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Ennis Elaborates on Its Management Control Issues

Press release from the issuing company

MIDLOTHIAN, Texas--May 18, 2005-- Ennis, Inc. recently filed its 10-K and Annual Report. Included in this report was Management's Evaluation of Internal Controls. While certain areas were disclosed as material weaknesses, we think it is important for the investment community to understand the overall context surrounding these material weaknesses and the steps that management is taking to resolve these issues going forward. We are further encouraged to do this by the Staff Statement on Management's Report on Internal Control Over Financial Reporting, issued by the SEC on May 16, 2005, providing guidance to companies regarding disclosures on Material Weaknesses. Ennis engaged one of the big four accounting firms early in fiscal year 2005 to consult with Ennis on establishing procedures to document internal controls and to actually perform the testing necessary to comply with Section 404 of the Sarbanes-Oxley legislation. The Company spent considerable sums to ensure compliance with Section 404, and considerable additional funds to have its auditing firm review the efforts of management and this consulting firm. Based upon the work entailed, there were no material weaknesses identified in the Company's pre-Alstyle business. This firm, engaged to document our internal controls and perform testing, together with the Company's audit firm, concluded that the Company would not have to consider Alstyle Apparel, its new acquisition, in the Section 404 testing for fiscal year 2005. This was primarily due to the late period of time (November 19, 2004) in which the acquisition would close relative to the fiscal year end of the Company (February 28, 2005). Alstyle Apparel was a private company with proprietary systems but certainly not as adept at the controls normally found in public companies. Ennis realized that within the overall integration plan a conversion of Alstyle's financial and operations systems must occur as soon as practicable. Given the advice of our consultants and auditors, the Company is on a path to convert the financial systems of Alstyle to the Company's ERP system in the second quarter of fiscal 2006 so that we can fully evaluate controls and test before the end of fiscal year 2006. It must be noted that the ability to have converted Alstyle's financial systems to the Company's ERP system within the fourth quarter of 2005 and to test the effectiveness of controls would have been impossible. During the preparation of the financial statements, it became apparent that Alstyle's procedures to close the books in accordance with its past practices were deficient, especially when compared to the Company's procedures for closing the books in a timely manner. As we explained in the Annual Report, it was always our intent to move Alstyle on to the Company's ERP system. We believe that accomplishing this during fiscal year 2006 will resolve this concern and allow the Company to test the controls in place at that time. This in no way diminishes the Company's conclusion that the Alstyle merger was, and will be, in the best interests of the Company's shareholders. The other Material Weakness comment in our 10-K and Annual Report had to do with the recording of the Alstyle Apparel acquisition by the Company. Due to the nature of the transaction, the Company must follow Financial Accounting Standards Board 141 that describes the means of recording companies or assets accounted for under the purchase method of accounting. In the process of setting up the beginning balance sheet, management recorded assets based upon our judgment and the judgment of an independent valuation firm. The independent auditors subsequently proposed an adjustment under FAS 141 to the valuation that we had recorded. While management originally believed that any adjustment would be immaterial, it did record the adjustment as presented. It was this difference in opinion that resulted in the conclusion that there was a Material Weakness in the internal controls over financial reporting. As indicated in the Annual Report, management will address these issues to avoid a recurrence of this material weakness. These comments are to add more information surrounding the disclosures to help provide increased investor information so that an investor who chooses to do so can treat the disclosure of the existence of a material weakness as the starting point for analysis rather than the only point available.