##### 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 1934For the Quarterly Period Ended November 30, 2005
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For 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  (Registrants
Telephone Number, Including Area Code)
 þ o
  þ o
  o þ




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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  
 TABLE OF CONTENTS
 PART I: FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at November 30, 2005 (unaudited)
and February 28, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Earnings for the three months
and nine months ended November 30, 2005 and 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended November 30, 2005 and 2004
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    37SIGNATURES
    
    
    38Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer Pursuant to Section 1350Certification of Chief Financial Officer Pursuant to Section 1350
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 ENNIS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands )
 November 30,
    
    
    February 28,2005
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,625
    
    
    $
    10,694Accounts receivable, net
    
    
    38,200
    
    
    
    46,685Prepaid expenses
    
    
    6,217
    
    
    
    5,162Inventories
    
    
    89,674
    
    
    
    79,900Other current assets
    
    
    6,475
    
    
    
    6,732Total current assets
    
    
    152,191
    
    
    
    149,173Property, plant and equipment, net
    
    
    67,603
    
    
    
    72,019Goodwill, net
    
    
    178,157
    
    
    
    178,472Trademarks, net
    
    
    61,978
    
    
    
    62,090Purchased customer list, net
    
    
    22,043
    
    
    
    23,275Other assets
    
    
    9,011
    
    
    
    12,217$
    490,983
    
    
    $
    497,246LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    27,863
    
    
    $
    33,887Accrued expenses:Employee compensation and benefits
    
    
    14,561
    
    
    
    16,135Federal and state income tax payable
    
    
    1,217
    
    
    
    1,389Taxes other than income
    
    
    2,383
    
    
    
    3,154Other
    
    
    5,347
    
    
    
    5,116Current installments of long-term debt
    
    
    21,120
    
    
    
    21,702Total current liabilities
    
    
    72,491
    
    
    
    81,383Long-term debt, less current installments
    
    
    96,550
    
    
    
    112,342Deferred credits, principally income taxes
    
    
    30,223
    
    
    
    31,790Shareholders equity:Series A junior participating preferred stock
$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, 2005 and
February 28, 2005
    
    
    75,134
    
    
    
    75,134Additional paid in capital
    
    
    123,153
    
    
    
    123,640Retained earnings
    
    
    176,067
    
    
    
    156,666Accumulated other comprehensive income
    
    
    243
    
    
    
    6374,597
    
    
    
    355,446Treasury stock:Cost of 4,589,493 shares at November 30, 2005
and 4,635,444 shares at February 28, 2005
    
    
    (82,878
    )
    
    
    (83,715
    )Total shareholders equity
    
    
    291,719
    
    
    
    271,731$
    490,983
    
    
    $
    497,246
 See accompanying notes to condensed consolidated financial statements
 3




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ENNIS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 ( Dollars in thousands except share and per share amounts )
 (Unaudited)
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    131,690
    
    
    $
    91,750
    
    
    $
    428,918
    
    
    $
    230,860Cost of goods sold
    
    
    96,070
    
    
    
    68,876
    
    
    
    318,569
    
    
    
    171,574Gross profit
    
    
    35,620
    
    
    
    22,874
    
    
    
    110,349
    
    
    
    59,286Selling, general and administrative
    
    
    17,801
    
    
    
    12,907
    
    
    
    53,429
    
    
    
    33,106Earnings from operations
    
    
    17,819
    
    
    
    9,967
    
    
    
    56,920
    
    
    
    26,180Other income (expense):Interest expense
    
    
    (2,235
    )
    
    
    (288
    )
    
    
    (6,801
    )
    
    
    (589
    )Other income, net
    
    
    834
    
    
    
    190
    
    
    
    664
    
    
    
    330(1,401
    )
    
    
    (98
    )
    
    
    (6,137
    )
    
    
    (259
    )Earnings before income taxes
    
    
    16,418
    
    
    
    9,869
    
    
    
    50,783
    
    
    
    25,921Provision for income taxes
    
    
    6,320
    
    
    
    3,765
    
    
    
    19,551
    
    
    
    9,865Net earnings
    
    $
    10,098
    
    
    $
    6,104
    
    
    $
    31,232
    
    
    $
    16,056Weighted average number of common
shares outstanding  basic
    
    
    25,457,965
    
    
    
    16,959,463
    
    
    
    25,446,315
    
    
    
    16,599,542Weighted average number of common
shares outstanding  diluted
    
    
    25,743,327
    
    
    
    17,326,580
    
    
    
    25,726,003
    
    
    
    16,924,120Per share amounts:Net earnings  basic
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    1.23
    
    
    $
    0.97Net earnings  diluted
    
    $
    0.39
    
    
    $
    0.35
    
    
    $
    1.21
    
    
    $
    0.95Cash dividends per share
    
    $
    0.155
    
    
    $
    0.155
    
    
    $
    0.465
    
    
    $
    0.465
 See accompanying notes to condensed consolidated financial statements.
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ENNIS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Nine Months EndedNovember 30,2005
    
    
    2004Cash flows from operating activities:Net earnings
    
    $
    31,232
    
    
    $
    16,056Adjustments to reconcile net earnings to
net cash provided by operating activities:Depreciation
    
    
    11,700
    
    
    
    6,655Amortization of trademark and customer list
    
    
    1,467
    
    
    
