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 MAY 31, 2003
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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
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(Address of principal executive offices) (Zip Code)
(972) 228-7801
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(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 May 31, 2003
- ---------------------- ---------------------------
Common stock, par value 16,332,392
$2.50 per share
ENNIS BUSINESS FORMS, INC.
INDEX
Part I. Financial information - unaudited
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets --
May 31, 2003 and February 28, 2003 2 - 3
Condensed Consolidated Statements of Earnings --
Three Months Ended May 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash
Flows -- Three Months Ended May 31, 2003
and 2002 5
Notes to Condensed Consolidated Financial 6 - 10
Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 13
Item 3 - Quantitative and Qualitative Disclosures
of Market Risk 14
Item 4 - Controls and Procedures 14
Part II. Other Information
Item 4 - Submission of Matters to a Vote of
Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 31, February 28,
2003 2003
---- ----
(unaudited)
Assets
-----
Current assets:
Cash and cash equivalents $ 17,873 $ 13,860
Accounts receivable, net 30,247 32,077
Prepaid expenses 1,548 1,708
Inventories 13,746 13,104
Contract costs in excess of
billings 437 967
Other current assets 3,549 3,296
------- -------
Total current assets 67,400 65,012
------- -------
Property, plant and equipment, net 49,718 51,264
Goodwill, net 34,241 34,241
Other assets 1,977 2,020
------- -------
$153,336 $152,537
======= =======
(Continued)
2
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
May 31, February 28,
2003 2003
---- ----
(unaudited)
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,875 $ 6,644
Accrued expenses:
Employee compensation and
benefits 5,653 6,784
Federal and state income tax
payable 2,268 --
Taxes other than income 1,537 1,430
Other 3,475 3,398
Current installments of long-term
debt 6,686 7,038
------- -------
Total current liabilities 25,494 25,294
------- -------
Accrued pension 2,784 2,130
Long-term debt, less current
installments 16,635 18,135
Deferred credits, principally income
taxes 9,940 10,075
Shareholders' equity:
Preferred stock, at par value -- --
Common stock, at par value 53,125 53,125
Additional paid in capital 461 461
Retained earnings 139,419 137,848
Accumulated other comprehensive
loss (5,213) (5,225)
------- -------
187,792 186,209
Treasury stock (89,309) (89,306)
------- -------
Total shareholders'
equity 98,483 96,903
------- -------
$153,336 $152,537
======= =======
See accompanying notes to condensed consolidated financial
statements.
3
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Share and Per Share Amounts)
(Unaudited)
Three Months Ended
May 31,
2003 2002
---- ----
Net sales $64,874 $57,743
Costs and expenses:
Cost of sales 48,324 42,739
Selling, general and administrative
expenses 9,655 9,351
------- -------
57,979 52,090
------- -------
Earnings from operations 6,895 5,653
------- -------
Other income (expense):
Investment income 14 72
Interest expense (287) (338)
Other expense, net (3) (65)
------- -------
(276) (331)
------- -------
Earnings before income taxes 6,619 5,322
Provision for income taxes 2,515 2,022
------- -------
Net earnings $ 4,104 $ 3,300
======= =======
Weighted average number of common
shares outstanding - basic 16,332,565 16,272,938
Plus incremental shares from
assumed exercise of stock options 173,917 220,355
---------- ----------
Weighted average number of common
shares outstanding - diluted 16,506,482 16,493,293
========== ==========
Per share amounts:
Net earnings - basic $ .25 $ .20
==== ====
Net earnings - diluted $ .25 $ .20
==== ====
Cash dividends per share $.155 $.155
==== ====
See accompanying notes to condensed consolidated financial
statements.
