ENNIS, INC. — Annual Report 2004

May 4, 2004

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 29, 2004 ------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- --------- Commission file number 1-5807 ------------- ENNIS BUSINESS FORMS, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 75-0256410 - ------------------------------- ---------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1510 N. Hampton, Suite 300, DeSoto, TX 75115 - ---------------------------------- ----------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (972) 228-7801 ------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------------- ------------------------------ Common Stock, par value $2.50 per share New York Stock Exchange - -------------------------- ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ---- ---- The number of shares of the registrant's Common Stock, par value $2.50, outstanding at April 15, 2004 was 16,393,157. The aggregate market value of voting stock held by non-affiliates of the registrant as of April 15, 2004 (16,157,832 shares) was $261,918,457. DOCUMENTS INCORPORATED BY REFERENCE: Portions of 2004 Annual Report to Shareholders - Incorporated in Parts I & II Portions of Proxy Statement to be dated May 17, 2004 - Incorporated in Part III SECURITIES AND EXCHANGE COMMISSION FORM 10-K PART I ------ Item 1. Business. - ------- --------- Ennis Business Forms, Inc. was organized under the laws of Texas in 1909. Ennis Business Forms, Inc. and its subsidiaries (collectively "Ennis" or the "Company") operate in three business segments. The Forms Solutions Group is primarily in the business of manufacturing and selling business forms and other printed business products. The Promotional Solutions Group is primarily in the business of design, production and distribution of printed and electronic media, presentation products, flexographic printing, advertising specialties and Post-it (registered trademark) Notes. The Financial Solutions Group designs, manufactures and markets printed forms and specializes in internal bank forms, secure and negotiable documents and custom products. Additional information concerning the segments is incorporated herein by reference to page 37 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Approximately 97% of the business products manufactured by Ennis are custom and semi-custom, constructed in a wide variety of sizes, colors, number of parts and quantities on an individual job basis depending upon the customers' specifications. Ennis operates thirty manufacturing locations in twelve strategically located states providing the Ennis dealer a national network for meeting users' demands for hand or machine written records and documents. For the year ended February 29, 2004 the sale of business products represents approximately 88% of consolidated net sales. While it is not possible, because of the lack of adequate statistical information, to determine Ennis' share of the total business products market, management believes Ennis is one of the largest producers of business forms in the United States distributing primarily through independent dealers, and that its business forms offering is more diversified than that of most companies in the business forms industry. The industry is divided into two major competitive segments. One segment sells directly to end users, and is dominated by a few large manufacturers. The other segment, which the Company primarily serves, distributes forms and other business products through a variety of resellers. The Company believes it is the largest forms company which serves this segment of the market. There are a number of competitors which operate in this segment ranging in size from single employee-owner operations to multi- plant organizations. The Company's strategic plant locations and buying power permit it to compete on a favorable basis within this segment of the market on the competitive factors of service, quality and price. Distribution of business forms and other business products throughout the United States is primarily through independent dealers, including business forms distributors, stationers, printers, computer software developers, advertising agencies, etc. The Promotional and Financial Solutions Groups are dependent upon certain major customers. The loss of such customers could have a material adverse effect on the segment. No single customer accounts for as much as ten percent of consolidated net sales. 2 Raw materials principally consist of a wide variety of weights, widths, colors, sizes and qualities of paper for business products purchased from a number of major suppliers at prevailing market prices. Business products usage is generally not seasonal. General economic conditions and contraction of traditional business forms industry are the predominant factor in quarterly volume fluctuations. Patents, Trademarks, Licenses, Franchises and Concessions: - --------------------------------------------------------- The Company does not have any significant patents, trademarks, licenses, franchises or concessions. Backlog: - ------- At February 29, 2004 the Company's backlog of business forms orders believed to be firm was approximately $5,355,000 as compared to approximately $6,177,000 at February 28, 2003. The backlog of orders for tools, dies and special machinery at February 29, 2004 was approximately $182,000 as compared to approximately $1,571,000 at February 28, 2003. The backlog of orders of promotional media at February 29, 2004 was approximately $12,300,000 as compared to approximately $14,850,000 at February 28, 2003. The backlog of financial forms at February 29, 2004 was approximately $2,315,000 as compared to approximately $1,961,000 at February 28, 2003. Approximately $7,000,000 of the promotional media backlog is not expected to be filled in the fiscal year ending February 29, 2004. Research and Development: - ------------------------ While the Company continuously looks for