ENNIS, INC. — Audit Report / Information 2000

Aug 9, 2000

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): June 6, 2000 ------------ ENNIS BUSINESS FORMS, INC. - -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 1-5807 75-0256410 - -------------------------------------------------------------------- (State or other Jurisdiction (Commission (I. R. S. Employer of incorporation) File Number) Identification No.) 1510 N. Hampton Suite 300, DeSoto, Texas 75115 - -------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (972) 228-7801 - -------------------------------------------------------------------- (Registrant's telephone number, including area code) No Change - -------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ Financial Statements of Northstar Computer Forms, Inc. Report of Independent Accountants Consolidated Balance Sheets as of October 31, 1999 and 1998 Consolidated Statement of Earnings for the Years Ended October 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended October 31, 1999, 1998 and 1997 Consolidated Statement of Cash Flows for the Years Ended October 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Unaudited Interim Financial Statements of Northstar Computer Forms, Inc. Condensed Consolidated Balance Sheet as of April 30, 2000 and October 31, 1999 Condensed Consolidated Statement of Earnings for the Three and Six Months Ended April 30, 2000 and 1999 Condensed Consolidated Statement of Cash Flow for the Six Months Ended April 30, 2000 and 1999 Notes to the Condensed Consolidated Financial Statements Unaudited Pro Forma Combined Financial Statements of Ennis Business Forms Pro Forma Combined Condensed Balance Sheet as of February 29, 2000 Pro Forma Combined Condensed Statement of Earnings for the Year Ended February 29, 2000 Notes to Pro Forma Condensed Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Northstar Computer Forms, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Northstar Computer Forms, Inc. and Subsidiary as of October 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of Northstar Computer Forms, Inc.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota December 15, 1999 2 NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1999 AND 1998 ASSETS 1999 1998 Current Assets: Cash and cash equivalents $ 3,878,447 $4,162,845 Accounts receivable, net 5,958,522 4,936,112 Inventories 2,294,119 2,245,338 Deferred income taxes 261,656 255,656 Other current assets 442,743 687,769 ---------- ---------- Total current assets 12,835,487 12,287,720 ---------- ---------- Property, plant and equipment, net 13,368,676 14,153,269 Notes receivable, less current portion 60,634 161,573 Goodwill, net 1,354,786 1,556,293 Other assets, net 1,256,641 1,292,817 ---------- ---------- Total assets $28,876,224 $29,451,672 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt 335,000 1,385,000 Accounts payable 1,296,485 1,316,878 Accrued liabilities 2,608,969 1,927,671 ---------- ---------- Total current liabilities 4,240,454 4,629,549 ---------- ---------- Long-term debt, less current portion 1,340,000 3,945,550 Deferred compensation 773,333 738,845 Deferred income taxes 1,461,633 1,526,633 Commitments (Notes 6 and 7) Stockholders' equity: Common shares; $.05 par value, authorized 5,000,000 shares; issued and outstanding, 1999: 2,744,708;1998: 2,714,436 137,235 135,722 Additional paid-in capital 2,862,678 2,671,492 Retained earnings 18,060,891 15,803,881 ---------- ---------- Total stockholders' equity 21,060,804 18,611,095 ---------- ---------- Total liabilities and stockholders' equity $28,876,224 $29,451,672 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 3 NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 1999 1998 1997 Net sales $46,338,793 $41,809,938 $46,277,461 Cost of goods sold 33,531,734 30,453,432 30,860,274 ---------- ---------- ---------- Gross profit 12,807,059 11,356,506 15,417,187 Selling, general and administrative expenses 8,399,901 7,877,820 8,118,695 ---------- ---------- ---------- Operating income 4,407,158 3,478,686 7,298,492 ---------- ---------- ---------- Other income (expense): Interest expense (240,864) (642,169) (892,516) Other, net, principally interest income 191,454 158,424 196,946 ---------- ---------- ---------- (49,410) (483,745) (695,570) ---------- ---------- ---------- Earnings before provision for income taxes 4,357,748 2,994,941 6,602,922 Provision for income taxes 1,690,000 1,212,000 2,467,000 ---------- ---------- ---------- Net earnings $ 2,667,748 $ 1,782,941 $ 4,135,922 ========== ========== ========== Net earnings per common share: Basic $ 0.98 $ 0.67 $ 1.59 ========== ========== ========== Diluted $ 0.93 $ 0.62 $ 1.48 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 4 NORTHSTAR COMUTER FORMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 COMMON STOCK ------------------ ADDITIONAL STATED PAID-IN RETAINED SHARES CAPITAL CAPITAL EARNINGS Balances at October 31, 1996 1,716,571 $ 85,828 $1,995,177 $10,557,530 Stock options exercised 44,900 2,245 294,590 Cash dividends, $.175 per share (305,438) Comprehensive income: Net earnings 4,135,922 --------- ------- --------- ---------- Balances at October 31, 1997 1,761,471 88,073 2,289,767 14,388,014 Stock split 880,690 44,035 (46,269) Stock options exercised 72,275 3,614 257,994 Cash dividends, $.137 per share (367,074) Tax benefit from stock options exercised 170,000 Comprehensive income: Net earnings 1,782,941 --------- ------- --------- ---------- Balances at October 31, 1998 2,714,436 135,722 2,671,492 15,803,881 Stock options exercised 30,275 1,513 147,217 Repurchase of common stock (3) (31) Cash dividends, $.150 per share (410,738) Tax benefit from stock options exercised 44,000 Comprehensive income: Net earnings 2,667,748 --------- ------- --------- ---------- Balances at October 31, 1999 2,744,708 $137,325 $2,862,678 $18,060,891 ========= ======= ========= ========== The accompanying notes are an integral part of the consolidated financial statements. 