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EX-32.2 - EX-32.2 - ENNIS, INC.ebf-ex322_7.htm
EX-32.1 - EX-32.1 - ENNIS, INC.ebf-ex321_6.htm
EX-31.2 - EX-31.2 - ENNIS, INC.ebf-ex312_8.htm
EX-31.1 - EX-31.1 - ENNIS, INC.ebf-ex311_9.htm
EX-3.1(A) - EX-3.1(A) - ENNIS, INC.ebf-ex31a_252.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended August 31, 2017

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, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Texas

 

75-0256410

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

2441 Presidential Pkwy., Midlothian, Texas

 

76065

(Address of Principal Executive Offices)

 

(Zip code)

(972) 775-9801

(Registrant’s Telephone Number, Including Area Code)

 

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       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

(Do not check if a smaller reporting company)

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of September 29, 2017, there were 25,417,035 shares of the Registrant’s common stock outstanding.

 

 

 

 

 


 

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED AUGUST 31, 2017

TABLE OF CONTENTS

 

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

Unaudited Consolidated Balance Sheets at August 31, 2017 and February 28, 2017

 

3

 

 

 

 

 

Unaudited Consolidated Statements of Operations for the three and six months ended August 31, 2017 and
August 31, 2016

 

5

 

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended
August 31, 2017 and August 31, 2016

 

6

 

 

 

 

 

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the six months ended  August 31, 2017

 

7

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months ended August 31, 2017 and August 31, 2016

 

8

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

Item 4. Controls and Procedures

 

26

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. Legal Proceedings

 

27

 

 

 

 

 

Item 1A. Risk Factors

 

27

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

 

27

 

 

 

 

 

Item 4. Mine Safety Disclosures

 

27

 

 

 

 

 

Item 5. Other Information

 

27

 

 

 

 

 

Item 6. Exhibits

 

28

 

 

 

SIGNATURES

 

29

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

August 31,

 

 

February 28,

 

 

 

2017

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,865

 

 

$

80,466

 

Accounts receivable, net of allowance for doubtful receivables of $1,318 at August 31, 2017

   and $1,674 at February 28, 2017

 

 

38,171

 

 

 

37,368

 

Prepaid expenses

 

 

819

 

 

 

1,351

 

Prepaid income taxes

 

 

1,513

 

 

 

855

 

Inventories

 

 

29,228

 

 

 

27,965

 

Assets held for sale

 

 

1,320

 

 

 

1,245

 

Total current assets

 

 

154,916

 

 

 

149,250

 

Property, plant and equipment

 

 

 

 

 

 

 

 

Plant, machinery and equipment

 

 

135,476

 

 

 

136,584

 

Land and buildings

 

 

53,559

 

 

 

53,821

 

Other

 

 

23,548

 

 

 

23,644

 

Total property, plant and equipment

 

 

212,583

 

 

 

214,049

 

Less accumulated depreciation

 

 

164,822

 

 

 

164,054

 

Net property, plant and equipment

 

 

47,761

 

 

 

49,995

 

Goodwill

 

 

70,603

 

 

 

70,603

 

Intangible assets, net

 

 

52,235

 

 

 

53,927

 

Other assets

 

 

385

 

 

 

510

 

Total assets

 

$

325,900

 

 

$

324,285

 

 

See accompanying notes to consolidated financial statements.

 

3


 

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for par value and share amounts)

 

 

 

August 31,

 

 

February 28,

 

 

 

2017

 

 

2017

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,753

 

 

$

14,202

 

Accrued expenses

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

13,125

 

 

 

13,515

 

Taxes other than income

 

 

668

 

 

 

225

 

Other

 

 

1,750

 

 

 

2,026

 

Total current liabilities

 

 

26,296

 

 

 

29,968

 

Long-term debt

 

 

30,000

 

 

 

30,000

 

Liability for pension benefits

 

 

4,846

 

 

 

4,846

 

Deferred income taxes

 

 

7,257

 

 

 

6,953

 

Other liabilities

 

 

1,521

 

 

 

1,163

 

Total liabilities

 

 

69,920

 

 

 

72,930

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Preferred stock $10 par value, authorized 1,000,000 shares; none issued

 

 

 

 

 

 

Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at

   August 31 and February 28, 2017

 

 

75,134

 

 

 

75,134

 

Additional paid-in capital

 

 

120,675

 

 

 

121,525

 

Retained earnings

 

 

157,457

 

 

 

150,685

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Minimum pension liability, net of taxes

 

 

(14,765

)

 

 

(15,261

)

Total accumulated other comprehensive income (loss)

 

 

(14,765

)

 

 

(15,261

)

Treasury stock

 

 

(82,521

)

 

 

(80,728

)

Total shareholders’ equity

 

 

255,980

 

 

 

251,355

 

Total liabilities and shareholders' equity

 

$

325,900

 

 

$

324,285

 

 

See accompanying notes to consolidated financial statements.

