-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FvEPijIEAE59A8GuaVloYmA8hJ5MhimUml8402fdfQ+9mio28jwpud3gdP4COqcK qqargwGwzWyohgKH1cQh+g== 0000930661-97-002316.txt : 19971001 0000930661-97-002316.hdr.sgml : 19971001 ACCESSION NUMBER: 0000930661-97-002316 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19970930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL DEVELOPMENT CORP CENTRAL INDEX KEY: 0000031667 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 730750007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04957 FILM NUMBER: 97688582 BUSINESS ADDRESS: STREET 1: 10302 E 55TH PL #B CITY: TULSA STATE: OK ZIP: 74146 BUSINESS PHONE: 9186224522 MAIL ADDRESS: STREET 1: PO BOX 470663 CITY: TULSA STATE: OK ZIP: 741460663 FORMER COMPANY: FORMER CONFORMED NAME: TUTOR TAPES INTERNATIONAL CORP DATE OF NAME CHANGE: 19701030 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL TEACHING TAPES INC DATE OF NAME CHANGE: 19701030 10-Q 1 FORM 10-Q 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 August 31, 1997. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 0-4957 EDUCATIONAL DEVELOPMENT CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-0750007 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10302 East 55th Place, Tulsa Oklahoma 74146-6515 (Address of principal executive offices) Registrant's telephone number: (918) 622-4522 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 X No -------- -------- As of August 31, 1997 there were 5,219,426 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding. 1 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1
BALANCE SHEETS August 31, 1997 (unaudited) February 28, 1997 --------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 280,000 $ 82,100 Accounts receivable - (less allowances for doubtful accounts and returns: 8/31/97 - $227,000 2/28/97 - $192,900) 2,967,000 2,032,700 Inventories - Net 10,177,100 10,048,500 Prepaid expenses 62,600 55,700 Income taxes receivable 36,700 124,100 Deferred income taxes 142,300 159,200 ------------ ------------ Total current assets 13,665,700 12,502,300 PROPERTY AND EQUIPMENT at cost (less accumulated depreciation: 8/31/97 - $593,200 2/28/97 - $445,900) 725,600 848,500 OTHER ASSETS - Net 7,500 14,600 ------------ ------------ $ 14,398,800 $ 13,365,400 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 2,405,000 $ 2,010,000 Accounts payable 2,109,300 2,305,100 Accrued salaries and commissions 197,300 214,200 Other current liabilities 438,500 563,000 ------------ ------------ Total current liabilities 5,150,100 5,092,300 SHAREHOLDERS' EQUITY: Common Stock, $.20 par value (authorized 6,000,000 shares; issued 5,424,240 and 5,424,240 shares; outstanding 5,219,426 and 5,200,697 shares) 1,084,900 1,084,900 Capital in excess of par value 4,403,600 4,403,200 Retained earnings 4,310,900 3,418,400 ------------ ------------ 9,799,400 8,906,500 Less treasury shares, at cost (550,700) (633,400) ------------ ------------ 9,248,700 8,273,100 ------------ ------------ $ 14,398,800 $ 13,365,400 ============ ============
See notes to financial statements. 2 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended August 31 Six Months Ended August 31 ---------------------------- --------------------------- 1997 1996 1997 1996 ------------ ------------- ------------ ------------ GROSS SALES $ 8,623,500 $ 7,674,000 $15,731,100 $15,908,500 Less discounts & allowances (3,356,900) (2,639,700) (5,804,100) (5,184,000) ------------ ------------ ------------ ----------- Net sales 5,266,600 5,034,300 9,927,000 10,724,500 COST OF SALES 2,245,000 2,070,500 4,110,900 4,383,800 ------------ ------------ ------------ ----------- Gross margin 3,021,600 2,963,800 5,816,100 6,340,700 OPERATING EXPENSES: Operating & selling 840,000 892,500 1,683,000 2,019,400 Sales commissions 930,600 1,058,800 1,755,800 2,403,600 General & admin. 379,400 313,000 740,500 599,900 Interest 53,700 101,600 103,500 225,900 ------------ ------------ ------------ ----------- 817,900 597,900 1,533,300 1,091,900 OTHER INCOME 24,700 1,200 55,700 2,000 ------------ ------------ ------------ ----------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 842,600 599,100 1,589,000 1,093,900 INCOME TAXES 361,800 241,400 644,300 433,100 ------------ ------------ ------------ ----------- NET EARNINGS $ 480,800 $ 357,700 $ 944,700 $ 660,800 ============ ============ ============ =========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Primary and fully diluted Net earnings $ .09 $ .07 $ .18 $ .12 ============ ============ ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING - Primary and fully diluted 5,336,927 5,354,879 5,324,119 5,364,321 ============ ============ ============ =========== DIVIDENDS DECLARED PER COMMON SHARE $ .01 -- $ .01 -- ============ ============ ============ ===========