5 NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 1999 1998 1997 Cash flows from operating activities: Net earnings $ 2,667,748 $ 1,782,941 $ 4,135,922 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 2,608,725 2,517,552 2,458,399 Amortization 382,359 344,274 271,519 Provision for doubtful accounts 55,451 (70,586) 167,437 Deferred income taxes (71,000) 405,000 (25,000) (Gain) loss on sale of land and equipment (61,009) 50,286 (5,576) Changes in certain operating assets and liabilities (293,042) 153,764 (1,169,060) ---------- ---------- ---------- Net cash provided by operating activities 5,289,232 5,183,231 5,833,641 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures and equipment deposits (1,851,678) (1,577,203) (1,465,679) Capitalized computer software costs (236,405) (584,321) Proceeds from sale of land and equipment 88,555 67,239 12,400 Notes receivable repayments 77,530 736,932 117,219 ---------- ---------- ---------- Net cash used in investing activities (1,685,593) (1,009,437) (1,920,381) ---------- ---------- ---------- Cash flows from financing activities: Principal payments on long-term debt (3,655,550) (5,235,000) (1,029,450) Dividends paid (381,186) (353,204) (240,869) Stock options exercised 148,730 261,608 296,835 Other, net (31) (2,234) -- ---------- ---------- ---------- Net cash used in financing activities (3,888,037) (5,328,830) (973,484) ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (284,398) 1,155,036) 2,939,776 Cash and cash equivalents at beginning of year 4,162,845 5,317,881 2,378,105 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 3,878,447 $ 4,162,845 $ 5,317,881 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 6 Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF THE BUSINESS: Northstar Computer Forms, Inc. and Subsidiary (the Company) designs, manufactures and markets printed forms with an emphasis on MICR (Magnetic Ink Character Recognition) printing. The Company's custom business forms concentrations are negotiable documents and internal bank forms which are marketed nationally. Sales are principally made through distributors, with the remainder directly to end-user customers. CONSOLIDATION: The consolidated financial statements include the accounts of Northstar Computer Forms (Northstar) and General Financial Supply, Inc. (General Financial), its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market using the last- in, first-out (LIFO) method. As of October 31, 1999 and 1998, consolidated inventories, stated at LIFO, exceeds the cost of consolidated inventories using the first-in, first-out (FIFO) method by approximately $67,000 and $13,000 at October 31, 1999 and 1998, respectively. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost and are depreciated using the straight-line method. The estimated useful lives are 15 - 40 years for buildings, 5 - 10 years for machinery and equipment, and 3 - 8 years for furniture and fixtures and automobiles. Leasehold improvements are amortized on a straight-line basis generally over the term of the respective leases. Gains or losses on dispositions are included in current earnings. Major renewals or betterments are capitalized while repairs and maintenance are charged to current operations when incurred. COMPUTER SOFTWARE COSTS: The Company capitalizes costs incurred for developing and obtaining computer software, primarily relating to modifying and installing new information technology systems for internal use. These costs are amortized on a straight-line basis over five years, the estimated useful lives of the underlying assets. In March 1998, the Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Company is reviewing the requirements of the SOP and does not expect it to 7 significantly change its current accounting for software costs. SOP 98- 1 is required to be adopted by the Company for its fiscal year 2000. GOODWILL: Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and is being amortized on a straight-line basis over 10 years. LONG-LIVED ASSETS: The recoverability of long-lived assets, including goodwill, is assessed annually or whenever adverse events or changes in circumstances or business climate indicate that the expected cash flows previously anticipated warrant reassessment. When such reassessments indicate the potential of impairment, all business factors are considered and, if the carrying value of long-lived assets are not likely to be recovered from future net operating cash flows, they will be written down for financial reporting purposes. REVENUE RECOGNITION: The Company recognizes revenue on product sales when title transfers to customer, which is generally upon shipment. INCOME TAXES: Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The income tax provision is the tax payable or refundable for the period and the change during the period in deferred tax assets and liabilities. EARNINGS PER SHARE: Net earnings per share (EPS) for all periods presented have been computed by dividing net earnings by the weighted average number of common shares outstanding (basic EPS) and by the weighted average number of common and common equivalent shares outstanding (diluted EPS). The Company's common equivalent shares consist of stock options when their effect is not antidilutive. The computations of basic and diluted weighted average common shares outstanding are as follows: 1999 1998 1997 Weighted average common shares outstanding 2,730,877 2,655,096 2,598,093 Common equivalent shares outstanding: Option equivalents 137,865 199,387 187,860 --------- --------- --------- Weighted average common and common Equivalent shares outstanding 2,868,742 2,854,483 2,785,953 ========= ========= ========= 8 At October 31, 1999, 1998 and 1997, 150,000, 9,000 and 30,000 outstanding options were excluded from the computation of diluted earnings per share for the year then ended because the options' exercise price was greater than the average market price of the Company's common shares during the respective year. COMPREHENSIVE INCOME: The Company's comprehensive income consists solely of net earnings. In fiscal years 1999, 1998 and 1997, the Company did not have any changes in stockholders' equity from nonowner sources. BUSINESS SEGMENTS: Effective with its year end 1999 financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure About Segments of an Enterprise and Related Information," which requires disclosure of segment data in a manner consistent with that used by an enterprise for internal management reporting and decision making. Accordingly, the Company reports its operations as a single segment under SFAS No. 131. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SELECTED BALANCE SHEET INFORMATION: The following provides additional information concerning selected balance sheet accounts at October 31, 1999 and 1998: 1999 1998 Accounts receivable, net: Accounts receivable $ 6,111,522 $ 5,074,112 Allowance for doubtful accounts (153,000) (138,000) ---------- ---------- $ 5,958,522 $ 4,936,112 ========== ========== Inventories: Raw material 1,503,444 1,394,156 Work in process 573,993 598,846 Finished goods 216,682 252,336 ---------- ---------- $ 2,294,119 $ 2,245,338 ========== ========== 9 Property, plant and equipment, net: Land 109,626 109,626 Buildings 4,004,111 3,993,073 Machinery and equipment 25,400,896 24,124,637 Furniture and fixtures 1,937,239 1,804,043 Automobiles 440,756 335,322 Leasehold improvements 78,156 66,313 ---------- ---------- 31,970,784 30,433,014 Accumulated depreciation (18,535,203) (16,213,432) Accumulated amortization (66,905) (66,313) ---------- ---------- $13,368,676 $14,153,269 ========== ========== Goodwill, net: Goodwill 2,015,065 2,015,065 Accumulated amortization (660,279) (458,772) ---------- ---------- $ 1,354,786 $ 1,556,293 ========== ========== Other assets, net: Computer software costs, net of accumulated Amortization of $335,830 and $171,683 at October 31, 1999 and 1998, respectively 484,896 649,043 Cash value of life insurance, net of outstanding loans of $165,778 and $166,857 at October 31, 1999 and 1998, respectively 402,488 359,918 Other 369,257 283,856 ---------- ---------- $ 1,256,641 $ 1,292,817 ========== ========== Accrued liabilities: Payroll and bonuses 850,707 504,888 Vacation 377,270 345,471 Profit sharing 527,180 301,125 Real estate taxes 236,706 195,454 Dividends 219,569 190,017 Other 397,537 390,716 ---------- ---------- $ 2,608,969 $ 1,927,671 ========== ========== 10 3. SUPPLEMENTAL CASH FLOW INFORMATION: Changes in certain operating assets and liabilities are as follows: 1999 1998 1997 Accounts receivable $(1,077,861) $1,748,683 $(2,052,911) Inventories (48,781) (332,692) 379,411 Other assets 123,759 (592,914) (111,704) Accounts payable (20,393) (56,927) (729,732) Accrued liabilities 695,746 (612,825) 1,293,928 Deferred compensation 34,488 439 51,948 ---------- --------- ---------- $ (293,042) $ 153,764 $(1,169,060) ========== ========= ========== Cash paid during the year for: Interest $ 244,471 $ 699,308 $ 834,348 Income taxes 1,487,500 1,456,894 2,222,243 4. NOTES RECEIVABLE: Notes receivable consisted of the following at October 31, 1999 and 1998: 1999 1998 Brooklyn Park Economic Development Authority Tax Increment Financing Note, interest at 9.5%, payable in semi-annual installments of $48,889, with remaining principal and interest due August 2001. $143,775 $204,250 Other, mainly customers, with various terms 16,040 33,095 ------- ------- 159,815 237,345 Less current portion, included in "Other current assets" (99,181) (75,772) ------- ------- $ 60,634 $161,573 ======= ======= Management believes that the carrying values of its notes receivable as of October 31, 1999, approximate their fair value. 5. BANK LINE OF CREDIT The Company has a Revolving Credit agreement (Agreement) with a bank under which the Company may borrow up to $1,500,000 with interest accruing at the prime interest rate. Collateral for borrowing under this Agreement, as well as the related covenants, are the same as the term loan the Company entered into during July 1996. There were no borrowings under this Agreement during fiscal years 1999 or 1998. 11 6. LONG-TERM DEBT: Long-term debt consists of the following at October 31, 1999 and 1998: 1999 1998 Revenue Bonds $1,675,000 $ 2,010,000 Term Loan 3,320,550 --------- ---------- 1,675,000 5,330,550 Less current portions (335,000) (1,385,000) --------- ---------- $1,340,000 $ 3,945,550 ========= ========== REVENUE BONDS: In August 1994, the Company received proceeds of $2,945,000 from the issuance of Variable Rate Demand Industrial Development Revenue Bonds (Revenue Bonds) in connection with the construction of the Company's corporate headquarters and manufacturing facility. The Revenue Bonds require annual principal payments of $335,000 through fiscal year 2004 and bear interest at a rate which varies based upon comparable tax- exempt issues, but not to exceed 12%. The interest rate at October 31, 1999, was 3.75%. The Company has an option to convert the variable interest rate on these bonds to a fixed interest rate determinable at the date of conversion upon notification to the bond trustee. The Revenue Bonds are collateralized by an outstanding irrevocable direct- pay letter of credit with a financial institution equal to the outstanding principal amount of the Revenue Bonds. The letter of credit is renewable upon mutual agreement of the Company and the financial institution. If the letter is not renewed and the Company is unable to obtain a similar letter of credit with another financial institution, the Revenue Bonds may be callable at the option of the bond trustee. The Company's outstanding letter of credit expires in August 2002 and is collateralized by its corporate headquarters and manufacturing facility, inventories and accounts receivable. The letter of credit agreement, among other things, requires the Company to not exceed annual capital expenditures limits, maintain certain minimum net worth requirements, meet certain leverage and cash flow ratios, as well as limits cash dividends. The letter of credit agreement also allows for the lender to call the debt upon any "material change in the nature of the business." TERM LOAN: In July 1996, the Company entered into a term loan (Term Loan) with a bank for $9,000,000 in connection with the purchase of substantially all of the assets of the Financial Forms Division of Deluxe Corporation (Acquisition). The Term Loan was collateralized by substantially all the Company's assets and required quarterly principal payments of $262,500 through October 2001, with the remaining principal amount to be paid in January 2002. The Company had an option, upon written notice to the bank, to accrue interest on its outstanding Term Loan balance based on the prime interest rate or the Eurodollar rate. During fiscal year 1998, the Company made additional principal payments of $2,000,000 in excess of its scheduled principal payments. During fiscal year 1999, the Company fully repaid its Term Loan by making additional principal payments of $2,533,050 in excess of its scheduled principal payments due under the Term Loan. 12 Aggregate maturities of long-term debt are as follows: FISCAL YEAR 2000 $ 335,000 2001 335,000 2002 335,000 2003 335,000 2004 335,000 --------- $1,675,000 ========= Management believes that the carrying value of its long-term debt as of October 31, 1999, approximates its fair value. 