 

4


 

 

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share amounts)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

August 31,

 

 

August 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net sales

 

$

94,887

 

 

$

91,246

 

 

$

189,477

 

 

$

181,656

 

Cost of goods sold

 

 

64,100

 

 

 

64,208

 

 

 

128,771

 

 

 

127,924

 

Gross profit margin

 

 

30,787

 

 

 

27,038

 

 

 

60,706

 

 

 

53,732

 

Selling, general and administrative

 

 

17,096

 

 

 

16,057

 

 

 

34,468

 

 

 

32,128

 

(Gain) loss from disposal of assets

 

 

48

 

 

 

(4

)

 

 

63

 

 

 

2

 

Income from operations

 

 

13,643

 

 

 

10,985

 

 

 

26,175

 

 

 

21,602

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(204

)

 

 

(231

)

 

 

(394

)

 

 

(233

)

Other, net

 

 

117

 

 

 

11

 

 

 

130

 

 

 

4

 

 

 

 

(87

)

 

 

(220

)

 

 

(264

)

 

 

(229

)

Earnings from continuing operations before income taxes

 

 

13,556

 

 

 

10,765

 

 

 

25,911

 

 

 

21,373

 

Provision for income taxes

 

 

5,016

 

 

 

3,981

 

 

 

9,587

 

 

 

7,906

 

Earnings from continuing operations

 

 

8,540

 

 

 

6,784

 

 

 

16,324

 

 

 

13,467

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

2,481

 

Loss on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

(26,042

)

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

(23,561

)

Net earnings (loss)

 

$

8,540

 

 

$

6,784

 

 

$

16,324

 

 

$

(10,094

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,342,747

 

 

 

25,893,218

 

 

 

25,388,292

 

 

 

25,847,051

 

Diluted

 

 

25,366,001

 

 

 

25,910,375

 

 

 

25,405,863

 

 

 

25,868,799

 

Earnings (loss) per share - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.34

 

 

$

0.26

 

 

$

0.64

 

 

$

0.52

 

Discontinued operations

 

$

 

 

$

 

 

$

 

 

$

(0.91

)

Net earnings (loss)

 

$

0.34

 

 

$

0.26

 

 

$

0.64

 

 

$

(0.39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.20

 

 

$

1.675

 

 

$

0.375

 

 

$

1.85

 

 

 

See accompanying notes to consolidated financial statements.

 

5


 

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

August 31,

 

 

August 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net earnings (loss)

 

$

8,540

 

 

$

6,784

 

 

$

16,324

 

 

$

(10,094

)

Foreign currency translation adjustment, net of deferred taxes

 

 

 

 

 

 

 

 

 

 

 

9,940

 

Adjustment to pension, net of deferred taxes

 

 

248

 

 

 

 

 

 

496

 

 

 

 

Comprehensive income (loss)

 

$

8,788

 

 

$

6,784

 

 

$

16,820

 

 

$

(154

)

 

See accompanying notes to consolidated financial statements.

 

6


 

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Shares

 

 

Amount

 

 

Total

 

Balance March 1, 2017

 

30,053,443

 

 

$

75,134

 

 

$

121,525

 

 

$

150,685

 

 

$

(15,261

)

 

 

(4,686,821

)

 

$

(80,728

)

 

$

251,355

 

Net earnings

 

 

 

 

 

 

 

 

 

 

16,324

 

 

 

 

 

 

 

 

 

 

 

 

16,324

 

Adjustment to pension, net of deferred tax of $304

 

 

 

 

 

 

 

 

 

 

 

 

 

496

 

 

 

 

 

 

 

 

 

496

 

Dividends paid ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

(9,552

)

 

 

 

 

 

 

 

 

 

 

 

(9,552

)

Stock based compensation

 

 

 

 

 

 

 

667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

667

 

Exercise of stock options and restricted stock

 

 

 

 

 

 

 

(1,517

)

 

 

 

 

 

 

 

 

88,105

 

 

 

1,517

 

 

 

 

Stock repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(191,033

)

 

 

(3,310

)

 

 

(3,310

)

Balance August 31, 2017

 

30,053,443

 

 

$

75,134

 

 

$

120,675

 

 

$

157,457

 

 

$

(14,765

)

 

 

(4,789,749

)

 

$

(82,521

)

 

$

255,980

 

 

See accompanying notes to consolidated financial statements.

