# Ennis, Inc.: Form 10-Q for the period ended Nov 30, 2015

- Company: [Ennis, Inc.](/companies/ebf.md) (CIK 33002)
- Form: 10-Q
- Filed: 2015-12-30
- Accepted by EDGAR: Dec 30, 2015, 17:12 ET
- Period: 2015-11-30
- Accession: 0001193125-15-417151
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/33002/000119312515417151/d68675d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/33002/000119312515417151/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-11-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-09-01 to 2015-11-30 | $139.5m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2015-03-01 to 2015-11-30 | $440.8m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-09-01 to 2015-11-30 | $98.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2015-03-01 to 2015-11-30 | $322.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2015-09-01 to 2015-11-30 | $40.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-03-01 to 2015-11-30 | $118.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-09-01 to 2015-11-30 | $23.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-03-01 to 2015-11-30 | $69.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-09-01 to 2015-11-30 | $17.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-03-01 to 2015-11-30 | $49.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-09-01 to 2015-11-30 | $260.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2015-03-01 to 2015-11-30 | $1.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-09-01 to 2015-11-30 | $6.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-03-01 to 2015-11-30 | $18.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-09-01 to 2015-11-30 | $10.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-03-01 to 2015-11-30 | $30.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-09-01 to 2015-11-30 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-03-01 to 2015-11-30 | $1.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-09-01 to 2015-11-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-03-01 to 2015-11-30 | $1.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-09-01 to 2015-11-30 | 25,728,144 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-03-01 to 2015-11-30 | 25,692,930 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 3 months, 2015-09-01 to 2015-11-30 | $2.1m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2015-03-01 to 2015-11-30 | $4.6m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2015-03-01 to 2015-11-30 | $13.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2015-11-30 | $13.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-11-30 | $181.0m | us-gaap:AssetsCurrent |
| Total assets | at 2015-11-30 | $407.1m | us-gaap:Assets |
| Current liabilities | at 2015-11-30 | $40.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-11-30 | $107.1m | us-gaap:Liabilities |
| Long-term debt | at 2015-11-30 | $45.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2015-11-30 | $300.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,896 characters.

### Overview

Ennis, Inc. (formerly Ennis Business Forms, Inc.) was organized under the laws of Texas in 1909. Ennis, Inc. and its subsidiaries print and manufacture a broad line of business forms and other business products (the “Print Segment”) and also manufacture a line of activewear (the “Apparel Segment”) for distribution throughout North America. The Print Segment distributes business products and forms throughout the United States primarily through independent dealers. 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 customer’s needs. The Apparel Segment produces and sells activewear, including T-shirts, fleece goods, and other wearables. Distribution of our activewear throughout the United States, Canada and Mexico is primarily through sales representatives. The distributor channel encompasses activewear wholesalers and screen printers. We offer a great selection of high-quality activewear apparel with a wide variety of styles and colors in sizes ranging from toddler to 6XL. The apparel line features a wide variety of tees and fleece.

On July 31, 2015, we acquired the assets of CMC Group, Inc. for $0.3 million in cash plus the assumption of certain accrued liabilities. Management considers this acquisition immaterial and has omitted further discussion.

On December 31, 2014, we completed the acquisition of the stock of Kay Toledo Tag and Special Service Partners and their related entities (collectively “Kay Toledo”) for $16.2 million cash, in a stock purchase transaction. An additional $1.0 million is available to be paid over the next 3 years under an earn-out provision if certain financial metrics are achieved. Kay Toledo has locations in Toledo, Ohio and Neenah, Wisconsin through Special Service Partners. Experts in digital printing and customer short-run printing, Kay Toledo produces tags, labels, tickets and commercial printing. Kay Toledo generated approximately $25.0 million in unaudited sales for the twelve month period ended December 31, 2014 and will continue to operate under its respective brand names.

On October 3, 2014, we acquired the assets of Hoosier Data Forms for $0.2 million in cash plus the assumption of certain trade payables. Management considers this acquisition immaterial and has omitted further discussion.

On June 16, 2014, we acquired the assets of Sovereign Business Forms, and its related entities, TRI-C Business Forms, Inc., Falcon Business Forms, Inc., Forms Manufacturers, Inc., Mutual Graphics, Inc., and Curtis Business Forms, Inc. (collectively “Sovereign”) for $10.6 million in cash plus the assumption of certain trade liabilities. In addition, if certain financial metrics are met, an additional $1.0 million is available to be paid over the next 4 years under an earn-out provision. The cash portion of the purchase price was funded by borrowing under our line of credit facility. Sovereign produces snap sets, continuous forms and checks, laser forms, cut sheet forms and checks, and imprinted envelopes. Sovereign generated approximately $27.1 million in unaudited sales for the twelve month period ended December 31, 2013 and will continue to operate under its respective brand names.

### Business Segment 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 and are also a significant provider of blank T-shirts in North America to the activewear market. We operate in two reportable segments: Print and Apparel. For additional financial information concerning segment reporting, please see Note 12 of the Notes to the Consolidated Financial Statements beginning on page 18.

### Print Segment

The Print Segment, which represented 70% and 67% of our consolidated net sales for the three and nine months ended November 30, 2015, respectively, is in the business of manufacturing, designing and selling business forms and other printed business products primarily to distributors located in the United States. The Print Segment operates 58 manufacturing plants throughout the United States in 21 strategically located states. Approximately 96% of the business products manufactured by the Print Segment 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 sold 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®, Specialized Printed Forms®, 360º Custom LabelsSM, ColorWorx®, Enfusion®, Uncompromised Check Solutions®, VersaSeal®, Witt Printing®, B&D Litho®, Genforms®, PrintGraphicsSM, Calibrated Forms®, PrintXcelSM, Printegra®, Curtis Business FormsSM, Falcon Business FormsSM, Forms ManufacturersSM, Mutual GraphicsSM, TRI-C Business FormsSM and Hoosier Data Forms®. The Print Segment also sells the Adams McClure® brand (which provides Point of Purchase advertising for large franchise and fast food chains as well as kitting and fulfillment); the Admore® and Folder Express® brands (which provide presentation folders and document folders); Ennis Tag & LabelSM (which provides custom printed high performance labels and custom and stock tags); Atlas Tag & Label®, Kay Toledo TagSM and Special Service PartnersSM (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).

The Print Segment sells predominantly through private printers and independent distributors as well as to many of our competitors. Northstar 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) and has acquired several of the top 25 banks in the United States as customers and is actively working on other large banks within the top 25 tier of banks in the United States. Adams McClure also sells direct to a small number of customers, where sales are generally through advertising agencies.

The printing industry generally sells its products either through sales made predominantly to end users, a market dominated by a few large manufacturers, such as R.R. Donnelley, Staples, Standard Register (a subsidiary of Taylor Corporation), and Cenveo, 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 dealers.

There are a number of competitors that operate in this segment, ranging in size from single employee-owner 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 dealers, including business forms distributors, resellers, direct mail, commercial printers, payroll and accounts payable software companies, and advertising agencies.

Raw materials of the Print Segment principally consist of a wide variety of weights, widths, colors, sizes, and qualities of paper for business products purchased from generally 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 factor in quarterly volume fluctuations.

***Our Print Business Challenges -*** In our Print Segment, we are engaged in an industry undergoing significant changes. 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. We face highly competitive conditions in an already over-supplied, price-competitive industry. Our challenges in the Print Segment of our business include the following:

**Transformation of our portfolio of products –** While traditional business documents are essential in order to conduct business, many are being replaced or devalued with advances in digital technologies, causing steady declines in demand for a portion of our current product line. Transforming our product offerings in order to continue to provide innovative, valuable solutions 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, such as the addition of our envelope offerings, tag offerings, folder offerings, healthcare wristbands, 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.

**Excess production capacity and price competition within our industry –** Paper mills continue to adjust production capacity through downtime and closures to attempt to keep supply in line with demand. Due to the limited number of paper mills, paper prices have been and are expected to remain fairly volatile. We have generally been able to pass through increased paper costs, although this can often take several quarters due to the custom nature of our products and/or contractual relationships with some of our customers. We will continue to focus our efforts on effectively managing and controlling our product costs to minimize these effects on our operational results, primarily through the use of forecasting, production and costing models.

**Continued consolidation of our customers –** Our customers, the distributors, are consolidating or are being acquired by competitors. As such, they demand better pricing and services, or they are required to move their business to their new parent company’s manufacturing facilities. While we continue to maintain a majority of this business, it is possible that these consolidations and acquisitions will impact our margins and our sales over the near future.

### Apparel Segment

The Apparel Segment represented 30% and 33% of our consolidated net sales for the three and nine months ended November 30, 2015, respectively, and operates under the name of Alstyle Apparel (“Alstyle”). Alstyle markets high quality knitted activewear (including T-shirts, tank tops, and fleece) across all market segments. The main products of Alstyle are standardized shirts manufactured in a variety of sizes and colors. Approximately 97% of Alstyle’s revenues are derived from T-shirt sales and approximately 91% of its sales are domestic. Alstyle’s branded product lines are sold mainly under the AAA®, Alstyle Apparel and Activewear®, and Murina® brands.

Alstyle’s primary manufacturing operations are located in an owned manufacturing facility located in Agua Prieta, Mexico. Alstyle has three cut and sew facilities in Mexico (Agua Prieta, Ensenada and Hermosillo). In addition to its owned cut and sew facilities, Alstyle may also use outsourced manufacturers from time to time to supplement a portion of its cut and sew needs. After sewing and packaging are completed, the product is shipped to one of Alstyle’s nine distribution centers located across the United States, Canada, and Mexico.

Alstyle utilizes a customer-focused internal sales team comprised of twenty-one sales representatives assigned to specific geographic territories in the United States, Canada, and Mexico. Sales representatives are assigned performance objectives for their respective territories and are provided financial incentives for achievement of their target objectives. Sales representatives are responsible for developing business with large accounts and spend a majority of their time in the field.

Alstyle employs a staff of customer service representatives that handle call-in orders from smaller customers. Sales personnel sell directly to Alstyle’s customer base, which consists primarily of screen printers, embellishers, retailers, and mass marketers.

A majority of Alstyle’s sales continue to be branded products, with the remainder being customers’ private label products. Generally, sales to screen printers and mass marketers are driven by price and the availability of products, which directly impacts our inventory level requirements. Sales in the private label business are characterized by higher customer loyalty. As such, the Company increased its sales emphasis in this area in fiscal 2015 and is continuing this effort in fiscal 2016.

Alstyle’s most popular styles are produced based on demand management forecasts to service at-once business and to level production schedules. Alstyle offers same-day shipping and uses third-party carriers to ship products to its customers.

Alstyle’s sales are seasonal, with sales in the first and second fiscal quarters generally being the highest. The apparel industry is characterized by rapid shifts in fashion, consumer demand and competitive pressures, resulting in both price and demand volatility. However, the imprinted activewear market to which Alstyle sells is generally “event” driven. Blank T-shirts can be thought of as “walking billboards” promoting movies, concerts, sports teams, and “image” brands. Still, the demand for any particular product varies from time to time based largely upon changes in consumer preferences and general economic conditions affecting the apparel industry. Over the years, the customer base has moved from media-centric products to more fashion-oriented products.

The apparel industry is comprised of numerous companies who manufacture and sell a wide range of products. Alstyle is primarily involved in the activewear market and produces T-shirts, fleece, blended and other fashion basic products and outsources some products from time-to-time from other countries like China, Pakistan, Central America and other foreign sources to sell to its customers through its sales representatives. Alstyle competes with many branded and private label manufacturers of knit apparel in the United States, Canada, and Mexico, some of which are larger in size and have greater financial resources than Alstyle. Alstyle competes on the basis of price, quality, service, and delivery. Alstyle’s strategy is to provide the best value to its customers by delivering a consistent, high-quality product at a competitive price, not necessarily the lowest price. Alstyle’s competitive disadvantage is its size in relation to its major competitors. Also, its brand name, Alstyle Apparel, is not as well-known as the brand names of its largest competitors, such as Gildan, Hanes, and Fruit of the Loom. While it is not possible to calculate precisely because of the lack of adequate public statistical information, management believes that Alstyle is one of the top providers of blank T-shirts in North America.

Raw materials of the Apparel Segment principally consist of cotton and polyester yarn purchased from a number of major suppliers at prevailing market prices, although we purchased 41% of our cotton and yarn during the current period from one supplier.

***Our Apparel Business Challenges -*** In our apparel segment industry, our market niche is highly competitive and commodity driven. In the past, the domestic apparel industry was generally dominated by a limited number of companies. However, due to changes in regulations and trade agreements in the last few years, this industry has become more globalized and our core competition has now extended to other parts of the world, particularly Asia and Central America. While the domestic economic environment has improved somewhat in the last few years which has led to increased demand at times, overall lower-end commodity apparel demand remains rather lethargic. Globalization has led to increased pricing pressures and direct importation by many screen-printers and big-box suppliers products that were once sourced domestically. New trade agreements like the recent agreement between Canada and Honduras, and current Trans-Pacific Partnership (TPP), Trans-Atlantic Trade Investment Partnership (TTIP) and Trade in Services Agreement (TISA), which are meant to lower trade barriers, such as tariffs, could have significant impacts on domestic manufacturers. Foreign producers often have significant labor and other cost advantages. In the past few years, domestic quota restrictions were eliminated for basically all foreign countries, which significantly impacted domestic apparel producers. While import duties remain in place for these foreign countries, import protection afforded to domestic apparel producers has been, and is likely to remain, subject to considerable political considerations. Given the number of these foreign producers, any further elimination of import protections that protect domestic apparel producers, especially like TPP, could potentially materially adversely affect Alstyle’s business.

In order to find their niche in a highly competitive and globalized environment, some of our customers and their customers have moved to alternative fabrics to differentiate themselves. What was once a basic commodity market where the printed media was more the focus, has now morphed into a more fabric-fashion market, where the fabric is seen to be as much of a selling point as the printed media. While some smaller garments producers are able to change quickly as market demand changes on fabrics and colors, longer-run manufacturers like Alstyle are not able to adjust as easily. Alstyle has been and continues to work diligently on adapting/modifying their manufacturing processes so as to be able to efficiently and cost effectively handle such changes in fabrics and fashions. However, such changes do not come without inherent risks and potentially increased costs during the modification and learning curve process.

The unusual harsh domestic winter weather conditions at the end of fiscal years 2014 and 2015, negatively impacted the already weak retail landscape, and contributed to the softness in our Apparel sales during these time periods. The overall domestic retail environment continues to be extremely competitive and challenging from both a volume and pricing perspective. The retail market of late has been less than expectations given the overall domestic economic climate. In addition, globalization has become, and is expected to continue to be, an issue for American/NAFTA manufacturers.

**Cotton prices and other input costs –** Cotton is the single largest input cost in the cost of a T-shirt. As a result, our business may be affected significantly by dramatic movements in cotton prices. During the last three years plus, cotton pricing has been extremely volatile, increasing to historical highs, and falling back of late to levels closer to historical averages. The cost incurred for materials (i.e., yarn, thread, etc.) is capitalized into inventory and impacts the Company’s operating results as inventory is sold. This could take six months or longer after the materials are purchased, depending on inventory turns. Consequently, fluctuations in cotton costs can significantly impact the Company’s operational results for many quarters, especially given the current market’s inelasticity to increases in selling prices. In addition, other input costs (i.e., dye and other chemicals cost, etc.) have shown increased volatility over comparable periods as well. As a result, any such fluctuation in input costs can be expected to impact our reported margins. Cotton pricing has been, for some time now, more in-line with historical levels, and we have started to see the benefit of lower cotton pricing in our operational results, especially of late. We expect to continue to see these benefits in the coming quarters, unless competitive market pricing pressures negate the benefit of these lower costs.

**Continued global economic uncertainties –** The T-shirt marketplace is now much more globalized, and such globalization will continue as tariff restrictions are lifted and new trade agreements are entered into with other countries. Therefore, we are impacted by not only the volatility on our domestic economic climate, but the volatility in the international economic climate as well. While the domestic climate and economic recovery have strengthened, the recovery has not been as broad-based as recoveries in the past. Also, international markets of late have started to show increased volatility, which led to considerable strengthening of the dollar against other currencies. This tends to increase pressure on domestic manufacturers, due to lower demand, higher price of their products internationally and increased competition of foreign manufacturers. During the past several years the marketplace was extremely competitive. During this time, manufacturers continued to lower prices as they tried to maintain certain volume levels/market share. Due to these challenging times, we had to take several impairment charges to the value of our apparel assets. Because we continue to see a challenging landscape for years to come, we have introduced new sales programs and entered into new sales channels, which we continue to hope will allow us to grow our revenue and improve our overall operating results. We believe to justify participation in the apparel industry, we need to and are currently working to develop a product mix or industry position capable of sustaining adequate pricing mechanisms to generate an appropriate return to our shareholders. Although challenging given current industry dynamics, we feel we are in a better position today than in years past to deal with these challenges. However, if our new sales programs or channels are not successful or if discounting in the marketplace is deeper than expected, our operating results may be negatively impacted, requiring that we take further impairment charges in the future.

### Cautionary Statements Regarding Forward-Looking Statements

You should read this discussion and analysis in conjunction with our Consolidated Financial Statements and the related notes appearing elsewhere in this Report. All of the statements in this Report, other than historical facts, are forward-looking statements, including, without limitation, the statements made in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” particularly under the caption “Overview.” 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, Ennis, Inc. 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 Ennis, Inc. 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. Ennis, Inc. 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 Ennis, Inc. 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 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 (i.e., energy, freight, labor, benefit costs, etc.) in markets that are highly price competitive and volatile; our ability to get our utilities to meet our projected demand; our ability to timely or adequately respond to technological changes in the industry; 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; changes in economic, political and social instability relating to our foreign operations; 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; and changes in government regulations. 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, 2015 before making an investment in our common stock.

### Critical Accounting Policies and Estimates

In preparing our consolidated financial statements, we are required to make estimates and assumptions that affect the disclosures and reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis, including those related to allowance for doubtful receivables, inventory valuations, property, plant and equipment, intangible assets, pension plan obligations, accrued liabilities and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We believe our accounting policies related to the aforementioned items, are the most critical due to their effect on our more significant estimates and judgments used in preparation of our consolidated financial statements. For additional information, reference is made to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

### Results of Operations

The discussion that follows provides information which we believe is relevant to an understanding of 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. This analysis is presented in the following sections:

- *Consolidated Summary –* this section provides an overview of our consolidated results of operations for the three and nine months ended November 30, 2015 and November 30, 2014.
- *Segment Operating Results –* this section provides an analysis of our net sales, gross profit margin and operating income by segment.

### Consolidated Summary

*Unaudited Consolidated Statements of*

| Operationss - Data (Dollars in thousands) | Three Months Ended November 30, 2014 2015 |  | 2014 |  | Nine Months Ended November 30, 2014 2015 |  | 2014 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $139,451 | 100.0% | $146,971 | 100.0% | $440,788 | 100.0% | $439,998 | 100.0% |
| Cost of goods sold | 98,877 | 70.9 | 110,455 | 75.2 | 322,040 | 73.1 | 329,906 | 75.0 |
| Gross profit margin | 40,574 | 29.1 | 36,516 | 24.8 | 118,748 | 26.9 | 110,092 | 25.0 |
| Selling, general and administrative | 23,430 | 16.8 | 23,817 | 16.2 | 69,552 | 15.8 | 67,436 | 15.3 |
| Impairment of goodwill and trademarks | — | — | 93,324 | 63.5 | — | — | 93,324 | 21.2 |
| Gain from disposal of assets | (361) | (0.3) | (15) | — | (371) | (0.1) | (19) | — |
| Income (loss) from operations | 17,505 | 12.6 | (80,610) | (54.9) | 49,567 | 11.2 | (50,649) | (11.5) |
| Other expense, net | (562) | (0.4) | (125) | (0.1) | (534) | (0.1) | (1,438) | (0.3) |
| Earnings (loss) before income taxes | 16,943 | 12.2 | (80,735) | (55.0) | 49,033 | 11.1 | (52,087) | (11.8) |
| Provision for income taxes | 6,269 | 4.5 | (9,556) | (6.6) | 18,142 | 4.1 | 1,044 | 0.2 |
| Net earnings (loss) | $10,674 | 7.7% | $(71,179) | (48.4)% | $30,891 | 7.0% | $(53,131) | (12.0)% |
| **Proforma Earnings (Dollars in thousands)** |  |  |  |  |  |  |  |  |
| Income (loss) from operations - GAAP | $17,505 | 12.6% | $(80,610) | (54.9)% | $49,567 | 11.2% | $(50,649) | (11.5)% |
| Impairment charge | — | — | (93,324) | (63.5) | — | — | (93,324) | (21.2) |
| Income from operations, pre-impairment | 17,505 | 12.6 | 12,714 | 8.6 | 49,567 | 11.2 | 42,675 | 9.7 |
| Other expense, net | (562) | (0.4) | (125) | (0.1) | (534) | (0.1) | (1,438) | (0.3) |
| Earnings before income taxes | 16,943 | 12.2 | 12,589 | 8.5 | 49,033 | 11.1 | 41,237 | 9.4 |
| Provision for income taxes | 6,269 | 4.5 | 4,657 | 3.1 | 18,142 | 4.1 | 15,257 | 3.5 |
| Net earnings, pre-impairment | $10,674 | 7.7% | $7,932 | 5.4% | $30,891 | 7.0% | $25,980 | 5.9% |

### Three months ended November 30, 2015 compared to three months ended November 30, 2014

*Net Sales.* Our consolidated net sales were $139.5 million for the quarter ended November 30, 2015, compared to $147.0 million for same quarter last year, or a decrease of 5.1%. Print sales decreased slightly by 0.2% on a comparable quarter basis, from $97.7 million to $97.5 million, while our apparel sales decreased from $49.3 million to $41.9 million, or 15.0%.

*Cost of Goods Sold.* Our manufacturing costs decreased by $11.6 million from $110.5 million for the three months ended November 30, 2014 to $98.9 million for the three months ended November 30, 2015, or 10.5%. Our consolidated gross profit margin (“margin”) increased 430 basis points from 24.8% to 29.1% for the quarter ended November 30, 2014 and November 30, 2015, respectively. Our print margin increased slightly from 30.2% to 30.5%, due to continued realization of operational synergies with acquired businesses by the elimination of duplicate costs, while our Apparel margin increased 1,170 basis points on a comparable quarter basis from 14.2% to 25.9%, due to improving manufacturing efficiencies, relatively stable selling prices, and lower input costs during the current quarter.

*Selling, general and administrative expense.* For the three months ended November 30, 2015, our selling, general and administrative expenses were $23.4 million, or 16.8% of sales, compared to $23.8 million, or 16.2% of sales for the three months ended November 30, 2014. The slight decrease in our selling, general and administrative expenses on a dollar basis during the quarter related primarily to the further integration of our print acquisitions into our operating systems/environment. We would expect these costs to return to more historical levels on a percentage of sales basis, once our operational and financial systems have been fully deployed into these entities.

*Impairment of goodwill and trademarks.* No goodwill or trademark impairment was taken during the quarter ended November 30, 2015. We are currently still in the process of evaluating and will complete our annual impairment analysis during the fourth quarter of this fiscal year. As of November 30, 2015, there were no indications of impairment that would require an impairment charge to be taken in the current period. The goodwill impairment charge taken during the quarter ended November 30, 2014 was primarily driven by marketplace pricing pressures and a challenging retail environment that negatively impacted the forecasted cash flows of our Apparel Segment. Because of indicators that an impairment existed with respect to the Company’s Apparel Segment, an estimated impairment charge of $93.3 million was taken to reduce the carrying values of their reporting unit assets to their fair values.

*Gain from disposal of assets.* The gain of $361,000 during the current quarter related primarily to the sale of an unused manufacturing facility as well as some unused manufacturing equipment. The gain of $15,000 during the same quarter last year related primarily to the sale of unused manufacturing equipment.

*Income from operations.* Due to the factors indicated above, income (loss) from operations for the three months ended November 30, 2015 was $17.5 million or 12.6% of sales, as compared to $ (80.6) million, or (54.9)% of sales for the three months ended November 30, 2014. The loss from operations for the three months ended November 30, 2014 resulted primarily from the non-cash impairment charge of $93.3 million to goodwill and trademarks. Excluding the impairment charge, our Non-GAAP income from operations would have been $12.7 million, or 8.6% of sales.

*Other expense.* Other expense increased from $0.1 million for the three months ended November 30, 2014 to $0.6 million for the three months ended November 30, 2015, or $0.5 million. Foreign currency gain/loss expense increased by $0.7 million from $0.4 million foreign currency gain for the three months ended November 30, 2014 to $0.3 million foreign currency loss for the three months ended November 30, 2015. This was offset by a $0.2 million decrease in interest expense from $0.5 million to $0.3 million for the three months ended November 30, 2014 and 2015, respectively. The decrease in interest expense was due to less debt outstanding during the quarter.

*Provision for income taxes.* Our effective tax rate was 37.0% for the three months ended November 30, 2015. Our effective tax rate for the three months ended November 30, 2014 was 11.8%. The lower effective tax was due to a non-deductible goodwill impairment charge of $55.9 million.

*Net earnings.* Due to the above factors, our net earnings (loss) for the three months ended November 30, 2015 were $10.7 million, or 7.7% of sales, as compared to $(71.2) million, or (48.4)% of sales for the three months ended November 30, 2014. Our basic and diluted earnings (loss) per share were $0.42 and $0.41 per share for the three months ended November 30, 2015, respectively, as compared to $(2.76) per share for the three months ended November 30, 2014. Excluding the impairment charge for the quarter ended November 30, 2014, our Non-GAAP adjusted earnings for the quarter would have been approximately $7.9 million, or $0.31 per diluted share.

### Nine months ended November 30, 2015 compared to nine months ended November 30, 2014

*Net Sales.* For the nine month period, our net consolidated sales increased from $440.0 million to $440.8 million, or 0.2%. Our print sales, bolstered by the impact of recent acquisitions, increased $10.8 million, or 3.8%, from $283.9 million to $294.7 million for the nine month period. Our apparel sales, which continue to be negatively impacted by the weak lower-end domestic retail environment and stricter adherence to selling price preservation, decreased by $10.1 million, or 6.5%, from $156.1 million to $146.0 million.

*Cost of Goods Sold.* Our manufacturing costs decreased by $7.9 million from $329.9 million, or 75.0% of sales for the nine months ended November 30, 2014 to $322.0 million, or 73.1% of sales for the comparable period this year. Overall our margin increased from 25.0% to 26.9% for the nine months ended November 30, 2014 and November 30, 2015, respectively. Our print margin increased during the period from 30.6% to 30.9%, due to the continued realization of operational synergies with acquired businesses by the elimination of duplicate costs, while our apparel margin increased 420 basis points from 14.8% to 19.0% due to improving manufacturing efficiencies, relatively stable selling prices, and lower input costs during the period.

*Selling, general and administrative expense.* For the nine months ended November 30, 2015, our selling, general and administrative expenses were $69.6 million, or 15.8% of sales, compared to $67.4 million, or 15.3% of sales for the nine months ended November 30, 2014. The increase in our selling, general and administrative expenses during the period was due primarily to the impact of our recent acquisitions. We expect these costs to return to more historical levels on a percentage of sales basis, once our operational and financial systems have been fully deployed into these entities.

*Impairment of goodwill and trademarks.* No goodwill or trademark impairment was taken during the period ended November 30, 2015. We are currently still in the process of evaluating and will complete our annual impairment analysis during the fourth quarter of this fiscal year. As of November 30, 2015, there were no indications of impairment that would require an impairment charge to be taken in the current period. The goodwill impairment charge taken during the quarter ended November 30, 2014 was primarily driven by marketplace pricing pressures and a challenging retail environment that negatively impacted the forecasted cash flows of our Apparel Segment. Because of indicators that an impairment existed with respect to the Company’s Apparel Segment, an estimated impairment charge of $93.3 million was taken to reduce the carrying values of their reporting unit assets to their fair values.

*Gain from disposal of assets.* The gain from disposal of assets of $371,000 for the nine months ended November 30, 2015 related primarily to the sale of an unused manufacturing facility as well as unused manufacturing equipment and the gain from disposal of assets of $19,000 for the nine months ended November 30, 2014 related primarily to the sale of unused manufacturing equipment.

*Income from operations.* Our income (loss) from operations for the nine months ended November 30, 2015 was $49.6 million, or 11.2% of sales compared to $(50.6) million, or (11.5)% of sales for the same period last year, or an increase of $100.2 million. The increase in our operational earnings related primarily to the impact of our recent print acquisitions and the improving operational performance of our Apparel segment. The loss from operations during the nine months ended November 30, 2014 resulted primarily from the non-cash impairment charge of $93.3 million to goodwill and trademarks. Excluding the impairment charge, our Non-GAAP income from operations would have been $42.7 million, or 9.7% of sales.

*Other expense.* Other expense decreased from $1.4 million for the nine months ended November 30, 2014 to $0.5 million for the three months ended November 30, 2015, or $0.9 million. Foreign currency gain/loss expense decreased by $0.5 million from $0.1 million foreign currency gain for the nine months ended November 30, 2014 to $0.6 million foreign currency gain for the nine months ended November 30, 2015. In addition, interest expense decreased $0.4 million from $1.5 million to $1.1 million for the nine months ended November 30, 2014 and 2015, respectively. The decrease in interest expense was due to less debt outstanding during the period.

*Provision for income taxes.* Our effective tax rate was 37.0% for the nine months ended November 30, 2015. Our effective tax rate for the nine months ended November 30, 2014 was (2.0)% due to a non-deductible goodwill impairment charge of $55.9 million.

*Net earnings.* Due to the above factors, our net earnings (loss) for the nine months ended November 30, 2015 were $30.9 million, or 7.0% of sales, compared to $(53.1) million, or (12.0)% of sales for the nine months ended November 30, 2014. Our basic and diluted earnings (loss) per share for the nine months ended November 30, 2015 was $1.20 per share compared to $(2.05) per share for the nine months ended November 30, 2014. Excluding the impairment charge during the period ended November 30, 2014, our Non-GAAP earnings for the period would have been approximately $26.0 million, or $1.00 per diluted share.

### Segment Operating Results

| Net Sales by Segment (in thousands) | Three months ended November 30, 2015 | 2014 | Nine months ended November 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Print | $97,516 | $97,652 | $294,740 | $283,917 |
| Apparel | 41,935 | 49,319 | 146,048 | 156,081 |
| Total | $139,451 | $146,971 | $440,788 | $439,998 |

***Print Segment***. Our net print sales, which represented 70% and 67% of our consolidated sales for the three and nine months ended November 30, 2015, were approximately $97.5 million and $294.7 million, respectively, compared to $97.7 million and $283.9 million for the three and nine months ended November 30, 2014, respectively, a decrease of $0.2 million, or 0.2% for the quarter, and an increase of $10.8 million, or 3.8% for the period. Our recent print acquisitions impacted our print sales during the quarter by $7.6 million and $20.4 million for the period. These increases were offset by sales declines at our other print locations of 7.9% for the quarter and 3.4% for the period due to normal print attrition and the general economic environment.

***Apparel Segment***. Our net apparel sales, which represented 30% and 33% of our consolidated sales for the three and nine months ended November 30, 2015, were approximately $41.9 million and $146.0 million, respectively, compared to $49.3 million and $156.1 million for the three and nine months ended November 30, 2014, respectively, a decrease of $7.4 million, or 15.0% for the quarter, and a decrease of $10.1 million, or 6.5% for the period. Overall our apparel sales continue to be impacted by the rather anemic lower-end domestic retail environment, competitor’s pricing pressures, and continued international competition due to relaxed import restrictions. As mentioned earlier, we recently introduced new sales programs and entered into new sales channels that we continue to hope will allow us to stabilize our top-line revenue and improve our overall operating results. However, this year we have focused more on preserving our margins through maintaining our selling prices, which has translated into realization of our operational efficiency improvements and lower input costs in our operational results.

| Gross Profit by Segment (in thousands) | Three months ended November 30, 2015 | 2014 | Nine months ended November 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Print | $29,719 | $29,504 | $91,046 | $86,944 |
| Apparel | 10,855 | 7,012 | 27,702 | 23,148 |
| Total | $40,574 | $36,516 | $118,748 | $110,092 |

***Print Segment***. Our print gross profit margin for the three and nine months ended November 30, 2015 was $29.7 million and $91.0 million, respectively, as compared to $29.5 million and $86.9 million for the three and nine months ended November 30, 2014. For the quarter, print margin increased from 30.2% to 30.5% compared to the same quarter last year and increased from 30.6% to 30.9% compared to the same period last year. This is due primarily to our continued elimination of redundant costs associated with prior year acquisitions as we convert them onto our computer systems and into our production processes.

***Apparel Segment***. Our apparel gross profit margin for the three and nine months ended November 30, 2015 was $10.9 million and $27.7 million, respectively, as compared to $7.0 million and $23.1 million for the three and nine months ended November 30, 2014, respectively. As a percent of sales, our apparel margin was 25.9% and 19.0% for the three and nine months ended November 30, 2015, respectively, as compared to 14.2% and 14.8% for the three and nine months ended November 30, 2014, respectively. Our apparel margin has been positively impacted by lower input costs, mainly of cotton, improving manufacturing efficiencies, and the maintenance of our selling prices, which resulted in the apparel group showing margin improvements of 1,170 basis points over the comparable quarter last year and 420 basis points over the previous year’s results. Given the current inventory levels at the start of the third quarter in our core/basic products, we continued to increase the percentage of our production allocated to these products during the quarter. In addition, we experienced fewer raw material quality and fabric production issues during the quarter. These factors were the main drivers for our operational improvements during the period.

| Profit by Segment (in thousands) | Three months ended November 30, 2015 | 2014 | Nine months ended November 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Print | $17,311 | $17,100 | $52,901 | $50,877 |
| Apparel | 4,195 | (93,218) | 9,321 | (91,131) |
| Total | 21,506 | (76,118) | 62,222 | (40,254) |
| Less corporate expenses | 4,563 | 4,617 | 13,189 | 11,833 |
| **Earnings (loss) before income taxes** | $16,943 | $(80,735) | $49,033 | $(52,087) |

***Print Segment***. Our print profit for the three and nine months ended November 30, 2015 was $17.3 million and $52.9 million, respectively, as compared to $17.1 million and $50.9 million for the three and nine months ended November 30, 2014, respectively. Our print profits, as a percentage of sales, increased slightly from 17.5% to 17.8% for the comparable quarters and remained level at 17.9% when compared to the same period last year.

***Apparel Segment***. Our apparel profit (loss) for the three and nine months ended November 30, 2015 was $4.2 million and $9.3 million, respectively, as compared to $(93.2) million and $(91.1) million for the three and nine months ended November 30, 2014, respectively. During the third quarter ending November 30, 2014, we recorded a non-cash impairment charge of $93.3 million. Our Apparel Segment profits, absent this charge for the three and nine months ended November 30, 2014, would have been $0.1 million and $2.2 million, respectively. As a percent of sales, our apparel profit increased from pre-impairment profits of 0.2% to 10.0% of sales for the comparable quarters and increased from pre-impairment profits of 1.4% to 6.4% when compared to the same period last year. Our Apparel Segment continues to be impacted by the rather weak lower-end domestic retail environment, marketplace pricing pressures, and increased international competition due to relaxed import restrictions. However, the stability in our selling prices over the period has allowed us to recognize the full benefit of our lower input costs and improving manufacturing efficiencies in our operational results this year.

### Liquidity and Capital Resources

We rely on our cash flows generated from operations and the borrowing capacity under our Facility to meet cash requirements of our business. The primary cash requirements of our business are payments to vendors in the normal course of business, capital expenditures, debt repayments and related interest payments, contributions to our pension plan and the payment of dividends to our shareholders. We expect to generate sufficient cash flows from operations supplemented by our Facility as required to cover our operating and capital requirements for the foreseeable future.

*(Dollars in thousands)*

|  | November 30, 2015 | February 28, 2015 |
| --- | ---: | ---: |
| Working Capital | $140,538 | $176,295 |
| Cash | $13,710 | $15,346 |

***Working Capital.*** Our working capital decreased approximately $35.8 million or 20.3%, from $176.3 million at February 28, 2015 to $140.5 million at November 30, 2015. Our current ratio, calculated by dividing our current assets by our current liabilities, decreased from 5.4 to 1.0 at February 28, 2015 to 4.5 to 1.0 at November 30, 2015. Both our working capital and current ratio decreased as a result of using working capital during the period to pay-down our long-term debt by $61.5 million. We generated working capital during the period by improving our operational performance and by reducing our cash, accounts receivable, inventory and prepaid items.

*(Dollars in thousands)*

|  | Nine months ended November 30, 2015 | 2014 |
| --- | ---: | ---: |
| Net Cash provided by operating activities | $79,151 | $46,398 |
| Net Cash used in investing activities | $(3,979) | $(12,386) |
| Net Cash used in financing activities | $(75,028) | $(24,187) |

***Cash flows from operating activities.*** Cash provided by operating activities increased by $32.8 million from $46.4 million for the nine months ended November 30, 2014 to $79.2 million for the nine months ended November 30, 2015. Our increased operational cash flows in comparison to the comparable period last year was primarily due to the impact of apparel inventory on our operating cash. Last year our apparel inventory provided approximately $6.1 million in cash, while this year it provided $20.8 million due to a decrease in production due to the introduction of new product offerings and the rebalancing of inventory levels as a result of lower sales levels. In addition, our receivables provided approximately $4.7 million more, our prepaid expenses provided approximately $4.8 million more and our accounts payable and accrued expenses provided $1.5 million more during the current period than the comparable period last year.

***Cash flows from investing activities.*** Cash used in investing activities decreased $8.4 million from $12.4 million to $4.0 million for the nine months ended November 30, 2014 and November 30, 2015, respectively. This was primarily due to $10.5 million less cash used in our print acquisitions in the current period, as well as approximately $0.9 million more cash provided from the disposal of property. This was partially offset by $3.0 million more used for capital expenditures during the current period.

***Cash flows from financing activities.*** We used $50.8 million more in cash this period than during the same period last year. We used $61.5 million in cash this year to pay down our debt compared to $15.0 million used last year. In addition, we borrowed an additional $11.0 million against our line of credit last year, but we have not borrowed any additional funds this year. Last year, we used $6.6 million to repurchase our common stock under our stock repurchase program. We have not repurchased any shares of our common stock under our share repurchase program to date this year.

***Credit Facility.*** On September 19, 2013, we entered into the Third Amendment and Consent to Second Amended and Restated Credit Agreement (the “Agreement”) with a syndicate of lenders led by Bank of America, N.A. (the “Facility”). The Amendment amends and restates the financial covenant relating to Minimum Tangible Net Worth. The amended covenant requires a Minimum Tangible Net Worth of $100.0 million, with step-ups equal to 25% of consolidated net income. The Facility provides us access to $150.0 million in revolving credit, which we may increase to $200.0 million in certain circumstances, and matures on August 18, 2016. During the period we have received a binding commitment from our primary lender to extend the maturity date on the above Facility to August 19, 2017 for an amount in excess of the amount outstanding under the same terms and conditions. As a result of this agreement, our debt is classified as long-term. The Facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus a spread ranging from 1.0% to 2.25%, or 1.6% (LIBOR + 1.25%) at November 30, 2015 and 1.7% (LIBOR + 1.5%) at November 30, 2014, depending on our ratio of total funded debt to the sum of net earnings plus interest, tax, depreciation and amortization (“EBITDA”). As of November 30, 2015, we had $45.0 million of borrowings under the revolving credit line and $2.1 million outstanding under standby letters of credit arrangements, leaving us availability of approximately $102.9 million. The Facility contains financial covenants, including restrictions on capital expenditures, acquisitions, asset dispositions, and additional debt, as well as other customary covenants, such as our minimum tangible equity level and total funded debt to EBITDA ratio. We were in compliance with all these covenants as of November 30, 2015. The Facility is secured by substantially all of our domestic assets as well as all capital securities of each of the Company’s U.S. subsidiaries and 65% of all capital securities of each of the Company’s direct foreign subsidiaries.

It is anticipated that the available line of credit is sufficient to cover working capital requirements for the foreseeable future, should it be required.

***Pension Plan –***We are required to make contributions to our Pension Plan. These contributions are required under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). Due to the enactment of the Highway and Transportation Funding Act (HAFTA) in August 2014, which effectively raises the discount rates mandated for determining the value of a plan’s benefit liability and annual cost of accruals, our minimum required contribution to the Pension Plan is zero for the Pension Plan year ending February 29, 2016. However, we expect to make a cash contribution to the Pension Plan of between $2.0 million and $3.0 million during fiscal year 2016. We made contributions of $3.0 million to our Pension Plan during fiscal 2015. 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 November 30, 2015, we had an unfunded pension liability recorded on our balance sheet of $11.5 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 and yarn suppliers that govern prices, but do not require minimum purchase commitments. Certain of our rebate programs do, however, require minimum purchase volumes. Management anticipates meeting the required volumes.

***Capital Expenditures –***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 $4.0 million and $5.0 million. To date we have spent approximately $4.6 million on capital expenditures. We expect to fund these expenditures through existing cash flows.

***Contractual Obligations & Off-Balance Sheet Arrangements –*** There have been no significant changes in our contractual obligations since February 28, 2015 that have, or are reasonably likely to have, a material impact on our results of operations or financial condition. We had no off-balance sheet arrangements in place as of November 30, 2015.

## Market risk

As filed, 2,021 characters.

### Market Risk

### Interest Rates

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. Our variable rate financial instruments, consisting of the outstanding credit facility, totaled $45.0 million at November 30, 2015. The annual impact on our results of operations of a one-point interest rate change on the outstanding balance of the variable rate financial instruments as of November 30, 2015 would be approximately $0.5 million.

### Foreign Exchange

We have global operations and thus make investments and enter into transactions in various foreign currencies. The value of our consolidated assets and liabilities located outside the United States (translated at period end exchange rates) and income and expenses (translated using average rates prevailing during the period), generally denominated in Mexican Pesos and Canadian Dollars, are affected by the translation into our reporting currency (the U.S. Dollar). Such translation adjustments are reported as a separate component of consolidated statements of comprehensive income. In future periods, foreign exchange rate fluctuations could have an increased impact on our reported results of operations. A sensitivity analysis to changes in the value of the U.S. dollar on foreign currency denominated investments and monetary assets and liabilities indicated that if the U.S. dollar uniformly strengthened by 10% against all currency exposures of the Company at November 30, 2015, the decrease in fair value and results of operations would be approximately $0.3 million.

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, 2,175 characters.

**Evaluation of Disclosure Controls and Procedures.** A review and evaluation were carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Exchange Act Rule 13a-15. Based upon that review and evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures as of November 30, 2015 are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us 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 disclosure. 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.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during our fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting ended November 30, 2015.

## 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, 2015.

Filed Dec 30, 2015.
Source: SEC EDGAR, the filing index for accession 0001193125-15-417151. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.