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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2021

[   ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file no. 1-11107

Picture 1

FRANKLIN COVEY CO.

(Exact name of registrant as specified in its charter)

Utah

 

87-0401551

(State of incorporation)

 

(I.R.S. employer identification number)

 

2200 West Parkway Boulevard

 

84119-2099

Salt Lake City, Utah

 

(Zip Code)

(Address of principal executive offices)

 

 

Registrant’s telephone number,

 

(801) 817-1776

Including area code

 

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, $.05 Par Value

FC

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 T  No  £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data 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  T  No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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

T

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  T

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:

14,145,630 shares of Common Stock as of March 31, 2021


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share amounts)

February 28,

August 31,

2021

2020

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

40,343

$

27,137 

Accounts receivable, less allowance for doubtful accounts of $3,662 and $4,159

41,482

56,407 

Inventories

2,641

2,974 

Prepaid expenses and other current assets

15,799

15,146 

Total current assets

100,265

101,664 

Property and equipment, net

13,159

15,723 

Intangible assets, net

44,864

47,125 

Goodwill

24,220

24,220 

Deferred income tax assets

843

1,094 

Other long-term assets

15,378

15,611 

$

198,729

$

205,437 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of term notes payable

$

5,000

$

5,000 

Current portion of financing obligation

2,741

2,600 

Accounts payable

5,060

5,622 

Deferred subscription revenue

57,344

59,289 

Other deferred revenue

8,126

7,389 

Accrued liabilities

22,837

22,628 

Total current liabilities

101,108

102,528 

Term notes payable, less current portion

12,500

15,000 

Financing obligation, less current portion

12,638

14,048 

Other liabilities

8,631

9,110 

Deferred income tax liabilities

4,812

5,298 

Total liabilities

139,689

145,984 

Shareholders’ equity:

Common stock, $0.05 par value; 40,000 shares authorized, 27,056 shares issued

1,353

1,353 

Additional paid-in capital

208,816

211,920 

Retained earnings

49,030

49,968 

Accumulated other comprehensive income

915

641 

Treasury stock at cost, 12,915 shares and 13,175 shares

(201,074)

(204,429)

Total shareholders’ equity

59,040

59,453 

$

198,729

$

205,437 

See notes to condensed consolidated financial statements


2


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per-share amounts)

Quarter Ended

Two Quarters Ended

February 28,

February 29,

February 28,

February 29,

2021

2020

2021

2020

(unaudited)

(unaudited)

Net sales

$

48,162 

$

53,745 

$

96,486 

$

112,357 

Cost of sales

10,822 

15,079 

22,760 

31,662 

Gross profit

37,340 

38,666 

73,726 

80,695 

Selling, general, and administrative

33,623 

36,221 

67,306 

75,620 

Depreciation

1,740 

1,653 

3,481 

3,273 

Amortization

1,133 

1,170 

2,265 

2,340 

Income (loss) from operations

844 

(378)

674 

(538)

Interest income

16 

13 

40 

18 

Interest expense

(540)

(557)

(1,108)

(1,162)

Income (loss) before income taxes

320 

(922)

(394)

(1,682)

Income tax benefit (provision)

(366)

2,019 

(544)

2,235 

Net income (loss)

$

(46)

$

1,097 

$

(938)

$

553 

Net income (loss) per share:

Basic and diluted

$

(0.00)

$

0.08 

$

(0.07)

$

0.04 

Weighted average number of common shares:

Basic

14,082 

13,841 

14,029 

13,911 

Diluted

14,082 

13,990 

14,029 

14,118 

COMPREHENSIVE INCOME (LOSS)

Net income (loss)

$

(46)

$

1,097 

$

(938)

$

553 

Foreign currency translation adjustments,

net of income taxes of

$0, $0, $0, and $0

(33)

90 

274 

53 

Comprehensive income (loss)

$

(79)

$

1,187 

$

(664)

$

606 

See notes to condensed consolidated financial statements

3


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Two Quarters Ended

February 28,

February 29,

2021

2020

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

(938)

$

553

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation and amortization

5,746

5,613

Amortization of capitalized curriculum costs

1,750

2,029

Stock-based compensation

2,757

3,644

Deferred income taxes

(198)

(2,012)

Change in fair value of contingent consideration liabilities

46

(91)

Amortization of right-of-use operating lease assets

509

-

Loss on disposal of assets

-

38

Changes in assets and liabilities:

Decrease in accounts receivable, net

14,978

24,556

Decrease in inventories

346

681

Increase in prepaid expenses and other assets

(344)

(180)

Decrease in accounts payable and accrued liabilities

(244)

(6,959)

Decrease in deferred revenue

(1,497)

(8,888)

Decrease in income taxes payable/receivable

(87)

(1,605)

Decrease in other long-term liabilities

(912)

(6)

Net cash provided by operating activities

21,912

17,373

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(877)

(2,516)

Curriculum development costs

(1,292)

(2,232)

Purchase of note receivable from bank

-

(2,600)

Net cash used for investing activities

(2,169)

(7,348)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from term notes payable

-

5,000 

Principal payments on term notes payable

(2,500)

(2,500)

Principal payments on financing obligation

(1,269)

(1,139)

Purchases of common stock for treasury

(2,971)

(13,833)

Payment of contingent consideration liabilities

(540)

(911)

Proceeds from sales of common stock held in treasury

464

484

Net cash used for financing activities

(6,816)

(12,899)

Effect of foreign currency exchange rates on cash and cash equivalents

279

(15)

Net increase (decrease) in cash and cash equivalents

13,206

(2,889)

Cash and cash equivalents at the beginning of the period

27,137 

27,699 

Cash and cash equivalents at the end of the period

$

40,343

$

24,810

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

788

$

1,381

Cash paid for interest

1,085

1,144

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

48

$

985

Acquisition of right-of-use operating lease assets for operating lease liabilities

885

-

Use of notes receivable to modify revenue contract

-

3,246 

See notes to condensed consolidated financial statements

4


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands and unaudited)

Accumulated

Common

Common

Additional

Other

Treasury

Treasury

Stock

Stock

Paid-In

Retained

Comprehensive

Stock

Stock

Shares

Amount

Capital

Earnings

Income

Shares

Amount

Balance at August 31, 2020

27,056 

$

1,353 

$

211,920 

$

49,968 

$

641 

(13,175)

$

(204,429)

Issuance of common stock from

treasury

 

 

(3,411)

 

 

236 

3,668 

Purchase of treasury shares

 

 

 

 

 

(89)

(1,530)

Stock-based compensation

 

 

1,158