Core Viewpoint - The article discusses the challenges and unpredictability of financial markets, emphasizing the importance of historical knowledge in making investment decisions [1]. Group 1 - The author highlights a personal passion for financial history and its application to market analysis [1]. - There is an acknowledgment of the difficulty in predicting market trends and spotting value, suggesting a cautious approach to investment [1]. Group 2 - The article does not provide specific company or industry insights, focusing instead on the author's perspective and experiences [1].

Dividends and Financial Position - The Board declared a quarterly cash dividend of $0.25 per share and a one-time special dividend of $2.50 per share, with an expected payout of approximately $72.4 million[19]. - The company had a cash balance of $100.0 million and short-term investments of $22.7 million as of August 31, 2024, indicating strong liquidity[104]. - Working capital increased by $10.9 million or 6.5% from $167.6 million at February 29, 2024, to $178.5 million at August 31, 2024[106]. - Cash provided by operating activities was $35.0 million for the six months ended August 31, 2024, consistent with the prior year[107]. - Cash used in financing activities increased by $1.8 million during the six months ended August 31, 2024, primarily due to common stock repurchases[109]. - The funded status of the Pension Plan requires future contributions between $1.0 million and $3.0 million per year, with a contribution of $1.2 million made during the period ended August 31, 2024[110]. - The company had no outstanding debt as of August 31, 2024, but may face interest rate risk if future borrowing occurs[113]. Sales and Revenue Performance - Net sales for the three months ended August 31, 2024, were $99.0 million, a decrease of $7.8 million or 7.3% compared to $106.8 million for the same period in 2023[94]. - For the six months ended August 31, 2024, net sales were $202.1 million, a decrease of $15.9 million or 7.3% compared to $218.1 million for the same period in 2023[99]. Cost and Profitability - Cost of goods sold decreased by $4.4 million or 6.0% to $69.3 million for the three months ended August 31, 2024, resulting in a gross profit margin of 30.1%[95]. - The gross profit margin for the six months ended August 31, 2024, was 30.0%, down from 30.8% for the same period in 2023[100]. - Selling, general, and administrative expenses were $16.6 million for the three months ended August 31, 2024, a decrease of $1.8 million or 9.7% compared to $18.3 million for the same period in 2023[96]. - Income from operations for the three months ended August 31, 2024, was $13.2 million, or 13.3% of net sales, down from $14.7 million or 13.8% for the same period in 2023[97]. - Net earnings for the three months ended August 31, 2024, were $10.3 million, compared to $10.9 million for the same period in 2023, with diluted earnings per share of $0.40[99]. Operational Challenges and Strategic Initiatives - The company is facing challenges such as product obsolescence and increased pricing due to supply chain disruptions, impacting operational results[86]. - The company plans to transform its product offerings to include digital solutions and innovative products, requiring investments in technology and strategic business relationships[87]. - Continued consolidation among distributors may impact the company's margins and sales in the future[89]. - The company emphasizes the importance of managing operational costs and maintaining margins amid competitive pricing pressures[88]. Manufacturing and Distribution - As of August 31, 2024, the company operates 58 manufacturing plants across 20 states, with approximately 94% of products being custom and semi-custom[82]. - The company believes it is the largest provider of business forms and related products to independent distributors in the United States[81]. - The company distributes products primarily through independent distributors, including commercial printers and advertising agencies[85]. - Paper mill shipments were down in the first half of 2023, but the company has maintained stable supply in early 2024 while managing cost pressures[88]. Financial Management and Future Outlook - There have been no material changes to critical accounting estimates during the quarter ended August 31, 2024[90]. - There have been no significant changes in contractual obligations since February 29, 2024, that would materially impact financial condition[113]. - The company anticipates sufficient cash flows from operating activities to cover future operating and capital requirements[112]. - The company has long-term contracts with paper suppliers to ensure adequate sources of raw materials[111]. - Management expects to meet required volumes for certain rebate programs tied to minimum purchase commitments[111]. - The company does not utilize derivative instruments for trading purposes and employs interest rate swaps to manage borrowing costs[113].

Financial Performance - Revenues for the second quarter ended August 31, 2024, were $99.0 million, a decrease of $7.8 million or 7.3% compared to $106.8 million in the same quarter last year[1][2] - Earnings per diluted share for the current quarter were $0.40, down from $0.42 in the comparative quarter last year[2][15] - Gross profit margin for the quarter was 30.1%, compared to 31.0% for the same quarter last year[2][4] - For the six-month period ended August 31, 2024, revenues were $202.1 million, a decrease of $16.0 million or 7.3% from $218.1 million for the same period last year[3] - EBITDA margin improved slightly to 18.6% of sales compared to 18.5% during last year's second quarter[4] - Cash provided by operating activities was $34.9 million for the quarter, compared to $34.9 million in the same quarter last year[17] Acquisitions and Investments - The Company completed the acquisition of Printing Technologies, Inc., enhancing production capabilities and diversifying product offerings[5] - The Company maintains a strong balance sheet with no debt and significant cash reserves, allowing for continued operations and funding of acquisitions[5] Dividends - The Board declared a quarterly cash dividend of $0.25 per share and a special dividend of $2.50 per share, payable on November 8, 2024[10] Assets - Total assets increased to $406.8 million as of August 31, 2024, compared to $399.2 million in the previous year[16]