7. OPERATING LEASES, INCLUDING RELATED PARTY LEASE: The Company leases certain buildings and equipment under five separate operating lease agreements expiring through 2007 and requiring monthly payments in addition to real estate taxes, insurance and maintenance costs. The Company has the option to extend the lease term upon expiration of one of the leases. In August 1997, the Company began leasing one of the Company's manufacturing facilities from the Company's Chairman and Chief Executive Officer under an operating lease agreement expiring in fiscal year 2007, with two additional five-year extensions available at the option of the Company. This operating lease agreement requires monthly payments, subject to increase every three years based on the period's average price index, as defined in the lease agreement, in addition to real estate taxes, utilities, assessments, insurance and maintenance costs. Future minimum payments, excluding real estate taxes, utilities, assessments, insurance and maintenance costs, under operating lease agreements with noncancellable terms are as follows: Non- Related Related Party Party Total FISCAL YEAR 2000 $ 433,420 $ 191,000 $ 624,420 2001 254,686 191,000 445,686 2002 197,969 191,000 388,969 2003 110,141 191,000 301,141 2004 110,141 191,000 301,141 Thereafter 100,963 541,167 642,130 --------- --------- --------- $1,207,320 $1,496,167 $2,703,487 ========= ========= ========= Total rent expense was $668,811, $695,062 and $774,372 in fiscal years 1999, 1998 and 1997, respectively, exclusive of real estate taxes, insurance and maintenance costs. Rent expense related to the related party lease, exclusive of real estate taxes, insurance and maintenance costs, was $191,000 in fiscal years 1999 and 1998. 13 8. INCOME TAXES: The provision for income taxes consists of the following: 1999 1998 1997 Currently payable: Federal $1,495,000 $ 684,000 $2,153,000 State 266,000 123,000 339,000 --------- --------- --------- 1,761,000 807,000 2,492,000 --------- --------- --------- Deferred provision (benefit): Federal (17,000) 343,000 (21,000) State (54,000) 62,000 (4,000) --------- --------- --------- (71,000) 405,000 (25,000) --------- --------- --------- $1,690,000 $1,212,000 $2,467,000 ========= ========= ========= The actual provision for income taxes differed from the "expected" amounts computed by applying the U.S. federal corporate tax rate of 34% to earnings before provisions for income taxes for the fiscal years ended October 31, 1999, 1998 and 1997, respectively, as follows: FISCAL YEARS --------------------------------- 1999 1998 1997 Computed "expected" provision for income taxes $1,482,000 $1,018,000 $2,245,000 State income taxes, net of federal tax effect 256,000 148,000 221,000 Other, net (48,000) 46,000 1,000 --------- --------- --------- Actual provision for income taxes $1,690,000 $1,212,000 $2,467,000 ========= ========= ========= The approximate effects of temporary differences that gave rise to deferred tax balances at October 31, 1999 and 1998, are as follows: 1999 1998 Deferred tax assets: Accounts receivable allowance for doubtful accounts $ 61,200 $ 55,200 Inventories 41,500 40,851 Accrued liabilities 122,908 124,188 Deferred compensation 345,596 331,034 Goodwill 84,991 58,124 --------- --------- Total deferred tax assets 656,195 609,397 --------- --------- 14 Deferred tax liabilities: Property, plant and equipment (1,644,618) (1,669,331) Investment in limited partnership (211,554) (211,043) ---------- ---------- Total deferred tax liabilities (1,856,172) (1,880,374) ---------- ---------- Net deferred tax liabilities $(1,199,977) $(1,270,977) ========== ========== The Company has not recorded a valuation allowance as of October 31, 1999 and 1998, related to its deferred tax assets as management does not believe an allowance is necessary. 9. PROFIT-SHARING AND BONUS PLANS: The Company has a profit-sharing and 401(k) plan (the Plan) covering substantially all full-time employees of the Company. Company contributions are determined based upon a profitability formula approved by the Company's Board of Directors, but are not to exceed 15% of the salary and wages paid to the participants for the year. Vesting of benefits occurs at a rate of 20% for each year of service, commencing after the second full year of service. Vested benefits allocated to the employees' accounts are payable upon retirement, death or earlier termination in a lump sum or installments. The Company recognized expense related to the Plan of $527,180, $301,125 and $540,000 in fiscal years 1999, 1998 and 1997, respectively. The Company also has a bonus plan for certain key salaried employees. Bonuses are determined, in part, based on a profitability formula approved by the Company's Board of Directors and, in part, at the discretion of the Board of Directors. Company expense under the bonus plan was $521,164, $203,805 and $408,440 in fiscal years 1999, 1998 and 1997, respectively. 10. DEFERRED COMPENSATION: The Company has deferred compensation plans covering four current officers and one former officer of the Company. The plans for one current and the former officer call for periodic payments ranging from 10 to 15 years at retirement or death of such employees. The plans for the remaining three officers call for contributions to a "rabbi trust" to maintain benefits to be paid upon retirement or termination. Deferred compensation expense was $30,064, $78,882 and $51,397 in fiscal years 1999, 1998 and 1997, respectively. 