# Ennis, Inc.: Form 10-Q for the period ended May 31, 2023

- Company: [Ennis, Inc.](/companies/ebf.md) (CIK 33002)
- Form: 10-Q
- Filed: 2023-07-05
- Accepted by EDGAR: Jul 3, 2023, 22:30 ET
- Period: 2023-05-31
- Accession: 0000950170-23-031470
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/33002/000095017023031470/ebf-20230531.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/33002/000095017023031470/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-05-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-03-01 to 2023-05-31 | $111.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-03-01 to 2023-05-31 | $77.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-03-01 to 2023-05-31 | $34.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-03-01 to 2023-05-31 | $18.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-03-01 to 2023-05-31 | $15.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-03-01 to 2023-05-31 | $4.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-03-01 to 2023-05-31 | $11.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-03-01 to 2023-05-31 | $0.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-03-01 to 2023-05-31 | $0.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-03-01 to 2023-05-31 | 25,979,533 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-03-01 to 2023-05-31 | $21.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-03-01 to 2023-05-31 | $2.1m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2023-03-01 to 2023-05-31 | $6.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2023-03-01 to 2023-05-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-05-31 | $102.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-05-31 | $198.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-05-31 | $396.0m | us-gaap:Assets |
| Current liabilities | at 2023-05-31 | $38.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-05-31 | $58.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-05-31 | $337.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,560 characters.

### Cautionary Statement Regarding Forward-Looking Statements

*The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read together with the unaudited consolidated financial statements and related notes of Ennis, Inc. (collectively with its subsidiaries, the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”), included in Part 1, Item 1 of this report, and with the audited consolidated financial statements and the related notes of the Company included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023.*

*All of the statements in this report, other than historical facts, are forward-looking statements, including, without limitation, the statements made in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words “could,” “should,” “feel,” “anticipate,” “aim,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “intent,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.*

*The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for these forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that forward-looking statements are subject to known and unknown risks, uncertainties and other factors relating to its operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.*

*These statements reflect the current views and assumptions of management with respect to future events. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.*

*We believe these forward-looking statements are based upon reasonable assumptions. All such statements involve risks and uncertainties, and as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including but not limited to: general economic, business and labor conditions and the potential adverse effects of potential recessionary concerns, inflationary issues and supply chain disruptions and the potential impact on our operations; our ability to implement our strategic initiatives and control our operational costs; dependence on a limited number of key suppliers; our ability to recover the rising cost of raw materials and other costs (including energy, freight, labor and benefit costs) in markets that are highly price competitive and volatile; uninsured losses, including those from natural disasters, catastrophes, pandemics, theft, sabotage; the impact of the novel coronavirus COVID-19 pandemic or future pandemics on the U.S. and local economies, our business operations, our workforce, our supply chain and our customer base; our ability to timely or adequately respond to technological changes in the industry; cybersecurity risks, the impact of the internet and other electronic media on the demand for forms and printed materials; the impact of foreign competition, tariffs, trade regulations and import restrictions; customer credit risk; competitors’ pricing strategies; a decline in business volume and profitability could result in an impairment in our reported goodwill negatively impacting our operational results; our ability to retain key management personnel; our ability to identify, manage or integrate acquisitions.; In addition to the factors indicated above, you should carefully consider the risks described in and incorporated by reference herein and in the risk factors in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023 before making an investment in our common stock.*

### Overview

Ennis, Inc. (formerly Ennis Business Forms, Inc.) (collectively with its subsidiaries, “the “Company,” “Registrant,” Ennis,” or “we,” “us,” or “our”) was organized under the laws of Texas in 1909. We and our subsidiaries print and manufacture a broad line of business forms and other business products. We distribute business products and forms throughout the United States primarily through independent distributors. This distributor channel encompasses independent print distributors, commercial printers, direct mail, fulfillment companies, payroll and accounts payable software companies, and advertising agencies, among others. We also sell products to many of our competitors to satisfy their customers’ needs.

