17. Commitments and Contingencies

In the ordinary course of business, the Company also enters into real property leases, which require the Company as lessee to indemnify the lessor from liabilities arising out of the Company’s occupancy of the properties. The Company’s indemnification obligations are generally covered under the Company’s general insurance policies.

From time to time, the Company is involved in various litigation matters arising in the ordinary course of business. The Company does not believe the disposition of any current matter will have a material adverse effect on its consolidated financial position or results of operations.

Ennis and one of its subsidiaries are defendants in a lawsuit in Arizona concerning the lease of the former B&D Litho facility that was closed in 2019. The plaintiff landlord generally alleges that the defendants failed to maintain the leased premises in good condition. The landlord sought more than $4.0 million in repair costs and other consequential damages even though the landlord sold the facility without making the supposedly necessary repairs. The Company has denied the landlord’s allegations and is vigorously contesting what the Company believes are unreasonable claims.

There was a non-jury trial of the case in March 2026 at which the judge dismissed the landlord’s claim that the Company failed to maintain the premises during the tenancy due to a lack of damages. The landlord’s other breach of contract claim that the Company failed to surrender the property in good condition remains pending, and Ennis has claimed that most of the surrender conditions of which the landlord complains existed prior to the tenancy commenced.

On September 9, 2026, the trial court issued preliminary findings that the Ennis subsidiary had failed to repair and maintain the premises during the tenancy even though the court had already dismissed the repair and maintenance claim at trial. The Court then made a preliminary finding that the landlord should recover $2.3 million in claimed diminished property value given the property’s condition in 2023 that the landlord had allowed to deteriorate in the four years since Ennis surrendered possession to the landlord in 2019.

Due to what the Company believes are significant legal and factual errors in the Court’s preliminary findings, Ennis will seek further review in the trial court and, if necessary, pursue appellate remedies. Based on consultation with outside legal counsel, management concluded that the $2.3 million amount reflected in the preliminary findings does not represent management's best estimate of probable loss. Accordingly, the Company increased its reserve by approximately $0.7 million during the quarter, resulting in a total reserve of approximately $1.2 million, which management believes represents its best estimate of probable loss as of August 31, 2026.

During the prior year quarter, the Company recognized $5.7 million related to a favorable judgment in an unrelated litigation matter against Wright Printing Company, consisting of actual damages, exemplary damages, attorneys’ fees and $0.4 million of interest income.