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 THE SECURITIES EXCHANGE
     ACT OF 1934

         For the quarterly period ended MayAugust 31, 2000.

[_][ ]  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 55/th/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
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 MayAugust 31, 2000 there were 3,987,8223,915,652 shares of Educational
Development Corporation Common Stock, $0.20 par value outstanding.


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EDUCATIONAL DEVELOPMENT CORPORATION


PART I. FINANCIAL INFORMATION
- -----------------------------

ITEM 1

BALANCE SHEETS

MayAugust 31, 2000 February 29, 2000 (unaudited) -------------- ----------------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 189,100151,000 $ 214,300 Accounts receivable - (less allowances for doubtful accounts and sales returns: 5/8/31/00 - $215,100$238,300 2/29/00 - $209,500) 2,458,5002,524,300 2,020,400 Inventories - Net 8,103,3008,304,700 8,364,100 Prepaid expenses and other assets 255,500226,000 220,400 Deferred income taxes 180,300 137,700 ----------- ------------------------- -------------- Total current assets 11,186,70011,386,300 10,956,900 INVENTORIES 1,280,0001,269,400 1,280,000 PROPERTY AND EQUIPMENT at cost (less accumulated depreciation: 05/08/31/00 - $1,416,300;$1,418,000; 2/29/00 - $1,330,500) -- 85,300 DEFERRED INCOME TAXES 21,900 17,800 ----------- ----------- $12,488,600 $12,340,000 =========== ===========-------------- -------------- $ 12,677,600 $ 12,340,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 1,534,0001,447,000 $ 1,278,000 Accounts payable 1,570,5001,908,600 1,681,600 Accrued salaries and commissions 316,800290,900 258,100 Income taxes 220,00089,300 46,900 Dividend payable 79,000 -- Other current liabilities 159,300153,600 103,000 ----------- ------------------------- -------------- Total current liabilities 3,879,6003,889,400 3,367,600 COMMITMENTS SHAREHOLDERS' EQUITY: Common Stock, $.20 par value (Authorized 6,000,000 shares; Issued 5,429,240 shares; Outstanding 3,987,8223,915,652 and 4,167,389 shares) 1,085,800 1,085,800 Capital in excess of par value 4,410,1004,409,500 4,410,100 Retained earnings 7,456,2007,809,100 7,259,100 ----------- ----------- 12,952,100-------------- -------------- 13,304,400 12,755,000 Less treasury shares, at cost (4,343,100)(4,516,200) (3,782,600) ----------- ----------- 8,609,000-------------- -------------- 8,788,200 8,972,400 ----------- ----------- $12,488,600 $12,340,000 =========== ===========-------------- -------------- $ 12,677,600 $ 12,340,000 ============== ==============
See notes to financial statements 2 3 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended MayAugust 31, --------------------------Six Months Ended August 31, 2000 1999 ----------- -----------2000 1999 ------------ ------------ ------------ ------------ GROSS SALES $ 6,742,0007,296,700 $ 6,556,6006,950,800 $ 14,038,700 $ 13,507,400 Less discounts & allowances (2,491,600) (2,434,500) ----------- -----------(2,882,100) (2,748,300) (5,373,700) (5,182,800) ------------ ------------ ------------ ------------ Net sales 4,250,400 4,122,1004,414,600 4,202,500 8,665,000 8,324,600 COST OF SALES 1,797,400 1,726,500 ----------- -----------1,950,300 1,805,100 3,747,700 3,531,600 ------------ ------------ ------------ ------------ Gross margin 2,453,000 2,395,6002,464,300 2,397,400 4,917,300 4,793,000 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Operating & selling 760,300 785,300757,800 755,500 1,518,100 1,540,800 Sales commissions 805,600 741,800759,700 738,600 1,565,300 1,480,400 General & administrative 420,200 401,400349,100 387,200 769,300 788,600 Interest 34,000 13,000 ----------- ----------- 432,900 454,10032,200 17,700 66,200 30,700 ------------ ------------ ------------ ------------ 1,898,800 1,899,000 3,918,900 3,840,500 ------------ ------------ ------------ ------------ OTHER INCOME 14,600 15,800 ----------- -----------6,200 9,700 20,800 25,500 ------------ ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES 447,500 469,900571,700 508,100 1,019,200 978,000 INCOME TAXES 171,400 179,600 ----------- -----------219,000 194,500 390,400 374,100 ------------ ------------ ------------ ------------ NET EARNINGS $ 276,100352,700 $ 290,300 =========== ===========313,600 $ 628,800 $ 603,900 ============ ============ ============ ============ BASIC AND DILUTED EARNINGS PER SHARESHARE: Basic $ .070.09 $ .06 =========== ===========0.07 $ 0.16 $ 0.14 ============ ============ ============ ============ Diluted $ 0.09 $ 0.07 $ 0.16 $ 0.13 ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Basic 4,069,128 4,624,517 =========== ===========3,940,825 4,289,961 4,004,976 4,457,239 ============ ============ ============ ============ Diluted 4,121,164 4,659,489 =========== ===========3,992,270 4,330,842 4,056,717 4,495,165 ============ ============ ============ ============ DIVIDENDS DECLARED PER COMMON SHARE $ .02-- $ .02 =========== ===========-- $ 0.02 $ 0.02 ============ ============ ============ ============