### Business Overview

Our management believes we are the largest provider of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders to independent distributors in the United States.

We are in the business of manufacturing, designing, and selling business forms and other printed business products primarily to distributors located in the United States. We operate 55 manufacturing plants throughout the United States in 20 strategically located states as one reportable segment. Approximately 96% of the business products we manufacture are custom and semi-custom products, constructed in a wide variety of sizes, colors, number of parts, and quantities on an individual job basis, depending upon the customers’ specifications.

The products we sell include snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls and pressure sensitive products in short, medium and long runs under the following labels: Ennis®, Royal Business Forms®, Block Graphics®, 360º Custom LabelsSM, ColorWorx®, Enfusion®, Uncompromised Check Solutions®, VersaSeal®, Ad ConceptsSM, FormSource LimitedSM, Star Award Ribbon Company®, Witt Printing®, B&D Litho®, Genforms®, PrintGraphics®, Calibrated Forms®, PrintXcel®, Printegra®, Forms ManufacturersSM, Mutual Graphics®, TRI-C Business FormsSM, Major Business SystemsSM, Independent PrintingSM, Hoosier Data Forms®, Hayes Graphics®, Wright Business GraphicsSM, Wright 360SM, Integrated Print & GraphicsSM, the Flesh CompanySM, Impressions DirectSM, AmeriPrintSM, and StylecraftSM; We also sell the Adams McClure® brand (which provides Point of Purchase advertising); the Admore®, Folder Express®, and Independent Folders® brands (which provide presentation folders and document folders); Ennis Tag & LabelSM (which provides custom printed, high performance labels and custom and stock tags); Allen-Bailey Tag & LabelSM, Atlas Tag & Label®, Kay Toledo Tag®, and Special Service Partners® (SSP) (which provides custom and stock tags and labels); Trade Envelopes®, Block Graphics®, Wisco®, and National Imprint Corporation® (which provide custom and imprinted envelopes) and Northstar® and General Financial Supply® (which provide financial and security documents); InfosealSM and PrintXcel® (which provide custom and stock pressure seal documents). School Photo Marketing is a one-stop shop for over 1,400 school portrait photographers and professional photo labs nationwide, providing them with a complete array of products and services that reach over 15 million families and 30,000 schools, primarily in the K-8 market. We sell predominantly through independent distributors, as well as to many of our competitors. Northstar Computer Forms, Inc., one of our wholly-owned subsidiaries, also sells direct to a small number of customers, generally large banking organizations (where a distributor is not acceptable or available to the end-user). Adams McClure, LP, a wholly-owned subsidiary, also sells direct to a small number of customers, where sales are generally through advertising agencies.

The printing industry generally sells its products either predominantly to end users, a market dominated by a few large manufacturers such as R.R. Donnelley and Sons, Staples, Inc., Standard Register Co. (a subsidiary of Taylor Corporation), and Cenveo, Inc., or, like the Company, through a variety of independent distributors and distributor groups. While it is not possible, because of the lack of adequate public statistical information, to determine the Company’s share of the total business products market, management believes the Company is the largest producer of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders in the United States distributing primarily through independent distributors.

There are a number of competitors that operate in this segment, ranging in size from single employee-owned operations to multi-plant organizations. We believe our strategic locations and buying power permit us to compete on a favorable basis within the distributor market on competitive factors, such as service, quality, and price.

Distribution of business forms and other business products throughout the United States is primarily done through independent distributors, including business forms distributors, resellers, direct mail, commercial printers, payroll and accounts payable software companies, and advertising agencies.

Raw materials principally consist of a wide variety of weights, widths, colors, sizes, and qualities of paper for business products purchased primarily from one major supplier at favorable prices based on the volume of business.

Business products usage in the printing industry is generally not seasonal. General economic conditions and contraction of the traditional business forms industry are the predominant factors in quarterly volume fluctuations.

### Recent Acquisitions

On June 2, 2023, we acquired the assets of UMC Print in Overland Park, Kansas. The acquisition of UMC Print, which prior to the acquisition generated approximately $16 million in sales for its fiscal year ended December 31, 2022, adds strategic locations and capabilities to drive growth with our distributor partners.

On May 23, 2023 we acquired the real estate and operating assets of Stylecraft Printing Company in Canton, MI which prior to the acquisition generated approximately $7.0 million in sales for its fiscal year ended December 31, 2022. Stylecraft is a trade only printer since 1967 specializing in business forms, integrated products and commercial printing.

On November 30, 2022, we acquired the net assets and business from School Photo Marketing ("SPM") in Morganville, New Jersey, which prior to the acquisition generated approximately $5.9 million in sales for its fiscal year ended December 31, 2021. SPM provides printing, yearbook publishing and marketing related services to over 1,400 school and sports photographers servicing schools around the country.

### Our Business Challenges

Our industry is currently experiencing consolidation of traditional supply channels, product obsolescence, paper supplier capacity adjustments, and increased pricing and potential supply allocations due to demand/supply curve imbalance. Technology advances have made electronic distribution of documents, internet hosting, digital printing and print-on-demand valid, cost-effective alternatives to traditional custom-printed documents and customer communications. Improved equipment has become more accessible to our competitors. We face highly competitive conditions throughout our supply chain in a price-competitive print industry. The challenges of our business include the following:

**COVID-19 Pandemic –** Our sales were significantly impacted by economic conditions driven by the COVID-19 pandemic and resulted in a decrease in sales volume and earnings in fiscal year 2021. The demand for our products strengthened in fiscal year 2022 and fiscal year 2023, and our sales increased. We were also confronted with rising raw material and logistics costs, delayed delivery times and labor shortages. Despite these challenges, our disciplined cost management and pricing strategies contributed to our improved performance in fiscal year 2022 and 2023. While the markets appear to have recovered from the more direct negative impacts of the pandemic, the longer term effects of the pandemic, including supply chain disruptions and inflationary pressures, are unknown and could have a material adverse effect on our business, results of operations and financial results. We will continue to monitor incoming order volume as well as rising raw material and other input costs so that we can proactively adjust our pricing and costs accordingly.

**Transformation of our portfolio of products –** While traditional business documents are essential in order to conduct business, many are being replaced through the use of cheaper paper grades or imported paper, or devalued with advances in digital technologies, causing steady declines in demand for a portion of our current product line. In addition, the impact of COVID-19 on the speed of this transformation is unknown, but it is expected to accelerate the decline for some of our products. Transforming our product offerings in order to continue to provide innovative, valuable solutions through lower labor and fixed charges to our customers on a proactive basis will require us to make investments in new and existing technology and to develop key strategic business relationships, such as print-on-demand services and product offerings that assist customers in their transition to digital business environments. In addition, we will continue to look for new market opportunities and niches through acquisitions, such as the addition of our envelope offerings, tag offerings, folder offerings, healthcare wristbands, specialty packaging, direct mail, pressure seal products, secure document solutions, innovative in-mold label offerings and long-run integrated products with high color web printing, which provide us with an opportunity for growth and differentiate us from our competition. The ability to make investments in new and existing technology and/or to acquire new market opportunities through acquisitions is dependent on the Company’s liquidity and operational results. While currently the pandemic has not materially impacted our liquidity and it is not currently expected to, a protracted delay or reversal in the economy recovering could have a negative impact on our continued ability to make the aforementioned investments or to consummate acquisitions.

**Production capacity and price competition within our industry –** Changes in the value of the U.S. dollar can have a significant impact on the pricing and supply of paper. The weakening of the U.S. dollar will usually result in the dissipation of any pricing advantage that foreign imports have over domestic suppliers, which typically results in lower levels of imported papers and an increase in domestic exports. With increased pricing power, domestic paper producers can better control the supply of paper by eliminating capacity or changing the products produced on their large paper machines. The strengthening of the U.S. dollar usually has the opposite effect: more cheap imported paper; less domestic exports; and lower pricing power in the hands of domestic paper producers. Domestic paper suppliers typically seek to balance supply and demand, including by (if possible) taking capacity out of the market, whether by taking production off-line or switching production to alternative paper products. Generally, if mills are running at high capacity, suppliers are able to raise prices. We intend to continue to focus on effectively managing and controlling our product costs through the use of forecasting, production and costing models, as well as working closely with our domestic suppliers to reduce our procurement costs, in order to minimize effects on our operational results. In addition, we will continue to look for ways to reduce and leverage our fixed costs.

**Continued consolidation of our customers –** Our customers are distributors, many of which are consolidating or are being acquired by competitors. We continue to maintain a majority of the business we have had with our customers historically, but it is possible that these consolidations and acquisitions, which we expect to continue in the future, ultimately will impact our margins and sales.

For further information, please see “Cautionary Statement Regarding Forward-Looking Statements,” above and “Risk Factors” contained within our Annual Report on Form 10-K for the fiscal year ended February 28, 2023.

### Critical Accounting Estimates

Our Annual Report on Form 10-K for the year ended February 28, 2023, includes a description of certain critical accounting estimates, including those with respect to the pension plan, goodwill and other intangible assets, revenue recognition and inventories, which we believe are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. During the quarter ended May 31, 2023, there have been no material changes to the critical accounting estimates described in our Annual Report on Form 10-K for the year ended February 28, 2023.

### Recent Accounting Pronouncements

There are no recent accounting pronouncements that are anticipated to have a material impact on our consolidated financial statements.

### Results of Operations

The following discussion provides information which we believe is relevant to understanding our results of operations and financial condition. The discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto, which are incorporated herein by reference. The operating results of the Company for the three months ended May 31, 2023 and the comparative period for 2022 are set forth in the unaudited consolidated financial information included in the tables below.

### Consolidated Summary

*Unaudited Consolidated Statements of*

| Operations - Data (in thousands) | Three Months Ended May 31, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $111,294 | 100.0% | $107,667 | 100.0% |
| Cost of goods sold | 77,253 | 69.4 | 73,663 | 68.4 |
| Gross profit margin | 34,041 | 30.6 | 34,004 | 31.6 |
| Selling, general and administrative | 18,343 | 16.5 | 17,682 | 16.4 |
| Income from operations | 15,698 | 14.1 | 16,322 | 15.2 |
| Other income (expense) | 462 | 0.4 | (172) | (0.2) |
| Earnings before income taxes | 16,160 | 14.5 | 16,150 | 15.0 |
| Provision for income taxes | 4,525 | 4.1 | 4,523 | 4.2 |
| Net earnings | $11,635 | 10.5% | $11,627 | 10.8% |

23

### Three months ended May 31, 2023 compared to three months ended May 31, 2022

*Net Sales.* Our net sales were $111.3 million for the quarter ended May 31, 2023, compared to $107.7 million for the same quarter in the prior year, an increase of $3.6 million, or 3.3%. The increase includes revenue contributions of approximately $4.1 million from School Photo Marketing, an acquisition completed on November 30, 2022, and Stylecraft Printing Company, an acquisition completed on May 23, 2023. The increase from acquisitions was partially offset by an otherwise slight decline in sales volume as purchasing patterns have normalized since last year’s tight paper market.

*Cost of Goods Sold and Gross Profit Margin.* Our cost of goods sold increased $3.6 million, or 4.9%, from $73.7 million for the three months ended May 31, 2022 to $77.3 million for the three months ended May 31, 2023. Our gross profit was $34.0 million or 30.6% for the quarter ended May 31, 2023 compared to $34.0 million or 31.6% for the same quarter in the prior year. Our gross profit margin for the quarter of 30.6% is within our target range and showed improvement of 300 basis points from 27.6% in the sequential quarter ending February 28, 2023 and declined 100 basis points to 30.6% compared to 31.6% in the same prior year quarter.

*Selling, general, and administrative expense.* For the three months ended May 31, 2023, our selling, general, and administrative ("SG&A") expenses were $18.3 million compared to $17.7 million for the three months ended May 31, 2022, an increase of $0.6 million, or 3.4%. As a percentage of net sales, SG&A expenses for the current quarter were 16.5% and 16.4% for the three months ended May 31, 2023 and May 31, 2022, respectively. Our recent acquisitions added $0.7 million in SG&A expenses during the quarter.

*Income from operations.* Primarily due to factors described above, our income from operations for the three months ended May 31, 2023 was $15.7 million, or 14.1% of net sales, as compared to $16.3 million, or 15.2 of net sales, for the three months ended May 31, 2022. Income from operations remained flat on a sequential quarter basis and was $15.7 million for the quarter ended February 28, 2023.

*Other income (expense).* Other income was $0.5 million for the three months ended May 31, 2023 compared to other expense of $0.2 million for the three months ended May 31, 2022. Our increase in income was primarily from an increase in interest income from higher interest rates in the current quarter

*Provision for income taxes.* Our effective tax rate was 28.0% for the three months ended May 31, 2023 and May 31, 2022.

*Net earnings.* Net earnings, due to the factors above, were $11.6 million for the three months ended May 31, 2023 as compared to $11.6 million for the comparable quarter in the prior year. Net earnings per diluted share for the three months ended May 31, 2023 were $0.45, compared to $0.45 for the same quarter in the prior year.

### Liquidity and Capital Resources

We rely on our cash flows generated from operations to meet all cash requirements of our business. The primary cash requirements of our business are payments to vendors in the normal course of business, capital expenditures, compensation obligations and the payment of dividends to our shareholders. We expect to generate sufficient cash flows from operations necessary to cover our operating and capital requirements for the foreseeable future.

*(Dollars in thousands)*

|  | May 31, 2023 | February 28, 2023 |
| --- | ---: | ---: |
| Working capital | $160,336 | $155,379 |
| Cash | $102,106 | $93,968 |

***Working Capital.*** On May 31, 2023, we had $102.1 million in cash. During the period, our cash position increased by $8.1 million and our working capital increased $4.9 million or 3.2%, from $155.4 million at February 28, 2023 to $160.3 million at May 31, 2023. Our current ratio, calculated by dividing our current assets by our current liabilities, increased from 4.8 to 1.0 at February 28, 2023 to 5.2 to 1.0 at May 31, 2023. Our working capital and current ratio were positively impacted primarily by an increase in our cash and inventories offset by a decrease in our accounts payable and accrued expenses.

### FOR THE PERIOD ENDED MAY 31, 2023

*(Dollars in thousands)*

|  | Three months ended May 31, 2023 | 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) |

***Cash flows from operating activities.*** Cash provided by operating activities was $21.7 million in the three months ended May 31, 2023 compared to $14.2 million in the comparative period ended May 31, 2022. A decrease in accounts receivable provided cash of $7.3 million in the current quarter and an increase in accounts receivable used cash of $2.0 million in the prior year quarter. An increase in inventories used cash of $0.4 million in the three months ended May 31, 2023 and $5.4 million in the same period of 2022. A decrease in accounts payable and accrued expenses used cash of $2.8 million in the current quarter and an increase in accounts payable and accrued expenses provided cash of $4.4 million in the prior year quarter. The decrease in accounts receivable in the current period was primarily due to improved collections. The increased inventory balances in the prior period was primarily due to increased input costs and some of our plants ordering additional paper supplies to accommodate large orders amidst less predictable supply chain conditions. We continue to monitor incoming orders and adjust raw material purchases accordingly.

***Cash flows from investing activities.*** Cash used in investing activities was $7.1 million in the three months ended May 31, 2023 compared to $1.0 million in the three months ended May 31, 2022. Capital expenditures primarily of equipment was $2.1 million and $1.0 million for the three months ended May 31, 2023 and May 31, 2022, respectively. In the three months ended May 31, 2023, $5.0 million was used to acquire businesses.

***Cash flows from financing activities.*** We used $1.1 million less cash in financing activities during the three months ended May 31, 2023 compared to the same period in the prior year. The decrease in cash used during the three months ended May 31, 2023 resulted from $1.1 million common stock repurchased under our stock repurchase program in the three months ended May 31, 2022.

***Credit Facility –*** We did not renew our Credit Agreement, which expired November 11, 2021. We have had no outstanding long-term debt under the revolving credit line since paid in full in August 2019. As of May 31, 2023, we had $0.5 million outstanding under a standby letters of credit arrangement secured by a cash collateral bank account. It is anticipated that our cash and funds from operating cash flows will be sufficient to fund anticipated future expenses.

***Pension Plan –*** The funded status of our Pension Plan and funding requirements is dependent on many factors, including returns on invested assets, the level of market interest rates and the level of funding. Assuming a stable funding status, we would expect that our future contributions to be between $1.0 million and $3.0 million per year. However, changes in actual investment returns or in discount rates could change this amount significantly. There was a $2.0 million contribution made in September 2022 to avoid a Pension Benefit Guaranty Corporation variable premium. As our Pension Plan assets are invested in marketable securities, fluctuations in market values could potentially impact our funding status, associated liabilities recorded and future required minimum contributions. At May 31, 2023, we had an unfunded pension liability recorded on our balance sheet of $0.7 million.

***Inventories –*** We believe our inventory levels are sufficient to satisfy our customer demands and we anticipate having adequate sources of raw materials to meet future business requirements. We have long-term contracts in effect with paper suppliers that govern prices, but do not require minimum purchase commitments. Certain of our rebate programs do, however, require minimum purchase volumes.

***Capital Expenditures –*** We continue to make capital expenditures for operational maintenance purposes, as may be required. Additionally, we will carefully review and make new capital expenditures for equipment to the extent such expenditures make economic sense by improving our operations and not jeopardizing our strong liquidity position. We expect our capital requirements for our current fiscal year, exclusive of capital required for possible acquisitions, will be within our historical levels of between $3.0 million and $6.0 million. For the three months ended May 31, 2023, we have spent approximately $2.1 million on capital expenditures. We expect to fund these expenditures through existing cash flows.

***Contractual Obligations –*** There have been no significant changes in our contractual obligations since February 28, 2023 that have, or are reasonably likely to have, a material impact on our results of operations or financial condition.

## Market risk

As filed, 715 characters.

### Market Risk

### Interest Rates

From time to time, we are exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest rates. We may from time to time utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. We do not use derivative instruments for trading purposes. While we had no outstanding debt at May 31, 2023, we will be exposed to interest rate risk if we borrow in the future.

This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets.

## Controls and procedures

As filed, 2,861 characters.

**Evaluation of Disclosure Controls and Procedures.** We maintain “disclosure controls and procedures” as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures. Our controls and procedures are tested and evaluated at regular intervals to confirm that they are adequate and followed by our personnel to prevent misstatement of the Company’s financial statements. Due to the inherent limitations of control systems, not all misstatements may be detected. Those inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met. Our management, with the participation of our Chairman of the Board, President and Chief Executive Officer (“CEO”) and Chief Financial Officer and Treasurer (“CFO”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that, as of May 31, 2023, our disclosure controls and procedures are effective to provide reasonable assurance that information relating to us (including our consolidated subsidiaries), which is required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a–15(f) or Rule 15d–15(f) of the Exchange Act) that occurred during the three months ended May 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 151 characters.

There have been no material changes in our Risk Factors as previously discussed in our Annual Report on Form 10-K for the year ended February 28, 2023.

Filed Jul 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-031470. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.