107 North Sherman Street
We are undertaking a major transformation of the company to lessen our dependence on the business forms market and there are substantial risks associated with this transformation. We will continue aggressively marketing our present products and services and search for acquisitions which meet our strategic requirements. We will also continue to improve efficiencies in all respects.... [The] board of directors, management, and employees are firmly committed to profitable long-term growth, and we are confident in our growth strategy.
One of the largest suppliers of business forms in the United States, Ennis Business Forms, Inc. designs and produces printed business products. The company specializes in custom or semicustom business forms in many sizes or colors. Ennis maintains several manufacturing sites throughout the United States and in Mexico. The company markets its business forms through a network of distributors, stationers, printers, and computer software developers in the United States and Mexico. Ennis's major subsidiary, Connolly Tool and Machine Company, designs and manufactures tools, dies, and special machinery for processing paper products. The subsidiary markets its machines on a contract basis to individual customers.
Ennis Business Forms was founded in Texas in 1909, eventually serving customers both in the United States and Mexico. Ennis printed and nationally distributed a line of business forms and products such as hand- or machine-written records and documents. The majority of the company's products were custom or semicustom jobs based on customer specifications regarding size, color, number of parts, and quantities.
In fact, Ennis historically offered the most diversified line of business forms in the industry. The company utilized various weights, widths, colors, sizes, and qualities of paper when producing printed products. Unlike other business forms companies, Ennis sold its products solely through local printers, stationery shops, and other independent dealers--for instance, business forms distributors and computer software developers.
Seasonal Sales and Overextensions in the 1970s
Ennis experienced seasonal fluctuations in sales throughout its history. In particular, the raw cotton industry affected sales annually, with most forms selling prior to harvesting season. But by far general economic conditions were the predominant factors in the company's quarterly sales fluctuations. By the 1970s, Ennis had expanded and financially extended itself beyond safe limits. Change was on the horizon.
Kenneth A. McCrady joined Ennis in 1970, serving as vice president of finance. In May 1971, he became an executive vice president and treasurer of the company. Then that same year McCrady was named president and chief executive officer, positions he retained until April 1985 when he was elected chairman.
Charged with revitalizing the company, McCrady redirected Ennis from large, low-margin accounts in metropolitan areas during the 1970s to small businesses in the 1980s. Earlier, Ennis conducted about 50 percent of its business in metropolitan areas. Now the company concentrated on specialized forms for small businesses in rural locations or small cities. Less price competition in these areas made price increases possible for the company.
By 1980, the company's net margin was less than 7 percent. From 1980 through 1989 its stock sales compounded at 10 percent annually, and earnings per share rose 20 percent each year during the decade. Dividends also increased at a 30 percent compound rate annually, and McCrady ably decreased outstanding stock shares by 4 million.
McCrady achieved a debt-free, cash-abundant company by 1989. That year, only about 25 percent of Ennis's business came from metropolitan areas. The company now operated with a net margin of about 15 percent--twice the industry average. According to Katarzyna Wandycz of Forbes, since McCrady "was named chief executive in 1971 with a mandate to straighten out the overextended company.... [h]e has run it with ultraconservatism.... But there is nothing conservative about Ennis' results." Stock shares purchased in 1980 were valued somewhere around 10 times that amount by 1989.
Responding to the Changing Industry in 1989
But the business forms industry began stagnating at the end of the 1980s. In the past, the industry grew faster than the overall economy, but 1989's projections showed future growth in line with the economy's.
In addition, competition increased for Ennis. Historically, one of the company's major strengths was its network of dealers. When other business forms firms were selling through mail order, Ennis developed healthy relationships with local printers and stationery shops. At the end of the 1980s, though, other industry players began working through dealer networks in efforts to expand their channels of distribution.
So McCrady needed yet another survival plan for Ennis. "Since the industry is slowing," he told Forbes in 1989, "the only way to increase sales is to take somebody else's market share by cutting prices. But if you do that, margins are going to suffer. And we are not interested in sales just for the sake of increasing sales." Instead Ennis responded to sluggishness in the business forms industry by launching new products; for example, pressure-sensitive labels and advertising specialties such as pens and key chains.
A Growth Plan for the 1990s
McCrady also decided to shrink the company in the next decade. In May 1996, Ennis enacted a new growth plan, which included generating more orders through lower selling prices and improved service time. This resulted, however, in higher costs as more employees were needed to carry out the plan. "In accordance with the company's growth strategy announced in May 1996," an annual report explained, "the company reduced selling prices and enhanced customer service, including providing improved delivery schedules for its custom products. New employees were hired and trained to produce an increasing volume of business. All of these measures substantially reduced gross profit margins."
Nevertheless, Ennis established a growth target of 10 percent annually in 1996--an aggressive target given the mature industry and shrinking market. (Half of Ennis's fiscal 1997 revenues, for example, came from products whose usage was declining, but in a market still worth about $7 billion at retail prices.) Ennis worked to gain market share and to expand into non-form products and services. As McCrady and Ward observed in their "Management's Report to Shareholders" in the company's 1997 annual report: "We have a very small share of the total forms market and believe that our production, distribution, and financial strengths will allow us to gain market share. Experience is teaching us that we can reasonably expect 3 percent to 4 percent unit sales growth in our traditional business forms products. To achieve our overall goal of 10 percent sales growth we will need to continue to expand into non-form products and services which we can profitably market through our more than 30,000 dealers."