    111Gain on the sale of equipment
    
    
    (217
    )
    
    
    (239
    )Bad debt expense
    
    
    1,231
    
    
    
    657Changes in operating assets and liabilities (net of the effects of acquisitions):Accounts receivable, net
    
    
    7,254
    
    
    
    (5,021
    )Prepaid expenses
    
    
    (1,055
    )
    
    
    (309
    )Inventories
    
    
    (9,774
    )
    
    
    (3,951
    )Other current assets
    
    
    557
    
    
    
    106Other assets
    
    
    3,083
    
    
    
    1,383Accounts payable and accrued expenses
    
    
    (9,563
    )
    
    
    4,424Net cash provided by operating activities
    
    
    35,915
    
    
    
    19,872Cash flows from investing activities:Capital expenditures
    
    
    (7,375
    )
    
    
    (4,581
    )Purchase of operating assets, net of cash acquired of $4,175
    
    
    
    
    
    
    (114,620
    )Proceeds from disposal of property
    
    
    246
    
    
    
    400Net cash used in investing activities
    
    
    (7,129
    )
    
    
    (118,801
    )Cash flows from financing activities:Debt issued
    
    
    9,000
    
    
    
    109,500Repayment of debt
    
    
    (25,374
    )
    
    
    (6,353
    )Dividends
    
    
    (11,831
    )
    
    
    (7,634
    )Exercise of stock options
    
    
    350
    
    
    
    372Net cash (used in) provided by financing activities
    
    
    (27,855
    )
    
    
    95,885Net change in cash and cash equivalents
    
    
    931
    
    
    
    (3,044
    )Cash and cash equivalents at beginning of period
    
    
    10,694
    
    
    
    15,067Cash and cash equivalents at end of period
    
    $
    11,625
    
    
    $
    12,023
 See accompanying notes to condensed consolidated financial statements.
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ENNIS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Basis of PresentationThese unaudited condensed consolidated financial statements of Ennis, Inc. and its subsidiaries
(collectively the Company or Ennis), for the quarter ended November 30, 2005 have been
prepared in accordance with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements and should be read
in conjunction with the audited consolidated financial statements and notes thereto included in
the Companys Form 10-K for the year ended February 28, 2005, from which the accompanying
condensed consolidated balance sheet at February 28, 2005 was derived. All significant
intercompany balances and transactions have been eliminated in consolidation. In the opinion
of management, all adjustments considered necessary for a fair presentation of the interim
financial information have been included. In preparing the financial statements, the Company
is required to make estimates and assumptions that affect the disclosure and reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company evaluates these estimates and
judgments on an ongoing basis, including those related to bad debts, inventory valuations,
property, plant and equipment, intangible assets and income taxes. The Company bases estimates
and judgments on historical experience and on various other factors that are believed to be
reasonable under the circumstances. The results of operations for any interim period are not
necessarily indicative of the results of operations for a full year.2.
    
    Stock Option Plans and Stock Based CompensationThe Company has stock options granted to key executives and managerial employees and
non-employee directors. At November 30, 2005, the Company has two incentive stock option
plans: the 1998 Option and Restricted Stock Plan amended and restated as of June 17, 2004 and
the 1991 Incentive Stock Option Plan. The Company has reserved 1,131,977 shares of unissued
common stock under the stock option plans for issuance to officers and directors, and
supervisory employees of the Company and its subsidiaries. The exercise price of each option
granted equals the quoted market price of the Companys common stock on the date of grant, and
an options maximum term is ten years. Options may be granted at different times during the
year and vest over a five-year period.In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS 148) which amends Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation and requires disclosures in annual and interim financial statements of
the effects of stock-based compensation as reflected below.The Company continues to account for its stock options under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee compensation expense related
to the Companys stock options is reflected in the net earnings as all options granted under
the plan had an exercise price equal to the market value of the underlying common stock on the
date of grant.
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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Stock Option Plans and Stock Based Compensation  continued
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings, as reported
    
    $
    10,098
    
    
    $
    6,104
    
    
    $
    31,232
    
    
    $
    16,056Deduct: Total stock-based employee compensation
expense determined using the fair value
based method for all awards, net of tax
    
    
    (12
    )
    
    
    (11
    )
    
    
    (35
    )
    
    
    (32
    )Pro forma net earnings
    
    $
    10,086
    
    
    $
    6,093
    
    
    $
    31,197
    
    
    $
    16,024Earnings per share:Basic  as reported
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    1.23
    
    
    $
    0.97Basic  pro forma
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    1.23
    
    
    $
    0.97Diluted  as reported
    
    $
    0.39
    
    
    $
    0.35
    
    
    $
    1.21
    
    
    $
    0.95Diluted  pro forma
    
    $
    0.39
    
    
    $
    0.35
    
    
    $
    1.21
    
    
    $
    0.95
  3.
    