Financial Performance - Net sales for the quarter ended May 31, 2024, were $103.1 million, a decrease of $8.2 million or -7.4% compared to $111.3 million for the same quarter in the prior year[75]. - Net earnings for the quarter were $10.7 million, down from $11.6 million in the prior year, reflecting a decrease of 8.1%[74]. - Income from operations for the three months ended May 31, 2024, was $13.7 million, representing 13.3% of net sales, down from $15.7 million or 14.1% for the same period in 2023[87]. - Net earnings for the three months ended May 31, 2024, were $10.7 million, compared to $11.6 million for the same quarter last year, with diluted earnings per share decreasing from $0.45 to $0.41[88][89]. Cost and Expenses - Cost of goods sold decreased by $5.1 million or 6.6%, from $77.3 million in Q2 2023 to $72.2 million in Q2 2024, resulting in a gross profit margin of 30.0%[76]. - Selling, general, and administrative expenses were $17.2 million, a decrease of $1.1 million or 6.0% compared to $18.3 million in the same quarter last year[77]. Cash Flow and Investments - Cash provided by operating activities increased to $23.1 million for the three months ended May 31, 2024, compared to $21.7 million for the same period in 2023[102]. - Cash used in investing activities was $5.0 million for the three months ended May 31, 2024, down from $7.1 million in the same period of 2023[103]. - Capital expenditures for the three months ended May 31, 2024, were approximately $2.5 million, with total capital requirements expected to remain between $3.0 million and $6.0 million for the fiscal year[91]. Tax and Contributions - The effective tax rate for the quarter was 27.5%, slightly down from 28.0% in the same quarter last year[79]. - The funded status of the Pension Plan is expected to require contributions between $1.0 million and $3.0 million per year, with a contribution of $1.2 million made in fiscal year 2024[108]. Market Conditions and Strategy - The company experienced a weakened demand environment with increased competition on price, impacting sales volume and revenues[75]. - The integration of the ERP system at recent acquisitions is expected to improve efficiencies and performance moving forward[76]. - The company plans to continue exploring new market opportunities and acquisitions to enhance its product offerings and growth potential[65]. Working Capital and Liquidity - Working capital increased by $6.8 million or 4.0%, from $167.6 million at February 29, 2024, to $174.3 million at May 31, 2024[82]. - The current ratio decreased from 6.0 to 1.0 at February 29, 2024, to 5.7 to 1.0 at May 31, 2024[82]. - The company had $0.3 million outstanding under a standby letter of credit arrangement as of May 31, 2024, and anticipates sufficient cash and short-term investments to fund future expenditures[105]. Legal Matters - The company was awarded $5.8 million in damages in a legal case, pending appeal, with cash bonds of approximately $5.1 million posted by defendants[112]. Inventory Management - Inventory levels are deemed sufficient to meet customer demands, supported by long-term contracts with paper suppliers[109]. Other Income - Other income increased to $1.0 million for the three months ended May 31, 2024, primarily due to higher interest income of $1.4 million compared to $0.8 million in the same period last year[99].

Financial Performance - Revenues for the first quarter ended May 31, 2024, were $103.1 million, a decrease of $8.2 million or 7.4% compared to $111.3 million for the same quarter last year [1]. - Gross profit margin for the quarter was 30.0%, down from 30.6% in the same quarter last year [5]. - Net earnings for the quarter were $10.7 million, or $0.41 per diluted share, compared to $11.6 million, or $0.45 per diluted share for the same quarter last year [1]. - EBITDA increased from $18.1 million last quarter to $19.0 million this quarter, maintaining 18.4% as a percentage of sales [2]. - Cash provided by operating activities was $23.1 million, an increase from $21.7 million in the same quarter last year [15]. Shareholder Returns - The company declared a quarterly cash dividend of $0.25 per share, payable on August 5, 2024 [10]. - The company repurchased 91,883 shares of common stock at an average price of $19.79 per share during the quarter [4]. Assets and Liabilities - Total assets increased to $406.2 million from $399.2 million in the previous quarter [15]. - The company has no debt and significant cash reserves, allowing for continued operations and potential acquisitions [4]. Operational Improvements - The integration of the ERP system at recent acquisitions is expected to improve performance moving forward [3].

Acquisitions - The company acquired Eagle Graphics and Diamond Graphics on October 11, 2023, which generated approximately $8.7 million in combined sales in the last full year prior to acquisition [27]. - On June 2, 2023, Ennis acquired UMC Print, which reported approximately $16.1 million in sales for 2022, enhancing its commercial printing capabilities [28]. - The acquisition of Stylecraft Printing Company on May 23, 2023, added approximately $7.0 million in sales for the fiscal year ended December 31, 2022 [29]. - Ennis acquired School Photo Marketing assets on November 30, 2022, which had approximately $10 million in sales in the preceding twelve months [30]. - Acquisitions during the fiscal year constituted approximately 3.8% of total assets and 5.0% of total revenues as of February 29, 2024 [163]. - The company acquired Stylecraft, UMC, Eagle, and Diamond, which constituted approximately 3.8% of assets and 5% of net sales as of February 29, 2024 [197]. Financial Performance - Net sales for fiscal year 2024 were $420.1 million, a decrease of $11.7 million or 2.7% from $431.8 million in fiscal year 2023, primarily due to a $32.9 million decrease in volume demand, partially offset by a $21.2 million increase from recent