11. STOCK OPTIONS: The Company has an incentive stock option plan for option grants to employees (ISO Plan) and a nonqualified stock option plan for option grants to the Company's Outside Board of Directors (BOD Plan). As of October 31, 1999, the Company has reserved 500,000 and 150,000 shares of its common stock for grant under the ISO Plan and BOD Plan, respectively. During fiscal year 1998, the Company amended its ISO Plan to increase the maximum number of shares reserved for issuance under that plan to 500,000. During fiscal year 1999, the Company amended its BOD Plan to add 100,000 shares for issuance under that plan. Options granted under the ISO Plan and BOD Plan have exercise prices not less than the fair market value of the Company's common stock at the date of grant and become exercisable generally over a five- year period or based on the discretion of the Company's Board of Directors. Options granted under the ISO and BOD Plans expire 10 years from the date of grant. 15 In addition, the Company has a nonqualified stock option plan for option grants to the Company's Board of Directors (Non-Active Plan). At October 31, 1999, 20,000 of these options are outstanding and have a weighted average exercise price of $3.88. All of these options are exercisable at October 31, 1999. These options expire through 2003. The following is a summary of the stock option activity with respect to the ISO, BOD and Non-Active Plans: WEIGHTED AVERAGE OPTIONS EXERCISE PRICE AVAILABLE PER SHARE OPTIONS FOR GRANT Balance at October 31, 1996 4.39 394,300 75,602 Exercised 4.41 (67,350) Cancelled 5.58 (8,550) 8,550 Granted 7.17 96,000 (96,000) Expired 3.87 (14,000) ------- -------- Balance at October 31, 1997 5.13 355,400 (11,848) Authorization of additional stock options 300,000 Exercised 3.62 (72,275) Cancelled 4.28 (3,300) 3,300 Granted 12.67 9,000 (9,000) Expired 4.42 (250) ------- -------- Balance at October 31, 1998 5.75 288,575 282,452 Authorization of additional stock options 100,000 Exercised 4.91 (30,275) Cancelled 6.98 (9,700) 9,700 Granted 9.48 251,400 (251,400) ------- -------- Balance at October 31, 1999 7.65 500,000 140,752 ======= ======== The Company may grant nonqualified stock options outside of the ISO and BOD Plans to other parties at the discretion of the Company's Board of Directors. The terms of these options, including the exercise price, vesting provision and expiration of the options, are determined by the Company's Board of Directors prior to the granting of the options. During fiscal year 1995, the Company granted 30,000 of these options to a vendor. At October 31, 1999, all of these options are outstanding and have a weighted average exercise price of $5.09. These options expire in November 2003. 16 The following table summarizes information about all stock options outstanding and exercisable at October 31, 1999: OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------- --------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE $3.75 - $6.17 245,900 3.79 $ 4.94 206,600 $ 4.82 $8.00 134,100 9.33 8.00 40,100 8.00 $10.58 - 12.67 150,000 8.35 11.28 7,500 10.58 ------- ---- ----- ------- ----- 530,000 6.48 $ 7.51 254,200 $ 5.50 ======= ==== ===== ======= ===== The Company accounts for stock-based compensation using the intrinsic value method. Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the fair market value of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company accounts for stock-based compensation to nonemployees using the fair value method. Such compensation costs are amortized on a straight-line basis over the underlying option vesting terms. If the Company had elected to recognize compensation expense for options granted in fiscal years 1999, 1998 and 1997 based on the fair value of the options granted at the date of grant, the Company's net earnings and diluted net earnings per share for fiscal years 1999, 1998 and 1997 would have been as follows: 1999 1998 1997 Net earnings: As reported $2,667,748 $1,782,941 $4,135,922 Pro forma 2,443,958 1,708,430 4,021,562 Diluted net earnings per share: As reported $ 0.93 $ 0.62 $ 1.48 Pro forma $ 0.85 $ 0.60 $ 1.44 The weighted average fair value of options at the date of grant was $4.50, $5.45 and $3.26 per option during fiscal years 1999, 1998 and 1997, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the following key assumptions: 1999 1998 Risk-free interest rates 5.5% 5.5% Expected life 7 years 5 years Expected volatility 44.54% 46.20% Expected dividend yield 1.48% 1.26% 17 12. STOCK SPLIT On May 31, 1998, the common stock of the Company was split 3 for 2. All per share and number of share data have been retroactively restated to reflect the stock split, except for those presented in the Consolidated Statements of Changes in Stockholders' Equity. 13. PREFERRED STOCK: The Company has 200,000 shares of authorized, nonvoting preferred stock that to date have not been issued. The terms of the preferred stock will be finalized and approved by the Board of Directors prior to issuance. 14. CONCENTRATIONS OF CREDIT RISK: Approximately 23%, 34% and 37% of the Company's net sales were directly to financial institutions in fiscal years 1999, 1998 and 1997, respectively. At October 31, 1999 and 1998, cash and cash equivalents totaling approximately $3,700,000 and $3,400,000, respectively, were concentrated in one financial institution. At October 31, 1999, 13% of the Company's accounts receivable were from one customer. Revenues from the same customer represent approximately 16% of the Company's fiscal year 1999 consolidated revenues. The Company generally requires no collateral from its customers to support their accounts receivable. 15. FOURTH QUARTER ADJUSTMENTS: In the fourth quarter of fiscal year 1997, the Company recorded certain adjustments to reflect changes in accounting estimates to amounts reported in previous interim periods of the fiscal year. The adjustments were related to the estimation of gross profit on net sales from the Company's financial forms division and the interim income tax rate used in previous interim periods of fiscal year 1997. These adjustments increased fourth quarter net earnings by approximately $207,000 and diluted net earnings per common share by $0.07. 