See notes to financial statements. 3 4 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENT 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, 2000 5,429,240 $1,085,800$ 1,085,800 $ 4,410,100 $7,259,100$ 7,259,100 1,261,851 $(3,782,600) $ 8,972,400 Issuance of treasury stock -- -- -- -- (333) 1,000 1,000(583) 1,700 1,700 Purchases of treasury stock -- -- -- -- 179,900 (561,500) (561,500) Dividend declared254,470 (741,700) (741,700) Sales of treasury stock -- -- (600) -- (2,150) 6,400 5,800 Dividends paid ($0.02 / share) -- -- -- (79,000)(78,800) -- -- (79,000)(78,800) Net earnings -- -- -- 276,100628,800 -- -- 276,100 --------- ----------628,800 ----------- ---------- --------- ----------- ----------------------- ----------- ----------- ----------- ----------- BALANCE, MAYAUG. 31, 2000 5,429,240 $1,085,800 $ 4,410,100 $7,456,200 1,441,418 $(4,343,100)1,085,800 $ 8,609,000 ========= ==========4,409,500 $ 7,809,100 1,513,588 $(4,516,200) $ 8,788,200 =========== ========== ========= =========== ======================= =========== =========== =========== ===========
See notes to financial statements. 4 5 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
ThreeSix Months Ended MayAugust 31 --------------------------- 2000 1999 ------------ -------------------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 280,900584,600 $ 1,017,9001,691,500 CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property and equipment (600) (11,300) ----------- -----------(2,200) (12,300) --------------- --------------- Net cash used in investing activities (600) (11,300) ----------- -----------(2,200) (12,300) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit agreement 1,865,000 1,569,0003,876,000 3,708,000 Payments under revolving credit agreement (1,609,000) (1,624,000)(3,707,000) (3,877,000) Cash received from sale of treasury stock 5,800 273,500 Cash paid to acquire treasury stock (561,500) (1,088,200) ----------- -----------(741,700) (1,680,200) Dividends paid (78,800) (86,300) --------------- --------------- Net cash used in financing activities (305,500) (1,143,200) ----------- -----------(645,700) (1,662,000) --------------- --------------- Net DecreaseIncrease (Decrease) in Cash and Cash Equivalents (25,200) (136,600)(63,300) 17,200 Cash and Cash Equivalents, Beginning of Period 214,300 210,900 ----------- -------------------------- --------------- Cash and Cash Equivalents, End of Period $ 189,100151,000 $ 74,300 =========== ===========228,100 =============== =============== Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 27,90062,300 $ 10,900 =========== ===========27,800 =============== =============== Cash paid for income taxes $ 45,000394,800 $ -- =========== =========== Supplemental Disclosure of Non Cash Operating Activities - Dividend declared $ 79,000 $ 86,000 =========== ===========366,000 =============== ===============
See notes to financial statements. 5 6 EDUCATIONAL DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1 - The information shown with respect to the three months and six months ended MayAugust 31, - ------ 2000 and 1999, 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. The results of operations for the three months and six months ended MayAugust 31, 2000 and 1999, respectively, are not necessarily indicative of the results to be expected at year end due to seasonality of the product sales. These financial statements and notes are prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and should be read in conjunction with the Financial Statements and accompanying notes contained in the Company's Annual Report to Shareholders for the Fiscal Year ended February 29, 2000. Reclassifications were madeSEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101") was issued December 