    Employee Benefit PlansThe following table provides the components of net periodic
benefit cost (in thousands):
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Components
of net periodic benefit costService cost
    
    $
    355
    
    
    $
    367
    
    
    $
    1,066
    
    
    $
    1,101Interest cost
    
    
    611
    
    
    
    604
    
    
    
    1,833
    
    
    
    1,812Expected return on assets
    
    
    (693
    )
    
    
    (666
    )
    
    
    (2,079
    )
    
    
    (1,998
    )Amortization of:Prior service cost
    
    
    (36
    )
    
    
    (36
    )
    
    
    (108
    )
    
    
    (108
    )Unrecognized net loss
    
    
    264
    
    
    
    267
    
    
    
    792
    
    
    
    801Net periodic benefit cost
    
    $
    501
    
    
    $
    536
    
    
    $
    1,504
    
    
    $
    1,608
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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    Employee Benefit Plans  continuedThe Company is required to make contributions to its defined benefit pension plan. These
contributions are required under the minimum funding requirements of the Employee Retirement
Pension Plan Income Security Act (ERISA). For the current fiscal year ending February 28,
2006, there is not a minimum contribution requirement and no pension payments have been made;
however, the Company anticipates it will pay $2,500,000 in the fourth quarter of fiscal year
2006. The Company contributed $2,500,00 to its pension plan during fiscal year 2005.4.
    
    Due From FactorsPursuant to terms of an agreement between the Company and various factors, the Company sells a
majority of its Apparel trade accounts receivable to factors on a non-recourse basis. The
price at which the accounts are sold is the invoice amount reduced by the factor commission of
between 0.25% and 0.50%. Settlement date for payment of these factored receivables is the date
on which the trade creditor remits payment for the invoice. In the case of receivables sold on
a non-recourse basis, if the trade creditor is financially unable to remit proceeds the factor
accepts the liability to remit to the Company. Additionally, some trade accounts receivable
are sold to the factors on a recourse basis. In this case, if the trade creditor does not remit
proceeds for the receivable, the factor is not obligated to remit and the Company must collect
from the trade creditor and repay any amount advanced to the factor. Trade accounts receivable
not sold to the factor remain in the custody and control of the Company and the Company
maintains all credit risk on those accounts as well as accounts which are sold to the factor
with recourse.The Company may request payment from the factor in advance of the collection date or maturity
of the receivable pursuant to its terms. Any such advance payments are assessed interest
charges through the collection date or maturity at the prime rate as published by JP Morgan
Chase Bank. The Companys obligations with respect to advances from the factor are limited to
the interest charge thereon. Advance payments are limited to a maximum of 90% (ninety percent)
of eligible accounts receivable, but are generally at 80% (eighty percent) of eligible accounts
receivable.Due from factors, which is included in the Companys accounts receivable,
consists of the following (in thousands):
 November 30,
    
    
    February 28,2005
    
    
    2005Outstanding factored receivablesWithout recourse
    
    $
    21,326
    
    
    $
    26,756With recourse
    
    
    1,555
    
    
    
    1,213Advances from factors
    
    
    (19,684
    )
    
    
    (24,675
    )Due from factors
    
    $
    3,197
    
    
    $
    3,294
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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are reduced by an allowance for an estimate of amounts that are
uncollectible. Substantially all of the Companys receivables are due from customers in North
America. The Company extends credit to its customers based upon its evaluation of the
following factors: (i) the customers financial condition, (ii) the amount of credit the
customer requests and (iii) the customers actual payment history (which includes disputed
invoice resolution). The Company does not typically require its customers to post a deposit or
supply collateral. The Companys allowance for doubtful accounts reserve is based on an
analysis that estimates the amount of its total customer receivable balance that is not
collectible. This analysis includes assessing a default probability to customers receivable
balance, which is influenced by several factors including (i) current market conditions, (ii)
periodic review of customer credit worthiness, and (iii) review of customer receivable aging
and payment trends. The Company writes-off accounts receivable when they become uncollectible,
and payments subsequently received on such receivables are credited to bad debt expense in the
period the payment is received. Credit losses from continuing operations have consistently
been within managements expectations.The activity in the Companys allowance for doubtful accounts is as follows (in thousands):
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    3,839
    
    
    $
    2,812
    
    
    $
    3,567
    
    
    $
    1,771Bad debt expense
    
    
    487
    
    
    
    228
    
    
    
    1,231
    
    
    
    657Other (1)
    
    
    
    
    
    
    904
    
    
    
    
    
    
    
    1,500Accounts written off, net
    
    
    (111
    )
    
    
    (719
    )
    
    
    (583
    )
    
    
    (703
    )Balance at end of period
    
    $
    4,215
    
    
    $
    3,225
    
    
    $
    4,215
    
    
    $
    3,225
 
 (1)
    
    Principally, the allowance established in connection with
certain acquisitions. 6.
    
    InventoriesThe Company uses the lower of last-In, first-out (LIFO) cost or market to value its business
forms inventory and the lower of first-In, first-out (FIFO) cost or market to value its apparel
inventory. The Company regularly reviews inventory values on hand, using specific aging
categories, and records a provision for excess and potentially obsolete inventories based on
historical usage and
estimated future usage. In assessing the ultimate realization of its inventory, the company is
required to make judgments as to future demand requirements. As actual future demand or market
conditions may vary from those projected by the Company, adjustments to inventory valuations
may be required.
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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    Inventories  continuedPrincipal components of inventories are as follows (in thousands):
 November 30,
    
    
    February 28,2005
    
    
    2005Raw materials
    
    $
    25,654
    
    
    $
    26,717Work in progress
    
    
    15,931
    
    
    
    17,669Finished goods
    
    
    48,089
    
    
    
    35,514$
    89,674
    
    
    $
    79,900
 7.
    
