4,770
Taxes other than income 1,301 970
Other 3,435 3,623
Current installments of long-term
debt 8,793 9,035
------- -------
Total current liabilities 25,352 23,966
------- -------
Long-term debt, less current
installments 5,135 9,170
Deferred credits, principally income
taxes 9,855 9,863
Shareholders' equity:
Preferred stock, at par value -- --
Common stock, at par value 53,125 53,125
Additional paid in capital 961 1,040
Retained earnings 134,765 132,694
Accumulated other comprehensive
loss (244) (401)
------- -------
188,607 186,458
Treasury stock (90,241) (90,423)
------- -------
Total shareholders'
equity 98,366 96,035
------- -------
$138,708 $139,034
======= =======
See accompanying notes to condensed consolidated financial
statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $56,646 $58,695 $114,389 $118,518
Costs and expenses:
Cost of sales 41,050 41,729 83,789 85,471
Selling, general
and administra-
tive expenses 9,123 10,034 18,474 19,888
------ ------ ------- -------
50,173 51,763 102,263 105,359
------ ------ ------- -------
Earnings from
operations 6,473 6,932 12,126 13,159
------ ------ ------- -------
Other income
(expense):
Interest expense (300) (469) (638) (1,155)
Investment and
other income (16) 239 (9) 308
------ ------ ------- -------
(316) (230) (647) (847)
------ ------ ------- -------
Earnings before
income taxes 6,157 6,702 11,479 12,312
Provision for
income taxes 2,340 2,655 4,362 4,857
------ ------ ------- -------
Net earnings $ 3,817 $ 4,047 $ 7,117 $ 7,455
====== ====== ======= =======
Weighted average
number of common
shares
outstanding -
Basic 16,280,438 16,271,913 16,277,224 16,271,421
Plus incremental
shares from
assumed
exercise
of stock
options 218,668 34,785 218,668 34,785
---------- ---------- ---------- ----------
Weighted average
number of common
shares
outstanding -
Diluted 16,499,106 16,306,698 16,495,892 16,306,206
========== ========== ========== ==========
Per share amounts:
Net earnings -
basic $.24 $.25 $.44 $.46
==== ==== ==== ====
Net earnings -
diluted $.23 $.25 $.43 $.46
==== ==== ==== ====
Cash dividends
per share $.155 $.155 $.31 $.31
===== ===== ==== ====
See accompanying notes to condensed consolidated financial
statements.
4
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
August 31
2002 2001
---- ----
Cash flows from operating activities:
Net earnings $ 7,117 $ 7,455
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 4,722 4,401
Amortization -- 820
(Gain) loss on sale of property,
plant, and equipment (2) 7
Changes in operating assets and
liabilities:
Receivables (737) 1,288
Prepaid expenses (1,304) (781)
Inventories (471) 925
Contract costs in excess of
billings (345) (548)
Other current assets (net of
deferred taxes) 148 (39)
Accounts payable and accrued
expenses 1,785 686
Other assets and liabilities 1,010 2,140
------ ------
Net cash provided by operating
activities 11,923 16,354
------ ------
Cash flows from investing activities:
Capital expenditures (2,146) (1,032)
Redemption of investments 1,442 723
Proceeds from disposal of property 57 --
Other 6 --
------ ------
Net cash used in investing
activities (641) (309)
------ ------
Cash flows from financing activities:
Repayment of debt issued to finance
Northstar acquisition (3,840) (5,190)
Issue of treasury stock for option
exercises 103 21
Dividends (5,046) (5,044)
Other (437) (470)
------ ------
Net cash used in financing
activities (9,220) (10,683)
------ ------
Net change in cash and cash equivalents 2,062 5,362
Cash and cash equivalents at beginning of
period 16,180 8,964
------ ------
Cash and cash equivalents at end of period $18,242 $14,326
====== ======
See accompanying notes to condensed consolidated financial
statements.
5
ENNIS BUSINESS FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
----------------------
These unaudited condensed consolidated financial statements
of Ennis Business Forms, Inc. and its subsidiaries
(collectively the "Company" or "Ennis"), for the quarter
ended August 31, 2002 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, 2002,
from which the accompanying condensed consolidated balance
sheet at February 28, 2002 was derived. All significant
intercompany balances and transactions have been eliminated
in consolidation. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the interim
financial information have been included. The results of
operations for any interim period are not necessarily
indicative of the results of operations for a full year.