1999. This staff bulletin summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective no later than the 1999 balances to conform with 2000 presentation.fourth fiscal quarter of the fiscal years beginning after December 15, 1999. Management does not expect implementation of SAB 101 will have a significant effect on its financial statements. Note 2 - Effective June 30, 1999 the Company signed a Restated Credit and - ------ Security Agreement with State Bank which provided a $3,500,000 line of credit. The line of credit was evidenced by a promissory note in the amount of $3,500,000 payable June 30, 2000. The note bore interest at the Wall Street Journal prime floating rate minus 0.25% payable monthly (9.25% at May 31, 2000). The note was collateralized by substantially all of the assets of the Company. At May 31, 2000, the Company had $1,534,000 in borrowings. Available credit under the revolving credit agreement was $1,966,000 at May 31, 2000. Effective June 30, 2000 the Company signed a First Amendment to the Credit and Security Agreement with State Bank which provides a $3,500,000 line of credit. This line of credit is evidenced by a promissory note in the amount of $3,500,000 payable June 30, 2001. This note bears interest at the Wall Street Journal prime floating rate minus 0.25% payable monthly.monthly (9.25% at August 31, 2000). The note is collateralized by substantially all the assets of the Company. Available credit under the revolving credit agreement was $2,053,000 at August 31, 2000. Note 3 - Inventories consist of the following: - ------
MayAugust 31, 2000 February 29, 2000 --------------------------- ----------------- Current: Book Inventory $ 8,227,0008,428,400 $ 8,487,800 Reserve for Obsolescence (123,700) (123,700) ------------ -------------------------- -------------- Inventories net - current $ 8,103,3008,304,700 $ 8,364,100 =========== ========================= ============== Inventories - non-current $ 1,280,0001,269,400 $ 1,280,000 =========== ========================= ==============
The Company occasionally purchases book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of the Company's primary supplier. These amounts are included in non-current inventory. Note 4- Basic earnings per share is computed by dividing net earnings by the - ------ weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the combined weighted average number of common shares outstanding increased, when appropriate, for the number of common shares issuable upon exercise of stock options, computed using the treasury stock method. 6 7 EDUCATIONAL DEVELOPMENT CORPORATION The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share ("EPS") is shown below.
Three Months Ended MayAugust 31, --------------------------Six Months Ended August 31, 2000 1999 ---------- ----------2000 1999 ------------- ------------- ------------- ------------- Net Earnings $ 276,100352,700 $ 290,300 ========== ==========313,600 $ 628,800 $ 603,900 ============= ============= ============= ============= Basic EPS: Weighted Average Shares Outstanding 4,069,128 4,624,517 ========== ==========3,940,825 4,289,961 4,004,976 4,457,239 ============= ============= ============= ============= Basic EPS $ .070.09 $ .06 ========== ==========0.07 $ 0.16 $ 0.14 ============= ============= ============= ============= Diluted EPS: Weighted Average Shares Outstanding 4,069,128 4,624,5173,940,825 4,289,961 4,004,976 4,457,239 Assumed Exercise of Options 52,036 34,972 ---------- ----------51,445 40,881 51,741 37,926 ------------- ------------- ------------- ------------- Shares Applicable to Diluted Earnings 4,121,164 4,659,489 ========== ==========3,992,270 4,330,842 4,056,717 4,495,165 ============= ============= ============= ============= Diluted EPS $ .070.09 $ .06 ========== ==========0.07 $ 0.16 $ 0.13 ============= ============= ============= =============
Since March 1, 1998, when the Company began its stock repurchase program, 1,430,8191,505,389 shares of the Company's common stock at a total cost of $4,354,900$4,535,100 have been acquired. The Board of Directors has authorized purchasing up to 2,000,000 shares as market conditions warrant. 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 at MayAugust 31, 2000 was $7,307,100$7,496,900 compared to working capital of $7,589,300 at the end of fiscal year 2000. Accounts receivable increased 19.9%23.9% during the first quartersix months of fiscal year 2001. Several sizable orders were received during the first quarter of fiscal year 2001 withThe Company's "fall special", which offered extended payment dueterms, began during the second quarter resulting inand contributed to the increase in accounts receivable. Inventory levelsInventories declined 2.7%slightly during the first quartersix months of the current fiscal year 2001.year. The level of inventory will fluctuate throughout the year, depending upon sales and the timing of shipments from the Company's principal supplier. The Company continuously monitors inventory to assure it has adequate supplies on hand to meet sales requirements. The note payable to the bank increased 20.0%13.2% during the first quartersix months of the current fiscal year, 2001 as the Company paidresult of the Company's repurchasing its stock and payments made to the Company's principal supplier and continued to repurchase stock.supplier. Accounts payable declined 6.6% during the first three months of fiscal year 2001.increased 13.5% since February 29, 2000. A major component of accounts payable is the amount due to the Company's principal supplier. Increases and decreases in inventory levels as well as the timing of the purchases and the payment terms offered by various suppliers affect the levels of accounts payable. In April 2000 theThe Company declared a cashpaid an annual dividend of $0.02 per share to shareholders of record August 1, 2000, to be paidon August 10, 2000. Pre-tax margins were 10.5% for the first quarter ended May 31, 2000 compared with 11.4%13.0% and 11.8% for the three months and six months ended MayAugust 31, 1999. Contributing to2000, respectively, compared with 12.1% and 11.7% for the lower pre-tax margins was an increase in sales discounts given during the first quarter of fiscal year 2001 as special promotions were offered to increase sales. 7 same comparable periods last year. RESULTS OF OPERATIONS - --------------------- Revenues - Net sales from the Home Business Division were $2,178,700$4,252,900 for the - -------- threesix months ended MayAugust 31, 2000 compared with net sales$4,046,100 for the six months ended August 31, 1999, an increase of $2,024,5005.1%. Sales for the three months ended MayAugust 31, 1999, an increase of 7.6%.2000 increased 2.6% to $2,074,200 versus $2,021,600 for the same three month period a year ago. The Company believes this increase resulted from the addition of new recruits and the retention of existing consultants.recruits. The Company continues to offer new and exciting incentive programs, travel contests and regional seminars to help stimulate sales and recruiting. The Company has been holdingCompany's leadership skills programs for the supervisors. This programseminar, which was first offered last quarter, is designed to help supervisors build their business. Management is encouraged by this increasethe sales increases recorded in net salesboth the first and second quarters of fiscal year 2001 and is hopeful that it will continue. 7 8 EDUCATIONAL DEVELOPMENT CORPORATION Net sales fromfor the Publishing Division were $2,071,700$2,340,400 and $4,412,100 for the three months and six months ended MayAugust 31, 2000, compared withrespectively, increases of 7.3% and 3.1% over the same two periods last year. The Company believes that the "fall special", which offered extended payment terms, contributed to the increases in net sales of $2,097,600 for the three months ended May 31, 1999, a decrease of 1.2%.sales. The juvenile paperback market, the Company's primary market, is very competitive with sales over $660 million annually. The Publishing Division's annual sales are approximately 1.2% of industry sales. National chains are increasingly dominatedominating the bookstore market, resulting in fewer independent bookstores. The closing of these independent bookstores, an important market to the Company, contributed to the decline in net sales. The Company continues to explore the gift market and believes it offers considerable potential.Company. Each year the Company attendsparticipates in several national trade shows as well as regional trade shows throughout the country in order to promote its products. For these reasons Management believes the Company can maintain its market share in the highly competitive publishing market. Operating ExpensesCost of Sales - The Company's cost of sales for the threesix months ended May - ------------------August 31, 2000 was $1,797,400 compared with $1,726,500 for the same three months last year,$3,747,700, an increase of 4.1%.6.1% over $3,531,600 for the six months ended August 31, 1999. Cost of sales expressed as a percentage of gross sales was 26.7% and 26.3% respectively,for the first six months ended August 31, 2000 compared with 26.1% for the same six month period a year ago. Cost of sales for the three month periodsmonths ended MayAugust 31, 2000 and May 31, 1999. Cost1999 were $1,950,300 and $1,805,100 respectively, an increase of sales8.0%. These costs expressed as a percentage of gross sales were 26.7% and 26.0% for the second quarters of fiscal years 2001 and 2000 respectively. Cost of sales will fluctuate depending upon the product mix sold. Operating Expenses - Operating and selling expenses for the six months ended August 31, 2000 decreased 3.2%1.5% to $760,300$1,518,100 when compared with the six months ended August 31, 1999. As a percentage of gross sales, these cost were 10.8% for the six month period ended August 31, 2000 and 11.4% for the same six month period last year. Operating and selling expenses for the three months ended MayAugust 31, 2000 increased 0.3% to $757,800 versus $785,300$755,500 for the three months ended MayAugust 31, 1999. These expensesAs a percentage of gross sales, these costs were 10.4% and 10.9% for the quarters ended August 31, 2000 and 1999 respectively. Sales commissions increased 5.7% to $1,565,300 for the six months ended August 31, 2000 versus $1,480,400 for the six months ended August 31, 1999. Sales commissions expressed as a percentage of gross sales were 11.3%11.1% and 12.0%11.0% for the three month periodssix months ended MayAugust 31, 2000 and May 31, 1999 respectively. A decline in shipping costs inFor the Publishing Division contributed to the decrease in selling and operating expenses. Salessecond quarter ended August 31, 2000, sales commissions increased 8.6%2.9% to $805,600 during$759,700 compared with $738,600 for the firstsecond quarter ended May 31, 2000 when compared with $741,800 for the first quarter ended MayAugust 31, 1999. These expenses expressedExpressed as a percentage of gross sales, sales commissions were 11.9%10.4% for the second quarter ended MayAugust 31, 2000 versus 11.3%and 10.6% for the second quarter ended May 31, 1999.last year. Sales commissions will fluctuate depending upon the product being sold and the Division making the sale. The Home Business Division and the Publishing Division have separate and different commission programs and rates. Commission expenseSales commissions increased in both the PublishingHome Business Division and the Home BusinessPublishing Division. General and administrative expenses increased 4.7% to $420,200 for the threesix months ended MayAugust 31, 2000 declined 2.4% to $769,300 when compared with $401,400to $788,600 for the threesix months ended MayAugust 31, 1999. Expressed asAs a percentage of gross sales, general and administrative expenses were 5.5% and 5.8% for the periodsix months ended MayAugust 31, 2000 and 1999 respectively. For the three months ended August 31, 2000, these expenses were 6.2% compared with 6.1%$349,100, a decrease of 9.8% over the same quarter last year. Second quarter general and administrative expenses were 4.8% and 5.6% respectively of gross sales for the periodperiods ended MayAugust 31, 2000 and 1999. Increases in salaries and benefits, primarily to existing employees, contributed to the increaseThe decline in general and administrative expenses.expenses was due to the elimination of depreciation expense during the second quarter when fixed assets became fully depreciated. Interest expense increased 161.5%rose 115.6% to $34,000 for$66,200 during the threefirst six months ended MayAugust 31, 2000 when compared with $30,700 for the six months ended August 31, 1999. For the three months ended August 31, 2000, interest expense of $13,000rose 81.9% to $32,200 compared with $17,700 for the three months ended May 31, 1999.a year ago. The average amount borrowed during the first quartersix months ended MayAugust 31, 2000 increasedrose to $1,513,000$1,438,700 compared with an average amount borrowed of $657,600$765,200 for the first quartersix months ended MayAugust 31, 1999. The interest rate charged the Company on its borrowingborrowings ranged between 8.25% andform 8.50% to 9.25% during the first quarter