4
ENNIS BUSINESS FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
May 31,
2003 2002
---- ----
Cash flows from operating activities:
Net earnings $4,104 $3,300
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 2,377 2,248
Amortization of trademark 33 --
Gain on the sale of equipment (78) (23)
Other 521 481
Changes in operating assets and
liabilities:
Receivables 1,830 (1,730)
Prepaid expenses 160 (716)
Inventories (642) 207
Other current assets (260) 190
Accounts payable and accrued
expenses 571 1,619
Other assets 538 1,481
------ ------
Net cash provided by operating
activities 9,154 7,057
------ ------
Cash flows from investing activities:
Capital expenditures (842) (440)
Redemption of investments -- 722
Proceeds from disposal of property 89 27
Other -- 6
------ ------
Net cash provided by (used in)
investing activities (753) 315
------ ------
Cash flows from financing activities:
Repayment of debt issued to finance
acquisition (1,850) (1,850)
Dividends (2,533) (2,522)
Purchase of treasury stock (3) --
Other (2) (58)
------ ------
Net cash used in financing
activities (4,388) (4,430)
------ ------
Net change in cash and cash equivalents 4,013 2,942
Cash and cash equivalents at beginning of
period 13,860 16,180
------ ------
Cash and cash equivalents at end of period $17,873 $19,122
====== ======
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 May 31, 2003 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, 2003,
from which the accompanying condensed consolidated balance
sheet at February 28, 2003 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 and Stock Based Compensation
-----------------------------------------------
The Company has stock options granted to key executive and
managerial employees and non-employee directors. At May 31,
2003, the Company has two incentive stock option plans: the
1998 Option and Restricted Stock Plan and the 1991 Incentive
Stock Option Plan. The Company has 800,027 shares of unissued
common stock reserved under the stock option plans for
issuance to officers and directors, and supervisory employees
of the Company and its subsidiaries. The exercise price of
each option granted equals the quoted market price of the
Company's common stock on the date of grant, and an option's
maximum term is ten years. Options may be granted at
different times during the year and vest over a five year
period.
The Company accounts for employee and director stock-based
compensation arrangements in accordance with the provisions
of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB No. 25), and related
interpretations, and complies with the disclosure provisions
of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation" and SFAS No.
148, "Accounting for Stock-Based Compensation and
Disclosure."
The following table represents the effect on net income and
earnings per share as if the Company had applied the fair
value based method and recognition provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," to stock-
based Employee Compensation (in thousands, except per share
amounts):
6
2. Stock Option Plans and Stock Based Compensation (Continued)
----------------------------------------------------------
For the Three Months Ended May 31, 2003 2002
---- ----
Net earnings:
As reported $4,104 $3,300
Deduct: Stock-based Employee
compensation expense not
included in reported income, net
of related tax effects 14 15
----- -----
Pro forma $4,090 $3,285
===== =====
Net earnings per share:
As reported - basic $.25 $.20
Pro forma - basic .25 .20
As reported - diluted .25 .20
Pro forma - diluted .25 .20
As required, the pro forma disclosures above include options
granted since March 1, 1996. Consequently, the effects of
applying SFAS 123 for providing pro forma disclosures may not
be representative of the effects on reported net income for
future years until all options outstanding are included in
the pro forma disclosures. For purposes of pro forma
disclosures, the estimated fair value of stock-based
compensation plans and other options is amortized to expense
primarily over the vesting period.
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation and Disclosure." SFAS No. 148
amends the transition and disclosure provisions of SFAS No.
123. If the Company had adopted the prospective transition
method prescribed by SFAS 148 in first quarter 2003,
compensation expense of $22,000 would have been recorded.
After related income tax effects, this would have reduced net
income by $14,000. There would have been no effect to
earnings per share.
As of May 31, 2003, the Company has reserved 800,027 shares
of common stock under incentive stock option plans. For the
three month periods ended May 31, 2003 and 2002, 65,500 and
71,250 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.
7
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):
May 31, February 28,
2003 2003
---- ----
Raw material $ 6,935 $ 6,664
Work-in-process 1,237 1,161
Finished goods 5,574 5,279
------ ------
$13,746 $13,104
====== ======
4. Accumulated other comprehensive loss
------------------------------------
Accumulated other comprehensive loss consists of the
unrealized portion of changes in the fair value of the
Company's cash flow hedge and the minimum pension liability.
