##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the Quarterly Period Ended November 30, 2006
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the Transition Period from  to
 Commission File Number 1-5807
 ENNIS, INC.
  Texas
    
    75-0256410(State or Other Jurisdiction of Incorporation or
Organization)
    
    (I.R.S. Employer Identification No.)2441 Presidential Pkwy., Midlothian, Texas
    
    76065(Address of Principal Executive Offices)
    
    (Zip code)
 (972) 775-9801
 þ o
  o þ o
 o þ




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##### 



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 TABLE OF CONTENTS
 PART I: FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets at November 30, 2006 (unaudited) and February 28, 2006
    
    
    3Unaudited Consolidated Statements of Earnings for the three and nine months ended November
30, 2006 and 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows for the nine months ended November 30, 2006
and 2005
    
    
    6Notes to the Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37SIGNATURES
    
    
    38Rule 13a-14(a)/15d-14(a) Certification of CEORule 13a-14(a)/15d-14(a) Certification of CFOSection 1350 Certification of CEOSection 1350 Certification of CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ENNIS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands )
 November 30,
    
    
    February 28,2006
    
    
    2006(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    7,586
    
    
    $
    13,860Accounts receivable, net of allowance for doubtful receivables
of $3,134 at November 30, 2006 and $3,001 at February 28, 2006
    
    
    49,436
    
    
    
    41,686Prepaid expenses
    
    
    5,882
    
    
    
    4,425Inventories
    
    
    90,069
    
    
    
    89,155Other current assets
    
    
    10,976
    
    
    
    6,935Assets held for sale
    
    
    1,881
    
    
    
    2,394Total current assets
    
    
    165,830
    
    
    
    158,455Property, plant and equipment, at costPlant, machinery and equipment
    
    
    127,376
    
    
    
    120,456Land and buildings
    
    
    40,570
    
    
    
    38,038Other
    
    
    21,287
    
    
    
    20,292Total property, plant and equipment
    
    
    189,233
    
    
    
    178,786Less accumulated depreciation
    
    
    124,423
    
    
    
    114,983Net property, plant and equipment
    
    
    64,810
    
    
    
    63,803Goodwill
    
    
    178,314
    
    
    
    178,280Trademarks, net
    
    
    63,031
    
    
    
    61,941Customer lists, net
    
    
    20,463
    
    
    
    21,632Deferred finance charges, net
    
    
    1,494
    
    
    
    1,390Prepaid pension asset
    
    
    6,897
    
    
    
    8,277Other assets
    
    
    689
    
    
    
    623Total assets
    
    $
    501,528
    
    
    $
    494,401
 See accompanying notes to consolidated financial statements.
 3




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ENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  (Dollars in thousands )
 November 30,
    
    
    February 28,2006
    
    
    2006(unaudited)Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable
    
    $
    28,280
    
    
    $
    26,589Accrued expensesEmployee compensation and benefits
    
    
    16,857
    
    
    
    17,250Taxes other than income
    
    
    1,370
    
    
    
    1,488Federal and state income taxes payable
    
    
    884
    
    
    
    2,490Other
    
    
    4,800
    
    
    
    4,524Current installments of long-term debt
    
    
    5,648
    
    
    
    11,620Total current liabilities
    
    
    57,839
    
    
    
    63,961Long-term debt, less current installments
    
    
    95,067
    
    
    
    102,916Deferred credits, principally income taxes
    
    
    28,880
    
    
    
    30,189Total liabilities
    
    
    181,786
    
    
    
    197,066Shareholders equitySeries A junior participating preferred stock of $10 par value.
Authorized 1,000,000 shares; none issued
    
    
    
    
    
    
    Common stock $2.50 par value, authorized 40,000,000 shares;
issued 30,053,443 shares at November 30 and February 28, 2006
    
    
    75,134
    
    
    
    75,134Additional paid in capital
    
    
    122,284
    
    
    
    122,922Retained earnings
    
    
    203,348
    
    
    
    181,423Accumulated other comprehensive income-foreign currency translation
    
    
    213
    
    
    
    460400,979
    
    
    
    379,939Treasury stockCost of 4,497,119 shares at November 30, 2006 and
4,574,329 shares at February 28, 2006
    
    
    (81,237
    )
    
    
    (82,604
    )Total shareholders equity
    
    
    319,742
    
    
    
    297,335Total liabilities and shareholders equity
    
    $
    501,528
    
    
    $
    494,401
 See accompanying notes to consolidated financial statements.
 4




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ENNIS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF EARNINGS
 ( Dollars in thousands except share and per share amounts )
 (Unaudited)
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    151,743
    