See notes to financial statements. 3 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock (par value $.20 per share) Treasury Stock ------------------------- --------------- Number of Capital in Number Shares Excess of Retained of Shareholders' Issued Amount Par Value Earnings Shares Amount Equity --------- ---------- ---------- ---------- --------------- ------------ -------------- BALANCE, MAR. 1, 1997 5,424,240 $1,084,900 $4,403,200 $3,418,400 223,543 $(633,400) $8,273,100 Issuance of treasury stock --- --- 400 --- (700) 2,000 2,400 Purchases of treasury stock --- --- --- --- 11,000 (64,400) (64,400) Sales of treasury stock --- --- --- --- (29,029) 145,100 145,100 Net earnings --- --- --- 944,700 --- --- 944,700 Dividend declared --- --- --- (52,200) --- --- (52,200) --------- ---------- ---------- ---------- -------- --------- ---------- BALANCE, AUG. 31, 1997 5,424,240 $1,084,900 $4,403,600 $4,310,900 204,814 $(550,700) $9,248,700 ========= ========== ========== ========== ======== ========= ==========
See notes to financial statements. 4 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended August 31 Six Months Ended August 31 ---------------------------- --------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 480,800 $ 357,700 $ 944,700 $ 660,800 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 74,000 57,500 147,300 113,600 Deferred income taxes 12,700 (4,500) 16,900 (8,600) Provision for doubtful accounts and sales returns 216,400 485,500 439,000 728,700 Provision for obsolete inventories (92,200) -- (92,200) -- Stock issued for awards -- -- 2,400 -- Changes in assets and liabilities: Accounts and income taxes receivable (964,600) (449,900) (1,285,900) (286,700) Inventories 88,300 74,800 (36,400) 1,758,900 Prepaid expenses and other assets (4,500) 139,400 200 75,300 Accounts payable and accrued expenses (68,900) 435,800 (337,200) (1,684,600) Income taxes payable (109,200) 7,900 -- 7,900 ------------ ------------ ------------ ------------ Total adjustments (848,000) 746,500 (1,145,900) 704,500 ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (367,200) 1,104,200 (201,200) 1,365,300 ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property and equipment (5,000) (115,800) (24,400) (151,000) ------------ ------------ ------------ ------------ Net cash used in investing activities (5,000) (115,800) (24,400) (151,000) ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit agreement 3,423,500 1,120,000 4,588,500 3,510,000 Payments under revolving credit agreement (2,768,500) (2,260,000) (4,193,500) (4,960,000) Cash received from exercise of stock options -- -- -- 14,000 Cash received from sale of treasury stock 26,900 -- 145,100 106,000 Cash paid to acquire treasury stock (9,000) -- (64,400) (47,300) Dividends paid (52,200) -- (52,200) -- ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 620,700 (1,140,000) 423,500 (1,377,300) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 248,500 (151,600) 197,900 (163,000) Cash and Cash Equivalents, Beginning of Period 31,500 204,600 82,100 216,000 ------------ ------------ ------------ ------------ Cash and Cash Equivalents, End of Period $ 280,000 $ 53,000 $ 280,000 $ 53,000 ============ ============ ============ ============ Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 51,300 $ 112,100 $ 97,800 $ 230,600 ============ ============ ============ ============ Cash paid for income taxes $ 495,000 $ 66,500 $ 540,000 $ 81,500 ============ ============ ============ ============
See notes to financial statements. 5 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS Note 1 - Deferred income taxes reflect the net tax effects of temporary - ------ differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's net deferred tax asset as of August 31, 1997 and February 28, 1997 are as follows:
August 31, 1997 February 28, 1997 --------------- ------------------ Deferred tax assets: Allowance for doubtful accounts $ 49,100 $ 35,200 Inventories 81,500 118,000 Expenses deducted on the cash basis for income tax purposes 11,700 13,600 -------- -------- 142,300 166,800 Deferred tax liability - Property and equipment -- (7,600) -------- -------- Net deferred tax asset $142,300 $159,200 ======== ========
Management has determined that no valuation allowance is necessary to reduce the value of deferred tax assets as it is more likely than not that such assets are realizable. The components of income tax expense are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED August 31, 1997 August 31, 1996 August 31, 1997 August 31, 1996 --------------- --------------- --------------- --------------- Income tax expense: Current Federal $293,900 $207,000 $528,200 $371,800 State 55,200 38,900 99,200 69,900 -------- -------- -------- -------- 349,100 245,900 627,400 441,700 Deferred Federal 10,700 (3,800) 14,300 (7,300) State 2,000 (700) 2,600 (1,300) -------- -------- -------- -------- 12,700 (4,500) 16,900 (8,600) -------- -------- -------- -------- $361,800 $241,400 $644,300 $433,100 ======== ======== ======== ========
6 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- Note 2 - Effective June 10, 1996 the Company signed a Restated Credit and - ------ Security Agreement with State Bank which provided a $9,000,000 line of credit and replaced the existing loan agreement. The line of credit was evidenced by a promissory note in the amount of $9,000,000 payable June 30, 1997. The note bore interest at the Wall Street Journal prime floating rate. The note was collateralized by substantially all of the assets of the Company. The Company utilized this line of credit primarily to fund routine operations. Effective June 30, 1997, the Company signed a First Amendment to the Restated Credit and Security Agreement with State Bank, which provides a $3,500,000 line of credit. The line of credit is evidenced by a promissory note in the amount of $3,500,000 payable June 30, 1998. The note bears interest at the Wall Street Journal prime floating rate. The note is collateralized by substantially all of the assets of the Company. The Company utilizes this line of credit primarily to fund routine operations. At August 31, 1997 the Company had available $1,095,000 under this credit agreement. Note 3 - Inventories consist of the following: - ------
08/31/97 02/28/97 ----------- ----------- Book Inventory $10,386,000 $10,349,600 Reserve for Obsolescence (208,900) (301,100) ----------- ----------- $10,177,100 $10,048,500 =========== ===========
Note 4 - The results of operations for the three months and six months ended - ------ August 31, 1997 and 1996, respectively, are not necessarily indicative of the results to be expected at year end due to seasonality of the product sales. Note 5 - The information shown with respect to the three months and six months - ------ ended August 31, 1997 and 1996, which is unaudited, includes all adjustments which in the opinion of Management are considered to be necessary for a fair presentation of earnings for such periods. There were no adjustments, other than normal recurring accruals, entering into the determination of the results shown except as noted in this report. Reclassifications were made to 1996 balances to conform with 1997 presentation. Note 6 - These statements should be read in conjunction with the Notes to - ------ Financial Statements contained in the Company's Annual Report to Shareholders for the Fiscal Year ended February 28, 1997, which are incorporated herein by reference, and with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on page 8 of this report. 