new products to sell through its distribution channel, there have been no material amounts spent on research and development in the fiscal year ended February 29, 2004. Environment: - ----------- There have been no material effects on the Company arising from compliance with Federal, State or local provisions or regulations relating to the protection of the environment. Employees: - --------- At February 29, 2004, the Company had approximately 2,200 employees, of whom approximately 440 were represented by three unions and under five separate contracts expiring at various times. Available Information: - --------------------- The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 available free of charge under the Investors Relations page on its website, www.ennis.com, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. In addition, the Company's code of ethics, which applies to all employees of the Company including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), is posted under the Investors Relation page on the Company's website, www.ennis.com. The Company intends to disclose any amendments to the code of ethics, or waivers of the code of ethics on behalf of the CEO or CFO, under the Investors Relations page on the Company's website, www.ennis.com. 3 Item 2. Properties. - ------ ---------- The Company operates thirty manufacturing facilities located in twelve states as follows:

4 All of the Forms Solutions Group properties are used for the production, warehousing and shipping of business forms and other business products except the Dallas, Texas plant, which is used for the production of tools, dies and special machinery. The Promotional Solutions Group properties are used for the production, warehousing and shipping of the following: business forms, flexographic printing, advertising specialties and Post-it (registered trademark) Notes (Wolfe City, Texas); presentation products (Macomb, Michigan and Bell, California); and printed and electronic promotional media (Denver, Colorado). All of the Financial Solutions Group properties are used for the production of warehousing and shipping of financial forms. The plants are being operated at normal productive capacity. Productive capacity fluctuates with the ebb and flow of market demands and depends upon the product mix at a given point in time. Equipment is added as existing machinery becomes obsolete or unrepairable and as new equipment becomes necessary to meet market demands; however, at any given time these additions and replacements are not considered to be material additions to property, plant and equipment, although such additions or replacements may increase a plant's efficiency or capacity. All of the foregoing facilities are considered to be in good condition. The Company does not anticipate that substantial expansion, refurbishing or re-equipping will be required in the near future. All of the rented property is held under leases with original terms of two or more years, expiring at various times from April 2004 through August 2007. No difficulties are presently foreseen in maintaining or renewing such leases as they expire. Item 3. Legal Proceedings. - ------ ----------------- There are no material pending legal proceedings other than ordinary routine litigation incidental to the business to which the registrant or its subsidiaries are parties or which property of the registrant or its subsidiaries is the subject. Item 4. Submission of Matters to a Vote of Security Holders. - ------ --------------------------------------------------- None. 5 EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 17, 2004. The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by each such person and each such person's principal occupation or employment during the past five years. All such persons have been elected to serve until the next annual election of officers (which shall occur on June 17, 2004) and their successors are elected, or until their earlier resignation or removal. No person other than those listed below has been chosen to become an executive officer of the registrant. Keith S. Walters, Chairman of the Board, CEO and President, age 54, was elected Chief Executive Officer in November 1997, Chairman in June 1998 and President in July 1998. Mr. Walters was employed by the Company in August 1997 and was elected to the office of Vice President Commercial Printing Operations at that time. Prior to joining the Company, Mr. Walters was with Atlas/Soundolier, a division of American Trading and Production Company, for 8 years, most recently as Vice President of Manufacturing. Prior to that time, Mr. Walters was with the Automotive Division of United Technologies Corporation for 15 years, primarily in manufacturing and operations. Ronald M. Graham, Vice President Administration, age 56, was elected Vice President Administration in April 2001. Mr. Graham was employed by the Company in January 1998 as Director of Human Relations and was elected Vice President Human Resources in June 1998. Prior to joining the Company, Mr. Graham was with E. V. International, Inc. (formerly Mark IV Industries, Inc.) for 17 years as Corporate Vice President, Administration. Prior to that time, Mr. Graham was with Sheller-Globe for 3 years as Corporate Director of Human Resources. Harve Cathey, Vice President Finance, Chief Financial Officer and Secretary, age 65, was elected Vice President and Chief Financial Officer in January 2003. Mr. Cathey was elected Secretary in October 1998 and Treasurer in July 1998. Mr. Cathey has been employed by the Company continuously since April 1969. Previously, Mr. Cathey served as Vice President-Finance and Secretary (from September 1983 to September 1996) and Treasurer (from June 1978 to December 1992). Michael D. Magill, age 56, was elected Vice President and Treasurer in October 2003. Prior to joining the Company, Mr. Magill was President and Chief Executive Officer of Safeguard Business Systems, Inc. for 6 years. Prior to that time, Mr. Magill was Executive Vice President and CFO of KBK Capital Corporation. Mr. Magill joined KBK Capital Corporation after 10 years with MCorp, where he held various positions beginning as head of corporate finance and ending as CFO during MCorp's bankruptcy. There is no family relationship among or between any executive officers of the registrant, nor any family relationship between any executive officers and directors. 