    
    $
    131,690
    
    
    $
    448,574
    
    
    $
    428,918Cost of goods sold
    
    
    113,770
    
    
    
    96,070
    
    
    
    334,545
    
    
    
    318,569Gross profit
    
    
    37,973
    
    
    
    35,620
    
    
    
    114,029
    
    
    
    110,349Selling, general and administrative
    
    
    18,450
    
    
    
    17,801
    
    
    
    54,850
    
    
    
    53,429Income from operations
    
    
    19,523
    
    
    
    17,819
    
    
    
    59,179
    
    
    
    56,920Other income (expense)Interest expense
    
    
    (1,853
    )
    
    
    (2,235
    )
    
    
    (5,363
    )
    
    
    (6,801
    )Other income (expense), net
    
    
    (493
    )
    
    
    834
    
    
    
    (174
    )
    
    
    664(2,346
    )
    
    
    (1,401
    )
    
    
    (5,537
    )
    
    
    (6,137
    )Earnings before income taxes
    
    
    17,177
    
    
    
    16,418
    
    
    
    53,642
    
    
    
    50,783Provision for income taxes
    
    
    6,355
    
    
    
    6,320
    
    
    
    19,847
    
    
    
    19,551Net earnings
    
    $
    10,822
    
    
    $
    10,098
    
    
    $
    33,795
    
    
    $
    31,232Weighted average common shares outstandingBasic
    
    
    25,555,460
    
    
    
    25,457,965
    
    
    
    25,517,901
    
    
    
    25,446,315Diluted
    
    
    25,799,890
    
    
    
    25,743,327
    
    
    
    25,744,187
    
    
    
    25,726,003Per share amountsNet earnings  basic
    
    $
    0.42
    
    
    $
    0.40
    
    
    $
    1.32
    
    
    $
    1.23Net earnings  diluted
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    1.31
    
    
    $
    1.21Cash dividends per share
    
    $
    0.155
    
    
    $
    0.155
    
    
    $
    0.465
    
    
    $
    0.465
 See accompanying notes to consolidated financial statements.
 5




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ENNIS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Nine months endedNovember 30,2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    33,795
    
    
    $
    31,232Adjustments to reconcile net earnings to net cash provided
by operating activities:Depreciation
    
    
    11,207
    
    
    
    11,700Amortization of deferred financing charges
    
    
    339
    
    
    
    663Amortization of trademarks and customer lists
    
    
    1,502
    
    
    
    1,467Gain on the sale of equipment
    
    
    (257
    )
    
    
    (217
    )Bad debt expense
    
    
    884
    
    
    
    1,231Stock based compensation
    
    
    213
    
    
    
    Changes in operating assets and liabilities, net of the
effects of acquisitions:Accounts receivable
    
    
    (5,351
    )
    
    
    7,254Prepaid expenses
    
    
    (1,474
    )
    
    
    (1,055
    )Inventories
    
    
    1,490
    
    
    
    (9,774
    )Other current assets
    
    
    53
    
    
    
    557Accounts payable and accrued expenses
    
    
    (3,261
    )
    
    
    (9,563
    )Prepaid pension asset
    
    
    1,380
    
    
    
    1,504Other assets
    
    
    (3,337
    )
    
    
    916Excess tax benefits from stock-based payment arrangements
    
    
    (55
    )
    
    
    Net cash provided by operating activities
    
    
    37,128
    
    
    
    35,915Cash flows from investing activities:Capital expenditures
    
    
    (3,245
    )
    
    
    (7,375
    )Purchase of businesses, net of cash acquired
    
    
    (17,617
    )
    
    
    Proceeds from disposal of property
    
    
    2,802
    
    
    
    246Net cash used in investing activities
    
    
    (18,060
    )
    
    
    (7,129
    )Cash flows from financing activities:Debt issued
    
    
    15,000
    
    
    
    9,000Repayment of debt
    
    
    (28,882
    )
    
    
    (25,374
    )Dividends
    
    
    (11,870
    )
    
    
    (11,831
    )Proceeds from exercise of stock options
    
    
    461
    
    
    
    350Excess tax benefits from stock-based payment arrangements
    
    
    55
    
    
    
    Net cash used in financing activities
    
    
    (25,236
    )
    
    
    (27,855
    )Effect of exchange rate changes on cash
    
    
    (106
    )
    
    
    Net change in cash and cash equivalents
    
    
    (6,274
    )
    
    
    931Cash and cash equivalents at beginning of period
    
    
    13,860
    
    
    