2. Stock Option Plans
------------------
As of August 31, 2002, the Company has reserved 855,527
shares of common stock under incentive stock option plans.
For the six month periods ended August 31, 2002 and 2001,
71,250 and 600,000 of options, respectively, were not
included in the diluted earnings per share computation
because their exercise price exceeded the average fair market
value of the Company's stock for the period.
3. Inventories
-----------
The Company uses the Last-In, First-Out (LIFO) method of
pricing the raw material content of most of its business
forms inventories, and the First-In, First-Out (FIFO) method
is used to value the remainder. The following table
summarizes the components of inventory at the different
stages of production (in thousands of dollars):
August 31, February 28,
2002 2002
---- ----
Raw material $ 6,471 $ 6,065
Work-in-process 1,133 1,216
Finished goods 5,089 4,941
------ ------
$12,693 $12,222
====== ======
4. Accumulated other comprehensive loss
------------------------------------
Accumulated other comprehensive loss consists of the
effective unrealized portion of changes in the fair value of
the Company's cash flow hedge. Comprehensive income was
approximately $7,274,000 for the six months ended August 31,
2002 and $6,999,000 for the six months ended August 31, 2001.
6
5. Segment Data
------------
The Company operates three business segments. The Forms Solutions Group is
primarily in the business of manufacturing and selling business forms and
other printed business products to customers primarily located in the United
States. The Promotional Solutions Group is comprised of Adams McClure
(design, production and distribution of printed and electronic media),
Admore (presentation products) and Wolfe City (flexographic printing,
advertising specialties and Post-it (registered trademark) Notes). The
Financial Solutions Group is comprised of Northstar Computer Forms which is
a manufacturer and seller of official bank checks, money orders, and
internal bank forms. Corporate information is included to reconcile segment
data to the consolidated financial statements and includes assets and
expenses related to the Company's corporate headquarters and other
administrative costs. Segment data for the three months and six months
ended August 31, 2002 and 2001 were as follows (in thousands):
Forms Promotional Financial
Solutions Solutions Solutions Consolidated
Group Group Group Corporate Totals
----- ----- ----- --------- ------
Three months ended August 31, 2002:
Net sales $26,660 $18,009 $11,977 $ -- $ 56,646
Depreciation 909 573 801 191 2,474
Amortization -- -- -- -- --
Segment earnings (loss) before
income tax 4,767 2,257 701 (1,568) 6,157
Segment assets 53,988 38,740 41,163 4,817 138,708
Capital expenditures 189 322 927 268 1,706
Three months ended August 31, 2001:
Net sales $28,661 $18,347 $11,687 $ -- $ 58,695
Depreciation 643 580 842 134 2,199
Amortization 26 97 287 -- 410
Segment earnings (loss) before
income tax 5,453 2,018 633 (1,402) 6,702
Segment assets 51,983 38,927 44,244 5,468 140,622
Capital expenditures 227 126 54 62 469
Six months ended August 31, 2002:
Net sales $54,096 $36,247 $24,046 $ -- $114,389
Depreciation 1,564 1,145 1,627 386 4,722
Amortization -- -- -- -- --
Segment earnings (loss) before
income tax 9,136 3,975 1,576 (3,208) 11,479
Segment assets 53,988 38,740 41,163 4,817 138,708
Capital expenditures 311 496 996 343 2,146
Six months ended August 31, 2001:
Net sales $57,510 $37,581 $23,427 $ -- $118,518
Depreciation 1,277 1,159 1,695 270 4,401
Amortization 53 202 565 -- 820
Segment earnings (loss) before
income tax 10,326 3,794 1,090 (2,898) 12,312
Segment assets 51,983 38,927 44,244 5,468 140,622
Capital expenditures 366 249 81 336 1,032
"Post-it" is a registered trademark of 3M.
7
6. Derivative Financial Instruments and Hedging Activities
--------------------------------------------------------
Effective March 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133).
This statement establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. It requires that all derivatives be recognized on
the balance sheet at fair value. Changes in fair values of
derivatives are accounted for based upon their intended use
and designation.