 

7


 

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

 

 

Six months ended

 

 

 

August 31,

 

 

 

 

2017

 

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

16,324

 

 

$

(10,094

)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

3,996

 

 

 

4,002

 

Amortization of deferred finance charges

 

 

57

 

 

 

9

 

Amortization of intangible assets

 

 

3,077

 

 

 

2,321

 

Pre-tax loss on sale of discontinued operations

 

 

 

 

 

36,775

 

Operating cash flows of discontinued operations

 

 

 

 

 

538

 

Loss from disposal of assets

 

 

63

 

 

 

2

 

Bad debt expense, net of recoveries

 

 

(248

)

 

 

103

 

Stock based compensation

 

 

667

 

 

 

679

 

Changes in operating assets and liabilities, net of the effects of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(555

)

 

 

(426

)

Prepaid expenses and income taxes

 

 

(126

)

 

 

(4,199

)

Inventories

 

 

(1,182

)

 

 

(373

)

Other assets

 

 

67

 

 

 

(281

)

Accounts payable and accrued expenses

 

 

(4,122

)

 

 

(1,265

)

Other liabilities

 

 

358

 

 

 

9

 

Liability for pension benefits

 

 

800

 

 

 

1,278

 

Net cash provided by operating activities

 

 

19,176

 

 

 

29,078

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(1,590

)

 

 

(927

)

Purchase of businesses, net of cash acquired

 

 

(1,350

)

 

 

(907

)

Proceeds from sale of discontinued operations

 

 

 

 

 

107,354

 

Investing cash flows of discontinued operations

 

 

 

 

 

(279

)

Proceeds from disposal of plant and property

 

 

25

 

 

 

12

 

Net cash provided by (used in) investing activities

 

 

(2,915

)

 

 

105,253

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

 

 

 

(10,000

)

Dividends

 

 

(9,552

)

 

 

(48,187

)

Purchase of treasury stock

 

 

(3,310

)

 

 

(1,786

)

Proceeds from exercise of stock options

 

 

 

 

 

2,910

 

Net cash used in financing activities

 

 

(12,862

)

 

 

(57,063

)

Net change in cash and cash equivalents

 

 

3,399

 

 

 

77,268

 

Cash and cash equivalents at beginning of period

 

 

80,466

 

 

 

7,957

 

Cash and cash equivalents at end of period

 

$

83,865

 

 

$

85,225

 

 

 

See accompanying notes to consolidated financial statements.

 

8


 

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AUGUST 31, 2017

 

1. Significant Accounting Policies and General Matters

Basis of Presentation

These unaudited consolidated financial statements of Ennis, Inc. and its subsidiaries (collectively referred to as the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”) for the period ended August 31, 2017 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 Annual Report on Form 10-K for the year ended February 28, 2017, from which the accompanying consolidated balance sheet at February 28, 2017 was derived.  All intercompany balances and transactions have been eliminated in consolidation.  In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial information have been included and are of a normal recurring nature. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the disclosure and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets, pension plan, accrued liabilities, and income taxes. The Company bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year.

On May 25, 2016, the Company sold Alstyle Apparel, LLC and its subsidiaries, which constituted the Company’s apparel segment (the “Apparel Segment”), to Gildan Activewear Inc.  As a result of this action, the current year and prior year disclosures reflect these operations as discontinued operations and prior year financial information has been restated to reflect this accounting treatment.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is required to measure goodwill impairment.  The amendments in ASU 2017-04 require that goodwill impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit and the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  The amendments in ASU 2017-04 should be applied on a prospective basis and are effective for annual or any interim goodwill impairment tests in annual reporting periods beginning after December 15, 2019.  The Company adopted ASU 2017-04 on June 1, 2017, which had no impact on the Company’s consolidated financial statements at the time of adoption.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718) (“ASU 2016-09”), which makes several modifications to the accounting for employee share-based payment transactions, including the requirement to recognize the income tax effects of awards that vest or settle as income tax expense.  The amendments in ASU 2016-09 also clarify the presentation of certain components of share-based awards in the statement of cash flows.  ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016.  The Company adopted ASU 2016-09 in fiscal year 2018 beginning in March of 2017.  The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting.  For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases.  The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of fiscal year 2019.  Early adoption of ASU 2016-02 is permitted.  The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which institutes a number of modifications to the reporting of financial assets and liabilities. These modifications include: (i) measurement of non-equity method assets and liabilities at fair value, with changes to fair value recognized through net income, (ii) performance of qualitative impairment assessments of equity investments without readily determinable fair values at each reporting period, (iii) elimination of the requirement to disclose methods and significant assumptions used in calculating the fair value of financial instruments measured at amortized cost, (iv) measurement of