Comprehensive income was approximately $4,116,000 for the
three months ended May 31, 2003 and $3,392,000 for the three
months ended May 31, 2002. Amounts charged directly to
Shareholder's Equity related to the Company's interest rate
swap and pension plan are included in "other comprehensive
income."
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.
On November 13, 2002, effective November 14, 2002, the
Company acquired Calibrated Forms Co., Inc. (Calibrated)
which became part of the Forms Solutions Group segment. 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
ended May 31, 2003 and 2002 were as follows (in thousands):
8
Segment Data (Continued)
------------------------
Forms Promotional Financial
Solutions Solutions Solutions Consolidated
Group Group Group Corporate Totals
----- ----- ----- --------- ------
Three months ended
May 31, 2003:
Net sales $35,466 $17,428 $11,980 $ -- $ 64,874
Depreciation 939 497 763 178 2,377
Amortization of
trademark 33 -- -- -- 33
Segment earnings
(loss) before income
tax 5,186 1,836 1,228 (1,631) 6,619
Segment assets 75,037 36,237 37,092 4,970 153,336
Capital expenditures 570 154 100 18 842
Three months ended
May 31, 2002:
Net sales $27,436 $18,238 $12,069 $ -- $ 57,743
Depreciation 654 573 826 195 2,248
Segment earnings
(loss) before income
tax 4,369 1,718 875 (1,640) 5,322
Segment assets 55,764 38,757 41,991 4,760 141,272
Capital expenditures 122 174 69 75 440
"Post-it" is a registered trademark of 3M.
6.Purchase of Calibrated
----------------------
On November 14, 2002, the Company completed its acquisition of
all of the outstanding stock of Calibrated Forms Co., Inc.
(Calibrated), a company which is principally engaged in the
design, manufacture and marketing of printed business forms
within the wholesale business forms marketplace. Calibrated
was acquired to help strengthen the Company in the wholesale
business forms marketplace. Calibrated became a wholly owned
subsidiary and operated as part of the Forms Solutions Group.
The acquisition was financed with an additional $15,000,000
draw against the Company's Revolving Credit Facility. The
purchase price for the transaction was $22,038,000 less
liabilities excluded of $7,195,060, and the liabilities
excluded were evidenced by two promissory notes bearing
interest at 3.75% per annum, which were paid January 3, 2003.
In addition, the Purchase Agreement provides for additional
consideration in the form of an earn-out. The earn-out will
be 50% of the amount, if any, of Calibrated's EBITDA, as
defined in the Purchase Agreement in excess of $6,300,000 each
year, to a maximum amount of $3,000,000. This earn-out will
be paid as long as one of the two former shareholders
acceptable to the Company, is employed as General Manager of
Calibrated on a full-time basis during the entire fiscal year
for which the earn-out is paid. Any such earn out will be
recorded as compensation expense in the year to which it
relates. The acquisition was accounted for by the purchase
method. Approximately $2,400,000 of the goodwill related to
the Calibrated acquisition is deductible for tax purposes.
9
6.Purchase of Calibrated (Continued)
----------------------------------
The accompanying consolidated financial statements include the
operations of Calibrated since the date of acquisition. The
following table represents certain operating information on a
pro forma basis as though Calibrated had been acquired as of
March 1, 2002, after the estimated impact of adjustments such
as amortization of intangible assets, interest expense,
reduced interest income and related tax effects (in thousands
except per share amounts):
For the Three Months Ended May 31, 2002
Pro forma net sales $68,113
Pro forma net earnings 3,373
Pro forma earnings per share - diluted 0.21
The pro forma results are not necessarily indicative of what
would have occurred if the acquisition had been in effect for
the period presented.
7.Derivative Financial Instruments and Hedging Activities
-------------------------------------------------------
The Company's interest rate swaps are held for purposes other
than trading. The Company utilized swap agreements related to
its term and revolving loans to effectively fix the interest
rate for a specified principal amount of the loans. Amounts
receivable or payable under interest rate swap agreements are
recorded as adjustments to interest expense. This swap has
been designated as a cash flow hedge and the after-tax effect
of the mark-to-market valuation that relates to the effective
amount of derivative financial instrument is recorded as an
adjustment to accumulated other comprehensive income with the
offset included in accrued expenses.