The Company's interest rate swaps are held for purposes other
than trading. The Company utilized swap agreements related to
its term and revolving loans to effectively fix the interest
rate for a specified principal amount of the loans. Amounts
receivable or payable under interest rate swap agreements are
recorded as adjustments to interest expense. This swap has
been designated as a cash flow hedge and the after-tax effect
of the mark-to-market valuation that relates to the effective
amount of derivative financial instrument is recorded as an
adjustment to accumulated other comprehensive income with the
offset included in accrued expenses.
The Company utilized swap agreements related to the term loan
and revolving credit facility to effectively fix the interest
rate at 6.89% for a pre-set principal amount of the loans.
The pre-set principal amount of the loans covered by the swap
agreements declines quarterly in connection with expected
principal reductions and totaled $13,200,000 at August 31,
2002. The fair value of the swap at August 31, 2002 was
approximately ($244,000) and the change in the fair value of
the loss from March 1, 2002, net of tax, has been charged to
Accumulated other comprehensive loss.
8
7. Goodwill and Other Intangible Assets
-------------------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards No. 141,
"Business Combinations" (SFAS No. 141), and No. 142,
"Goodwill and Other Intangible Assets" (SFAS No.142),
effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets
will continue to be amortized over their useful lives.
The Company adopted SFAS No. 142 effective March 1, 2002.
Upon adoption of SFAS No. 142, the Company no longer
amortizes goodwill. The following table reflects net income
adjusted to exclude amortization expense (including any
related tax effects) recognized in the periods presented
related to goodwill.
(In thousands) Three months Six months
ended ended
August 31, August 31,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $3,817 $4,047 $7,117 $7,455
Goodwill amortization,
net of tax benefit -- 248 -- 497
----- ----- ----- -----
Adjusted net income $3,817 $4,295 $7,117 $7,952
Diluted earnings per share:
Reported net income $ .23 $ .25 $ .43 $ .46
Goodwill amortization,
net of tax benefit -- .01 -- .03
----- ----- ----- -----
Adjusted diluted earnings
per share $ .23 $ .26 $ .43 $ .49
===== ===== ===== =====
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company has maintained a strong financial position with
working capital at August 31, 2002, of $40,606,000, an increase
of 5.0% from the beginning of the year, and a current ratio of
2.6 to 1. The increase is due to cash flows provided from
operating activities - net income and better asset management.
The Company has $18,242,000 in cash and cash equivalents,
$360,000 in short term investments, and $5,135,000 in long-term
debt, less current installments. The Company made scheduled
payments of $1,840,000 and pre-paid $2,000,000 of the debt
financing for the six months ended August 31, 2002. The Company
anticipates repaying the long-term debt of $1,850,000 per quarter
through June 2003. The Company believes current inventory levels
are sufficient to satisfy customer demand and anticipates having
adequate sources of supply of raw materials to meet future
business requirements. Capital expenditures for the six months
totaled $2,146,000. For the full fiscal year, capital
expenditures are expected to be between $2,000,000 and
$5,000,000, which are expected to be financed through internally
generated funds. The Company expects to generate sufficient cash
flow from its operating activities to more than cover its
operating and capital requirements for the foreseeable future.
Accounting Standards
- --------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards No. 141,
"Business Combinations" (SFAS No. 141), and No. 142, "Goodwill
and Other Intangible Assets" (SFAS No. 142), effective for fiscal
years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets would be amortized
over their useful lives. Effective March 1, 2002, the Company
adopted the provisions of SFAS No. 142. Accordingly, the Company
stopped amortization of goodwill effective at the date of
adoption. Adoption of SFAS No. 142, resulted in an increase to
after tax earnings of $.01 per diluted share in the quarter ended
August 31, 2002, $.03 per diluted share for the six months ended
August 31, 2002 and is estimated to increase after-tax earnings
by approximately $.06 per diluted share for the fiscal year 2003.
The Company tested for impairment using projected cash flows and
representative earnings multiples for the industry on March 1,
2002. Based on the test, no impairment of goodwill was indicated
or recorded.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
impairment or Disposal of Long-Lived Assets" (SFAS No. 144) which
is effective for the Company beginning March 1, 2002 and
supercedes, "Accounting for the impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121). SFAS
No. 144 provides a single method of accounting for long-lived
assets to be disposed of and retains requirements found in SFAS
No. 121 with regard to the impairment of long-lived assets. The
adoption of SFAS No.144 had no effect on the financial statements
for the quarter ended August 31, 2002.