acquisitions [126]. - Cost of goods sold decreased by $6.0 million or 2.0% from $300.8 million in fiscal year 2023 to $294.8 million in fiscal year 2024, resulting in a gross profit margin of 29.8% compared to 30.3% in the previous year [128]. - Selling, general and administrative expenses were $68.8 million in fiscal year 2024, a decrease of $2.0 million or 2.8% from $70.8 million in fiscal year 2023, maintaining a consistent percentage of sales at 16.4% [130]. - Income from operations decreased by $9.7 million to $56.5 million or 13.4% of net sales in fiscal year 2024, down from $66.2 million or 15.3% in fiscal year 2023 [133]. - Net earnings for fiscal year 2024 were $42.6 million, or $1.64 per diluted share, compared to $47.3 million, or $1.82 per diluted share in fiscal year 2023, impacted by decreased revenues [137]. - Cash provided by operating activities increased to $69.1 million in fiscal year 2024, up $22.3 million from $46.8 million in fiscal year 2023 [142]. - Working capital increased by approximately $12.2 million or 7.9% from $155.4 million at February 28, 2023, to $167.6 million at February 29, 2024, with a current ratio rising from 4.8 to 1.0 to 6.0 to 1.0 [140]. - Cash used in investing activities was $55.0 million in fiscal year 2024, compared to $11.5 million in fiscal year 2023, primarily due to net purchases of short-term investments and increased costs to acquire businesses [145]. - Total assets increased to $399,190,000 as of February 29, 2024, compared to $393,835,000 as of February 28, 2023, reflecting a growth of approximately 1.1% [209]. - Current assets rose to $201,382,000, up from $196,626,000, marking an increase of about 2.8% year-over-year [209]. - Cash decreased to $81,597,000 from $93,968,000, a decline of approximately 13.1% [209]. - Accounts receivable decreased to $47,209,000 from $53,507,000, representing a reduction of about 11.7% [209]. - Total liabilities decreased to $49,349,000 from $62,403,000, a significant decline of approximately 20.9% [212]. - Shareholders' equity increased to $349,841,000 from $331,432,000, reflecting a growth of about 5.5% [212]. - Retained earnings rose to $236,196,000, up from $219,459,000, indicating an increase of approximately 7.6% [212]. Operational Challenges - The company faces intense competition, particularly from office supply superstores, which may require price reductions or incentives to maintain market share [63][66]. - Digital technologies are expected to continue eroding demand for printed business documents, necessitating a shift towards custom and full-color products [54][56]. - Economic downturns may lead to increased customer bankruptcies, heightening the risk of non-payment on sales [70]. - Transportation costs are significant, and increases in freight expenses could adversely affect operational results [71]. - Environmental regulations may impose additional liabilities or obligations that could impact future operating results [67]. - Labor costs are increasing due to economic factors, with approximately 8% of employees represented by labor unions, which could lead to potential labor disputes and increased operational costs [64][65]. - The company relies on a limited number of suppliers for raw materials, with a significant portion of paper products sourced from one major supplier, which poses risks related to price fluctuations and supply disruptions [57][58]. - The company faces challenges including product obsolescence and increased pricing due to supply chain imbalances, impacting traditional business forms and documents [110]. Employee and Labor Relations - Ennis employs 1,941 individuals, with 156 represented by labor unions under collective bargaining agreements [45]. - Approximately 12% of employees are covered by a noncontributory defined benefit retirement plan, which may be impacted by fluctuations in market values and interest rates [59]. - Employee health benefits costs are significant and have risen in recent years, potentially impacting financial results and cash flow [77]. - The company has various cost control measures in place to manage rising healthcare costs, which are expected to continue impacting financial results [77]. Environmental Commitment - The company recycled 20.9 million pounds of paper and 1.7 million pounds of cardboard and cores in 2024, demonstrating its commitment to environmental stewardship [38]. Cybersecurity - The company experienced a ransomware attack on November 30, 2022, which resulted in a brief disruption but incurred no material expenses and is not expected to have a significant financial impact [76]. - The company has not identified any material cybersecurity risks affecting business operations or financial conditions during the fiscal year ended February 29, 2024 [82]. - The company has implemented a cybersecurity risk management program based on best practices and guidelines from the National Institute of Standards and Technology [80]. Shareholder Returns - A dividend of $0.25 per share was paid in each quarter of fiscal years 2023 and 2024, reflecting the company's commitment to returning value to shareholders [98]. - The company has authorized a stock repurchase program of up to $60.0 million, with $23.4 million remaining available for repurchases as of February 29, 2024 [101]. - The cumulative total shareholder return for Ennis, Inc. from February 28, 2019, to February 29, 2024, shows a performance of $121.81 on an initial $100 investment, compared to $199.09 for the S&P 500 and $139.56 for the Russell 2000 [103][104]. Pension and Retirement Plans - The Pension Plan was 100% funded on a projected benefit obligation basis and 107% on an accumulated benefit obligation basis as of February 29, 2024 [59]. - The discount rate for pension obligations increased to 5.15% in fiscal year 2024 from 5.00% in fiscal year 2023, impacting the pension plan's funded status [118]. - The company anticipates future contributions to its Pension Plan will be between $1.0 million and $3.0 million per year, depending on the plan's funding status [150]. - Estimated pension benefit payments to participants total $38.7 million, with $3.2 million due in less than one year [154].