    10,694Cash and cash equivalents at end of period
    
    $
    7,586
    
    
    $
    11,625
 See accompanying notes to consolidated financial statements.
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ENNIS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE PERIOD ENDED NOVEMBER 30, 2006
 1. Basis of Presentation
  2. Stock Option Plans and Stock Based Compensation
    7




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ENNIS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE PERIOD ENDED NOVEMBER 30, 2006
 2. Stock Option Plans and Stock Based Compensation-continued
 For the three
    
    
    For the ninemonths ended
    
    
    months endedNovember 30,
    
    
    November 30,2005
    
    
    2005Net earnings as reported
    
    $
    10,098
    
    
    $
    31,232Deduct: Stock-based employee compensation expense not included in
reported earnings, net of related tax effect of $7 and $21, respectively
    
    
    (12
    )
    
    
    (35
    )Pro forma earnings
    
    $
    10,086
    
    
    $
    31,197Net earnings per shareBasic  as reported
    
    $
    0.40
    
    
    $
    1.23Basic  pro forma
    
    $
    0.40
    
    
    $
    1.23Diluted  as reported
    
    $
    0.39
    
    
    $
    1.21Diluted  pro forma
    
    $
    0.39
    
    
    $
    1.21
  WeightedAverageNumber
    
    Weighted
    
    Remaining
    
    Aggregateof
    
    Average
    
    Contractual
    
    IntrinsicShares
    
    Exercise
    
    Life
    
    Value(a)(exact quantity)
    
    Price
    
    (in years)
    
    (in thousands)Outstanding at February 28, 2006
    
    
    687,850
    
    
    $
    10.63Granted
    
    
    
    
    
    
    Terminated
    
    
    (22,500
    )
    
    
    11.13Exercised
    
    
    (90,587
    )
    
    
    8.05Outstanding at November 30, 2006
    
    
    574,763
    
    
    $
    11.02
    
    
    
    4.1
    
    
    $
    6,775Exercisable at November 30, 2006
    
    
    475,738
    
    
    $
    10.14
    
    
    
    3.4
    
    
    $
    6,026
 
 (a)
    
    Value is calculated on the basis of the difference between the market value of the Companys
Common Stock as reported on the New York Stock Exchange on November 30, 2006 ($22.81) and the
weighted average exercise price, multiplied by the number of shares indicated. 8




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 2. Stock Option Plans and Stock Based Compensation-continued
  Expected volatility
    
    
    23.89
    %Expected term (years)
    
    
    5Risk free interest rate
    
    
    3.85
    %Dividend yield
    
    
    3.81
    %Weighted average grant-date fair value
    
    $
    2.85
  Three months ended
    
    Nine months endedNovember 30,
    
    November 30,2006
    
    2005
    
    2006
    
    2005Total cash received
    
    $
    21
    
    
    $
    17
    
    
    $
    461
    
    
    $
    350Income tax benefits
    
    $
    1
    
    
    $
    8
    
    
    $
    55
    
    
    $
    86Total grant-date fair value
    
    $
    3
    
    
    $
    34
    
    
    $
    81
    
    
    $
    72Intrinsic value
    
    $
    23
    
    
    $
    144
    
    
    $
    1,050
    
    
    $
    361
  WeightedAverageNumber
    
    
    Grant Dateof Options
    
    
    Fair ValueUnvested at February 28, 2006
    
    
    143,700
    
    
    $
    2.28New grants
    
    
    
    
    
    $
    Vested
    
    
    (44,675
    )
    
    $
    1.76Forfeited
    
    
    
    
    
    $
    Unvested at November 30, 2006
    
    
    99,025
    
    
    $
    2.52
  9




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 2. Stock Option Plans and Stock Based Compensation-continued
  WeightedAverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueOutstanding at February 28, 2006
    
    
    23,919
    
    
    $
    19.69Granted
    
    
    16,000
    
    
    
    19.64Forfeited
    
    
    
    
    
    
    Outstanding at November 30, 2006
    
    
    39,919
    
    
    $
    19.67Vested at November 30, 2006
    
    
    
  3. Employee Benefit Plans
   Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Components of net periodic benefit costService cost
    
    $
    362
    
    
    $
    355
    
    
    $
    1,080
    
    
    $
    1,066Interest
cost
    
    
    609
    
    
    
    611
    
    
    
    1,829
    
    
    
    1,833Expected return on
plan
assets
    
    
    (712
    )
    
    
    (693
    )
    
    
    (2,136
    )
    
    
    (2,079
    )Amortization of:Prior service
cost
    
    
    (37
    )
    