7 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- Certain statements contained in this Management Discussion and Analysis are not based on historical facts, but are forward-looking statements that are based upon numerous assumptions about future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties. Such risks and uncertainties include but are not limited to, product prices, continued availability of capital and financing, and other factors affecting the Company's business that may be beyond its control. FINANCIAL CONDITION - ------------------- The financial condition of the Company remains strong. Working capital increased 14.9% at August 31, 1997 to $8,515,600 when compared with working capital of $7,410,000 at year-end February 28, 1997. Inventory levels increased slightly as the Company continued to evaluate and improve its purchasing procedures in order to supply adequate inventory to meet projected sales levels. Accounts payable decreased 8.5% at August 31, 1997 over year-end February 28, 1997, the result of smaller purchases of inventory in the current period and the payments for inventory received in prior periods. Pre-tax margins were 16.0% for both the quarter and six months ended August 31, 1997 versus 11.9% for the three months ended August 31, 1996 and 10.2% for the six months ended August 31, 1996. The Company attributes this improvement in its pre-tax margin to the changes made to the Home Business Division's Marketing Plan. These changes, which primarily involved the override percentages for sales commissions, were first implemented October 1, 1996 with further changes June 1, 1997. RESULTS OF OPERATIONS - --------------------- Revenues - Net sales from the Home Business Division were $5,026,800 for the six - -------- months ended August 31, 1997, a decrease of 17.5% when compared with the net sales of $6,093,100 for the six months ended August 31, 1996. Net sales for the three months ended August 31, 1997 were $2,505,900 versus $2,734,000 for the same three month period the previous year, a decrease of 8.3%. As discussed in the first quarter's Form 10-Q, the Company believes the decrease in net sales is the direct result of changes implemented by the Company last year in the commission override structure. The Company re-evaluated the commission override structure for the Home Business Division and on June 1, 1997 implemented several improvements by increasing commission override percentages. In addition, several new incentive programs were added. The results have been positive as indicated by the improvement in sales from the first to the second quarter. Net sales for the month of August 1997 were up 30% over net sales of August 1996. Management believes that the decline in the Home Business Division's net sales has been halted and anticipates increased sales in future quarters. Effective July 1, 1996, the Company transferred responsibility of sales to schools and libraries from the Library Division to the Home Business Division. Net sales from the Library Division were $407,600 for the six months ended August 31, 1996 and $88,300 for the three months ended August 31, 1996. Net sales from the Publishing Division were $4,900,200 for the six months ended August 31, 1997, compared with $4,223,800 for the six months ended August 31, 1996, an increase of 16.0%. Net sales for the three months ended August 31, 1997 were $2,760,700, an increase of 24.8% over the August 31, 1996 net sales of $2,212,000. The Company believes this increase resulted from increased market penetration as the Company's products become more well known in the marketplace. The Division attends several national trade shows each year to present the Company's products to a wide variety of consumers. The Company also has an aggressive internal telephone sales force which helped generate the increase in net sales. Management believes that it has a superior product line and is optimistic that the Publishing Division can maintain its market share in the highly competitive publishing market. 8 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- Operating Expenses - The Company's cost of sales was $4,110,900 for the six - ------------------ months ended August 31, 1997 and $4,383,800 for the six months ended August 31, 1996, a decrease of 6.2%. Cost of sales expressed as a percentage of gross sales was 26.1% for the six months ended August 31, 1997 versus 27.6% for the same period a year ago. Cost of sales for the three months ended August 31, 1997 and 1996 were $2,245,000 and $2,070,500, respectively, an increase of 8.4%. Cost of sales as a percentage of gross sales was 26.0% for the three months ended August 31, 1997 and 27.0% for the three months ended August 31, 1996. Cost of sales as a percentage of gross sales will fluctuate depending upon the product mix sold. Operating and selling expenses declined 16.7% to $1,683,000 for the six months ended