18 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET April 30, October 31, 2000(Unaudited) 1999 ---------------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 5,455,360 $ 3,878,447 Accounts receivable, less allowance for doubtful accounts of $197,000 at April 30, 2000 and $153,000 at October 31, 1999 5,102,581 5,958,522 Inventories 2,109,156 2,294,119 Other current assets 1,076,635 442,743 Deferred income taxes 267,456 261,656 ----------- ----------- Total current assets 14,011,188 12,835,487 ----------- ----------- Property, plant and equipment 32,723,465 31,970,784 Less accumulated depreciation and amortization (19,889,442) (18,602,108) ----------- ----------- Net property, plant and equipment 12,834,023 13,368,676 ----------- ----------- Notes receivable, less current portion 23,546 60,634 Goodwill, net 1,254,033 1,354,786 Other assets, net 1,258,818 1,256,641 ----------- ----------- Total assets $ 29,381,608 $ 28,876,224 =========== =========== (Continued) 19 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET April 30, October 31, 2000(Unaudited) 1999 ---------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 335,000 $ 335,000 Accounts payable 1,688,260 1,296,485 Accrued liabilities 1,494,727 2,608,969 ----------- ---------- Total current liabilities 3,517,987 4,240,454 Deferred compensation 790,402 773,333 Deferred income taxes 1,494,133 1,461,633 Long-term debt, less current portion 1,340,000 1,340,000 Commitments Stockholders' equity: Common shares; $.05 par value, authorized 5,000,000 shares; issued and outstanding, 2,753,858 at April 30, 2000 and 2,744,708 at October 31, 1999 137,693 137,235 Additional paid-in capital 2,913,109 2,862,678 Retained earnings 19,188,284 18,060,891 ----------- ----------- Total stockholders' equity 22,239,086 21,060,804 ----------- ----------- Total liabilities and stockholders' equity $ 29,381,608 $ 28,876,224 =========== =========== See accompanying notes to unaudited Condensed Consolidated Financial Statements. 20 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended Six Months Ended April 30 April 30 ----------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $11,059,406 $11,878,269 $22,670,865 $22,521,887 Cost of goods sold 7,947,568 8,492,505 16,728,860 16,408,754 ---------- ---------- ---------- ---------- Gross Profit 3,111,838 3,385,764 5,942,005 6,113,133 Selling, general and administrative expenses 2,053,103 2,142,427 4,122,833 4,088,147 ---------- ---------- ---------- ---------- Operating income 1,058,735 1,243,337 1,819,172 2,024,986 Other income (expense): Interest expense (26,860) (76,202) (54,105) (168,222) Other, net, principally interest income 39,169 21,691 83,326 92,560 ---------- ---------- ---------- ---------- 12,309 (54,511) 29,221 (75,662) ---------- ---------- ---------- ---------- Earnings before income taxes 1,071,044 1,188,826 1,848,393 1,949,324 Provision for income taxes 417,500 491,500 721,000 780,500 ---------- ---------- ---------- ---------- Net earnings $ 653,544 $ 697,326 $ 1,127,393 $ 1,168,824 ---------- ---------- ---------- ---------- Net earnings per common share: Basic $ 0.24 $ 0.26 $ 0.41 $ 0.43 ---------- ---------- ---------- ---------- Diluted $ 0.22 $ 0.25 $ 0.38 $ 0.41 ---------- ---------- ---------- ---------- Dividends declared per common share $ --- $ 0.07 $ --- $ 0.07 ---------- ---------- ---------- ---------- See accompanying notes to unaudited Condensed Consolidated Financial Statements. 21 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited) Increase (Decrease) in Cash and Cash Equivalents for the six months ended April 30, 2000 and 1999 2000 1999 Cash flows from operating activities: Net earnings $1,127,393 $ 1,168,824 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,332,639 1,307,642 Amortization 189,849 191,186 Provision for doubtful accounts 40,200 27,600 Gain on sale of equipment (3,281) (7,900) Deferred income taxes 26,700 163,400 Changes in certain operating assets and liabilities (210,290) (289,613) --------- ---------- Net cash provided by operating activities 2,503,210 2,561,139 --------- ---------- Cash flows from investing activities: Capital expenditures and equipment deposits (797,986) (1,035,054) Proceeds from sale of equipment 3,281 13,600 Notes receivable repayments 37,088 46,356 --------- ---------- Net cash used in investing activities (757,617) (975,098) --------- ---------- Cash flows from financing activities: Principal payments on long-term debt --- (1,525,000) Dividends paid (219,569) (190,017) Stock options exercised 50,889 83,832 --------- ---------- Net cash used in financing activities (168,680) (1,631,185) --------- ---------- Net increase (decrease) in cash and cash equivalents 1,576,913 (45,144) Cash and cash equivalents at beginning of period 3,878,447 4,162,845 --------- ---------- Cash and cash equivalents at end of period $5,455,360 $ 4,117,701 ========= ========== See accompanying notes to unaudited Condensed Consolidated Financial Statements 22 NORTHSTAR COMPUTER FORMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) April 30, 2000 1. Basis of Presentation The interim condensed consolidated financial statements included in this Form 10-Q have been prepared by Northstar Computer Forms, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to these rules and regulations. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1999 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The unaudited condensed consolidated financial statements presented herein as of April 30, 2000, and for the three and six month periods ended April 30, 2000, and 1999 reflect, in the opinion of management, all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows as of and for the periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. 