    
    (36
    )
    
    
    (109
    )
    
    
    (108
    )Unrecognized net
loss
    
    
    238
    
    
    
    264
    
    
    
    716
    
    
    
    792Net periodic benefit
cost
    
    $
    460
    
    
    $
    501
    
    
    $
    1,380
    
    
    $
    1,504
  10




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 4. Due From Factors
     November 30,
    
    
    February 28,2006
    
    
    2006Outstanding factored receivablesWithout recourse
    
    $
    19,737
    
    
    $
    19,762With recourse
    
    
    676
    
    
    
    1,099Advances from factors
    
    
    (17,222
    )
    
    
    (17,772
    )Due from factors
    
    $
    3,191
    
    
    $
    3,089
 5. Accounts Receivable and Allowance for Doubtful Receivables
  11




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 5. Accounts Receivable and Allowance for Doubtful Receivables-continued
   Three months ended
    
    
    Nine months endedNovember 30
    
    
    November 302006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    3,226
    
    
    $
    3,839
    
    
    $
    3,001
    
    
    $
    3,567Bad debt expense
    
    
    429
    
    
    
    487
    
    
    
    884
    
    
    
    1,231Recoveries
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    Accounts written off
    
    
    (521
    )
    
    
    (111
    )
    
    
    (850
    )
    
    
    (583
    )Balance at end of period
    
    $
    3,134
    
    
    $
    4,215
    
    
    $
    3,134
    
    
    $
    4,215
 6. Inventories
   November 30,
    
    
    February 28,2006
    
    
    2006Raw material
    
    $
    12,626
    
    
    $
    12,694Work-in-process
    
    
    14,892
    
    
    
    16,886Finished goods
    
    
    62,551
    
    
    
    59,575$
    90,069
    
    
    $
    89,155
 7. Acquisitions
  12




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 7. Acquisitions-continued
  Accounts receivable
    
    $
    2,544Inventories
    
    
    1,864Property, plant & equipment
    
    
    7,430Other assets
    
    
    99Deferred tax asset
    
    
    2,233Trademarks
    
    
    1,202Customer lists
    
    
    62Accounts payable and accrued liabilities
    
    
    (2,412
    )$
    13,022
   Accounts receivable
    
    $
    826Inventories
    
    
    579Property, plant & equipment
    
    
    3,684Other assets
    
    
    5Deferred tax asset
    
    
    1,753Noncompete
    
    
    25Accounts payable and accrued
liabilities
    
    
    (2,286
    )$
    4,586
   13




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 7. Acquisitions-continued
 Three months ended
    
    Nine months endedNovember 30,
    
    November 30,2006
    
    2005
    
    2006
    
    2005Pro forma net sales
    
    $
    151,743
    
    
    $
    144,177
    
    
    $
    466,246
    
    
    $
    466,154Pro forma net earnings
    
    
    10,822
    
    
    
    10,022
    
    
    
    33,608
    
    
    
    31,157Pro forma earnings per share  diluted
    
    
    0.42
    
    
    
    0.39
    
    
    
    1.31
    
    
    
    1.21
  8. Goodwill and Other Intangible Assets
    GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetAs of November 30, 2006Amortized intangible assets (in thousands)Trademarks
    
    $
    1,234
    
    
    $
    405
    
    
    $
    829Purchased customer lists
    
    
    23,823
    
    
    
    3,360
    
    
    
    20,463$
    25,057
    
    
    $
    3,765
    
    
    $
    21,292As of February 28, 2006Amortized intangible assets (in thousands)Trademarks
    
    $
    1,234
    
    
    $
    293
    
    
    $
    941Purchased customer lists
    
    
    23,760
    
    
    
    2,128
    
    
    
    21,632$
    24,994
    
    
    $
    2,421
    
    
    $
    22,573
 14




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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 8. Goodwill and Other Intangible Assets-continued
  November 30,
    
    February 28,2006
    
    2006Trademarks (in thousands)
    
    $
    62,202
    
    
    $
    61,000
    2007
    
    $
    1,964,0002008
    
    
    1,830,0002009
    
    
    1,798,0002010
    
    
    1,783,0002011
    
    
    1,781,000
  November 30,
    
    
    February 28,2006
    
    
    2006Balance as of the beginning of the period
    
    $
    178,280
    
    
    $
    178,472Goodwill adjusted during year
    
    
    34
    
    
    
    (192
    )Balance as of the end of the period
    
    $
    178,314
    
    
    $
    178,280
 9. Long-Term Debt
  November 30,
    
    
    February 28,2006
    
    
    2006Revolving credit facility
    
    $
    95,000
    
    
    $
    62,500Term credit facility
    
    
    