Acquisitions - Ennis, Inc. acquired Eagle Graphics, Inc. and Diamond Graphics, Inc. on October 11, 2023, which generated approximately $8.7 million in sales for the fiscal year ended December 31, 2022[126][128]. - The acquisition of UMC Print on June 2, 2023, added strategic locations and capabilities, with UMC Print generating approximately $16 million in sales for the fiscal year ended December 31, 2022[129]. - Ennis, Inc. acquired Stylecraft Printing Company on May 23, 2023, which generated approximately $7.0 million in sales for the fiscal year ended December 31, 2022[130]. - The company acquired School Photo Marketing on November 30, 2022, which generated approximately $5.9 million in sales for the fiscal year ended December 31, 2021[131]. - $19.9 million was used to acquire businesses in the nine months ended November 30, 2023, compared to $8.8 million in the same period of the previous year[166]. Financial Performance - Net sales for the three months ended November 30, 2023, were $104.6 million, a decrease of $5.6 million or -5.1% compared to $110.2 million in the same quarter of 2022[143]. - For the nine months ended November 30, 2023, net sales were $322.7 million, a decrease of $6.5 million or 2.0% compared to $329.1 million in the same period last year[153]. - Income from operations for the three months ended November 30, 2023, was $13.1 million, or 12.5% of net sales, down from $16.2 million or 14.7% in the same quarter of 2022[147]. - Net earnings for the three months ended November 30, 2023, were $9.9 million, compared to $11.3 million in the same quarter of the prior year, with diluted earnings per share of $0.38[150]. - Gross profit margin for the nine-month period was 30.3%, down from 31.2% in the prior year, attributed to lower volumes shipped[154]. Cost Management - Cost of goods sold decreased by $2.7 million or 3.5%, from $76.8 million in Q3 2022 to $74.1 million in Q3 2023, resulting in a gross profit margin of 29.2%, down from 30.4% in the prior year[144]. - Selling, general, and administrative expenses increased slightly by $0.1 million or 0.6% to $17.4 million, representing 16.6% of net sales for the current quarter[145]. - Ennis, Inc. aims to manage operational costs and maintain margins despite pressures from weak volumes and competitive pricing in the industry[134]. Market Challenges - Ennis, Inc. faces challenges from inflation and potential recessionary concerns, which could impact demand for its products[132]. - The printing industry is experiencing consolidation, with many distributors being acquired, which may affect Ennis, Inc.'s margins and sales[136]. - The company is focused on transforming its product offerings to adapt to digital technologies and changing market demands[133]. Cash Flow and Investments - Cash provided by operating activities was $52.5 million for the nine months ended November 30, 2023, compared to $34.0 million in the same period of 2022[165]. - Cash used in investing activities increased to $43.2 million for the nine months ended November 30, 2023, compared to $12.1 million for the same period in 2022[166]. - Capital expenditures for equipment were $4.9 million for the nine months ended November 30, 2023, up from $3.3 million in the prior year[166]. - The company spent approximately $4.9 million on capital expenditures for the nine months ended November 30, 2023, and expects capital requirements for the current fiscal year to be between $3.0 million and $6.0 million[172]. - The company purchased approximately $18.4 million of U.S. government treasury bills with staggered maturities during the current period[166]. Working Capital and Liabilities - The company reported a working capital increase of $9.7 million or 6.2%, from $155.4 million at February 28, 2023, to $165.0 million at November 30, 2023[164]. - As of November 30, 2023, the company had an unfunded pension liability of $0.6 million recorded on its balance sheet[170]. - The company expects future contributions to its Pension Plan to be between $1.0 million and $3.0 million per year, with a required contribution of approximately $1.2 million anticipated before the end of the current fiscal year[170]. - The company had no outstanding long-term debt as of November 30, 2023, and anticipates sufficient cash and operating cash flows to fund future expenses[168]. Tax and Interest Rate - The effective tax rate for the three months ended November 30, 2023, was 28.3%, compared to 28.0% for the same period in 2022[149]. - The company is exposed to interest rate risk on financial instruments with variable interest rates, although it had no outstanding debt at the end of the reporting period[176].

PART I: FINANCIAL INFORMATION Overview of Ennis, Inc.'s unaudited condensed consolidated financial statements and management's discussion for the periods ended August 31, 2023 [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Presents Ennis, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$398.9 million**, liabilities decreased, and shareholders' equity grew to **$343.1 million** as of August 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | August 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $100,340 | $93,968 | | Total current assets | $198,939 | $196,626 | | Property, plant and equipment, net | $51,988 | $47,789 | | Goodwill | $92,217 | $91,819 | | **Total assets** | **$398,870** | **$393,835** | | **Liabilities & Equity** | | | | Total current liabilities | $35,613 | $41,247 | | Total liabilities | $55,724 | $62,403 | | Total shareholders' equity | $343,146 | $331,432 | | **Total liabilities and shareholders' equity** | **$398,870** | **$393,835** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales decreased to **$106.8 million** for Q2 and were flat at **$218.1 million** for H1, with net earnings declining in both periods Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Aug 31, 2023 | Three Months Ended Aug 31, 2022 | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $106,760 | $111,233 | $218,054 | $218,900 | | Gross profit | $33,099 | $35,219 | $67,140 | $69,223 | | Income from operations | $14,706 | $17,277 | $30,404 | $33,599 | | Net earnings | $10,910 | $12,194 | $22,545 | $23,821 | | Diluted EPS | $0.42 | $0.47 | $0.87 | $0.92 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to **$34.9 million**, while investing cash outflow rose due to acquisitions, leading to a **$6.4 million** cash increase Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,934 | $21,755 | | Net cash used in investing activities | ($15,640) | ($1,801) | | Net cash used in financing activities | ($12,922) | ($14,040) | | **Net change in cash** | **$6,372** | **$5,914** | | **Cash at end of period** | **$100,340** | **$91,520** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue recognition, and significant events including 2023 acquisitions, stock repurchase program status, and dividend declarations - On June 2, 2023, the Company acquired UMC Print for approximately **$7.7 million** in cash, adding **$0.2 million** to goodwill[43](index=43&type=chunk) - On May 23, 2023, the Company acquired Stylecraft Printing Company for **$5.0 million**, adding **$0.2 million** to goodwill[46](index=46&type=chunk) - As of August 31, 2023, **$23.9 