6 PART II Item 5. Market for the Registrant's Common Equity and Related - ------ Shareholder Matters. ----------------------------------------------------- The Company's common stock is traded on the New York Stock Exchange. The following table sets forth for the periods indicated: the high and low closing sales prices, the common stock trading volume as reported by the New York Stock Exchange and dividends paid by the Company. Common Stock Trading Common Stock Volume Dividends Price Range (number of per share ------------ shares in of Common High Low thousands) Stock ---- --- ---------- ----- Fiscal Year Ended February 29, 2004 First Quarter $13.67 $10.90 2,038 $0.155 Second Quarter 15.40 13.44 1,863 0.155 Third Quarter 14.99 13.20 2,139 0.155 Fourth Quarter 17.00 14.58 1,437 0.155 Fiscal Year Ended February 28, 2003 First Quarter $14.18 $10.34 3,155 $0.155 Second Quarter 14.45 10.75 3,438 0.155 Third Quarter 13.28 11.54 1,600 0.155 Fourth Quarter 13.23 10.70 2,078 0.155 On April 15, 2004, the last sale price of the common stock was $16.21 per share and the number of shareholders of record was 1,446. Item 6. Selected Financial Data. - ------ ----------------------- The information required by this item is incorporated herein by reference to page 12 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7. Management's Discussion and Analysis of Financial - ------ Condition and Results of Operations. ------------------------------------------------- The information required by this item is incorporated herein by reference to pages 13 through 17 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 7a. Quantitative and Qualitative Disclosure About Market - ------- Risk. ---------------------------------------------------- The information required by this item is incorporated by reference to page 17 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. 7 Item 8. Financial Statements and Supplementary Data. - ------ ------------------------------------------- The information required by this item is incorporated herein by reference to pages 20 through 39 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 9. Changes in and Disagreements with Accountants on - ------ Accounting and Financial Disclosure. ------------------------------------------------- There were no changes in or disagreements with the independent auditors on accounting and financial disclosure. Item 9a. Controls and Procedures. - ------- ----------------------- The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company's disclosure controls and procedures as of February 29, 2004. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of February 29, 2004. There have been no significant changes in the Company's internal controls over financial reporting that have occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 8 PART III -------- Item 10. Directors and Executive Officers of the Registrant. - ------- -------------------------------------------------- For information with respect to executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. The information required by this item regarding directors is incorporated by reference to pages 5 through 7 of the Company's Proxy Statement to be dated May 17, 2004. Item 11. Executive Compensation. - ------- ---------------------- The information required by this item is incorporated herein by reference to pages 11 through 17 of the Company's Proxy Statement to be dated May 17, 2004. Item 12. Security Ownership of Certain Beneficial Owners and - ------- Management. ---------------------------------------------------- The information required by this item is incorporated herein by reference to pages 19 through 20 of the Company's Proxy Statement to be dated May 17, 2004. Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- The information required by this item is incorporated herein by reference to page 36 of the Company's 2004 Annual Report to Shareholders which is attached as Exhibit (13) hereto. Item 14. Principal Accountant Fees and Services. - ------- --------------------------------------- The information required by this item is incorporated herein by reference to pages 21 through 22 of the Company's Proxy Statement to be dated May 17, 2004. 9 PART IV ------- Item 15. Exhibits, Financial Statement Schedule, and Reports on - ------- Form 8-K. ------------------------------------------------------- (a) 1. Financial Statements. See accompanying index to financial statements and financial statement schedule for a list of all financial statements and the financial statement schedule filed as part of this report (page F-1). 2. Financial Statement Schedule. See accompanying index to financial statements and financial statement schedule for a list of all financial statements and the financial statement schedule filed as part of this report (page F-1). 3. Exhibits The exhibits listed on the accompanying index to exhibits on page 16 are filed as part of this Form 10-K. (b) Reports on Form 8-K: ------------------- The Company filed a report on Form 8-K on April 15, 2004 regarding the press release dated April 14, 2004 announcing year-end operating results. (c) Exhibits: -------- See Index to Exhibits, incorporated herein by reference. 