    
    
    
    40,000Capital lease obligations
    
    
    271
    
    
    
    736Notes payable to finance companies
    
    
    389
    
    
    
    1,300Notes payable to former Alstyle Shareholders
    
    
    5,000
    
    
    
    10,000Other
    
    
    55
    
    
    
    100,715
    
    
    
    114,536Less current installments
    
    
    5,648
    
    
    
    11,620Long-term debt
    
    $
    95,067
    
    
    $
    102,916
  15




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 9. Long-Term Debt-continued
    10. Shareholders Equity
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings
    
    $
    10,822
    
    
    $
    10,098
    
    
    $
    33,795
    
    
    $
    31,232Interest rate hedge
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    (216
    )
    
    
    222
    
    
    
    (247
    )
    
    
    237Comprehensive income
    
    $
    10,606
    
    
    $
    10,319
    
    
    $
    33,548
    
    
    $
    31,469
  AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryStock ($)
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Stock ($)
    
    
    TotalBalance at February 28, 2006
    
    $
    75,134
    
    
    $
    122,922
    
    
    $
    181,423
    
    
    $
    460
    
    
    $
    (82,604
    )
    
    $
    297,335Net earnings
    
    
    
    
    
    
    
    
    
    
    33,795
    
    
    
    
    
    
    
    
    
    
    
    33,795Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (247
    )
    
    
    
    
    
    
    (247
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,548Dividends declared ($.465 per
share)
    
    
    
    
    
    
    
    
    
    
    (11,870
    )
    
    
    
    
    
    
    
    
    
    
    (11,870
    )Proceeds from stock options
exercised
    
    
    
    
    
    
    (906
    )
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    461Excess tax benefits from stock-based payment arrangements
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Charge related to stock-based
compensation
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Balance at November 30, 2006
    
    $
    75,134
    
    
    $
    122,284
    
    
    $
    203,348
    
    
    $
    213
    
    
    $
    (81,237
    )
    
    $
    319,742
 16




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 11. Earnings per share
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic weighted average common shares outstanding
    
    
    25,555,460
    
    
    
    25,457,965
    
    
    
    25,517,901
    
    
    
    25,446,315Effect of dilutive options
    
    
    244,430
    
    
    
    285,362
    
    
    
    226,286
    
    
    
    279,688Diluted weighted average common shares outstanding
    
    
    25,799,890
    
    
    
    25,743,327
    
    
    
    25,744,187
    
    
    
    25,726,003Per share amounts:Net earnings  basic
    
    $
    0.42
    
    
    $
    0.40
    
    
    $
    1.32
    
    
    $
    1.23Net earnings  diluted
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    1.31
    
    
    $
    1.21Cash dividends
    
    $
    0.155
    
    
    $
    0.155
    
    
    $
    0.465
    
    
    $
    0.465
 12. Segment Information and Geographic Information
      17




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 12. Segment Information and Geographic Information-continued
    Print
    
    Apparel
    
    
    
    
    
    ConsolidatedSegment
    
    Segment
    
    Corporate
    
    TotalsThree months ended November 30, 2006:Net sales
    
    $
    85,665
    
    
    $
    66,078
    
    
    $
    
    
    
    $
    151,743Depreciation
    
    
    2,122
    
    
    
    1,363
    
    
    
    162
    
    
    
    3,647Amortization of identifiable intangibles
    
    
    98
    
    
    
    404
    
    
    
    
    
    
    
    502Segment earnings (loss) before
income tax
    
    
    12,681
    
    
    
    8,271
    
    
    
    (3,775
    )
    
    
    17,177Segment assets
    
    
    167,546
    
    
    
    323,517
    
    
    
    10,465
    
    
    
    501,528Capital expenditures
    
    
    858
    
    
    
    377
    
    
    
    199
    
    
    
    1,434Three months ended November 30, 2005:Net sales
    
    $
    77,840
    
    
    $
    53,850
    
    
    $
    
    
    
    $
    131,690Depreciation
    
    
    1,779
    
    
    
    1,922
    
    
    
    152
    
    
    
    3,853Amortization of identifiable intangibles
    
    
    90
    
    
    
    404
    
    
    
    
    
    
    
    494Segment earnings (loss) before
income tax
    
    
    11,846
    
    
    
    7,478
    
    
    
    (2,906
    )
    
    
    16,418Segment assets
    
    
    156,647
    
    
    
    327,556
    
    
    