    AcquisitionsEnnis completed its merger with Alstyle Apparel (Alstyle) on November 19, 2004. Alstyle
shareholders received 8,803,583 shares valued at approximately $145,523,000 and $2,889,000
cash. Debt of approximately $98,074,000 was
assumed. The purchase contract included a holdback provision of $10,000,000
relating to certain assumed debt and escrowed shares with an
acquisition date value of approximately $5,000,000. Alstyle produces and sells activewear apparel with 6 facilities in California and
Mexico and 7 distribution centers located throughout the U.S. and Canada. Alstyle was acquired
to supplement and broaden the scope of products offered by Ennis. The purchase price has been
allocated to assets acquired and liabilities assumed based on fair value at the date of
acquisition. Customer lists valued at $22,000,000 at date of acquisition are amortized over
their useful lives and a trademark valued at $61,000,000 with an indefinite life is evaluated
for impairment on an annual basis.Approximately $37,774,000 of goodwill related to Alstyle acquisition is deductible for tax
purposes. Alstyle operates as a separate segment. The purchase price of Alstyle is calculated
as follows (in thousands):
 Ennis common stock issued 8,803,583 shares
    
    $
    145,523Cash
    
    
    2,889Alstyle debt assumed
    
    
    98,074Purchase price of Alstyle
    
    $
    246,486
 On November 1, 2004, the Company acquired 100% of the stock of Royal Business Forms, Inc.,
(Royal), a privately held company headquartered in Arlington, Texas for $3,700,000 in Ennis
treasury stock (approximately 178,000 shares). Royal has been in existence and operating in
Arlington, Texas since 1959 and has customers throughout the United States.
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ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7.
    
    Acquisitions  continuedThe acquisition of Royal continues the Ennis strategy of growth through related manufactured
products for Ennis existing customer base. The acquisition adds additional short-run print
products and solutions and financial documents sold through the indirect sales
(distributorship) marketplace.Effective June 30, 2004, the Company completed its acquisition of all of the outstanding stock
of Crabar/GBF, Inc. (Crabar/GBF) for approximately $18,000,000 with consideration in the
form of debt assumed and cash. Crabar/GBF adds high-quality long and medium run print
production, along with pressure sensitive label and formlabel combinations to Ennis
current line of medium and short run print products and solutions. The transaction was
financed with $11,000,000 in bank loans with the balance being provided by internal cash
resources.The Company has recognized certain costs related to exit activities and integration costs
attributable to the Crabar/GBF acquisition. These costs totaling approximately $1,500,000 were
recognized as part of the assumed liabilities and included in Other  Accrued Expenses in the
Consolidated Balance Sheet at acquisition date. The costs were primarily related to contracts
related to previous owners. Other costs include lease exit costs and severance payments.The following is a summary of the purchase price allocation at February 28, 2005 (in
thousands):
 Crabar/GBF
    
    
    Royal
    
    
    AlstyleCash
    
    $
    133
    
    
    $
    601
    
    
    $
    3,187Accounts receivable, net
    
    
    7,553
    
    
    
    1,125
    
    
    
    4,457Other receivables
    
    
    1,082
    
    
    
    
    
    
    
    639Prepaid expenses
    
    
    298
    
    
    
    76
    
    
    
    1,451Other current assets
    
    
    
    
    
    
    211
    
    
    
    1,697Inventories
    
    
    4,435
    
    
    
    1,985
    
    
    
    55,801Fixed assets
    
    
    8,087
    
    
    
    808
    
    
    
    21,033Goodwill
    
    
    5,956
    
    
    
    
    
    
    
    138,134Trademarks
    
    
    80
    
    
    
    
    
    
    
    61,000Customer list
    
    
    1,760
    
    
    
    
    
    
    
    22,000Other identifiable intangibles
    
    
    92
    
    
    
    
    
    
    
    3,763Accounts payable and accrued
liabilities
    
    
    (11,476
    )
    
    
    (1,106
    )
    
    
    (66,676
    )$
    18,000
    
    
    $
    3,700
    
    
    $
    246,486
  11




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 7.
    
    Acquisitions  continued
 Three months
    
    
    Nine monthsended
    
    
    endedNovember 30,
    
    
    November 30,2004
    
    
    2004Net sales
    
    $
    138,325
    
    
    $
    433,207Net earnings
    
    
    7,040
    
    
    
    23,692Net earnings per share  basic
    
    
    .27
    
    
    
    .92Net earnings per share  diluted
    
    
    .27
    
    
    
    .91
 The pro forma results are not necessarily indicative of what would have occurred if the
acquisitions had been in effect for the period presented.
 8.
    