The Company utilized swap agreements related to the term loan
and revolving credit facility to effectively fix the interest
rate at 6.89% and 3.2% for a pre-set principal amount of the
loans. The pre-set principal amount of the loans covered by
the swap agreements declines quarterly in connection with
expected principal reductions and totaled $16,635,000 at May
31, 2003. The fair value of the swap at May 31, 2003 was
approximately ($231,000) and the change in the fair value of
the loss from March 1, 2003, net of tax, has been charged to
Accumulated other comprehensive loss.
10
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 May 31, 2003, of $41,906,000, an increase of
5.5% from the beginning of the year, and a current ratio of 2.6
to 1. The increase in current assets is due to operating profits
less funds used to pay dividends. The Company has $17,873,000 in
cash and cash equivalents and $16,635,000 in long-term debt, less
current installments. The Company made payments of $1,850,000 of
the debt financing for the three months ended May 31, 2003. The
Company anticipates repaying the long-term debt of $1,850,000 for
quarter ended August 31, 2003, then $1,500,000 per quarter
thereafter until the debt is extinguished in January 2006. 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.
The Company recorded a charge to Other Comprehensive Income in
the amount of $4,982,000 related to its pension plan at February
28, 2003. SFAS No. 87 required the recognition of a "minimum
pension liability" if, as of a given measurement date, the fair
value of the plan's assets is less than its accumulated benefit
obligation. The decline in recent years of the U.S. equity
markets has reduced the value of the Company's qualified pension
plan assets. The Company estimates the plan assets will exceed
the plan's accumulated benefit obligation in five years with
annual pension plan contributions of approximately $2,500,000.
Capital expenditures for the three months totaled $842,000. For
the full fiscal year, capital expenditures are expected to be
between $6,000,000 and $8,000,000, 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 December 2002, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment to FASB Statement No. 123" (SFAS 148).
SFAS 148 provides alternate methods of transition for a voluntary
change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of "Accounting for Stock-Based
Compensation" (SFAS 123) to require prominent disclosures in both
annual and interim financial statements about the method of
accounting used in reporting results. SFAS 148 is effective for
fiscal years beginning after December 15, 2003. The Company is
currently evaluating SFAS 148.
Results of Operations 2003
- --------------------------
Net sales for the three months ended May 31, 2003 increased 12.3%
from the corresponding period in the prior year. This increase is
the result of the inclusion of Calibrated Forms Co., Inc.
(Calibrated) revenues for the full fiscal quarter, offset by a
decrease of 2.6% from the remaining portion of the Forms Solution
Group and a 1.4% decrease in the Promotional Solutions Group.
Revenues in the Financial Solutions Group were flat. The general
economy and industry declines continue to be factors impacting
each Group.
11
Results of Operations 2003 (Continued)
- --------------------------------------
Gross profit margins decreased from 26.0% in the three months
ended May 31, 2002 to 25.5% in the three months ended May 31,
2003. The decrease is the result of a combination of factors.
The Forms Solutions Group gross profit margin decreased from
28.8% in the three months ended May 31, 2002 to 25.8% in the
three months ended May 31, 2003. The general weakness in the
economy and the decline in the forms industry contributed to
lower prices in the Forms Solutions Group. In addition, the
gross profit margin decreased 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. The Financial
Solutions Group and the Promotional Solutions Group had
relatively flat gross profit margins for the three months ended
May 31, 2003 when compared to the prior respective period.
Selling, general and administrative expenses increased 3.3% for
the three months ended May 31, 2003 when compared to the
corresponding period in the prior year. This is primarily the
result of the inclusion of Calibrated.
Interest expense decreased from $338,000 in the three months
ended May 31, 2002 to $287,000 in the three months ended May 31,
2003 due to the decline in interest rates.