9


ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AUGUST 31, 2017

 

the fair value of financial instruments measured at amortized cost using the exit price notion consistent with Topic 820, Fair Value Measurement, (v) separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk, (vi) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (vii) evaluation of the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This ASU is effective for financial statements issued with fiscal years beginning after December 15, 2017, including interim periods within that reporting period.  The Company is currently evaluating the impact the adoption of ASU 2016-01 will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.  ASU 2014-09 supersedes most existing revenue recognition guidance in U.S. GAAP.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to March 1, 2018 for the Company.  Early adoption of ASU 2014-09 became permitted in the first quarter of fiscal year 2017.  The Company expects to adopt ASU 2014-09 in the first quarter of fiscal year 2019.  The guidance permits the use of either the retrospective or cumulative effect transition method.  We have not yet selected a transition method, and we continue to evaluate the effect that the updated standard will have on our consolidated financial condition, results of operations and cash flows; however, we do not expect adoption of the guidance to have a material impact on our financial results. We primarily earn our revenue by made to order business forms, as required by our customers primarily through purchase orders. We generally do not have significant customer contracts and do not provide post-delivery services. As such, adoption of the new guidance is not expected to result in a significant change in the amount of revenue recognized or the timing of when such revenue is recognized.

2. Accounts Receivable and Allowance for Doubtful Receivables

Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. Substantially all of the Company’s receivables are due from customers in the United States.  The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed invoice resolution).  The Company does not typically require its customers to post a deposit or supply collateral.  The Company’s allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible.  This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by several factors including (i) current market conditions, (ii) periodic review of customer creditworthiness, and (iii) review of customer receivable aging and payment trends.

The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance in the period the payment is received. Credit losses from continuing operations have consistently been within management’s expectations.

The following table presents the activity in the Company’s allowance for doubtful receivables (in thousands):

 

 

 

Three months ended

 

 

Six months ended

 

 

 

August 31,

 

 

August 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Balance at beginning of period

 

$

1,442

 

 

$

1,787

 

 

$

1,674

 

 

$

2,041

 

Bad debt expense, net of recoveries

 

 

(82

)

 

 

101

 

 

 

(248

)

 

 

103

 

Accounts written off

 

 

(42

)

 

 

(68

)

 

 

(108

)

 

 

(324

)

Balance at end of period

 

$

1,318

 

 

$

1,820

 

 

$

1,318

 

 

$

1,820

 

 

3. Inventories

The Company uses the lower of last-in, first-out (“LIFO”) cost or market to value certain of its business forms inventories and the lower of first-in, first-out (“FIFO”) cost or market to value its remaining forms inventories.  The Company regularly reviews inventories on hand, using specific aging categories, and writes down the carrying value of its inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage.  In assessing the ultimate realization of its inventories, the Company is required to make judgments as to future demand requirements.  As actual future demand or market conditions may vary from those projected by the Company, adjustments to inventories may be required.

10


ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AUGUST 31, 2017

 

The following table summarizes the components of inventories at the different stages of production as of the dates indicated (in thousands):

 

 

 

August 31,

 

 

February 28,

 

 

 

2017

 

 

2017

 

Raw material

 

$

16,696

 

 

$

16,130

 

Work-in-process

 

 

3,676

 

 

 

3,199

 

Finished goods

 

 

8,856

 

 

 

8,636

 

 

 

$

29,228

 

 

$

27,965

 

 

4. Acquisitions

On July 7, 2017, the Company acquired the assets of a tag operation located in Ohio, for $1.4 million in cash plus the assumption of certain accrued liabilities.  Management considers this acquisition immaterial.

On January 27, 2017, the Company completed the acquisition of Independent Printing Company, Inc. and its related entities (collectively “Independent”) for $17.7 million in cash consideration, in a stock purchase transaction.  Independent has 4 locations in Wisconsin, with its main facility located in DePere, Wisconsin. The business produces presentation folders, checks, wide format and commercial printing. Independent, which generated approximately $37.0 million in unaudited sales during calendar year 2016, will continue to operate under its respective brand names.  Independent sells mainly through distributors and resellers. The Company will now have 4 folder facilities in Michigan, Kansas, California and Wisconsin, as well as wide format capabilities in Colorado and Wisconsin.