2. Earnings per share Net earnings per share (EPS) for all periods presented have been computed by dividing net earnings by the weighted average number of common shares outstanding (basic EPS) and by the weighted average number of common and common equivalent shares outstanding (diluted EPS). The Company's common equivalent shares consist of stock options, when their effect is dilutive. For the six months ended April 30, 2000 and 1999, 63,000 and 178,600 outstanding options were excluded from the computation of diluted EPS because the options' exercise prices were greater than the average market price of the Company's common shares. For the three months ended April 30, 1999, 39,000 outstanding options were excluded from the computation of diluted EPS. No shares were excluded from the computation of diluted EPS for the three months ended April 30, 2000. 23 For all periods presented, the weighted average common and common equivalent shares outstanding are as follows: For the three months For the six months ended April 30 ended April 30 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average common shares outstanding 2,749,425 2,729,386 2,747,558 2,724,244 Common equivalent shares outstanding 232,482 103,234 188,811 98,706 --------- --------- --------- --------- Weighed average common and common equivalent shares outstanding 2,981,907 2,832,620 2,936,369 2,822,950 ========= ========= ========= ========= 3. Inventory At April 30, 2000 and October 31, 1999, inventories consisted of the following: April 30, October 31, 2000 1999 ---- ---- Raw Materials $1,428,831 $1,503,444 Work in Process 407,437 573,993 Finished Goods 272,888 216,682 --------- --------- $2,109,156 $2,294,119 ========= ========= 4. Subsequent Events On February 21, 2000, the Company announced that it entered into a definitive merger agreement with Ennis Business Forms to acquire all of the stock of Northstar Computer Forms, Inc. This acquisition is subject to customary terms and conditions, including stockholder approval. The special meeting for stockholder approval was held on June 6, 2000, and the merger was approved. The merger was subsequently completed on that date. 24 Unaudited Pro Forma Combined Condensed Financial Information of Ennis On June 6, 2000, Ennis Business Forms, Inc. (Ennis) completed its acquisition of Northstar Computer Forms, Inc (Northstar). The acquisition price of $42,673,302 ($14/share) consisted of $6,173,302 in cash from internal funds and $36,500,000 in bank loans. Pursuant to the merger agreement, each stock option to acquire shares of common stock issued by Northstar and outstanding immediately prior to the merger, except certain options issued to the president of Northstar, were settled by Northstar for a cash payment (less applicable withholding taxes) equal to the product of the number of shares of common stock subject to such stock options times the difference between the merger consideration and the per share exercise price of such stock option. Ennis reimbursed Northstar for the cost of the settlement. Ennis also incurred various transaction costs in connection with the merger. The stock options of Northstar's president were exchanged for Ennis options with equivalent terms. As a result of the merger, Northstar became a wholly owned subsidiary of the Company and will operate as its Financial Solutions Group. Northstar designs, manufactures and markets printed forms with an emphasis on machine-readable MICR (Magnetic Ink Character Recognition) printing. Its two business concentrations are custom business/negotiable forms and internal bank forms. In connection with the merger, the Company entered into employment agreements with the senior management of Northstar. The following unaudited pro forma combined condensed financial information gives effect to the acquisition by Ennis of Northstar as if the acquisition occurred as of February 29, 2000, in the case of the unaudited pro forma combined condensed balance sheet as of February 29, 2000, and as of February 28, 1999, in the case of the unaudited pro forma combined condensed statement of earnings for the year ended February 29, 2000. The acquisition of Northstar by Ennis is being accounted for under the purchase method of accounting for business combinations. Northstar's latest fiscal year ended on October 31, 1999. The historical consolidated balance sheet of Northstar is as of January 31, 2000 (the end of its first quarter), and the historical consolidated statement of earnings of Northstar is for the year ended January 31, 2000. The historical consolidated statement of earnings of Northstar for the year ended January 31, 2000 was derived by adjusting the historical consolidated statement of earnings of Northstar for the year ended October 31, 1999 to add the results of operations for the quarter ended January 31, 2000 and subtract the results of operations for the comparable quarter of the preceding year, each as reported in the Form 10-Q of Northstar for the quarter ended January 31, 2000. The unaudited pro forma combined condensed financial information is based on the historical financial statements of Ennis and Northstar and should be read in conjunction with such historical financial statements. The pro forma combined condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been achieved if the acquisition had been completed on the date or as of the beginning of the period presented, nor is it necessarily indicative of the future financial position or operating results of Ennis. 25 Ennis Business Forms, Inc. Pro Forma Combined Condensed Balance Sheet As of February 29, 2000 (Dollars in Thousands) (Unaudited) Pro Forma Pro Forma Ennis Northstar Adjustments Combined ------ --------- ----------- --------- Assets ------ Current Assets: Cash and cash equivalents 2,037 4,224 (6,261) (b) -- Investment securities 1,438 -- (1,438) (b) -- Accounts receivable, net 26,015 5,115 31,130 Inventories 9,890 2,165 12,055 Other current assets 3,925 1,584 5,509 ------- ------ ------- ------- Total current assets 43,305 13,088 (7,699) 48,694 ------- ------ ------- ------- Investment securities 7,565 -- (101) (b) 7,464 Property, plant and equipment, net 41,728 13,108 8,300 (c) 63,136 Cost of purchased businesses in excess of amounts allocated to tangible net assets 8,680 1,304 17,356 (a) 27,340 Other assets and deferred charges 1,656 1,326 2,982 ------- ------ ------- ------- Total assets 102,934 28,826 17,856 149,616 ======= ====== ======= ======= (Continued) 26 Ennis Business Forms, Inc. Pro Forma Combined Condensed Balance Sheet As of February 29, 2000 (Dollars in Thousands) (Unaudited) Pro