10
Results of Operations 2002
- -------------------------------
Net sales for the three and six months ended August 31, 2002
decreased 3.5% from the corresponding periods in the prior year.
This resulted from a decrease in the consolidated net sales
contribution from the Forms Solutions Group of 3.4% for the three
months ended August 31, 2002 and 2.9% for the six months ended
August 31, 2002, due to declines in the general economy and in
the industry. The consolidated net sales contribution from the
Promotional Solutions Group decreased .6% for the three months
ended August 31, 2002 and 1.1% for the six months ended August
31, 2002 due to weakness in the general economy. This was
mitigated by a .5% increase in contribution to consolidated net
sales from the Financial Solutions Group for the three and six
months ending August 31, 2002 in spite of weak economic
conditions.
Gross profit margins decreased from 28.9% in the three months
ended August 31, 2001 to 27.5% in the three months ended August
31, 2002. Gross profit margins decreased from 27.9% in the six
months ended August 31, 2001 to 26.8% in the six months ending
August 31, 2002. The decrease is the result of a combination of
factors. The Forms Solutions Group gross profit margin decreased
from 31.3% in the three months ended August 31, 2001 to 30.4% in
the three months ended August 31, 2002, and from 30.0% in the six
months ended August 31, 2001 to 29.4% in the six months ended
August 31, 2002. The decrease is a result of less fixed cost
absorption due to decreased sales. The general weakness in the
economy and the decline in the forms industry contributed to
decreased sales volume and lower prices in the Forms Solutions
Group. The Promotional Solutions Group gross profit decreased
from 24.9% in the three months ended August 31, 2001 to 24.6% in
the three months ended August 31, 2002, and from 23.5% in the six
months ended August 31, 2001, to 23.2% in the six months ended
August 31, 2002. The decrease is a result of less fixed cost
absorption resulting from decreased sales volume due to weakness
in the general economy. This was somewhat mitigated by
operational efficiencies and cost controls exhibited in the Adams
McClure sector of this group. The Financial Solutions Group gross
profit decreased from 28.8% in the three months ending August 31,
2001 to 24.4% in the three months ending August 31, 2002, and
from 28.9% in the six months ending August 31, 2001 to 25.2% in
the six months ending August 31, 2002. The decrease is due to a
combination of lower fixed cost absorption resulting from
decreased sales volumes in certain plants and a shift in mix to
lower margin products in the quarter. In addition a move to a
new operating facility in one of the locations, which was
completed in July of 2002, exacerbated the reduction in margins
due to costs incurred for the move and incurrence of operational
inefficiencies during the move period.
Selling, general and administrative expenses decreased 9.1% for
the three months ended August 31, 2002 and 7.1% for the six
months ended August 31, 2002 when compared to the corresponding
periods in the prior year. For the three and six months ended
August 31, 2002, $410,000 and $820,000 of the decrease,
respectively, is due to the elimination of goodwill expense
resulting from the adoption of SFAS No. 142. The remainder is
mostly due to effective cost reduction programs implemented in
the Promotional Solutions and Forms Solutions Groups offset with
an increase in depreciation related to the Company's Enterprise
Resource Planning Software (ERP) System.
11
Interest expense decreased from $469,000 in the three months
ended August 31, 2001 to $300,000 in the three months ended
August 31, 2002, and from $1,155,000 in the six months ending
August 31, 2001 to $638,000 in the six months ending August 31,
2002 as a result of reductions of Northstar financing debt.
Investment and other income decreased from $239,000 in the three
months ended August 31, 2001 to ($16,000) in the three months
ended August 31, 2002, and from $308,000 in the six months ending
August 31, 2001 to ($9,000) in the six months ended August 31,
2002 due to decreases in interest rates and the netting of
miscellaneous expenses against other income.
The effective rate of the Federal and state income tax expense
was 38.0% and 39.45% for the six months ended August 31, 2002 and
August 31, 2001, respectively. The primary reason for the
decrease is due to the elimination of non-deductible goodwill
expense for the quarter and six months ended August 31, 2002 as a
result of the adoption of SFAS No. 142.