Initially, the company emphasized sales growth. Then Ennis redirected its attention to profits. In 1996, for example, Ennis spent $13.6 million on equipment for the expansion of product, especially on process-color commercial printing, label/form combinations, variable data printing, and bar codes. The company also completed production improvements for business forms, labels, and presentation products. Ennis invested both in computer systems for customer service and in production equipment. (An additional $6.9 million was allocated for production improvements later in the decade as well.)
Two Acquisitions in 1996
Until 1996, Ennis maintained one subsidiary, Connolly Tool and Machine Company, which complemented its business forms operation. Connolly Tool and Machine designed and manufactured tools, dies, and machinery per customer specifications at a production facility in Dallas, Texas. Throughout its history, Connolly Tool and Machine mostly served clients in the southwestern United States. It became known as one of the leading independent machinery designers and manufacturers in the region.
The subsidiary distributed its tools, dies, and special machinery on a contract basis to individual customers. It utilized various types and grades of metals as raw materials for production, as well as purchased electrical and mechanical components at market prices from major suppliers.
Then in April 1996 Ennis purchased a presentation folder manufacturer located in Los Angeles, California. Ennis expected to gain better growth for its product line in the West Coast market through this acquisition. The company also purchased a commercial printing operation located in Seattle, Washington, in April 1996. Ennis viewed this acquisition as an opportunity to enter into short-run, high-quality process color printing, since the acquisition provided production and marketing expertise in a high-potential area.
Commercial Printing Ventures in 1997
In 1997, Ennis earned the highest sales in the history of the company, with net sales rising 8.2 percent. Net earnings, however, declined due to lower selling prices and higher costs--which frustrated company leaders. McCrady, now chairman of the board and chief executive officer, and Nelson Ward, president and chief operating officer, wrote in one of the company's 1997 interim reports that "We continue to achieve sales growth; however, we are disappointed with the rate of growth.... We continue to believe that we can reasonably expect 3 percent to 4 percent unit sales growth on our traditional business forms products. We are also continuing to search for acquisitions which meet our strategic requirements."
So Ennis's leaders planned to bring consistent growth in sales and earnings in the near future through the development of its commercial printing business. Committed to enlarging its commercial printing business, Ennis appointed Keith Walters as vice president of commercial printing operations. (Walters formerly was a vice president of manufacturing at Atlas/Soundalier, one of American Trading and Production Company's divisions.)
The company also engaged in software development as part of its strategy to develop commercial printing business in 1997. As president Nelson Ward observed in a 1997 press release: "Commercial printing products are expected to be a major contributor to Ennis's future growth. The commercial printing market is many times larger than the business forms market and offers greater growth opportunities. Our new internal business unit, under the leadership of Keith Walters, anchors us firmly in the commercial printing market and provides us with excellent potential to serve the color printing needs of smaller businesses."
Ennis developed the InstaLink software system, which provided a communication network through which customers could conduct business with Ennis. The system operated through the Internet. A customer could send orders or make inquiries about an order, while Ennis plants provided proofs, quotes, and order status reports through InstaLink. The company also developed its Printers' Mall software in 1997. An internally developed software system, Printers' Mall was used by dealers and their customers to design and order process-color commercial printing.
Ennis targeted these efforts to small to medium-sized businesses. The Printers' Mall system greatly reduced the cost of four-color printing for smaller businesses, and Ennis's InstaColor production process allowed users to create custom postcards, brochures, and catalogs using personal computers, and pre-designed templates. Ennis achieved smaller order quantities and affordable prices through commercial printing, providing its dealers with a viable option for serving small businesses. As Ward noted in a press release: "Direct-selling commercial printers often require minimum quantities that far exceed the needs of smaller businesses. With our new software and production process, however, we have the capability of providing these businesses, which are served by our dealers in all fifty states, easy design capability, low-quantity orders, and the selling power of color."
Plants and Facilities in 1997
In 1997 Ennis operated 16 manufacturing facilities in 12 states and Mexico City, including a manufacturing facility and general offices in Ennis, Texas. The company owned most of these facilities--except for the Portland, Los Angeles, Seattle, and Mexico City plants, which were leased. (Another plant in Boulder City, Nevada, closed in November 1995. The company leased this property to a third party.)
The 16 facilities typically operated at normal production capacities, although production capacities routinely changed with market demands and product mix in any given year. Ennis replaced machinery when equipment became obsolete and added machinery as dictated by market demands.
Plans for the Future
As Ennis approached the end of the 20th century in 1997, the company began to change in order to lessen its dependence on the business forms market. (In 1997, business products still accounted for 96 percent of the company's net sales.) Although fully committed to marketing its existing products and services, Ennis executives also vowed to seek acquisitions and to improve the company's efficiency to achieve targeted sales growth. As McCrady and Ward remarked in the 1997 annual report: "we are optimistic that as we improve operating efficiencies and continue to grow sales that net earnings ... will improve.... We have substantial cash reserves and expect to continue the dividend at the current rate."
Principal Subsidiaries: Connolly Tool and Machine Company (Dallas, Texas); Ennis Tag and Label Company; Heath Printers, Inc.