million** remained available under the company's stock repurchase program, with no shares repurchased during the six-month period[73](index=73&type=chunk) - On September 15, 2023, the Board declared a quarterly dividend of **$0.25 per share**, payable on November 3, 2023[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 net sales decrease, gross profit margin decline, and the company's strong liquidity position with **$100.3 million** cash and no debt [Business Overview and Challenges](index=24&type=section&id=Business%20Overview%20and%20Challenges) Ennis operates 57 plants, serving distributors, facing industry consolidation, digital shifts, and competition, while pursuing growth through strategic acquisitions - The company operates **57 manufacturing plants** across **20 states**, primarily serving independent distributors in the U.S[113](index=113&type=chunk) - Acquired UMC Print on June 2, 2023, which had prior fiscal year sales of approximately **$16 million**[119](index=119&type=chunk) - Acquired Stylecraft Printing Company on May 23, 2023, which had prior fiscal year sales of approximately **$7.0 million**[121](index=121&type=chunk) - Key business challenges include industry consolidation, product obsolescence due to digital technology, and intense price competition within the print industry[123](index=123&type=chunk)[125](index=125&type=chunk)[127](index=127&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q2 net sales decreased **4.0%** to **$106.8 million**, and H1 net sales decreased **0.4%** to **$218.1 million**, both impacted by legacy business declines Q2 FY2024 vs Q2 FY2023 Performance (in millions) | Metric | Q2 FY2024 | Q2 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $106.8 | $111.2 | -4.0% | | Gross Profit | $33.1 | $35.2 | -6.0% | | Gross Profit Margin | 31.0% | 31.7% | -70 bps | | Income from Operations | $14.7 | $17.3 | -15.0% | | Net Earnings | $10.9 | $12.2 | -10.7% | | Diluted EPS | $0.42 | $0.47 | -10.6% | - For Q2, recent acquisitions contributed approximately **$6.5 million** in revenue, but this was offset by a **$10.9 million** decline in legacy business volume[134](index=134&type=chunk) H1 FY2024 vs H1 FY2023 Performance (in millions) | Metric | H1 FY2024 | H1 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $218.1 | $218.9 | -0.4% | | Gross Profit | $67.1 | $69.2 | -3.0% | | Gross Profit Margin | 30.8% | 31.6% | -80 bps | | Income from Operations | $30.4 | $33.6 | -9.5% | | Net Earnings | $22.5 | $23.8 | -5.5% | | Diluted EPS | $0.87 | $0.92 | -5.4% | - For H1, recent acquisitions added approximately **$10.6 million** in revenue, offset by an **$11.4 million** reduction from the legacy business[144](index=144&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$100.3 million** cash, no debt, increased operating cash flow, and projected capital expenditures - The company has no debt and believes its cash balance of **$100.3 million** and operating cash flows are adequate for the next twelve months[151](index=151&type=chunk) Key Liquidity Metrics (in thousands) | Metric | August 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Cash | $100,340 | $93,968 | | Working Capital | $163,326 | $155,379 | - Net cash provided by operating activities was **$34.9 million** for the six months ended August 31, 2023, a significant increase from **$21.8 million** in the prior-year period[155](index=155&type=chunk) - Capital expenditures for fiscal year 2024 are expected to be between **$3.0 million** and **$6.0 million**[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on financial instruments but has no outstanding debt as of August 31, 2023, mitigating current exposure - The company had no outstanding debt as of August 31, 2023, but would be exposed to interest rate risk if it borrows in the future[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) CEO and CFO concluded disclosure controls and procedures were effective as of August 31, 2023, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of August 31, 2023, the company's disclosure controls and procedures were effective[168](index=168&type=chunk) - No changes in internal control over financial reporting occurred during the six months ended August 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[169](index=169&type=chunk) PART II: OTHER INFORMATION Provides details on legal proceedings, risk factors, equity sales, and exhibits for the reporting period [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course litigation, with a subsidiary awarded an unrecorded **$5.85 million** judgment - In April 2023, a subsidiary was awarded **$5.0 million** in damages in a legal case, with the court later amending the total judgment to **$5.85 million**, including attorney's fees, which has not yet been recorded in the financial statements[172](index=172&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes in risk factors have occurred since the February 28, 2023 Annual Report on Form 10-K - No material changes in Risk Factors have occurred since the company's Annual Report on Form 10-K for the year ended February 28, 2023[173](index=173&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company made no share repurchases during the period, with **$23.9 million** remaining available under its program - The company did not purchase any shares of common stock during the six months ended August 31, 2023[176](index=176&type=chunk) - As of August 31, 2023, **$23.9 million** remained available for share repurchases under the company's program[176](index=176&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and Inline XBRL data - The report includes exhibits such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL data (Exhibit 101)[179](index=179&type=chunk)

PART I [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Unaudited financial statements for Q1 2023 show increased assets and operating cash flow, with stable net sales and earnings [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to **$396.0 million** due to higher cash, while liabilities decreased, boosting shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $102,106 | $93,968 | | Accounts receivable, net | $46,627 | $53,507 | | Inventories, net | $48,048 | $46,834 | | Total current assets | $198,714 | $196,626 | | Total assets | $395,990 | $393,835 | | **Liabilities & Equity** | | | | Total current liabilities | $38,378 | $41,247 | | Total liabilities | $58,309 | $62,403 | | Total shareholders' equity | $337,681 | $331,432 | | Total liabilities and shareholders' equity | $395,990 | $393,835 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales rose **3.3%** to **$111.3 million**, with stable gross profit and flat net earnings of **$11.6 million** Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net sales | $111,294 | $107,667 | | Gross profit | $34,041 | $34,004 | | Income from operations | $15,698 | $16,322 | | Net earnings | $11,635 | $11,627 | | Diluted EPS | $0.45 | $0.45 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income slightly increased to **$12.0 million**, driven by pension liability adjustments Comprehensive Income (in thousands) | Metric | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net earnings | $11,635 | $11,627 | | Adjustment to pension, net of