August 31, 1997 versus $2,019,400 for the same six month period a year ago. For the three months ended August 31, 1997, operating and selling expenses were $840,000, a decrease of 5.9% from $892,500 for the three month period ended August 31, 1996. Operating and selling expenses as a percentage of gross sales were 9.7% and 10.7% for the three months and six months ended August 31, 1997 compared with 11.6% and 12.7% for the same two periods a year ago. Contributing to the decrease in operating and selling expenses were reduced travel contest expenses and reduced sales incentives in the Home Business Division. Also contributing to the decrease was a reduction in credit card fees, the direct result of lower sales in the Home Business Division. Sales commissions were $1,755,800 for the six months ended August 31, 1997 versus $2,403,600 for the six months ended August 31, 1996, a decrease of 27.0%. As a percentage of gross sales, sales commissions were 11.2% and 15.1% for the six months ended August 31, 1997 and 1996 respectively. Sales commissions for the three months ended August 31, 1997 were $930,600 compared with $1,058,800 for the three months ended August 31, 1996, a decrease of 12.1%. Sales commissions as a percentage of gross sales was 10.8% for the three months ended August 31, 1997 compared with 13.8% for the same quarter last year. Sales commissions will vary with the product being sold and the Division making the sale. The Home Business Division and the Publishing Division have different and separate commission programs. The revisions in the Home Business Division's commission program contributed to the decrease in sales commissions for both the three months and six months ended August 31, 1997. General and administrative expenses increased 23.4% to $740,500 for the six months ended August 31, 1997 when compared with $599,900 for the six months ended August 31, 1996. General and administrative expenses as a percentage of gross sales were 4.7% for the six months ended August 31, 1997 versus 3.8% for the same six month period a year ago. For the quarter ended August 31, 1997 general and administrative expenses were $379,400, an increase of 21.2% over the $313,000 for the same quarter last year. Expressed as a percentage of gross sales, general and administrative expenses for the quarters ended August 31, 1997 and 1996 were 4.4% and 4.1% respectively. The addition of corporate staff contributed to the increase in general and administrative expenses. Interest expense declined 54.2% to $103,500 for the six months ended August 31, 1997 versus $225,900 for the six months ended August 31, 1996. Interest expense for the quarter ended August 31, 1997 was $53,700, a decrease of 47.1% from the $101,600 for the quarter ended August 31, 1996. The average borrowing under the bank loan declined from $5.1 million for the six months ended August 31, 1996 to $2.3 million for the six months ended August 31, 1997, resulting in the decreased interest expense. This reduction in bank borrowings can be attributed to the continuing efforts of the Company to manage its inventory levels through improved efficiencies in purchasing policies. 9 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- PART II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K A. Exhibits 1. None B. Reports on Form 8-K 1. There were no reports filed on Form 8-K during the three months covered by this report. 10 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDUCATIONAL DEVELOPMENT CORPORATION (Registrant) By /s/ Randall W. White ------------------------------- Randall W. White President Date: September 30, 1997 ------------------------- 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS 12-MOS FEB-28-1997 FEB-28-1997 MAR-01-1997 MAR-01-1996 AUG-31-1997 FEB-28-1997 280,000 82,153 0 0 3,194,000 2,225,588 227,000 192,900 10,177,100 10,048,457 13,665,700 12,502,287 1,318,800 1,294,372 593,200 445,894 14,398,800 13,365,369 5,150,100 5,092,324 0 0 1,084,900 1,084,848 0 0 0 0 8,163,800 7,188,197 14,398,800 13,365,369 9,927,000 21,239,507 9,927,000 21,239,507 4,110,900 8,396,060 7,494,000 16,945,341 710,500 1,255,012 30,000 60,000 103,500 344,966 1,589,000 2,634,188 644,300 1,004,100 944,700 1,630,088 0 0 0 0 0 0 944,700 1,630,088 .18 .31 .18 .31
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