    Intangible AssetsThe Company has adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets,
which requires that goodwill and other intangible assets be tested for impairment annually and
when an event occurs indicating that it is possible impairment exists.Intangible assets with determinable lives are amortized on a straight-line basis over the
estimated useful life. The cost of trademarks is recorded at the lower of cost or fair value.
Trade names with determinable lives have an aggregate carrying value of $1,234,000, less
accumulated amortization of $256,000 and $144,000 as of November 30, 2005 and February 28,
2005, respectively. Amortization expense for these intangibles will be $149,000 in each of the
four succeeding years and $134,000 in the fifth year. Trademarks with indefinite-lived lives
with a net book value of $61,000,000 at November 30, 2005 are evaluated for impairment on an
annual basis.Purchased customer lists have an aggregate carrying value of $23,760,000, less accumulated
amortization of $1,717,000 and $485,000 as of November 30, 2005 and February 28, 2005,
respectively. Amortization expense for these intangibles will be $1,643,000 in each of the
five succeeding years.The change in goodwill is the result of the completion of the allocation of the purchase price
with respect to the Alstyle acquisition.
 12




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    BorrowingsBorrowings consisted of the following (in thousands):
 November 30,
    
    
    February 28,2005
    
    
    2005Revolving credit facility
    
    $
    62,500
    
    
    $
    63,500Term credit facility
    
    
    42,500
    
    
    
    50,000Capital lease obligations
    
    
    900
    
    
    
    1,664Notes payable to finance companies
    
    
    1,770
    
    
    
    8,344Other
    
    
    10,000
    
    
    
    10,536117,670
    
    
    
    134,044Less current installments
    
    
    21,120
    
    
    
    21,702Long-term debt
    
    $
    96,550
    
    
    $
    112,342
 The Company has a $150,000,000 term/revolver credit facility agreement (the facility),
which matures November 2009. The facility consists of a $100 million revolver and a $50
million term facility. The company is required to pay a commitment fee on the unused portion
of revolver credit facility. As of November 30, 2005, the Company had borrowings under the
revolver of $62.5 million and $13.4 million outstanding under stand-by letters of credit,
leaving an availability under the revolver of approximately $24.3 million. The term facility
requires quarterly payments in the amount of $2,500,000. The facility is secured by
substantially all personal and investment property and bears interest at a floating rate of the
London Interbank Offered Rate (LIBOR) plus a spread dependent upon the Companys total funded
debt level to cash flows as defined. The rate in effect at November 30, 2005 was 5.42%. The
facility contains financial covenants, restrictions on capital expenditures, acquisitions,
asset dispositions, and additional debt, as well as other customary covenants. As of November
30, 2005, the Company was in compliance with all financial and other covenants of the loan
agreement.Notes payable to finance companies bear interest at rates ranging from 5.25% to 9.46% and
principal is paid in equal monthly installments. The notes mature in various dates through
June 2009 and are collateralized by certain equipment.Other notes payable are obligations of Alstyle and Crabar/GBF. These are loans from
individuals with annual payments bearing interest at rates ranging from 4% to 8% and maturing
on dates ranging from December 2005 through November 2006.10.
    
    Shareholders EquityComprehensive income is defined as all changes in equity during a period, except those
resulting from investments by owners and distributions to owners. The components of
comprehensive income were as follows (in thousands):
 13




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    Shareholders Equity  continued
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings from continuing operations
    
    $
    10,098
    
    
    $
    6,104
    
    
    $
    31,232
    
    
    $
    16,056Interest rate hedge
    
    
    (1
    )
    
    
    29
    
    
    
    
    
    
    
    103Foreign currency translation adjustment
    
    
    222
    
    
    
    
    
    
    
    237
    
    
    
    Comprehensive income (loss)
    
    $
    10,319
    
    
    $
    6,133
    
    
    $
    31,469
    
    
    $
    16,159
  Retained Earnings at February 28, 2005
    
    $
    156,666Net Earnings
    
    
    31,232Cash dividends declared and paid
    
    
    (11,831
    )Retained Earnings at November 30, 2005
    
    $
    176,067
 11.
    
    Earnings per shareBasic earnings per share have been computed by dividing net earnings by the weighted average
number of common shares outstanding during the applicable period. Diluted earnings per share
reflect the potential dilution that could occur if options or other contracts to issue common
 shares were exercised or converted into common stock. The following table sets forth the
computation for basic and diluted earnings per share for the periods indicated.
 Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average common shares outstanding
    
    
    25,457,965
    
    
    
    16,959,463
    
    
    
    25,446,315
    
    
    
    16,599,542Effect of dilutive options
    
    
    285,362
    
    
    
    367,117
    
    
    
    279,688
    
    
    
    324,578Diluted weighted average common shares
outstanding
    
    
    25,743,327
    
    
    
    17,326,580
    
    
    
    25,726,003
    
    
    