taxes | $387 | $304 | | **Comprehensive income** | **$12,022** | **$11,931** | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity grew to **$337.7 million** driven by net earnings, partially offset by dividend payments - Key activities affecting shareholders' equity in the three months ended May 31, 2023, included net earnings of **$11.6 million**, dividend payments of **$6.5 million** (**$0.25** per share), and stock-based compensation of **$0.7 million**[19](index=19&type=chunk) - In the comparable period of the prior year (three months ended May 31, 2022), the company repurchased **$1.1 million** of its common stock, with no repurchases made in the current quarter[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased to **$21.7 million**, with acquisitions impacting investing activities and cash rising by **$8.1 million** Summary of Cash Flows (in thousands) | Cash Flow Activity | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,726 | $14,237 | | Net cash used in investing activities | $(7,129) | $(1,036) | | Net cash used in financing activities | $(6,459) | $(7,586) | | **Net change in cash** | **$8,138** | **$5,615** | | **Cash at end of period** | **$102,106** | **$91,221** | - Investing activities in Q1 2023 included **$2.1 million** in capital expenditures and **$5.0 million** for the purchase of businesses[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Notes detail accounting policies, recent acquisitions like Stylecraft Printing for **$5.0 million**, and the **$23.9 million** stock repurchase program - On May 23, 2023, the Company acquired Stylecraft Printing Company for **$5.0 million**, resulting in the recognition of **$0.2 million** in goodwill[44](index=44&type=chunk) - The company's stock repurchase program has **$23.9 million** remaining available as of May 31, 2023, with no shares repurchased during the quarter[68](index=68&type=chunk) - Subsequent to the quarter end, on June 2, 2023, the company acquired UMC Print for approximately **$7.7 million**, and on June 16, 2023, the Board declared a quarterly dividend of **$0.25** per share[94](index=94&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses **3.3%** revenue growth from acquisitions, a **100 basis point** gross margin decline, and strong **$102.1 million** cash liquidity [Business Overview and Recent Acquisitions](index=22&type=section&id=Business%20Overview%20and%20Recent%20Acquisitions) Ennis, Inc., a major printed products manufacturer with **55 plants**, expanded through recent strategic acquisitions to drive growth - The company operates **55** manufacturing plants in **20** states and is described as the largest provider of business forms, labels, tags, envelopes, and presentation folders to independent distributors in the U.S[104](index=104&type=chunk)[105](index=105&type=chunk) - Recent acquisitions include UMC Print (June 2023), Stylecraft Printing Company (May 2023), and School Photo Marketing (November 2022), aimed at adding strategic locations and capabilities[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Net sales rose **3.3%** to **$111.3 million** from acquisitions, with gross margin declining to **30.6%** and net earnings flat - Net sales increased by **$3.6 million** (**3.3%**) year-over-year, with recent acquisitions contributing approximately **$4.1 million**, offsetting a slight decline in organic sales volume[126](index=126&type=chunk) - Gross profit margin decreased by **100 basis points** to **30.6%** compared to **31.6%** in the prior year quarter, but improved by **300 basis points** sequentially from the quarter ending February 28, 2023[127](index=127&type=chunk) - Net earnings were flat at **$11.6 million**, and diluted EPS was also flat at **$0.45** compared to the prior year quarter[131](index=131&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity remains strong with cash at **$102.1 million** and no long-term debt, with capital expenditures funded by operating cash flows Key Liquidity Metrics (in thousands) | Metric | May 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Working capital | $160,336 | $155,379 | | Cash | $102,106 | $93,968 | - Net cash from operating activities was **$21.7 million** for the quarter, a significant increase from **$14.2 million** in the prior year period, primarily due to improved collections on accounts receivable[134](index=134&type=chunk) - The company did not renew its credit facility and has no outstanding long-term debt, with future expenses expected to be funded by cash on hand and operating cash flows[137](index=137&type=chunk) - Capital expenditures for the fiscal year are expected to be between **$3.0 million** and **$6.0 million**, with approximately **$2.1 million** spent in the first quarter[140](index=140&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure to interest rates is minimal due to no outstanding debt as of May 31, 2023 - The company is exposed to interest rate risk but had no outstanding debt as of May 31, 2023, mitigating current risk[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[145](index=145&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[146](index=146&type=chunk) PART II: OTHER INFORMATION [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings outside of ordinary routine litigation incidental to its business - There are no material pending legal proceedings against the company other than ordinary, routine litigation[148](index=148&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors since those disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2023 - No material changes in risk factors have occurred since the company's last Annual Report on Form 10-K[149](index=149&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any shares of its common stock during the three months ended May 31, 2023, with **$23.9 million** remaining available for future repurchases - The company's share repurchase program has a cumulative authorization of **$60 million**[151](index=151&type=chunk) - No shares were repurchased during the three months ended May 31, 2023, and as of this date, **$23.9 million** remained available under the program[152](index=152&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial data formatted in Inline XBRL - Exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial statements in Inline XBRL format (Exhibit 101)[154](index=154&type=chunk)

