Business Context and Reporting Period
Company: Ennis, Inc. (formerly Ennis Business Forms, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: February 28, 2005
Headquarters: Midlothian, Texas
Ennis operates through four primary business segments: Forms Solutions (49% of sales), Promotional Solutions (23%), Financial Solutions (13%), and Apparel Solutions (15%). The company manufactures and distributes business forms, promotional media, secure financial documents, and activewear apparel. It operates 42 manufacturing facilities across 18 states and Mexico, employing approximately 6,200 people.
Key Financial Metrics
Note: Specific revenue, profit, and cash flow figures for the fiscal year are incorporated by reference to the 2005 Annual Report to Shareholders and are not explicitly stated in the provided text.
- Goodwill: Approximately $178.5 million as of February 28, 2005.
- Variable Rate Debt: $111 million outstanding at fiscal year-end 2005.
- Interest Rate Risk: A one-point change in interest rates on variable debt would impact results by approximately $1,000,000.
- Backlog (Firm Orders):
- Business Forms: $7,918,000 (up from $5,355,000 in 2004).
- Promotional Media: $6,824,000 (down from $12,300,000 in 2004).
- Financial Forms: $2,376,000 (up from $2,315,000 in 2004).
- Stock Performance (FY 2005): High of $22.23, Low of $14.70. Dividends paid: $0.155 per share per quarter.
- Shares Outstanding: 25,417,995 as of April 15, 2005.
Material Changes and Operational Updates
- Acquisitions: The company acquired Alstyle Apparel, Crabar/GBF, Inc., and Royal Business Forms, Inc., resulting in significant additions to the allowance for doubtful receivables and inventory reserves.
- Segment Shift: Management estimates that apparel products will constitute a significantly larger portion of consolidated net sales in the future.
- Auditor Change: Ernst & Young LLP was dismissed on June 24, 2004, and replaced by Grant Thornton LLP. No disagreements on accounting matters were reported.
- Backlog Volatility: While business forms backlog increased, promotional media backlog decreased significantly year-over-year.
Outlook, Risks, and Contingencies
Management Outlook: Management believes Ennis is one of the largest producers of business forms in the U.S. and aims to offset the obsolescence of standardized forms with custom, full-color products and new services.
Key Risks:
- Technological Obsolescence: "Paperless" business forms and electronic transaction systems threaten long-term demand for printed forms.
- Competition: Office supply superstores compete on price for standardized forms; apparel competitors (e.g., Gildan, Hanes) have stronger brand recognition.
- Supply Chain Concentration: Reliance on sole-source suppliers for paper (Mead/Westvaco), yarn (Parkdale Mills), and delivery (UPS).
- Raw Material Costs: Apparel segment is exposed to cotton price fluctuations; cotton accounts for ~40% of manufactured product cost.
- Trade and Regulatory: Operations depend on NAFTA and the "maquiladora" duty-free program in Mexico. Changes in WTO quotas or import restrictions could impact competitiveness.
- Goodwill Impairment: Future write-downs of the $178.5 million goodwill balance could negatively affect financial results.
Investor Verification Checklist
- Verify the specific revenue, net income, and operating cash flow figures in the attached 2005 Annual Report to Shareholders (Exhibit 13), as they are not detailed in the 10-K text.
- Review the impact of the Alstyle Apparel acquisition on gross margins and inventory reserves.
- Monitor the trend of the promotional media backlog, which declined significantly compared to the prior year.
- Assess the company's exposure to cotton price volatility and the potential impact of changes in NAFTA or Mexican maquiladora regulations.
- Confirm the status of labor negotiations, as 14% of domestic employees are unionized.