Critical Accounting Policies and Judgments
- -------------------------------------------
In preparing our financial statements, we are required to make
estimates and assumptions that affect the disclosures and
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. We evaluate our estimates
and judgments on an ongoing basis, including those related to bad
debts, inventory valuations, property, plant and equipment,
intangible assets and income taxes. We base our estimates and
judgments on historical experience and on various other factors
that we believe to be reasonable under the circumstances. Actual
results may differ from these estimates.
We exercise judgment in evaluating our long-lived assets for
impairment. 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.
Revenue is recognized upon shipment for all printed products.
Revenue from fixed price contracts for the design and
construction of tools, dies and special machinery is recognized
using the percentage of completion method of accounting.
Derivative instruments are recognized on the balance sheet at
fair value. Changes in fair values of derivatives are accounted
for based upon their intended use and designation. The Company's
interest rate swaps are held for purposes other than trading.
The Company utilized swap agreements related to its term and
revolving loans to effectively fix the interest rate for a
specified principal amount of the loans. Amounts receivable or
payable under interest rate swap agreements are recorded as
adjustments to interest expense. This swap has been designated
as a cash flow hedge and the after tax effect of the mark-to-
market valuation that relates to the effective amount of
derivative financial instrument is recorded as an adjustment to
accumulated other comprehensive income with the offset included
in accrued expenses.
Certain Factors That May Affect Future Results
- -----------------------------------------------
The Forms Solutions Group sells a mature product line of business
forms and other printed business products. The demand for this
product line may decrease with increasing electronic and
paperless forms and filings.
12
The Promotional and Financial Solutions Groups are dependent upon
certain major customers. The loss of such customers may affect
the revenue and earnings of the Groups.
The Company has various contracts with suppliers that are subject
to change upon renewal and may not provide the same cost ratios
for future periods.
Forward looking statement
- --------------------------
Management's result of operations contains forward-looking
statements that reflect the Company's current view with respect
to future revenues and earnings. These statements are subject to
numerous uncertainties, including (but not limited to) the rate
at which the business forms market is contracting, the
application of technology to the production of business forms,
demand for the Company's products in the context of a contracting
market, variability in the prices of paper and other raw
materials, and competitive conditions in the business forms
market. Because of such uncertainties, readers are cautioned not
to place undue reliance on such forward-looking statements, which
speak only as of October 14, 2002.
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 Note 6 of the Notes to
the Consolidated Financial Statements for period ended August 31,
2002.
The Company's net exposure to interest rate risk consists of a
floating rate debt instrument that is benchmarked to 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 $13.87 million at August
31, 2002. 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 August 31, 2002 would
be immaterial. This market risk discussion contains forward-
looking statements. Actual results may differ materially from
this discussion based upon general market conditions and changes
in domestic and global financial markets.
13
Item 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the
Company's Chairman, President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the Company's Chairman, President and Chief
Executive Officer along with the Company's Chief Financial
Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic
SEC filings. There have been no significant changes in the
Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the
Company carried out its evaluation.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k
- -----------------------------------------------
(a) Exhibits
Exhibit 10.1 Agreement Between MeadWestvaco
Paper Group and Ennis
Business Forms
Exhibit 10.2 UPS Ground, Air Hundredweight
and Sonicair Incentive
Program Carrier Agreement
Exhibit 99.1 Certification Pursuant to
18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
Exhibit 99.2 Certification Pursuant to
18.U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ENNIS BUSINESS FORMS, INC.
Date October 14, 2002 /s/Robert M. Halowec
------------------ --------------------------------
Robert M. Halowec
Vice President Finance
and Chief Financial Officer
Date October 14, 2002 /s/Harve Cathey
------------------ --------------------------------
Harve Cathey
Secretary and Treasurer
Principal Accounting Officer
16
CERTIFICATION
I, Keith S. Walters, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ennis
Business Forms, 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 officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, 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 controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Keith S. Walters
Keith S. Walters
Chief Executive Officer
October 14, 2002
17
CERTIFICATION
I, Robert M. Halowec, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ennis
Business Forms, 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 officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, 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 controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Robert M. Halowec
Robert M. Halowec
Chief Financial Officer
October 14, 2002
18
INDEX TO EXHIBITS
Exhibit 10.1 Agreement Between MeadWestvaco
Paper Group and Ennis Business Forms
Exhibit 10.2 UPS Ground, Air Hundredweight
and Sonicair Incentive Program
Carrier Agreement
Exhibit 99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18.U.S.C.
Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
19