Part I [Business](index=4&type=section&id=Item%201.%20Business) Ennis, Inc. is a leading US manufacturer and distributor of custom and semi-custom printed products, serving independent distributors, with growth supported by acquisitions and a focus on environmental and social responsibility - Ennis, Inc. operates as a leading provider of business forms and products, distributing primarily through independent channels across the United States[16](index=16&type=chunk)[17](index=17&type=chunk) - The company operates **54 manufacturing plants** in **20 states**, with approximately **95%** of its products being custom or semi-custom[18](index=18&type=chunk) - On November 30, 2022, the company acquired School Photo Marketing ("SPM"), which generated approximately **$5.9 million** in sales in its prior fiscal year, expanding services to school photographers[25](index=25&type=chunk) - The company's backlog of firm orders increased to approximately **$46.7 million** at February 28, 2023, from **$38.4 million** at February 28, 2022[32](index=32&type=chunk) - As of February 28, 2023, the company had **1,919 employees**, with **167** represented by labor unions[42](index=42&type=chunk) - Ennis demonstrates environmental responsibility by recycling significant amounts of materials, including **23.1 million pounds** of paper and **2.2 million pounds** of cardboard and cores in 2023[35](index=35&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from declining demand for printed documents, supply chain dependencies, pension funding volatility, acquisition integration challenges, cybersecurity threats, and economic downturns - The demand for traditional printed business documents is eroding due to the increasing sophistication and adoption of software, internet technologies, and digital equipment[52](index=52&type=chunk)[53](index=53&type=chunk) - The company relies on a limited number of suppliers for raw materials, particularly paper, making it vulnerable to price increases, supply disruptions, and quality fluctuations, with the majority of paper products purchased from one major supplier[55](index=55&type=chunk)[56](index=56&type=chunk) - The company's defined benefit pension plan is subject to market risks, with the plan **99% funded** on a PBO basis as of February 28, 2023, and fluctuations in market values, interest rates, and mortality assumptions could negatively impact its funded status[57](index=57&type=chunk)[58](index=58&type=chunk) - Acquisitions are a key part of the company's strategy to offset print attrition, but there are risks related to identifying suitable targets and successfully integrating acquired businesses[59](index=59&type=chunk) - The company was targeted with an encryption ransomware attack on November 30, 2022, which, while immediately addressed and not significantly financially impactful, highlights ongoing cybersecurity risks[75](index=75&type=chunk)[76](index=76&type=chunk) [Properties](index=13&type=section&id=Item%202.%20Properties) Ennis, Inc. operates approximately **2.6 million square feet** of owned and **1.0 million square feet** of leased properties across the US, all in good condition with no major expansions planned Owned vs. Leased Property Square Footage | Property Type | Approximate Square Footage | | :--- | :--- | | Owned | 2,589,702 | | Leased | 1,031,734 | - The company operates manufacturing facilities across the U.S., with specialized production for various products like business forms, presentation products, envelopes, and financial forms[81](index=81&type=chunk) - All facilities are believed to be in good condition, and management does not anticipate the need for substantial expansion or re-equipping in the near future[83](index=83&type=chunk) [Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation, with no material adverse effects expected, though a subsidiary was awarded **$5.0 million** in damages in April 2023 not yet reflected in FY2023 financials - In April 2023, a subsidiary was awarded **$5.0 million** in actual and punitive damages in a case against Wright Printing Company, with the financial impact not included in the FY2023 statements[87](index=87&type=chunk) Part II [Market for Common Equity and Related Matters](index=15&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ennis, Inc. common stock trades on NYSE (EBF), paid **$0.250** quarterly dividends in FY2023, and repurchased **64,082** shares under a **$40.0 million** program with **$23.9 million** remaining Fiscal Year 2023 Quarterly Stock and Dividend Data | Quarter | High Price | Low Price | Dividends per Share | | :--- | :--- | :--- | :--- | | First | $19.24 | $16.94 | $0.250 | | Second | $22.67 | $16.55 | $0.250 | | Third | $23.44 | $19.81 | $0.250 | | Fourth | $23.48 | $20.55 | $0.250 | - During fiscal year 2023, the company repurchased **64,082 shares** of common stock at an average price of **$17.46 per share**[94](index=94&type=chunk) - As of February 28, 2023, **$23.9 million** remained available under the company's stock repurchase program[94](index=94&type=chunk) - The company's 5-year cumulative total shareholder return was **135.05%**, outperforming the Russell 2000 (**130.92%**) but underperforming the S&P 500 (**157.71%**) for the period ending February 28, 2023[96](index=96&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=17&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2023 saw **8%** net sales growth to **$431.8 million**, gross profit margin improved to **30.3%**, net earnings rose to **$47.3 million** (aided by a **$5.9 million** asset disposal gain), and liquidity remained strong with **$155.4 million** working capital [Overview](index=17&type=section&id=Overview) Management addresses challenges like supply channel consolidation, digital obsolescence, and price competition by transforming the product portfolio through technology and acquisitions while managing costs - The company's sales have recovered in fiscal years 2022 and 2023 after being impacted by the COVID-19 pandemic in fiscal year 2021[105](index=105&type=chunk) - Key business challenges include the transformation of the product portfolio away from traditional documents, managing production capacity amid industry price competition, and the ongoing consolidation of customers[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) [Critical Accounting Estimates](index=18&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates include the Pension Plan (discount rates, asset returns), Goodwill (annual impairment testing), Revenue Recognition (credit losses), and Inventories (obsolescence based on demand) - The discount rate for the Pension Plan obligation increased to **5.00%** in FY2023 from **3.10%** in FY2022, with each **10 basis point** change impacting the pension liability by about **$0.53 million**[113](index=113&type=chunk) - Goodwill is assessed for impairment annually as of December 1, with no impairment charge required for fiscal years 2023 or 2022[116](index=116&type=chunk) - Revenue from 'print and store' arrangements, where products are manufactured for future delivery, amounted to **$17.1 million** in FY2023, up from **$14.6 million** in FY2022[118](index=118&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) FY2023 net sales grew **8%** to **$431.8 million**, gross profit margin improved to **30.3%**, income from operations surged **51.8%** to **$66.2 million**, and net earnings increased to **$47.3 million** (**$1.82** diluted EPS) Consolidated Results of Operations (in thousands) | | 2023 | % of Sales | 2022 | % of Sales | 2021 | % of Sales | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $431,837 | 100.0% | $400,014 | 100.0% | $357,973 | 100.0% | | Cost of goods sold | 300,787 | 69.7% | 285,291 | 71.3% | 254,207 | 71.0% | | Gross profit margin | 131,050 | 30.3% | 114,723 | 28.7% | 103,766 | 29.0% | | SG&A | 70,793 | 16.4% | 71,410 | 17.9% | 68,270 | 19.1% | | Income from operations | 66,153 | 15.3% | 43,584 | 10.9% | 35,901 | 10.0% | | Net earnings | $47,300 | 11.0% | $28,982 | 7.2% | $24,094 | 6.7% | - Net sales for FY2023 increased by **8%** year-over-year, driven by **$3.3 