-----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, Px3Hm8v8UGhmhoLpTCORkJSoOuoJYivZ5Lg8jr6RTtZXhLq4JwyLCrmDuDVP6suf 7rdsjMeTLsbZfFUA3diKmA== 0000950149-97-000069.txt : 19970115 0000950149-97-000069.hdr.sgml : 19970115 ACCESSION NUMBER: 0000950149-97-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN QUEST CO CENTRAL INDEX KEY: 0000886206 STANDARD INDUSTRIAL CLASSIFICATION: BLANKBOOKS, LOOSELEAF BINDERS & BOOKBINDING & RELATED WORK [2780] IRS NUMBER: 087040551 STATE OF INCORPORATION: UT FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11107 FILM NUMBER: 97505486 BUSINESS ADDRESS: STREET 1: 2200 W PKWY BLVD CITY: SALT LAKE CITY STATE: UT ZIP: 84119-2331 BUSINESS PHONE: 8019751776 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission file no. 1-11107 FRANKLIN QUEST CO. (Exact name of registrant as specified in its charter) Utah 87-0401551 (State of incorporation) (I.R.S. Employer Identification No.) 2200 West Parkway Boulevard Salt Lake City, Utah 84119-2331 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (801) 975-1776 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 Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date: 19,732,672 shares of Common Stock as of January 6, 1997 1 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FRANKLIN QUEST CO. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share amounts)
November 30, August 31, 1996 1996 ------------ ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,813 $ 24,041 Accounts receivable, less allowance for doubtful accounts of $1,263 and $889 38,556 28,706 Inventories 44,987 49,463 Income taxes receivable 5,064 Other current assets 7,420 5,743 --------- --------- Total current assets 103,776 113,017 Property and equipment, net 102,522 102,063 Intangible assets, net 63,031 51,115 Other long-term assets 2,937 2,250 --------- --------- $ 272,266 $ 268,445 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,321 $ 12,585 Other current liabilities 19,370 16,092 --------- --------- Total current liabilities 34,691 28,677 Long-term debt, less current portion 5,717 5,500 Deferred income taxes 2,787 2,433 --------- --------- Total liabilities 43,195 36,610 --------- --------- Shareholders' equity: Common stock, $0.05 par value, 40,000,000 shares authorized, 22,025,000 shares issued 1,101 1,101 Additional paid-in capital 133,887 132,959 Retained earnings 143,873 130,849 Deferred compensation (1,904) (1,240) Cumulative translation adjustments (1,016) (940) --------- --------- 275,941 262,729 Less 2,302,367 and 1,497,407 shares of treasury stock, at cost (46,870) (30,894) --------- --------- Total shareholders' equity 229,071 231,835 --------- --------- $ 272,266 $ 268,445 ========= =========
(See Notes to Consolidated Condensed Financial Statements) 2 3 FRANKLIN QUEST CO. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data)
Three Months Ended November 30, November 30, 1996 1995 ------------ ------------ (unaudited) Sales $102,377 $91,880 Cost of sales 43,275 39,327 -------- ------- Gross margin 59,102 52,553 Operating expenses 37,381 31,360 -------- ------- Income from operations 21,721 21,193 Interest and other 75 516 -------- ------- Income before provision for income taxes 21,796 21,709 Provision for income taxes 8,772 8,705 -------- ------- Net income $ 13,024 $13,004 ======== ======= Net income per share $ 0.62 $ 0.57 ======== ======= Weighted average number of common and common equivalent shares 20,909 22,867 ======== =======
(See Notes to Consolidated Condensed Financial Statements) 3 4 FRANKLIN QUEST CO. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (dollars in thousands)
Three Months Ended November 30, ------------------------- 1996 1995 ---- ---- (unaudited) Cash flows from operating activities: Net income $ 13,024 $ 13,004 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,574 3,554 Other changes in assets and liabilities 2,010 (8,367) -------- -------- Net cash provided by operating activities 19,608 8,191 -------- -------- Cash flows from investing activities: Acquisition of businesses (11,684) Purchases of property and equipment (3,237) (7,183) -------- -------- Net cash used in investing activities (14,921) (7,183) -------- -------- Cash flows from financing activities: Payments on short-term borrowings (245) Proceeds from long-term debt 164 Payments on long-term debt and capital leases (181) (130) Purchase of treasury shares (16,016) (2,274) Proceeds from treasury stock issuance 194 467 -------- -------- Net cash used in financing activities (15,839) (2,182) -------- -------- Effect of foreign exchange rates (76) (105) -------- -------- Net decrease in cash and cash equivalents (11,228) (1,279) Cash and cash equivalents at beginning of period 24,041 35,006 -------- -------- Cash and cash equivalents at end of period $ 12,813 $ 33,727 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 143 $ 56 Income taxes paid 107 1,154 Supplemental schedule of non-cash investing and financing activities: Fair value of assets acquired $ 12,155 Liabilities assumed from acquisition 1,810 Tax effect of exercise of affiliate stock options 13 175