    6,780
    
    
    
    490,983Capital expenditures
    
    
    518
    
    
    
    686
    
    
    
    33
    
    
    
    1,237Nine months ended November 30, 2006:Net sales
    
    $
    245,016
    
    
    $
    203,558
    
    
    $
    
    
    
    $
    448,574Depreciation
    
    
    6,187
    
    
    
    4,557
    
    
    
    463
    
    
    
    11,207Amortization of identifiable intangibles
    
    
    290
    
    
    
    1,212
    
    
    
    
    
    
    
    1,502Segment earnings (loss) before
income tax
    
    
    35,336
    
    
    
    28,601
    
    
    
    (10,295
    )
    
    
    53,642Segment assets
    
    
    167,546
    
    
    
    323,517
    
    
    
    10,465
    
    
    
    501,528Capital expenditures
    
    
    1,869
    
    
    
    1,029
    
    
    
    347
    
    
    
    3,245Nine months ended November 30, 2005:Net sales
    
    $
    242,461
    
    
    $
    186,457
    
    
    $
    
    
    
    $
    428,918Depreciation
    
    
    5,423
    
    
    
    5,805
    
    
    
    472
    
    
    
    11,700Amortization of identifiable intangibles
    
    
    269
    
    
    
    1,198
    
    
    
    
    
    
    
    1,467Segment earnings (loss) before
income tax
    
    
    34,820
    
    
    
    23,931
    
    
    
    (7,968
    )
    
    
    50,783Segment assets
    
    
    156,647
    
    
    
    327,556
    
    
    
    6,780
    
    
    
    490,983Capital expenditures
    
    
    2,206
    
    
    
    4,759
    
    
    
    410
    
    
    
    7,375
 18




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 12. Segment Information and Geographic Information-continued
   UnitedStates
    
    
    Canada
    
    
    Mexico
    
    
    TotalThree months ended November 30, 2006Net sales to unaffiliated customersPrint Segment
    
    $
    85,665
    
    
    $
    
    
    
    $
    
    
    
    $
    85,665Apparel Segment
    
    
    62,204
    
    
    
    3,874
    
    
    
    
    
    
    
    66,078$
    147,869
    
    
    $
    3,874
    
    
    $
    
    
    
    $
    151,743Identifiable long-lived assetsPrint Segment
    
    $
    45,635
    
    
    $
    
    
    
    $
    
    
    
    $
    45,635Apparel Segment
    
    
    9,990
    
    
    
    105
    
    
    
    2,926
    
    
    
    13,021Corporate
    
    
    6,154
    
    
    
    
    
    
    
    
    
    
    
    6,154$
    61,779
    
    
    $
    105
    
    
    $
    2,926
    
    
    $
    64,810Three months ended November 30, 2005Net sales to unaffiliated customersPrint Segment
    
    $
    77,840
    
    
    $
    
    
    
    $
    
    
    
    $
    77,840Apparel Segment
    
    
    49,445
    
    
    
    4,405
    
    
    
    
    
    
    
    53,850$
    127,285
    
    
    $
    4,405
    
    
    $
    
    
    
    $
    131,690Identifiable long-lived assetsPrint Segment
    
    $
    42,480
    
    
    $
    
    
    
    $
    
    
    
    $
    42,480Apparel Segment
    
    
    14,244
    
    
    
    110
    
    
    
    3,923
    
    
    
    18,277Corporate
    
    
    6,846
    
    
    
    
    
    
    
    
    
    
    
    6,846$
    63,570
    
    
    $
    110
    
    
    $
    3,923
    
    
    $
    67,603Nine months ended November 30, 2006Net sales to unaffiliated customersPrint Segment
    
    $
    245,016
    
    
    $
    
    
    
    $
    
    
    
    $
    245,016Apparel Segment
    
    
    188,796
    
    
    
    14,762
    
    
    
    
    
    
    
    203,558$
    433,812
    
    
    $
    14,762
    
    
    $
    
    
    
    $
    448,574Identifiable long-lived assetsPrint Segment
    
    $
    45,635
    
    
    $
    
    
    
    $
    
    
    
    $
    45,635Apparel Segment
    
    
    9,990
    
    
    
    105
    
    
    
    2,926
    
    
    
    13,021Corporate
    
    
    6,154
    
    
    
    
    
    
    
    
    
    
    
    6,154$
    61,779
    
    
    $
    105
    
    
    $
    2,926
    
    
    $
    64,810
 19




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 12. Segment Information and Geographic Information-continued
 UnitedStates
    
