Ennis, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended February 28, 2013. Although the request references 2012 Q4, this filing is an annual report; fourth-quarter figures below are for the three months ended February 28, 2013. Amounts are U.S. dollars.
Business context and key financials
Ennis manufactures and sells business forms and printed products (Print) and activewear, principally blank T-shirts (Apparel), primarily in North America. Print accounted for 63% of FY2013 sales and Apparel for 37%.
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $533.5 million | $517.0 million |
| Gross profit / margin | $124.2 million / 23.3% | $130.5 million / 25.2% |
| Operating income / margin | $40.4 million / 7.6% | $51.7 million / 9.9% |
| Net earnings / diluted EPS | $24.7 million / $0.95 | $31.4 million / $1.21 |
| Operating cash flow | $50.0 million | $24.6 million |
| Cash at year-end | $6.2 million | $10.4 million |
At February 28, 2013, working capital was $150.4 million, the current ratio was 4.49, and long-term debt was $57.5 million. The revolving facility provides up to $150 million; after $4.1 million of letters of credit, approximately $88.4 million was available. The facility matures in August 2016, and the company reported covenant compliance.
Material changes and quarterly comparison
- Annual sales rose 3.2%, primarily because FY2013 included a full year of sales from the PrintXcel and Printegra acquisition; underlying Print sales declined 6.2% from attrition and economic factors. Print segment sales increased 20.4% to $334.7 million.
- Apparel sales fell 16.8% to $198.8 million, while its gross margin contracted to 13.2% from 21.6%. Management cited market softness, lower selling prices, competitive pressure, and elevated cotton costs. Apparel segment profit fell to $0.2 million from $19.3 million.
- Print gross margin improved to 29.2% from 28.4%, with management attributing gains partly to integrating acquired operations into the company’s ERP systems.
- FY2013 fourth-quarter sales were $123.6 million versus $121.5 million a year earlier; gross profit was $31.3 million versus $26.5 million, and net earnings were $7.1 million versus $3.3 million. Diluted EPS was $0.27 versus $0.13.
- Operating cash flow increased as inventory declined; inventory was $109.7 million at year-end, down from $132.6 million. Cash generation funded debt repayment and dividends. The company repaid $37.5 million on its revolver during FY2013.
Outlook, risks, and unusual items
- No quantified earnings or revenue guidance was provided. Management expected Apparel margins to improve over the next several quarters as higher-cost cotton inventory cleared, and anticipated increased utilization at the Agua Prieta, Mexico facility, subject to demand and reliable utilities.
- Management expected FY2014 capital expenditures of $4–5 million and pension contributions of $2–3 million. It said operating cash flow should cover normal operating and capital requirements.
- Key risks include continued secular decline in printed business documents, price competition, cotton and paper cost volatility, limited supplier concentration, economic weakness, and dependence on Mexican manufacturing and utility services. A single supplier provided 48% of Alstyle’s yarn requirements.
- Goodwill and other intangible assets were approximately $121.8 million and $84.2 million. No impairment was recorded, but management said the Apparel asset fair-value cushion had narrowed to 4.8%, making further deterioration in demand or pricing a potential impairment trigger.
- The defined-benefit pension plan had a $9.3 million unfunded liability; management noted sensitivity to discount rates and asset markets. Ordinary-course litigation was not expected to materially affect financial position or results. No off-balance-sheet arrangements were reported.
- The FY2013 dividend was $0.88 per share, including an accelerated fourth-quarter dividend of $0.35; the regular quarterly rate had increased to $0.175. A $0.4 million LIFO inventory liquidation reduced cost of sales and increased net earnings by approximately $0.3 million.
Important facts for investors to verify
- Whether Apparel sales, pricing, and margins improved as management expected, and whether the Agua Prieta facility achieved higher utilization without further service disruptions.
- Whether Print growth reflects durable organic performance or remains primarily acquisition-driven, and whether ERP integration reduces acquired-business costs.
- Whether the narrowed Apparel impairment cushion, pension deficit, and cotton/paper supplier concentration changed materially after year-end.
- Current borrowing, revolver availability, covenant headroom, dividend policy, and cash generation relative to debt repayment and capital needs.
- The source and timing of the acquisition-related cash adjustment: the filing reports a $3.7 million purchase-price adjustment received in FY2013 and a revised PrintXcel/Printegra net purchase price of $36.2 million.