(See Notes to Consolidated Condensed Financial Statements) 4 5 FRANKLIN QUEST CO. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION The attached unaudited consolidated condensed financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations of Franklin Quest Co. (the "Company"), as of the dates and for the periods indicated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations. The Company suggests the information included in this report on Form 10-Q be read in conjunction with the financial statements and related notes included in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996. Certain reclassifications have been made in the consolidated condensed financial statements to conform with the current year presentation. The results of operations for the three months ended November 30, 1996, are not necessarily indicative of results for the entire fiscal year ending August 31, 1997. NOTE 2 - NET INCOME PER COMMON SHARE Net income per common share is computed based on the weighted average number of common and common equivalent (stock options) shares outstanding for the periods. NOTE 3 - INVENTORIES Inventories are comprised of the following (in thousands):
November 30, August 31, 1996 1996 ----------- ----------- (unaudited) Finished Goods $ 31,758 $ 36,156 Work in Process 3,848 4,969 Raw Materials 9,381 8,338 ----------- ----------- $ 44,987 $ 49,463 =========== ===========
5 6 NOTE 4 - TRUENORTH ACQUISITION Effective October 1, 1996, the Company acquired the assets of TrueNorth Corporation ("TrueNorth"). TrueNorth, a Utah corporation, is a leading provider of post-instructional personal coaching to corporations and individuals. TrueNorth develops and delivers one-on-one personalized coaching which is designed to augment the effectiveness and duration of training curricula. The purchase price was $10.0 million in cash. In addition, contingent payments may be made over the next five years based on TrueNorth's operating performance. TrueNorth had sales for the twelve months ended July 31, 1996, of approximately $16.0 million. The impact on the accompanying consolidated condensed financial statements would be immaterial, had TrueNorth been acquired on September 1, rather than October 1, of 1996. 6 7 FRANKLIN QUEST CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements, the Notes thereto and Management's Discussion and Analysis included in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1996. RESULTS OF OPERATIONS The following table sets forth selected data concerning the sales of the Company's services and products:
Three Months Ended November 30, -------------------------- 1996 1995 Change ---- ---- ------ (in thousands) Product $ 74,934 $ 65,197 15% Training 20,667 18,732 10% Services 6,776 7,951 (15%) ----------- ----------- $ 102,377 $ 91,880 11% =========== ===========
Three Months Ended November 30, 1996 Compared with Three Months Ended November 30, 1995 Sales for the three months ended November 30, 1996, increased $10.5 million, or 11%, over the same period in 1995, primarily as a result of an increase in the number of Franklin Day Planners sold, an increase in the number of participants attending public seminars and the favorable effect of corporate acquisitions. Product sales experienced an increase of $9.7 million or 15% compared to the first quarter of fiscal 1995. Increases in retail store sales comprised $3.4 million of this amount. The increase in retail store sales is due in large part to the number of stores opened during the past twelve months. At the end of the current quarter, there were 93 retail stores open compared to 78 retail stores at November 30, 1995. The increase in comparable store sales (comparing the 70 stores that were open during the entire first quarter in both years) was 5%. An additional $3.9 million of the increase was due to current quarter revenues of Productivity Plus, Inc. ("Productivity Plus"), which was acquired subsequent to the first quarter of the prior year. Catalog sales contributed another $2.1 million of the increase in product sales compared to the first quarter last year. Training sales increased by $1.9 million or 10% compared to the first quarter of fiscal 1996. This increase was a result of an additional $2.4 million in training revenue from the acquisition of TrueNorth. Sales by the Company's Consulting Group (formerly Shipley Associates) decreased by $0.4 million from the same quarter a year ago. The Company expects that training sales as a percentage of 7 8 total sales will continue to decline because product sales increases are disproportionately positively affected by strong replacement planner renewal rates for the Franklin Day Planner. Service revenues, comprised of the external sales of Publishers Press, Inc., decreased by $1.2 million or 15% compared to the first quarter last year. The decrease was primarily a result of unusually strong sales in the first quarter a year ago from printing a nationally best selling book and reduced per-unit revenues due to paper price decreases in the first quarter of the current fiscal year. Gross margin was 57.7% of sales in the three months ended November 30, 1996, compared to 57.2% for the same period in 1995. The increase was primarily caused by the effect of the margins of TrueNorth, acquired as of October 1, 1996, which are somewhat higher than the Company's average margins. Gross margins were adversely impacted by the cost of implementation of a new inventory tracking system, estimated at $1.0 million in the quarter ended November 30, 1996. Operating expenses, consisting primarily of selling, general and administrative expenses, increased by 2.4% as a percentage of sales during the three months ended November 30, 1996 (36.5% compared to 34.1% in the same period of 1995). Operating expenses at TrueNorth are higher as a percentage of sales than expenses in the Company's core business. The Company's employee expenses grew more quickly than revenue as a result of increased employee count. Depreciation and leasehold amortization charges were higher by $0.8 million because of new equipment purchased to augment management information systems, the addition of leasehold improvements in new stores, the completion of the new headquarters building, and expansion of the facilities at the Franklin Quest Institute of Fitness. Amortization charges also increased by $0.3 million from amortization of intangible assets acquired in connection with the acquisitions of Productivity Plus and TrueNorth. Income taxes have been accrued using an effective rate of 40.3% for the three months ended November 30, 1996, and 40.1% for the same quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary sources of capital have been net cash provided by operating activities, long-term borrowing, capital lease financing, and sale of Common Stock. Working capital requirements have also been financed through short-term borrowing. At November 30, 1996, the Company had $12.8 million in cash and cash equivalents. Net cash provided by operating activities during the three months ended November 30, 1996, was $19.6 million. Net cash used in investing activities was $14.9 million. Of this total, $3.2 million was invested in property and equipment, and the balance was used in the acquisition of TrueNorth and a contingent payment due as part of the acquisition of Productivity Plus. During the first three months of fiscal 1997, the Company used $16.0 million to repurchase 860,000 shares of its Common Stock on the open market. Working capital during the period decreased by $15.3 million. Management believes that cash flows and resources are sufficient to meet working capital requirements, including increases in accounts receivable and inventories associated with anticipated sales increases. During the current quarter, the Company obtained a $50.0 million line of credit to provide for potential future financing needs. The Company has available lines of credit, not utilized at November 30, 1996, totaling $59.0 million. Management anticipates that its existing capital resources will enable it to maintain its current level of operations and its planned internal growth for the foreseeable future. 8 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings: Not applicable. Item 2. Changes in Securities: Not applicable. Item 3. Defaults upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: The Company held its Annual Meeting of Shareholders on November 18, 1996. The following members of the Board of Directors were elected for three-year terms expiring at the annual meeting of shareholders to be held in 1999, or until their respective successors are elected and qualified.
Name Shares Voted For ---- ---------------- Hyrum W. Smith 18,291,679 Robert F. Bennett 17,484,097 Beverly B. Campbell 17,849,786
The shareholders also ratified the appointment of Arthur Andersen LLP independent certified public accountants for the fiscal year ending August 31, 1997. Item 5. Other information: In March 1996, the Board of Directors approved the repurchase of 1,000,000 shares of the Company's Common Stock. As of January 7, 1997, 345,000 of these shares had been purchased, at an average price of $19.55. Item 6. Exhibits and Reports on Form 8-K: (A) Exhibits: Not applicable. (B) Reports on Form 8-K: Not applicable. 9 10 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. FRANKLIN QUEST CO. Date: By: ---------------------------- ---------------------------- Jon H. Rowberry Executive Vice President Chief Operating Officer Date: By: ---------------------------- ---------------------------- John L. Theler Executive Vice President Chief Financial Officer 10 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS AUG-31-1997 SEP-01-1996 NOV-30-1996 12,813 0 38,556 1,263 44,987 103,776 102,522 0 272,266 34,691 8,504 0 0 1,101 227,970 272,266 0 102,377 0 43,275 37,381 0 (75) 21,796 8,772 0 0 0 0 13,024 0.62 0.62
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