Investment income decreased from $72,000 in the three months
ended May 31, 2002 to $14,000 in the three months ended May 31,
2003 due to decreases in interest rates.
The effective rate of the Federal and state income tax expense
was 38.0% for the three months ended May 31, 2003 and May 31,
2002.
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. The Company assesses the impairment of long-lived
assets, which includes other intangible assets, goodwill and
plant and equipment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The
Company assesses the impairment of goodwill annually. In
performing tests of impairment, the Company estimates future cash
flows that are expected to result from the operating segments.
Actual results could differ from assumptions made by management.
We believe our businesses will generate sufficient undiscounted
cash flow to more than recover the investments we have made in
property, plant and equipment, as well as the goodwill and other
intangibles recorded as a result of our acquisitions. The
Company cannot predict the occurrence of future impairment
triggering events nor the impact such events might have on its
reported asset values.
12
Critical Accounting Policies and Judgments (Continued)
- ------------------------------------------------------
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.
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 June 27, 2003.
13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Market Risk
- -----------
The Company is exposed to market risk from changes in interest
rates on debt. A discussion of the Company's accounting policies
for derivative instruments is included in the Notes to the
Consolidated Financial Statements for period ended May 31, 2003.
The Company's net exposure to interest rate risk consists of a
floating rate debt instrument that is benchmarked to U.S. and
European short-term interest rates. The Company may from time to
time utilize interest rate swaps to manage overall borrowing
costs and reduce exposure to adverse fluctuations in interest
rates. The Company does not use derivative instruments for
trading purposes. The Company is exposed to interest rate risk
on short-term and long-term financial instruments carrying
variable interest rates. The Company's variable rate financial
instruments, including the outstanding credit facilities, totaled
$22.65 million at May 31, 2003. 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 May 31, 2003 would be immaterial. This market risk discussion
contains forward-looking statements. Actual results may differ
materially from this discussion based upon general market
conditions and changes in domestic and global financial markets.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed
to ensure that it is able to collect the information it is
required to disclose in the reports it files with the Securities
and Exchange Commission (SEC), and to process, summarize and
disclose this information within the time periods specified in
the rules of the SEC. Based on their evaluation of the Company's
disclosure controls and procedures which took place as of a date
within 90 days of the filing date of this report, the Chief
Executive and Chief Financial Officers believe that these
controls and procedures are effective to ensure that the Company
is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within
the required time periods.
The Company also maintains a system of internal controls designed
to provide reasonable assurance that: transactions are executed
in accordance with management's general or specific
authorization; transactions are recorded as necessary (1) to
permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain
accountability for assets; access to assets is permitted only in
accordance with management's general or specific authorization;
and the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
Since the date of the most recent evaluation of the Company's
internal controls by the Chief Executive and Chief Financial
Officers, there have been no significant changes in such controls
or in the other factors that could have significantly affected
those controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
14
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on June
19, 2003.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14; there was no solicitation in opposition to
management's nominees for directors listed in the Proxy
Statement and all such nominees were elected.
Directors elected were:
Nominees for Director Votes Cast for Votes Withheld
Ronald M. Graham 13,599,628 1,145,045
Robert L. Mitchell 13,627,233 1,117,440
Thomas R. Price 13,633,585 1,111,088
(c) Briefly described below are the other matters voted upon at
the Annual Meeting and the number of affirmative votes and
negative votes respectively.
Selection of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending February 29, 2004.
For 14,581,026
Against 95,255
Abstain 68,392
Broker-non votes --
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits as listed on the accompanying index to
exhibits on page 21 are filed as part of this Form
10-Q.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 17, 2003
regarding the press release announcing its first quarter
operating results.
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 June 27, 2003 /s/Harve Cathey
--------------------- --------------------------------
Harve Cathey
Vice President - Finance and CFO,
Secretary and Treasurer,
Principal Financial and
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
June 27, 2003
17
CERTIFICATION
I, Harve Cathey, 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/ Harve Cathey
Harve Cathey
Chief Financial Officer
June 27, 2003
18
INDEX TO EXHIBITS
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