10 UNDERTAKINGS WITH RESPECT TO REGISTRANT'S REGISTRATION STATEMENTS, FORM S-8 (NUMBERS: 33-43087, 333-58963, 333-44624, 333-38100) (1) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, forming a part of the referenced registration statement, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered, to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (2) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus to each employee to whom the prospectus is sent or given a copy of the registrant's annual report to shareholders for its last fiscal year, unless such employee otherwise has received a copy of such report, in which case the registrant shall state in the prospectus that it will promptly furnish, without charge, a copy of such report on written request of the employee. If the last fiscal year of the registrant has ended within 120 days prior to the use of the prospectus, the annual report of the registrant for the preceding fiscal year may be so delivered, but within such 120 day period the annual report for the last fiscal year will be furnished to each such employee. (3) The undersigned registrant hereby undertakes to transmit or cause to be transmitted to all employees participating in the plan who do not otherwise receive such material as shareholders of the registrant, at the time and in the manner such material is sent to its shareholders, copies of all reports, proxy statements and other communications distributed to its shareholders generally. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) ENNIS BUSINESS FORMS, INC. Date: May 4, 2004 BY: /s/ Keith S. Walters ---------------- ------------------------------------- Keith S. Walters, Chairman of the Board, Chief Executive Officer and President Date: May 4, 2004 BY: /s/ Harve Cathey ---------------- ------------------------------------- Harve Cathey Vice President - Finance and CFO, Secretary and Principal Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: May 4, 2004 BY: /s/ Keith S. Walters ---------------- ------------------------------------- Keith S. Walters, Director Date: May 4, 2004 BY: /s/ Ronald M. Graham ---------------- ------------------------------------- Ronald M. Graham, Director Date: May 4, 2004 BY: /s/ Harold W. Hartley ---------------- ------------------------------------- Harold W. Hartley, Director Date: May 4, 2004 BY: /s/ Robert L. Mitchell ---------------- ------------------------------------- Robert L. Mitchell, Director Date: May 4, 2004 BY: /s/ Kenneth G. Pritchett ---------------- ------------------------------------- Kenneth G. Pritchett, Director 12 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following is a list of the financial statements and financial statement schedule which are included in this Form 10-K or which are incorporated herein by reference. The consolidated financial statements of the Company included in the Company's 2004 Annual Report to Shareholders are incorporated herein by reference in Item 8. With the exception of the pages listed in this index and pages listed in Items 1, 6, 7 and 8 incorporating certain portions of the Company's 2004 Annual Report to Shareholders, such 2004 Annual Report to Shareholders is not deemed to be filed as part of this Form 10-K. The Company's fiscal years ended February 29, 2004, February 28, 2003 and February 28, 2002 (fiscal years ended 2004, 2003 and 2002, respectively). 2004 Annual Form Report to 10-K Shareholders ---- ------------ Consolidated Financial Statements of the Company: Consolidated Statements of Earnings - Fiscal years ended 2004, 2003 and 2002 20 Consolidated Statements of Cash Flows - Fiscal years ended 2004, 2003 and 2002 21 Consolidated Balance Sheets - Fiscal years ended 2004 and 2003 22 - 23 Notes to Consolidated Financial Statements 25 - 39 Independent Auditors' Report for fiscal years ended 2002, 2003 and 2004 S-2 II - Valuation and qualifying accounts S-3 All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statement or related notes. F-1 Report of Independent Auditors Board of Directors and Shareholders Ennis Business Forms, Inc. We have audited the accompanying consolidated balance sheets of Ennis Business Forms, Inc. and subsidiaries (the Company) as of February 29, 2004 and February 28, 2003, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended February 29, 2004. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ennis Business Forms, Inc. and subsidiaries as of February 29, 2004 and February 28, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 29, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Notes 1 and 9 to the financial statements, in 2003 the Company changed its method of accounting for goodwill. ERNST & YOUNG LLP Dallas, Texas April 14, 2004 S-2 Schedule II ENNIS BUSINESS FORMS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended February 29, 2004 (In thousands)

Notes: (1) Principally collection of accounts previously charged off. (2) Charge-off of uncollectible receivables. (3) Principally Allowance from Acquisition of Calibrated Forms Co., Inc. S-3 INDEX TO EXHIBITS Exhibit 3 (i) Restated Articles of Incorporation as amended through June 23, 1983 with attached amendments dated June 20, 1985, July 31, 1985 and June 16, 1988 incorporated herein by reference to Exhibit 5 to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1993. Exhibit 3 (ii) Bylaws of the Registrant as amended through October 15, 1997 incorporated herein by reference to Exhibit 3(ii) to the Registrants Form 10-Q Quarterly Report for the quarter ended November 30, 1997. Exhibit 10.1 Employment Agreement - Keith S. Walters dated May 1, 2003. Exhibit 10.2 Employment Agreement - Ronald M. Graham dated May 1, 2003. Exhibit 10.3 Employment Agreement - Michael M. Magill dated October 7, 2003. Exhibit 13 Portions of 2004 Annual Report to Shareholders. Exhibit 21 Subsidiaries of Registrant. Exhibit 23 Consent of Independent Auditors. Exhibit 31.1 Certification pursuant to Rule 13a-14(a)/15d- 14(a) (Chief Executive Officer) Exhibit 31.2 Certification pursuant to Rule 13a-14(a)/15d- 14(a) (Chief Financial Officer) Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 Certification pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Portions of Exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. 16