    
    Canada
    
    
    Mexico
    
    
    TotalNine months ended November 30, 2005Net sales to unaffiliated customersPrint Segment
    
    $
    242,461
    
    
    $
    
    
    
    $
    
    
    
    $
    242,461Apparel Segment
    
    
    172,625
    
    
    
    13,832
    
    
    
    
    
    
    
    186,457$
    415,086
    
    
    $
    13,832
    
    
    $
    
    
    
    $
    428,918Identifiable long-lived assetsPrint Segment
    
    $
    42,480
    
    
    $
    
    
    
    $
    
    
    
    $
    42,480Apparel Segment
    
    
    14,244
    
    
    
    110
    
    
    
    3,923
    
    
    
    18,277Corporate
    
    
    6,846
    
    
    
    
    
    
    
    
    
    
    
    6,846$
    63,570
    
    
    $
    110
    
    
    $
    3,923
    
    
    $
    67,603
 13. Supplemental Cash Flow Information
  Three months ended
    
    Nine months enddNovember 30,
    
    November 30,2006
    
    2005
    
    2006
    
    2005Interest paid
    
    $
    1,863
    
    
    $
    2,169
    
    
    $
    5,030
    
    
    $
    6,720Income taxes paid
    
    $
    6,482
    
    
    $
    6,538
    
    
    $
    21,081
    
    
    $
    19,678
 14. Assets Held for Sale
  15. Recent Accounting Pronouncements
 FIN 48 . Accounting for Income Taxes.
 20




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 15. Recent Accounting Pronouncements-continued
 FAS 157 .
 FAS 158 .
 SAB 108
  21




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   Business Segment Overview
  Print Segment
    22




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
      Apparel Segment
      23




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
       Risk Factors
  We may be required to write down goodwill and other intangible assets in the future, which could
cause our financial condition and results of operations to be negatively affected
 .
 24




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
  Printed business forms may be superceded over time by paperless business forms or otherwise
affected by technological obsolescence and changing customer preferences, which could reduce our
sales and profits.
  Our distributors face increased competition from various sources, such as office supply
superstores. Increased competition may require us to reduce prices or to offer other incentives in
order to enable our distributors to attract new customers and retain existing customers.
  Technological improvements may reduce our competitive advantage over some of our competitors, which
could reduce our profits.
  We could experience labor disputes that could disrupt our business in the future.
  We obtain our raw materials from a limited number of suppliers and any disruption in our
relationships with these suppliers, or any substantial increase in the price of raw materials,
could have a material adverse effect on us.
  25




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
    Alstyle faces intense competition to gain market share, which may lead some competitors to sell
substantial amounts of goods at prices against which we cannot profitably compete.
  Apparel business is subject to cyclical trends.
  Our apparel foreign operations could be subject to unexpected changes in regulatory requirements,
tariffs and other market barriers and political and economic instability in the countries where it
operates, which could negatively impact our operating results.
  Our apparel products are subject to foreign competition, which in the past have been faced with
significant U.S. government import restrictions.
  26




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
     Environmental regulations may impact our future operating results.
  We depend upon the talents and contributions of a limited number of individuals, many of whom would
be difficult to replace.
  Cautionary Statements
  27




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
   Liquidity and Capital Resources
 November 30,
    
    February 28,(Dollars in thousands)
    
    2006
    
    2006
    
    ChangeWorking Capital
    
    $
    107,991
    
    
    $
    94,494
    
    
    
    14.3
    %Cash and cash equivalents
    
    $
    7,586
    
    
    $
    13,860
    
    
    
    -45.3
    %
 Working Capital.
 Cash and cash equivalents.
 Nine months ended November 30,(Dollars in thousands)
    
    2006
    
    2005
    
    ChangeCash provided by operating activities
    
    $
    37,128
    
    
    $
    35,915
    
    
    
    3.4
    %Cash used for investing activities
    
    $
    (18,060
    )
    
    $
    (7,129
    )
    
    
    153.3
    %Cash used for financing activities
    
    $
    (25,236
    )
    
    $
    (27,855
    )
    
    
    -9.4
    %
 Cash flows from operating activities.
 Cash flows from investing activities.
 28




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
  Cash flows from financing activities.
 Credit Facility 
   Pension 
 Inventories 
 Capital Expenditures 
 Contractual Obligations & Off-Balance Sheet Arrangements 
 Results of Operations  Consolidated
 Three Months ended November 30, 2006 compared to Three Months ended November 30, 2005
 Net Sales.
 29