    16,924,120Per share amounts:Net earnings  basic
    
    $
    0.40
    
    
    $
    0.36
    
    
    $
    1.23
    
    
    $
    0.97Net earnings  diluted
    
    $
    0.39
    
    
    $
    0.35
    
    
    $
    1.21
    
    
    $
    0.95Cash dividends
    
    $
    0.155
    
    
    $
    0.155
    
    
    $
    0.465
    
    
    $
    0.465
 14




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    Segment DataThe Company operates in two segments  the Printing Segment and the Apparel Segment. The first
group in the Printing Segment, the Forms Solutions Group is in the business of manufacturing
and selling business forms and other printed business products primarily to distributors
located in the United States. Assets in this group at November 30, 2005 decreased from
November 30, 2004 primarily from improved accounts receivable collections of Crabar/GBF assets
and decreased sales overall in the group. The second group in the Printing Segment, the
Promotional Solutions Group is primarily engaged in the business of designing, manufacturing,
and distributing printed and electronic media, presentation products, flexographic printing,
advertising specialties and Post-itâ Notes. Assets in this group at November 30, 2005
decreased from November 30, primarily from decreased accounts receivable from Adams McClure
sales decline. The third group in the Printing Segment, the Financial Solutions Group,
designs, manufactures and markets printed forms and specializes in internal bank forms, secure
and negotiable documents and custom products.The second segment, the Apparel Segment, includes the Apparel Solutions Group and consists of
Alstyle Apparel which was acquired in November 2004. This group is primarily engaged in the
production and sale of activewear including t-shirts, fleece goods and other wearables. Assets
in this group at November 30, 2005 increased from November 30, 2004 primarily from increase in
inventory, prepaid custom payments and receivables. Alstyle sales are seasonal, with sales in
the first and second quarters generally being the highest. Corporate information is included
to reconcile segment data to the consolidated financial statements and includes assets and
expenses related to the Companys corporate headquarters and other administrative costs.Segment data for the three and nine months ended November 30, 2005 and 2004 were as follows (in
thousands):
 ApparelPrinting Segment
    
    
    
    
    
    SegmentForms
    
    Promotional
    
    Financial
    
    ApparelSolutions
    
    Solutions
    
    Solutions
    
    Solutions
    
    
    
    
    
    ConsolidatedGroup
    
    Group
    
    Group
    
    Group
    
    Corporate
    
    TotalsThree months ended November 30, 2005Net sales
    
    $
    45,813
    
    
    $
    19,537
    
    
    $
    12,490
    
    
    $
    53,850
    
    
    $
    
    
    
    $
    131,690Depreciation
    
    
    789
    
    
    
    587
    
    
    
    403
    
    
    
    1,922
    
    
    
    152
    
    
    
    3,853Amortization of trademark
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    494Segment earnings (loss) before
income tax
    
    
    6,168
    
    
    
    2,626
    
    
    
    2,508
    
    
    
    7,499
    
    
    
    (2,383
    )
    
    
    16,418Segment assets
    
    
    87,242
    
    
    
    37,006
    
    
    
    32,399
    
    
    
    327,556
    
    
    
    6,780
    
    
    
    490,983Capital expenditures
    
    
    87
    
    
    
    250
    
    
    
    181
    
    
    
    686
    
    
    
    33
    
    
    
    1,237Three months ended November 30, 2004Net sales
    
    $
    50,361
    
    
    $
    24,161
    
    
    $
    12,892
    
    
    $
    4,336
    
    
    $
    
    
    
    $
    91,750Depreciation
    
    
    854
    
    
    
    618
    
    
    
    450
    
    
    
    236
    
    
    
    139
    
    
    
    2,297Amortization of trademark
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Segment earnings (loss) before
income tax
    
    
    5,986
    
    
    
    3,515
    
    
    
    2,654
    
    
    
    258
    
    
    
    (2,544
    )
    
    
    9,869Segment assets
    
    
    100,002
    
    
    
    42,662
    
    
    
    33,408
    
    
    
    297,694
    
    
    
    8,156
    
    
    
    481,922Capital expenditures
    
    
    256
    
    
    
    129
    
    
    
    228
    
    
    
    
    
    
    
    387
    
    
    
    1,000
 15




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Segment Data  continued
 ApparelPrinting Segment
    
    
    
    
    
    
    SegmentForms
    
    
    Promotional
    
    
    Financial
    
    
    ApparelSolutions
    
    
    Solutions
    
    
    Solutions
    
    
    Solutions
    
    
    
    
    
    
    ConsolidatedGroup
    
    
    Group
    
    
    Group
    
    
    Group
    
    
    Corporate
    
    
    TotalsNine months ended November 30, 2005Net sales
    
    $
    141,159
    
    
    $
    65,960
    
    
    $
    35,342
    
    
    $
    186,457
    
    
    $
    
    
    
    $
    428,918Depreciation
    
    
    2,425
    
    
    
    1,778
    
    
    
    1,220
    
    
    
    5,805
    
    
    
    472
    
    
    
    11,700Amortization of trademark
    
    
    269
    
    
    
    
    
    
    
    
    
    
    
    1,198
    
    
    
    
    
    
    
    1,467Segment earnings (loss) before
income tax
    
    
    18,793
    
    
    
    8,183
    
    
    
    6,326
    
    
    
    23,951
    
    
    
    (6,470
    )
    
    
    50,783Segment assets
    
    
    87,242
    
    
    
    37,006
    
    
    
    32,399
    
    
    
    327,556
    
    
    
    6,780
    
    
    
    490,983Capital expenditures
    
    
    404
    
    
    
    1,456
    
    
    
    346
    
    
    
    4,759
    
    
    
    410
    
    
    
    7,375Nine months ended November 30, 2004Net sales
    
    $
    128,150
    
    
    $
    62,805
    
    
    $
    35,569
    
    
    $
    4,336
    
    
    $
    
    
    
    $
    230,860Depreciation
    
    
    2,463
    
    
    
    1,858
    
    
    
    1,718
    
    
    
    236
    
    
    
    380
    
    
    
    6,655Amortization of trademark
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111Segment earnings (loss) before
income tax
    
    
    17,899
    
    
    
    8,401
    
    
    
    5,648
    
    
    
    258
    
    
    
    (6,285
    )
    
    
    25,921Segment assets
    
    
    100,002
    
    
    
    42,662
    
    
    
    33,408
    
    
    
    297,694
    
    
    
    8,156
    
    
    
    481,922Capital expenditures
    
    
    871
    
    
    
    841
    
    
    
    382
    
    
    
    
    
    
    
    2,487
    
    
    
    4,581
  13.
    
    Derivative Financial Instruments and Hedging ActivitiesThe Companys interest rate swaps are held for purposes other than trading. The Company
utilized swap agreements related to its term and revolving loans to effectively fix the interest
rate for a specified principal amount of the loans. The swap has been designated as a cash flow
hedge and the after-tax effect of the mark-to-market valuation that relates to the effective
amount of derivative financial instrument is recorded as an adjustment to accumulated other
comprehensive income with the offset included in accrued expenses.The Company utilized a swap agreement related to the term loan and revolving credit facility to
effectively fix the interest rate at 3.2% for a pre-set principal amount of the loans. The
pre-set principal amount of the loans covered by the swap agreements declines quarterly in
connection with expected principal reductions and totaled $1,500,000 at November 30, 2005. The
fair value of the swap at November 30, 2005 was approximately $1,000 and the change in the fair
value of the loss from March 1, 2004, net of tax, has been added to accumulated other
comprehensive income.14.
    
    Supplemental Cash Flow InformationNet cash flows from operating activities reflects cash payments for interest and income taxes as
follows (in thousands):
 Nine months endedNovember 30,2005
    
    2004Interest paid
    
    $
    6,720
    
    
    $
    312Income taxes paid
    
    $
    16,800
    
    
    $
    8,500
 16




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    Recent Accounting PronouncementsShare-Based Payment:On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),
Share-Based Payment, which is a revision of Statement 123. Statement 123(R) supersedes Opinion
25, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in
Statement 123(R) is similar to the approach described in Statement 123. However, Statement
123(R) generally requires share-based payments to employees, including grants of employee stock
options and purchases under employee stock purchase plans, to be recognized in the statement of
operations based on their fair values. Pro forma disclosure of fair value recognition will no
longer be an alternative.Statement 123(R) permits public companies to adopt its requirements using one of two methods:
 
    
    Modified prospective method: Compensation cost is recognized
beginning with the effective date of adoption (a) based on the
requirements of Statement 123(R) for all share-based payments
granted after the effective date of adoption and (b) based on the
requirements of Statement 123 for all awards granted to employees
prior to the effective date of adoption that remain unvested on
the date of adoption.
    
    Modified retrospective method: Includes the requirements of the
modified prospective method described above, but also permits
restatement using amounts previously disclosed under the pro forma
provisions of Statement 123 either for (a) all prior periods
presented or (b) prior interim periods of the year of adoption.
 On April 14, 2005, the Securities and Exchange Commission announced that the Statement 123(R)
effective transition date will be extended to annual periods beginning after June 15, 2005. We
are required to adopt this new standard on March 1, 2006.Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow, rather than as an operating cash
flow as prescribed under current accounting rules. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption. Total cash flow will
remain unchanged from what would have been reported under prior accounting rules.As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using Opinion 25s intrinsic value method. As a consequence, the Company generally
recognizes no compensation costs for employee stock options. Although the adoption of Statement
123(R)s fair value method will have no adverse impact on the Companys balance sheet or total
cash flows, it will affect its net income and diluted earnings per share. The actual effects of
adopting Statement 123(R) will depend on numerous factors including the amounts of share-based
payments granted in the future, the valuation model the Company uses to value future share-based
payments to employees and estimated forfeiture rates. See Note 2 of Notes to Condensed
Consolidated Financial
Statements for the effect on reported net earnings and earnings per share if the Company had
accounted for its stock option plans using the fair value recognition provisions of Statement
123.
 17




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    Recent Accounting Pronouncements  continuedExchanges of Nonmonetary Assets:On December 16, 2004, the FASB issued Statement No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions.Statement 153 addresses the measurement of exchanges of nonmonetary assets and
redefines the scope of transactions that should be measured based on the fair value of the
assets exchanged. Statement 153 is effective for nonmonetary asset exchanges beginning in our
3rd quarter of fiscal 2006. The Company does not believe adoption of Statement 153 will have a
material effect on its consolidated financial position, results of operations or cash flows.Accounting Changes and Error Corrections:On June 7, 2005, the FASB issued Statement No. 154,
Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting
Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.
Statement 154 changes the requirements for the accounting for and reporting of a change in
accounting principle. Previously, most voluntary changes in accounting principles required
recognition of a cumulative effect adjustment within net income of the period of the change.
Statement 154 requires retrospective application to prior periods financial statements, unless
it is impracticable to determine either the period-specific effects or the cumulative effect of
the change. Statement 154 is effective for accounting changes made in fiscal years beginning
after December 15, 2005; however, the Statement does not change the transition provisions of any
existing accounting pronouncements. The Company does not believe adoption of Statement 154 will
have a material effect on its consolidated financial position, results of operations or cash
flows.Amortization Period for Leasehold Improvements:On June 29, 2005, the FASB ratified the EITFs
Issue No. 05-06, Determining the Amortization Period for Leasehold Improvements. Issue 05-06
provides that the amortization period used for leasehold improvements acquired in a business
combination or purchased after the inception of a lease be the shorter of (a) the useful life of
the assets or (b) a term that includes required lease periods and renewals that are reasonably
assured upon the acquisition or the purchase. The provisions of Issue 05-06 are effective on a
prospective basis for leasehold improvements purchased or acquired beginning in our 3rd quarter
of fiscal 2006. We do not believe the adoption of Issue 05-06 will have a material effect on our
consolidated financial position, results of operations or cash flows.Inventory Costs:In November 2004, the FASB issued SFAS No. 151, Inventory Costs(SFAS 151).
SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs and
spoilage be recognized as current-period charges. Further, SFAS 151 requires the allocation of
fixed production overheads to inventory based on the normal capacity of the production facilities.
Unallocated overheads must be recognized as an expense in the period in which they are incurred.
SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15,
2005. The Company will adopt the provisions of SFAS 151 in its first quarter of fiscal 2007, and
the impact of such adoption is not expected to have a material impact on its financial position or
on its results of operations.
 18




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
   19




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
   Business Segment Overview
 Printing Segment
 Forms Solutions Group
 Promotional Solutions Group
 Financial Solutions Group -
 20




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 Apparel Segment
 Apparel Solutions Group
       21




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 Critical Accounting Policies and Judgments
       22




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
      Liquidity and Capital Resources
 November 30,
    
    
    February 28,(Dollars in thousands)
    
    2005
    
    
    2005
    
    
    ChangeWorking Capital
    
    $
    79,700
    
    
    $
    67,790
    
    
    
    17.6
    %Cash and cash equivalents
    
    $
    11,625
    
    
    $
    10,694
    
    
    
    8.7
    %
 Working Capital.
 23




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Cash and cash equivalents.
 Nine months ended November 30,(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    ChangeCash provided by operating activities
    
    $
    35,915
    
    
    $
    19,872
    
    
    
    80.7
    %Cash used for investing activities
    
    $
    (7,129
    )
    
    $
    (118,801
    )
    
    
    -94.0
    %Cash (used for) provided by financing activities
    
    $
    (27,855
    )
    
    $
    95,885
    
    
    
    -129.1
    %
 Cash flows from operating activities.
  Cash flows from investing activities.
 Cash flows from financing activities.
 Credit
Facility 
  24




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Pension 
 Inventories 
 Capital
Expenditures 
 Commitments 
 Results
of Operations  Consolidated
 Net Sales.
 Cost of Sales.
 25




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 Selling, general & administrative expenses.
 Earnings from operations.
 Other income and expense.
 Provision for income taxes.
 Net earnings.
 26




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 Results
of Operations  Segments
 Printing Segment
 Forms Solutions Group
 Promotional Solutions Group
 Financial Solutions Group
 27




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##### Table of Contents



ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Apparel Segment
 Apparel Solutions Group 
 Accounting Standards
 Share-Based Payment: Share-Based Payment Statement of Cash Flows
  
    
    Modified prospective method: Compensation cost is recognized beginning
with the effective date of adoption (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the
effective date of adoption and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to the
effective date of adoption that remain unvested on the date of
adoption.
 
    
    Modified retrospective method: Includes the requirements of the
modified prospective method described above, but also permits
restatement using amounts previously disclosed under the pro forma
provisions of Statement 123 either for (a) all prior periods presented
or (b) prior interim periods of the year of adoption.
 28




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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
    Exchanges of Nonmonetary Assets : Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions.
 Accounting Changes and Error Corrections: Accounting Changes and Error Corrections Accounting
Changes Reporting Accounting Changes in Interim Financial Statements
 Amortization Period for Leasehold Improvements: Determining the Amortization Period for Leasehold Improvements
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Inventory Costs:
 Factors That May Affect Our Operating Results and Other Risk Factors
  Ennis may be required to write down goodwill and other intangible assets in the future, which could
cause its financial condition and results of operations to be negatively affected in the future
 .
  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
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Our distributors face increased competition from various sources, such as office supply
superstores. Increased competition may require Ennis to reduce prices or to offer other incentives
in order to enable its 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
  Concentration of business form and apparel vendors and suppliers
  Ennis could experience labor disputes that could disrupt its business in the future
  31




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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Alstyle obtains its raw materials from a limited number of suppliers and any disruption in its
relationships with these suppliers, or any substantial increase in the price of raw materials,
could have a material adverse effect on Alstyle
   Alstyle faces intense competition to gain market share, which may lead some competitors to sell
substantial amounts of goods at prices against which Alstyle cannot profitably compete.
  Apparel industry tends to be cyclical and seasonal
  Foreign political and economic risk
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Alstyles products are subject to foreign competition, which in the past has been faced with
significant U.S. government import restrictions
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
  Environmental regulation
  We depend upon the talents and contributions of a limited number of individuals, many of who would
be difficult to replace
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
  Inherent Limitations on Effectiveness of Controls.
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Items 2, 3 and 5 are not applicable and have been omitted
 
 Item 4. Submission of Matters to a Vote of Security Holders
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 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 herwith 37




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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 SIGNATURES
  ENNIS, INC.Date:
January 9, 2006
    
    /s/ Keith S. WaltersKeith S. WaltersChairman, Chief Executive Officer
and PresidentDate: January 9, 2006
    
    /s/ Richard L. Travis, Jr.Richard L. Travis, Jr.V.P.  Finance and CFO, Secretary andPrincipal Financial and Accounting Officer
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ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED NOVEMBER 30, 2005
 
 INDEX TO 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 herwith