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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 May 31, 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:

14,156,827 shares of Common Stock as of June 30, 2021


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share amounts)

May 31,

August 31,

2021

2020

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

35,757

$

27,137 

Accounts receivable, less allowance for doubtful accounts of $4,543 and $4,159

44,477

56,407 

Inventories

2,652

2,974 

Prepaid expenses and other current assets

15,343

15,146 

Total current assets

98,229

101,664 

Property and equipment, net

12,114

15,723 

Intangible assets, net

51,603

47,125 

Goodwill

31,220

24,220 

Deferred income tax assets

5,316

1,094 

Other long-term assets

14,167

15,611 

$

212,649

$

205,437 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of notes payable

$

5,835

$

5,000 

Current portion of financing obligation

2,813

2,600 

Accounts payable

4,655

5,622 

Deferred subscription revenue

54,344

59,289 

Other deferred revenue

8,984

7,389 

Accrued liabilities

28,012

22,628 

Total current liabilities

104,643

102,528 

Notes payable, less current portion

14,191

15,000 

Financing obligation, less current portion

11,913

14,048 

Other liabilities

7,570

9,110 

Deferred income tax liabilities

-

5,298 

Total liabilities

138,317

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

211,283

211,920 

Retained earnings

61,784

49,968 

Accumulated other comprehensive income

764

641 

Treasury stock at cost, 12,901 shares and 13,175 shares

(200,852)

(204,429)

Total shareholders’ equity

74,332

59,453 

$

212,649

$

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

Three Quarters Ended

May 31,

May 31,

May 31,

May 31,

2021

2020

2021

2020

(unaudited)

(unaudited)

Net sales

$

58,736

$

37,105 

$

155,223

$

149,463 

Cost of sales

12,829

10,284 

35,589

41,946 

Gross profit

45,907

26,821 

119,634

107,517 

Selling, general, and administrative

37,762

29,254 

102,312

101,231 

Stock-based compensation

2,370

(5,104)

5,127

(1,460)

Depreciation

1,423

1,652 

4,904

4,925 

Amortization

1,238

1,164 

3,503

3,504 

Income (loss) from operations

3,114

(145)

3,788

(683)

Interest income

16

18 

56

36 

Interest expense

(525)

(621)

(1,633)

(1,783)

Income (loss) before income taxes

2,605

(748)

2,211

(2,430)

Income tax benefit (provision)

10,149

(10,220)

9,605

(7,985)

Net income (loss)

$

12,754

$

(10,968)

$

11,816

$

(10,415)

Net income (loss) per share:

Basic and diluted

$

0.90

$

(0.79)

$

0.84

$

(0.75)

Weighted average number of common shares:

Basic

14,145

13,869 

14,068

13,897 

Diluted

14,156

13,869 

14,133

13,897 

COMPREHENSIVE INCOME (LOSS)

Net income (loss)

$

12,754

$

(10,968)

$

11,816

$

(10,415)

Foreign currency translation adjustments,

net of income taxes of

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

(151)

(91)

123

(38)

Comprehensive income (loss)

$

12,603

$

(11,059)

$

11,939

$

(10,453)

See notes to condensed consolidated financial statements

3


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Quarters Ended

May 31,

May 31,

2021

2020

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

11,816 

$

(10,415)

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation and amortization

8,407 

8,429 

Amortization of capitalized curriculum costs

2,583 

3,042 

Stock-based compensation

5,127 

(1,460)

Deferred income taxes

(10,521)

7,678 

Change in fair value of contingent consideration liabilities

164 

(367)

Amortization of right-of-use operating lease assets

758 

-

Loss on disposal of assets

-

39 

Changes in assets and liabilities, net of effect of acquired business:

Decrease in accounts receivable, net

12,391 

34,692 

Decrease in inventories

322 

377 

Decrease in prepaid expenses and other assets

1,393 

1,784 

Increase (decrease) in accounts payable and accrued liabilities

4,629 

(11,057)

Decrease in deferred revenue

(4,172)

(12,612)

Decrease in income taxes payable/receivable

(653)

(1,415)

Decrease in other long-term liabilities

(1,392)

(6)

Net cash provided by operating activities

30,852 

18,709 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(1,185)

(3,336)

Curriculum development costs

(1,827)

(3,436)

Acquisition of business, net of cash acquired

(10,554)

-

Purchase of note receivable from bank

-

(2,600)

Net cash used for investing activities

(13,566)

(9,372)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from line of credit borrowings

-

14,870 

Proceeds from term notes payable

-

5,000 

Principal payments on notes payable

(3,750)

(3,750)

Principal payments on financing obligation

(1,922)

(1,725)

Purchases of common stock for treasury

(2,971)

(13,833)

Payment of contingent consideration liabilities

(899)

(1,167)

Proceeds from sales of common stock held in treasury

783 

780 

Net cash provided by (used for) financing activities

(8,759)

175 

Effect of foreign currency exchange rates on cash and cash equivalents

93 

(205)

Net increase in cash and cash equivalents

8,620 

9,307 

Cash and cash equivalents at the beginning of the period

27,137 

27,699 

Cash and cash equivalents at the end of the period

$

35,757 

$

37,006 

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

1,454 

$

1,713 

Cash paid for interest

1,634 

1,751 

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

105 

$

352 

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

885 

-

Use of notes payable to acquire business

3,766 

-

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 

$