The following is a summary of the final purchase price allocations for Independent (in thousands):

 

Accounts receivable

 

$

4,252

 

Inventories

 

 

1,539

 

Other assets

 

 

575

 

Property, plant & equipment

 

 

5,526

 

Customer lists

 

 

3,390

 

Trademarks

 

 

2,408

 

Goodwill

 

 

6,066

 

Accounts payable and accrued liabilities

 

 

(6,079

)

 

 

$

17,677

 

 

The results of operations for Independent are included in the Company’s consolidated financial statements from the date of acquisition.  The following table represents certain operating information on a pro forma basis as though all Independent operations had been acquired as of March 1, 2016, after the estimated impact of adjustments such as amortization of intangible assets, interest expense, interest income, and related tax effects (in thousands, except per share amounts):

 

 

 

Three months ended

 

 

Six months ended

 

 

 

August 31, 2016

 

 

August 31, 2016

 

Pro forma net sales

 

$

100,389

 

 

$

199,942

 

Pro forma net earnings

 

 

7,034

 

 

 

13,967

 

Pro forma earnings per share - diluted

 

 

0.27

 

 

 

0.54

 

 

The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented.

11


ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AUGUST 31, 2017

 

5. Discontinued Operations

On May 25, 2016 the Company sold its Apparel Segment to Gildan Activewear Inc. for an all-cash purchase price of $110.0 million, subject to a working capital adjustment, customary indemnification arrangements, and the other terms of the Unit Purchase Agreement dated May 4, 2016.

The operating results of these discontinued operations only reflect revenues and expenses that are directly attributable to the Apparel Segment and that have been eliminated from continuing operations.  The following tables show the key components on the sale and discontinued operations related to the Apparel Segment that was completed on May 25, 2016 (in thousands):

 

Sales price

 

$

110,000

 

Carrying value of disposed business

 

 

(130,174

)

Expenses related to sales (1)

 

 

(4,365

)

Loss on sale before write-off of foreign currency translation

   adjustment

 

 

(24,539

)

Write-off of foreign currency translation adjustments

 

 

 

 

   recorded in other comprehensive income

 

 

(16,109

)

Loss on sale of sale of discontinued operations

 

$

(40,648

)

 

(1)

Includes the termination fee, in the amount of $3.0 million, paid as a result of the termination of a prior purchase agreement for the sale of the Apparel Segment to Alstyle Operations, LLC.

 

 

 

Six months ended

 

 

 

August 31, 2016

 

Net sales

 

$

41,038

 

Income from discontinued operations before income taxes

 

 

3,873

 

Loss on sale of discontinued operations before income taxes

 

 

(40,648

)

Loss on discontinued operations before income taxes

 

 

(36,775

)

Income tax benefit

 

 

(13,214

)

Net loss from discontinued operations

 

$

(23,561

)

 

6. Goodwill and Intangible Assets

Beginning March 1, 2017, given the general declining trend line of print sales, and its expected continuance into the foreseeable future, the Company elected to treat the recorded value of trademarks/trade names as no longer being an indefinite-lived asset. As such, as of March 1, 2017, the Company began amortizing the carrying value of these assets over their estimated remaining useful life, approximately 17 - 19 years.  The amortization expense associated with this election is expected to impact the Company’s selling, general and administrative expense line by approximately $830,000 during fiscal year 2018.

12


ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AUGUST 31, 2017

 

The carrying amount and accumulated amortization of the Company’s intangible assets at each balance sheet date are as follows (in thousands):

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Life

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

As of August 31, 2017

 

(in years)

 

 

Amount

 

 

Amortization

 

 

Net

 

Amortized intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and trade names

 

 

16.4

 

 

$

19,625

 

 

$

1,809

 

 

$

17,816

 

Customer lists

 

 

8.5

 

 

 

58,040

 

 

 

23,742

 

 

 

34,298

 

Noncompete

 

 

0.3

 

 

 

175

 

 

 

116

 

 

 

59

 

Patent

 

 

0.5

 

 

 

783

 

 

 

721

 

 

 

62

 

Total

 

 

11.2

 

 

$

78,623

 

 

$

26,388

 

 

$

52,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of February 28, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and trade names

 

 

8.0

 

 

$

3,642

 

 

$

1,234

 

 

$

2,408

 

Customer lists

 

 

8.9

 

 

 

57,347

 

 

 

21,336

 

 

 

36,011

 

Noncompete

 

 

0.8

 

 

 

175