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
  Gross profit.
 Selling, general and administrative expenses.
 Income from operations.
 Other income and expense.
 Provision for income taxes.
 Net earnings.
 Nine months ended November 30, 2006 compared to Nine months ended November 30, 2005.
 Net Sales.
 Gross profit.
 30




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 Selling, general and administrative expenses.
 Income from operations.
 Other income and expense.
 Provision for income taxes.
 Net earnings.
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,Net Sales by Segment (in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Print
    
    $
    85,665
    
    
    $
    77,840
    
    
    $
    245,016
    
    
    $
    242,461Apparel
    
    
    66,078
    
    
    
    53,850
    
    
    
    203,558
    
    
    
    186,457Total
    
    $
    151,743
    
    
    $
    131,690
    
    
    $
    448,574
    
    
    $
    428,918
 Results of Operations  Segments
 Print Segment
 31




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 Apparel Segment
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,Gross Profit by Segment (in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Print
    
    $
    21,973
    
    
    $
    20,830
    
    
    $
    61,785
    
    
    $
    62,186Apparel
    
    
    16,000
    
    
    
    14,790
    
    
    
    52,244
    
    
    
    48,163Total
    
    $
    37,973
    
    
    $
    35,620
    
    
    $
    114,029
    
    
    $
    110,349
 Print Segment
 Apparel Segment
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,Profit by Segment (in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Print
    
    $
    12,681
    
    
    $
    11,846
    
    
    $
    35,336
    
    
    $
    34,820Apparel
    
    
    8,271
    
    
    
    7,478
    
    
    
    28,601
    
    
    
    23,931Total
    
    
    20,952
    
    
    
    19,324
    
    
    
    63,937
    
    
    
    58,751Less corporate expenses
    
    
    3,775
    
    
    
    2,906
    
    
    
    10,295
    
    
    
    7,968Earnings before income taxes
    
    $
    17,177
    
    
    $
    16,418
    
    
    $
    53,642
    
    
    $
    50,783
 Print Segment
 32




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
  Apparel Segment
 Critical Accounting Policies and Judgments
      33




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
      New Accounting Standards
 FIN 48 . Accounting for Income Taxes.
 FAS 157 .
 34




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 FAS 158 .
 SAB 108
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
    
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 35




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
   36




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Items 2, 3 and 5 are not applicable and have been omitted
 
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
  Exhibit 3.1
    
    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 3.2
    
    Bylaws of the Registrant as amended through October 15, 1997 incorporated
herein by reference to Exhibit 3(ii) to the registrants Form 10-Q Quarterly
Report for the quarter ended November 30, 1997.Exhibit 3.3
    
    Articles of Amendment to the Articles of Incorporation of Ennis Business
Forms, Inc. filed on June 17, 2004 incorporated herein by reference to Exhibit
3.3 to the registrants Form 10-Q Quarterly Report for the quarter ended
November 30, 2004.Exhibit 31.1
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Chief Executive Officer.*Exhibit 31.2
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Chief Financial Officer.*Exhibit 32.1
    
    Section 1350 Certification of Chief Executive Officer.**Exhibit 32.2
    
    Section 1350 Certification of Chief Financial Officer.**
 
 *
    
    Filed herewith**
    
    Furnished herewith 37




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 
   ENNIS, INC.Date: December 22, 2006
    /s/ Keith S. WaltersKeith S. WaltersChairman, Chief Executive Officer and
PresidentDate: December 22, 2006
    /s/ Richard L. Travis, Jr.Richard L. Travis, Jr.V.P.  Finance and CFO, Secretary and
Principal Financial and Accounting Officer 38




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE PERIOD ENDED NOVEMBER 30, 2006
 INDEX TO EXHIBITS
 Exhibit Number
    
    DescriptionExhibit 3.1
    
    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 3.2
    
    Bylaws of the Registrant as amended through October 15, 1997 incorporated
herein by reference to Exhibit 3(ii) to the registrants Form 10-Q Quarterly
Report for the quarter ended November 30, 1997.Exhibit 3.3
    
    Articles of Amendment to the Articles of Incorporation of Ennis Business
Forms, Inc. filed on June 17, 2004 incorporated herein by reference to Exhibit
3.3 to the registrants Form 10-Q Quarterly Report for the quarter ended
November 30, 2004.Exhibit 31.1
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Chief Executive Officer.*Exhibit 31.2
    
    Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Chief Financial Officer.*Exhibit 32.1
    
    Section 1350 Certification of Chief Executive Officer.**Exhibit 32.2
    
    Section 1350 Certification of Chief Financial Officer.**
 
 *
    
    Filed herewith**
    
    Furnished herewith 39