Forma Pro Forma Ennis Northstar Adjustments Combined ------ --------- ----------- --------- Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current installments of long- term debt 302 335 5,240 (d) 5,877 Accounts payable 5,380 1,849 7,229 Accrued expenses 4,843 1,480 6,323 ------- ------ ------- -------- Total current liabilities 10,525 3,664 5,240 19,429 ------- ------ ------- -------- Long-term debt, less current installments 462 1,340 31,260 (d) 33,062 Deferred credits, principally Federal income taxes 3,680 2,273 2,905 (e) 8,858 Shareholders' equity: Preferred stock, at par value -- -- -- Common stock, at par value 53,125 137 (137) (f) 53,125 Additional paid in capital 1,040 2,877 (2,877) (f) 1,040 Retained earnings 125,980 18,535 (18,535) (f) 125,980 ------- ------ ------- ------- 180,145 21,549 (21,549) 180,145 Less: Treasury stock 91,878 -- 91,878 ------- ------ ------- ------- Total shareholders' equity 88,267 21,549 (21,549) 88,267 ------- ------ ------- ------- Total liabilities and shareholders' equity 102,934 28,826 17,856 149,616 ======= ====== ======= ======= See accompanying notes to the pro forma combined condensed financial statements. 27 Ennis Business Forms, Inc. Pro Forma Combined Condensed Statement of Earnings Year Ended February 29, 2000 (Dollars in Thousands Except Per Share Amounts) (Unaudited) Pro Forma Pro Forma Ennis Northstar Adjustments Combined ------ --------- ----------- --------- Net sales 166,525 47,306 213,831 Costs and expenses: Cost of sales 113,740 34,397 148,137 Selling, general & administrative expenses 30,856 8,524 1,987 (g) 41,367 ------- ------ ------- ------- 144,596 41,921 1,987 189,504 ------- ------ ------- ------- Earnings from operations 21,929 4,385 (1,987) 24,327 Other income (expense): Investment income 1,150 165 (508) (h) 807 Interest expense (40) (176) (2,763) (i) (2,979) Other, principally gain on assets 1,002 -- 1,002 ------- ------ ------- ------- 2,112 (11) (3,271) (1,170) ------- ------ ------- ------- Earnings before income taxes 24,041 4,374 (5,258) 23,157 Provision for income taxes 8,918 1,704 (1,435) (j) 9,187 ------- ------ ------- ------- Net earnings 15,123 2,670 (3,823) 13,970 ======= ====== ======= ======= Weighted average number of common shares outstanding 16,249,861 16,249,861 ========== ========== Earnings per basic and diluted share of common stock 0.93 0.86 ==== ==== See accompanying notes to the pro forma combined condensed financial statements. 28 Ennis Business Forms, Inc. Notes to Pro Forma Combined Condensed Financial Statements February 29, 2000 (Dollars in Thousands Except Per Share Amounts) (Unaudited) (a) To reflect the excess of acquisition cost over the estimated fair value of net assets acquired (goodwill). The purchase price, purchase price allocation, and financing of the transaction are summarized as follows: Purchase price paid as: Debt $36,500 Cash paid for shares 6,173 Cash paid for options 1,148 Cash paid for transaction costs 479 ------ Total purchase consideration 44,300 Allocated to: Historical book value of Northstar's assets and liabilities $21,549 Adjustments to record assets and liabilities at fair value: Property, plant and equipment 8,300 Goodwill (1,304) Deferred taxes (2,905) ------ Total allocation 25,640 ------ Excess purchase price over allocation to identifiable assets and liabilities (goodwill) $18,660 ====== (b) Reflects the funding of the cash portion of the purchase price from cash and assumed liquidation of investment securities. (c) Reflects the step-up in property, plant and equipment values to fair value based on appraised values. (d) Reflects the increase in debt incurred in connection with the acquisition, consisting of a revolving note of $11,500 (due in quarterly installments of $460) and a term loan of $25,000 (due in quarterly installments of $850). Both loans mature in June 2003. (e) Reflects estimated deferred taxes arising from the acquisition. (f) Reflects the elimination of shareholders' equity accounts of Northstar. (g) Reflects the increase in depreciation and amortization due to (1) the amortization of goodwill on a straight-line basis over 15 years ($1,157), and (2) the increase in depreciation resulting from step-up of property, plant and equipment ($830). (h) Reflects the decrease in investment income related to the reduction of available cash for investment. (continued) 29 Ennis Business Forms, Inc. Notes to Pro Forma Combined Condensed Financial Statements February 29, 2000 (Dollars in Thousands Except Per Share Amounts) (Unaudited) (i) Reflects the increase in interest expense resulting from the increase in debt incurred in connection with the acquisition. The interest rate on new debt is a variable rate of 7.65% on the revolving note and a fixed rate of 7.89% (as a result of an interest rate swap) on the term loan. A change of 1/8 percent in the interest rate on the revolver would be insignificant. (j) Reflects the tax effects of adjustments to income. 30 (c) Exhibits 2.1 Agreement and Plan of Merger among Northstar Computer Forms, Inc., Ennis Business Forms, Inc. and Polaris Acquisitions Corp. dated June 6, 2000 2.2 Amendment No. 1 to Agreement and Plan of Merger among Northstar Computer Forms, Inc., Ennis Business Forms, Inc. and Polaris Acquisitions Corp dated May 9, 2000 2.3 Articles of Merger of Polaris Acquisition Corp into Northstar Computer Forms, Inc. 10.1 Credit Agreement among Ennis Business Forms, Inc., Bank One, Texas, N.A., U.S. Bank National Association, Certain Financial Institutions and Banc One Capital Markets, Inc. dated June 6, 2000 10.2 Consent, Assumption and Amendment Agreement among Northstar Computer Forms, Inc., Ennis Business Forms, Inc. and U.S. Bank National Association 23.1 Consent of PriceWaterhouseCoopers LLP 99.1 Press Release dated June 6, 2000 * Previously filed with 8-K submitted June 19, 2000 31 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: August 9, 2000 /s/Robert M. Halowec -------------- -------------------------------- Robert M. Halowec Vice President Finance And Chief Financial Officer Date: August 9, 2000 /s/Harve Cathey -------------- -------------------------------- Harve Cathey Secretary and Treasurer Principal Accounting Officer 32