million** from recent acquisitions as well as price and volume increases[121](index=121&type=chunk) - Gross profit margin improved from **28.7%** in FY2022 to **30.3%** in FY2023 due to improved operational efficiencies and pricing adjustments to cover inflationary costs[123](index=123&type=chunk) - A **$5.9 million** gain from the disposal of assets was recognized in FY2023, primarily from the sale of an unused manufacturing facility for **$5.8 million**[127](index=127&type=chunk) - Net earnings for FY2023 were **$47.3 million** (**$1.82 per diluted share**), compared to **$29.0 million** (**$1.11 per diluted share**) for FY2022, with the increase impacted by higher revenues and a **$5.8 million** gain from asset disposal, which added **$0.17 per share**[131](index=131&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with working capital up **21.5%** to **$155.4 million** and **$46.8 million** cash from operations, no long-term debt, and anticipates funding **$3.0-5.0 million** in FY2024 capital expenditures from existing cash Working Capital and Cash (in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Working Capital | $155,379 | $127,839 | $113,022 | | Cash | $93,968 | $85,606 | $75,190 | Cash Flow Components (in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $46,776 | $50,678 | $52,817 | | Net cash used in investing activities | $(11,457) | $(10,052) | $(21,183) | | Net cash used in financing activities | $(26,957) | $(30,210) | $(24,702) | - The company did not renew its Credit Agreement which expired in November 2021 and has had no outstanding long-term debt since August 2019[143](index=143&type=chunk) - A contribution of **$2.0 million** was made to the Pension Plan in fiscal year 2023, with future contributions anticipated to be between **$1.0 million** and **$3.0 million** per year[144](index=144&type=chunk) - Capital expenditure requirements for fiscal year 2024 are expected to be between **$3.0 million** and **$5.0 million**, funded by existing cash flows[146](index=146&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=24&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces interest rate risk on variable-rate financial instruments, though it had no outstanding debt as of February 28, 2023, and does not use derivatives for trading - The company had no outstanding debt as of February 28, 2023, but would be exposed to interest rate risk if it borrows under a credit facility in the future[149](index=149&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of February 28, 2023, with a previously identified IT material weakness remediated following a November 2022 ransomware attack - Management concluded that disclosure controls and procedures were effective as of February 28, 2023[153](index=153&type=chunk) - A material weakness related to IT controls, which permitted a ransomware attack on November 30, 2022, was identified, but the company has since taken corrective action and remediated the material weakness as of February 28, 2023[158](index=158&type=chunk) - Management's assessment of internal control over financial reporting excluded the recently acquired SPM, which constituted less than **1%** of consolidated assets and revenues[157](index=157&type=chunk) Part III [Directors, Executive Compensation, and Corporate Governance](index=26&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive compensation, and corporate governance, is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's Proxy Statement for the 2023 Annual Meeting of Shareholders[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=27&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists documents filed with the Form 10-K, including an index to Consolidated Financial Statements and various exhibits like corporate governance documents and certifications - This section provides an index to the Consolidated Financial Statements and lists all exhibits filed with the report, including corporate governance documents and executive certifications[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) Consolidated Financial Statements [Reports of Independent Registered Public Accounting Firm](index=30&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) CohnReznick LLP issued unqualified opinions on the consolidated financial statements and the effectiveness of internal control over financial reporting for the year ended February 28, 2023 - CohnReznick LLP issued an unqualified opinion, stating the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2023[182](index=182&type=chunk) - The firm also issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of February 28, 2023[189](index=189&type=chunk) [Consolidated Financial Statements Tables](index=34&type=section&id=Consolidated%20Financial%20Statements%20Tables) Consolidated financial statements show total assets of **$393.8 million** and shareholders' equity of **$331.4 million** as of February 28, 2023, with FY2023 net sales of **$431.8 million** and net earnings of **$47.3 million** Consolidated Balance Sheet Highlights (in thousands) | | Feb 28, 2023 | Feb 28, 2022 | | :--- | :--- | :--- | | Total current assets | $196,626 | $165,029 | | Total assets | $393,835 | $368,844 | | Total current liabilities | $41,247 | $37,190 | | Total liabilities | $62,403 | $65,029 | | Total shareholders' equity | $331,432 | $303,815 | Consolidated Statement of Operations Highlights (in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $431,837 | $400,014 | $357,973 | | Gross profit | $131,050 | $114,723 | $103,766 | | Income from operations | $66,153 | $43,584 | $35,901 | | Net earnings | $47,300 | $28,982 | $24,094 | | Diluted EPS | $1.82 | $1.11 | $0.93 | Consolidated Statement of Cash Flows Highlights (in thousands) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $46,776 | $50,678 | $52,817 | | Net cash used in investing activities | $(11,457) | $(10,052) | $(21,183) | | Net cash used in financing activities | $(26,957) | $(30,210) | $(24,702) | | Net change in cash | $8,362 | $10,416 | $6,932 | | Cash at end of period | $93,968 | $85,606 | $75,190 | [Notes to Consolidated Financial Statements](index=40&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, acquisitions (SPM in FY2023), benefit plans (pension **99%** funded), and an effective tax rate of **27.2%** for FY2023, highlighting key financial details - The company operates as a single reportable segment, with all assets located in the United States[222](index=222&type=chunk) - On November 30, 2022, the company acquired School Photo Marketing (SPM) for **$8.8 million**, adding **$3.1 million** to goodwill[259](index=259&type=chunk) - The company's noncontributory defined benefit pension plan covered approximately **13%** of employees, and as of year-end, the plan had a funded status deficit of **$0.6 million**, a significant improvement from a **$5.7 million** deficit in the prior year[303](index=303&type=chunk)[313](index=313&type=chunk) - The effective income tax rate was **27.2%** for FY2023, compared to **30.9%** for FY2022 and **27.6%** for FY2021[317](index=317&type=chunk) - The company has a significant concentration of risk with one third-party vendor, from which it purchased **50%** of its materials in fiscal year 2023[331](index=331&type=chunk)