of fiscal year 2001 compared withsix months ended August 31, 2000 versus 7.75% duringto 8.25% for the first quarter of fiscal year 2000.six months ended August 31, 1999. The increased borrowing levelsaverage amount borrowed and increasedthe interest rates resulted in higher interest costsrate charged to the Company duringwas $1,364,400 and 9.25% for the quarter ended MayAugust 31, 2000 when compared with $892,200 and 7.75% to 8.25% for the same quarter last year.ended August 31, 1999. BUSINESS SEGMENTS - ----------------- The Company has two reportable segments: Publishing and Usborne Books at Home ("UBAH"). These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. The Publishing Division markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, through commissioned sales representatives, trade and specialty wholesalers and an internal telesales group. The UBAH Division markets its product line through a network of independent sales consultants through a combination of direct sales, home shows and book fairs. 8 9 EDUCATIONAL DEVELOPMENT CORPORATION The accounting policies of the segments are the same as those of the Company. The Company evaluates segment performance based on operating profits of the segments which is defined as segment net sales reduced by direct cost of sales and direct expenses. Corporate expenses, including interest and depreciation, and income taxes are not allocated to the segments. The Company's assets are not allocated on a segment basis. Information by industry segment for the three months and six months ended MayAugust 31, 2000 and 1999 is set forth below:
Publishing UBAH Other Total ---------- ---- ----- ----------------- ------------ ------------ ------------ Three months Ended MaySIX MONTHS ENDED AUGUST 31, 2000 Net sales from external customers $2,071,700 $2,178,700$ 4,412,100 $ 4,252,900 $ -- $4,250,400$ 8,665,000 Earnings before income taxes 783,200 478,400 (814,100) 447,500 Three Months Ended May$ 1,616,500 $ 980,000 $ (1,577,300) $ 1,019,200 THREE MONTHS ENDED AUGUST 31, 2000 Net sales from external customers $ 2,340,400 $ 2,074,200 $ -- $ 4,414,600 Earnings before income taxes $ 833,300 $ 501,600 $ (763,200) $ 571,700 SIX MONTHS ENDED AUGUST 31, 1999 Net sales from external customers $2,097,600 $2,024,500$ 4,278,500 $ 4,046,100 $ -- $4,122,100$ 8,324,600 Earnings before income taxes 770,500 500,900 (801,500) 469,900$ 1,512,300 $ 1,059,700 $ (1,594,000) $ 978,000 THREE MONTHS ENDED AUGUST 31, 1999 Net sales from external customers $ 2,180,900 $ 2,021,600 $ -- $ 4,202,500 Earnings before income taxes $ 741,800 $ 558,800 $ (792,500) $ 508,100
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- The Company does not have any material market risk. PART II OTHER INFORMATION - ------------------------- NoneItem 5. OTHER INFORMATION The Company's major competitor, Dorling Kindersley Family Library (DKFL), ceased operations August 31, 2000. Dorling Kindersley, a publisher of children's books, competed in the same markets as the Company. Their Family Library Division was in direct competition with the Company's direct selling division, Usborne Books at Home. While the DKFL sales consultants have many options open to them, UBAH is the only direct selling company which sells children's books. The Company issued a letter to all of the former DKFL consultants and supervisors offering them the opportunity to join the UBAH sales force. Through September 26, 2000 approximately 660 former DKFL consultants have joined UBAH. The Company expects the closing of DKFL to have a positive effect on the Company's sales, due to both the loss of a major competitor and also to the increase in UBAH consultants. The Company has entered into a co-branding advertising agreement with Chick-fil-A, a national fast food chain. Beginning in late August and early September, Chick-fil-A began distributing over 1,000,000 Usborne books with their children's meal package. There is information on the back of each book explaining the UBAH opportunity and providing a telephone number to call for additional information. The Company did not incur any significant expenses for this promotion. The Company believes that this added exposure will strengthen the Usborne brand name, resulting in a positive impact on sales. 9 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: July 6,October 3, 2000 ------------ 10 11 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule