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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended November 30, 2023

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 1-5807

 

ENNIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Texas

 

75-0256410

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

2441 Presidential Pkwy., Midlothian, Texas

 

76065

(Address of Principal Executive Offices)

 

(Zip code)

Registrant’s Telephone Number, Including Area Code: (972) 775-9801

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $2.50 per share

 

EBF

 

New York Stock Exchange

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of December 29, 2023, there were 25,874,699 shares of the Registrant’s common stock outstanding.

 

 

 


 

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2023

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets at November 30, 2023 and February 28, 2023

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended November 30, 2023 and November 30, 2022

 

5

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended November 30, 2023 and November 30, 2022

 

6

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine ended November 30, 2023 and November 30, 2022

 

7

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended November 30, 2023 and November 30, 2022

 

8

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

9

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

Item 4. Controls and Procedures

 

30

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. Legal Proceedings

 

30

 

 

 

 

 

Item 1A. Risk Factors

 

30

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

 

31

 

 

 

 

 

Item 4. Mine Safety Disclosures

 

31

 

 

 

 

 

Item 5. Other Information

 

31

 

 

 

 

 

Item 6. Exhibits

 

31

 

 

 

SIGNATURES

 

32

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

 

 

November 30,

 

 

February 28,

 

 

 

2023

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

83,902

 

 

$

93,968

 

Short-term investments

 

 

18,495

 

 

 

-

 

Accounts receivable, net

 

 

48,140

 

 

 

53,507

 

Inventories, net

 

 

42,325

 

 

 

46,834

 

Prepaid expenses

 

 

2,818

 

 

 

2,317

 

Prepaid income taxes

 

 

3,640

 

 

 

-

 

Total current assets

 

 

199,320

 

 

 

196,626

 

Property, plant and equipment

 

 

 

 

 

 

Plant, machinery and equipment

 

 

159,092

 

 

 

153,074

 

Land and buildings

 

 

66,980

 

 

 

59,163

 

Computer equipment and software

 

 

10,691

 

 

 

18,832

 

Other

 

 

4,124

 

 

 

4,292

 

Total property, plant and equipment

 

 

240,887

 

 

 

235,361

 

Less accumulated depreciation

 

 

184,923

 

 

 

187,572

 

Property, plant and equipment, net

 

 

55,964

 

 

 

47,789

 

Operating lease right-of-use assets, net

 

 

11,188

 

 

 

13,133

 

Goodwill

 

 

92,391

 

 

 

91,819

 

Intangible assets, net

 

 

42,075

 

 

 

44,088

 

Other assets

 

 

272

 

 

 

380

 

Total assets

 

$

401,210

 

 

$

393,835

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS-Continued

(unaudited, in thousands, except for par value and share amounts)

 

 

November 30,

 

 

February 28,

 

 

 

2023

 

 

2023

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

10,860

 

 

$

18,333

 

Accrued expenses

 

 

18,617

 

 

 

18,067

 

Current portion of operating lease liabilities

 

 

4,811

 

 

 

4,847

 

Total current liabilities

 

 

34,288

 

 

 

41,247

 

Liability for pension benefits

 

 

646

 

 

 

646

 

Deferred income taxes

 

 

11,458

 

 

 

11,098

 

Operating lease liabilities, net of current portion

 

 

6,140

 

 

 

8,162

 

Other liabilities

 

 

1,051

 

 

 

1,250

 

Total liabilities

 

 

53,583

 

 

 

62,403

 

Shareholders’ equity

 

 

 

 

 

 

Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at November 30, 2023 and February 28, 2023

 

 

75,134

 

 

 

75,134

 

Additional paid-in capital

 

 

127,135

 

 

 

125,887

 

Retained earnings

 

 

232,519

 

 

 

219,459

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

Minimum pension liability, net of taxes

 

 

(13,024

)

 

 

(14,104

)

Treasury stock

 

 

(74,137

)

 

 

(74,944

)

Total shareholders’ equity

 

 

347,627

 

 

 

331,432

 

Total liabilities and shareholders' equity

 

$

401,210

 

 

$

393,835

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share amounts)

 

 

Three months ended

 

 

Nine months ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

104,621

 

 

$

110,245

 

 

$

322,675

 

 

$

329,145

 

Cost of goods sold

 

 

74,090

 

 

 

76,768

 

 

 

225,004

 

 

 

226,445

 

Gross profit

 

 

30,531

 

 

 

33,477

 

 

 

97,671

 

 

 

102,700

 

Selling, general and administrative

 

 

17,410

 

 

 

17,292

 

 

 

54,094

 

 

 

52,916

 

Loss from disposal of assets

 

 

1

 

 

 

15

 

 

 

53

 

 

 

15

 

Income from operations

 

 

13,120

 

 

 

16,170

 

 

 

43,524

 

 

 

49,769

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,020

 

 

 

232

 

 

 

2,714

 

 

 

317

 

Other, net

 

 

(324

)

 

 

(728

)

 

 

(979

)

 

 

(1,327

)

     Total Other income (expense)

 

 

696

 

 

 

(496

)

 

 

1,735

 

 

 

(1,010

)

Earnings before income taxes

 

 

13,816

 

 

 

15,674

 

 

 

45,259

 

 

 

48,759

 

Income tax expense

 

 

3,910

 

 

 

4,388

 

 

 

12,808

 

 

 

13,652

 

Net earnings

 

$

9,906

 

 

$

11,286

 

 

$

32,451

 

 

$

35,107

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,894,578

 

 

 

25,809,581

 

 

 

25,826,691

 

 

 

25,812,216

 

Diluted

 

 

26,083,301

 

 

 

25,888,815

 

 

 

25,991,567

 

 

 

25,892,873

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

$

0.44

 

 

$

1.26

 

 

$

1.36

 

Diluted

 

$

0.38

 

 

$

0.44

 

 

$

1.25

 

 

$

1.36

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net earnings

 

$

9,906

 

 

$

11,286

 

 

$

32,451

 

 

$

35,107

 

Adjustment to pension, net of taxes

 

 

360

 

 

 

717

 

 

 

1,080

 

 

 

1,501

 

Comprehensive income

 

$

10,266

 

 

$

12,003

 

 

$

33,531

 

 

$

36,608

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited, in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Shares

 

 

Amount

 

 

Total

 

Balance August 31, 2023

 

30,053,443

 

 

$

75,134

 

 

$

126,440

 

 

$

229,082

 

 

$

(13,384

)

 

 

(4,220,210

)

 

$

(74,126

)

 

$

343,146

 

Net earnings

 

 

 

 

 

 

 

 

 

 

9,906

 

 

 

 

 

 

 

 

 

 

 

 

9,906

 

Adjustment to pension, net of deferred tax of $120

 

 

 

 

 

 

 

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Dividends paid ($0.25 per share)

 

 

 

 

 

 

 

 

 

 

(6,469

)

 

 

 

 

 

 

 

 

 

 

 

(6,469

)

Stock based compensation

 

 

 

 

 

 

 

1,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,041

 

Exercise of stock options and restricted stock

 

 

 

 

 

 

 

(346

)

 

 

 

 

 

 

 

 

(666

)

 

 

(11

)

 

 

(357

)

Balance November 30, 2023

 

30,053,443

 

 

$

75,134

 

 

$

127,135

 

 

$

232,519

 

 

$

(13,024

)

 

 

(4,220,876

)

 

$

(74,137

)

 

$

347,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance February 28, 2023

 

30,053,443

 

 

$

75,134

 

 

$

125,887

 

 

$

219,459

 

 

$

(14,104

)

 

 

(4,266,835

)

 

$

(74,944

)

 

$

331,432

 

Net earnings

 

 

 

 

 

 

 

 

 

 

32,451

 

 

 

 

 

 

 

 

 

 

 

 

32,451

 

Adjustment to pension, net of deferred tax of $359

 

 

 

 

 

 

 

 

 

 

 

 

 

1,080

 

 

 

 

 

 

 

 

 

1,080

 

Dividends paid ($0.75 per share)

 

 

 

 

 

 

 

 

 

 

(19,391

)

 

 

 

 

 

 

 

 

 

 

 

(19,391

)

Stock based compensation

 

 

 

 

 

 

 

2,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,055

 

Exercise of stock options and restricted stock

 

 

 

 

 

 

 

(807

)

 

 

 

 

 

 

 

 

45,959

 

 

 

807

 

 

 

 

Balance November 30, 2023

 

30,053,443

 

 

$

75,134

 

 

$

127,135

 

 

$

232,519

 

 

$

(13,024

)

 

 

(4,220,876

)

 

$

(74,137

)

 

$

347,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance August 31, 2022

 

30,053,443

 

 

$

75,134

 

 

$

124,031

 

 

$

208,898

 

 

$

(17,803

)

 

 

(4,266,835

)

 

$

(74,944

)

 

$

315,316

 

Net earnings

 

 

 

 

 

 

 

 

 

 

11,286

 

 

 

 

 

 

 

 

 

 

 

 

11,286

 

Adjustment to pension, net of deferred tax of $179

 

 

 

 

 

 

 

 

 

 

 

 

 

717

 

 

 

 

 

 

 

 

 

717

 

Dividends paid ($0.25 per share)

 

 

 

 

 

 

 

 

 

 

(6,459

)

 

 

 

 

 

 

 

 

 

 

 

(6,459

)

Stock based compensation

 

 

 

 

 

 

 

562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

562

 

Balance November 30, 2022

 

30,053,443

 

 

$

75,134

 

 

$

124,593

 

 

$

213,725

 

 

$

(17,086

)

 

 

(4,266,835

)

 

$

(74,944

)

 

$

321,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance February 28, 2022

 

30,053,443

 

 

$

75,134

 

 

$

123,990

 

 

$

197,998

 

 

$

(18,587

)

 

 

(4,253,824

)

 

$

(74,720

)

 

$

303,815

 

Net earnings

 

 

 

 

 

 

 

 

 

 

35,107

 

 

 

 

 

 

 

 

 

 

 

 

35,107

 

Adjustment to pension, net of deferred tax of $375

 

 

 

 

 

 

 

 

 

 

 

 

 

1,501

 

 

 

 

 

 

 

 

 

1,501

 

Dividends paid ($0.75 per share)

 

 

 

 

 

 

 

 

 

 

(19,380

)

 

 

 

 

 

 

 

 

 

 

 

(19,380

)

Stock based compensation

 

 

 

 

 

 

 

1,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,497

 

Exercise of stock options and restricted stock

 

 

 

 

 

 

 

(894

)

 

 

 

 

 

 

 

 

51,071

 

 

 

894

 

 

 

 

Common stock repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64,082

)

 

 

(1,118

)

 

 

(1,118

)

Balance November 30, 2022

 

30,053,443

 

 

$

75,134

 

 

$

124,593

 

 

$

213,725

 

 

$

(17,086

)

 

 

(4,266,835

)

 

$

(74,944

)

 

$

321,422

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Nine months ended

 

 

 

November 30,

 

 

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

32,451

 

 

$

35,107

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

7,465

 

 

 

7,766

 

Amortization of intangible assets

 

 

5,830

 

 

 

5,280

 

Loss from disposal of assets

 

 

53

 

 

 

15

 

Accrued interest on short-term investments

 

 

(102

)

 

 

 

Bad debt expense, net of recoveries

 

 

373

 

 

 

585

 

Stock based compensation

 

 

2,055

 

 

 

1,497

 

Net pension expense

 

 

1,439

 

 

 

1

 

Changes in operating assets and liabilities, net of current assets and liabilities of acquired businesses:

 

Accounts receivable

 

 

8,228

 

 

 

(5,898

)

Prepaid expenses and income taxes

 

 

(4,126

)

 

 

(487

)

Inventories

 

 

6,828

 

 

 

(10,921

)

Other assets

 

 

81

 

 

 

(570

)

Accounts payable and accrued expenses

 

 

(7,763

)

 

 

1,471

 

Other liabilities

 

 

(312

)

 

 

151

 

Net cash provided by operating activities

 

 

52,500

 

 

 

33,997

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(4,884

)

 

 

(3,338

)

Purchase of businesses, net of cash acquired

 

 

(19,907

)

 

 

(8,767

)

Purchase of short-term investments

 

 

(18,393

)

 

 

 

Proceeds from disposal of plant and property

 

 

9

 

 

 

 

Net cash used in investing activities

 

 

(43,175

)

 

 

(12,105

)

Cash flows from financing activities:

 

 

 

 

 

 

Dividends paid

 

 

(19,391

)

 

 

(19,380

)

Common stock repurchases

 

 

 

 

 

(1,118

)

Net cash used in financing activities

 

 

(19,391

)

 

 

(20,498

)

Net change in cash

 

 

(10,066

)

 

 

1,394

 

Cash at beginning of period

 

 

93,968

 

 

 

85,606

 

Cash at end of period

 

$

83,902

 

 

$

87,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

8


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

1. Significant Accounting Policies and General Matters

Basis of Presentation

These unaudited condensed consolidated financial statements of Ennis, Inc. and its subsidiaries (collectively referred to as the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”) for the period ended November 30, 2023 have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP') and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2023, from which the accompanying consolidated balance sheet at February 28, 2023 was derived. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial information have been included and are of a normal recurring nature. The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the disclosure and reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets, pension plan, accrued liabilities, and income taxes. The Company bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year.

 

Recent Accounting Pronouncements

 

Recently Issued Accounting Updates

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025 for the Company). We are assessing the effect of this update on our consolidated financial statements and believe the adoption of this standard is likely to add material additional segment disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in a public entity’s income tax rate reconciliation table and other disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the company). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

 

2. Revenue

 

Nature of Revenues

Substantially all of the Company's revenue from contracts with customers consists of the sale of commercial printing products in the continental United States and is primarily recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue from the sale of commercial printing products, including shipping and handling fees billed to customers, is recognized upon the transfer of control to the customer, which is generally upon shipment to the customer when the terms of the sale are freight on board ("FOB") shipping point, or, to a lesser extent, upon delivery to the customer if the terms of the sale are FOB destination. Net sales represent gross sales invoiced to customer, less certain related charges, including sale tax, discounts, returns and other allowances. Returns, discounts and other allowances have historically been insignificant.

In a small number of cases and upon customer request, the Company prints and stores commercial printing product for customer specified future delivery, generally within the same year as the product is manufactured. In this case, revenue is recognized upon the transfer of control when manufacturing is complete and title and risk of ownership is passed to the customer. Storage revenue for certain customers may be recognized over time rather than at a point in time. As of the date of this report, the amount of storage revenue is not significant to the Company’s condensed consolidated financial statements. The output method for measure of progress is determined to be appropriate. The Company recognizes storage revenue in the amount for which it has the right to invoice for

9


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

revenue that is recognized over time and for which it demonstrates that the invoiced amount corresponds directly with the value to the customer for the performance completed to date.

The Company does not disaggregate revenue and operates in one sales category consisting of commercial printed product revenue, which is reported as net sales on the condensed consolidated statements of operations. The Company does not have material contract assets and contract liabilities as of November 30, 2023.

Significant Judgments

Generally, the Company’s contracts with customers are comprised of a written quote and customer purchase order or statement of work, and governed by the Company’s trade terms and conditions. In certain instances, it may be further supplemented by separate pricing agreements and customer incentive arrangements, which typically only affect the transaction price. Contracts do not contain a significant financing component as payment terms on invoiced amounts are typically between 30 to 60 days, based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant.

From time to time, the Company may offer incentives to its customers considered to be variable consideration including volume-based rebates or early payment discounts. Customer incentives considered to be variable consideration are recorded as a reduction to revenue as part of the transaction price at contract inception when there is a basis to reasonably estimate the amount of the incentive and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Customer incentives are allocated entirely to the single performance obligation of transferring printed product to the customer.

For customers with terms of FOB shipping point, the Company accounts for shipping and handling activities performed after the control of the printed product has been transferred to the customer as a fulfillment cost. The Company accrues for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.

The Company’s contracts with customers are generally short-term in nature. Accordingly, the Company does not disclose the value of unsatisfied performance obligations nor the timing of revenue recognition.

3. Short-term Investments and Fair Value Measurements

Short-term investments are securities with original maturities of greater than three months but less than twelve months and are comprised of U.S. Treasury Bills. The Company determines the classification of these securities as trading, available for sale or held to maturity at the time of purchase and re-evaluates these determinations at each balance sheet date. The Company's short-term investments are classified as held-to-maturity for the period presented as it has the positive intent and ability to hold these investments to maturity. The Company's held-to-maturity investments are stated at amortized cost, which approximated fair value, and are periodically assessed for other-than-temporary impairment..

Amortized cost and estimated fair value of investment securities classified as held-to-maturity were as follows at November 30, 2023 (in thousands):

 

 

 

November 30, 2023

 

 

 

 

Gross

 

Gross

 

 

 

 

Cost or

 

Unrealized

 

Unrealized

 

Estimated

 

 

Amortized

 

Holding

 

Holding

 

Fair

 

 

Cost

 

Gains

 

Losses

 

Value

November 30, 2023

 

 

 

 

 

 

 

 

Investment securities due in less than one year

 

$18,495

 

$-

 

$4

 

$18,491

 

 

 

 

 

 

 

 

 

February 28, 2023

 

 

 

 

 

 

 

 

Investment securities due in less than one year

 

$-

 

$-

 

$-

 

$-

 

The Company’s short-term investments in investment securities are Level 1 fair value measure. The Company did not hold any Level 2 or 3 financial assets or liabilities measured at fair value on a recurring basis. There were no transfers between levels during the three and nine months ended November 30, 2023.

10


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

4. Accounts Receivable and Allowance for Doubtful Receivables

Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. Substantially all of the Company’s receivables are due from customers in the United States. The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed invoice resolution). The Company does not typically require its customers to post a deposit or supply collateral. The Company’s allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes the pooling of receivables based on risk assessment and then assessing a default probability to these pooled balances, which can be influenced by several factors including (i) current market conditions, (ii) historical experience, (iii) reasonable forecast, and (iv) review of customer receivable aging and payment trends.

The following table summarizes the components of accounts receivables as of the dates indicated (in thousands):

 

 

 

November 30,

 

February 28,

 

 

2023

 

2023

Trade Receivables, net of allowance for doubtful receivables

 

$40,452

 

$44,645

Vendor Rebates

 

3,239

 

4,354

Notes Receivable

 

4,449

 

4,508

 

 

$48,140

 

$53,507

 

Accounts receivable at November 30, 2023 and February 28, 2023 includes a $4.4 million receivable related to the sale of an unused manufacturing facility. The note has a one-year maturity but the payments are calculated based on a 30-year amortization schedule with monthly payments until maturity, at which point the remaining balance will be due and owing. The note has a fixed interest rate of 5.9% per annum.

The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance in the period the payment is received. Credit losses from continuing operations have consistently been within management’s expectations.

The following table presents the activity in the Company’s allowance for doubtful receivables (in thousands):

 

 

Three months ended

 

 

Nine months ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Balance at beginning of period

 

$

1,866

 

 

$

1,523

 

 

$

1,710

 

 

$

1,200

 

Bad debt expense, net of recoveries

 

 

138

 

 

 

192

 

 

 

373

 

 

 

585

 

Accounts written off

 

 

(46

)

 

 

(23

)

 

 

(125

)

 

 

(93

)

Balance at end of period

 

$

1,958

 

 

$

1,692

 

 

$

1,958

 

 

$

1,692

 

 

11


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

5. Inventories

With the exception of approximately 8.4% and 6.1% of its inventories valued at the lower of last-in first-out ("LIFO") for the periods ended November 30, 2023 and February 28, 2023, respectively, the Company values its inventories at the lower of first-in, first-out ("FIFO") cost or net realizable value. The Company regularly reviews inventories on hand, using specific aging categories, and writes down the carrying value of its inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage. In assessing the ultimate realization of its inventories, the Company is required to make judgments as to future demand requirements. As actual future demand or market conditions may vary from those projected by the Company, adjustments to inventories may be required. Reserves for excess and obsolete inventory at November 30, 2023 and fiscal year ended February 28, 2023 were $1.9 million and $1.6 million, respectively.

The following table summarizes the components of inventories at the different stages of production as of the dates indicated (in thousands):

 

 

November 30,

 

 

February 28,

 

 

 

2023

 

 

2023

 

Raw material

 

$

24,176

 

 

$

30,308

 

Work-in-process

 

 

5,601

 

 

 

6,174

 

Finished goods

 

 

12,548

 

 

 

10,352

 

 

 

$

42,325

 

 

$

46,834

 

 

6. Acquisitions

The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values, with certain limited exceptions permitted under US GAAP. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets and liabilities assumed, is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed in the period incurred.

Acquisition of Eagle Graphics and Diamond Graphics

On October 11, 2023, the Company acquired the assets and business of Eagle Graphics, Inc., which is based in Annville, Pennsylvania, and Diamond Graphics, Inc. ("Eagle"), which is based in Bensalem, Pennsylvania, for approximately $8.0 million in cash. The Company performed a preliminary allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on the estimated fair values prepared by management using the information available as of the acquisition date. This allocation is preliminary and subject to change, which may be material. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $0.8 million in connection with the transaction, which are also deductible for tax purposes.

The following table summarizes the Company's preliminary purchase price allocation for Eagle as of the acquisition date (in thousands):

 

Accounts receivable

 

$841

Inventories

 

917

Other assets

 

15

Property, plant and equipment

 

5,304

Goodwill and intangibles

 

942

Accounts payable and accrued liabilities

 

(41)

Acquisition price

 

$7,978

 

12


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

 

Acquisition of UMC Print

On June 2, 2023, the Company acquired the assets and business of UMC Print ("UMC"), which is based in Overland Park, Kansas, for approximately $7.7 million in cash plus the assumption of trade payables of approximately $0.8 million. The Company performed a preliminary allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on the estimated fair values prepared by management using the information available as of the acquisition date. This allocation is preliminary and subject to change, which may be material. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $2.7 million in connection with the transaction, which are also deductible for tax purposes.

The following table summarizes the Company's preliminary purchase price allocation for UMC as of the acquisition date (in thousands):

 

Cash

 

$758

Accounts receivable

 

1,839

Inventories

 

553

Property, plant and equipment

 

2,356

Goodwill and intangibles

 

2,970

Accounts payable and accrued liabilities

 

(789)

Acquisition price

 

$7,687

 

Acquisition of Stylecraft Printing

On May 23, 2023, the Company acquired the real estate and operations of Stylecraft Printing Company ("Stylecraft"), which is based in Canton, Michigan, for $5.0 million plus the assumption of trade payables. The Company performed a preliminary allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available as of the acquisition date. This allocation is preliminary and subject to change, which may be material. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $0.3 million in connection with the transaction, which are also deductible for tax purposes.

The following table summarizes the Company's purchase price allocation for Stylecraft as of the acquisition date (in thousands):

 

Accounts receivable

 

$554

Inventories

 

849

Right-of-use asset

 

28

Property, plant and equipment

 

3,161

Goodwill and intangibles

 

476

Operating lease liability

 

(12)

Accounts payable and accrued liabilities

 

(28)

Acquisition price

 

$5,028

 

Acquisition of School Photo Marketing

On November 30, 2022, the Company acquired the assets and business from School Photo Marketing ("SPM"), which is based in Morganville, New Jersey, for $8.8 million (with additional potential earn-out consideration of up to $1,000,000 over a four-year period upon the attainment of specified financial benchmarks) plus the assumption of trade payables, subject to certain adjustments. At November 30, 2023 and February 28, 2023, the contingent earn-out liability amounted to $0.8 million and zero, respectively. The seller shall receive fifty percent (50%) of Purchaser's annual earnings from the business, before interest and taxes in excess of $1.4 million. Goodwill of $3.1 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded

13


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

intangible assets with definite lives of approximately $5.1 million in connection with the transaction, which are also deductible for tax purposes. The acquisition of SPM brings printing, yearbook publishing and marketing related services to over 1,400 school and sports photographers servicing schools around the country.

The following table summarizes the Company's purchase price allocation for SPM as of the acquisition date (in thousands):

 

Accounts receivable

 

$1,403

Inventories

 

516

Other assets

 

84

Right-of-use asset

 

487

Property, plant and equipment

 

250

Goodwill and intangibles

 

8,262

Operating lease liability

 

(487)

Accounts payable and accrued liabilities

 

(1,748)

Acquisition price

 

$8,767

 

The results of operations for SPM, Stylecraft, UMC and Eagle are included in the Company’s consolidated financial statements from the respective dates of acquisition. The following table sets forth certain operating information on a pro forma basis as though each acquisition had occurred as of the beginning of the comparable prior period (that is, March 1, 2022). The following pro forma information includes the estimated impact of adjustments such as amortization of intangible assets, depreciation expense and interest expense and related tax effects (in thousands, except per share amounts).

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

November 30, 2023

 

 

November 30, 2022

 

 

November 30, 2023

 

 

November 30, 2022

 

Pro forma net sales

 

$

105,233

 

 

$

120,446

 

 

$

333,036

 

 

$

360,101

 

Pro forma net earnings

 

 

9,975

 

 

 

12,275

 

 

 

33,847

 

 

 

38,974

 

Pro forma earnings per share - diluted

 

$

0.38

 

 

$

0.47

 

 

$

1.30

 

 

$

1.51

 

 

The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the full duration of the comparative periods presented.

7. Leases

The Company leases certain of its facilities and equipment under operating leases, which are recorded as right-of-use assets and lease liabilities. The Company’s leases generally have terms of 15 years, with certain leases including renewal options to extend the leases for additional periods at the Company’s discretion. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. The Company currently does not have financing leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to the Company.

Operating lease expense is recognized on a straight-line basis over the lease term, and variable lease payments are expensed as incurred. The Company had no variable lease costs for the nine months ended November 30, 2023 and November 30, 2022.

The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and directs the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the BBB Corporate Bond Rate at lease commencement date, as rates are not implicitly stated in most leases.

14


ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(
unaudited)

 

Components of lease expense for the three and nine months ended November 30, 2023 and November 30, 2022 were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended