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fc-20210228x10q

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

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

‎

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
‎

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
‎

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands and unaudited)

Accumulated

Common

Additional

Other

Treasury

Stock

Paid-In

Retained

Comprehensive

Stock

Amount

Capital

Earnings

Income

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