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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, 2001.
[ ] 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
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 May 31, 2001 there were 3,908,000 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
May 31, 2001 February 28,
(unaudited) 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 138,600 $ 268,300
Accounts receivable - (less
allowances for doubtful accounts
and returns: 5/31/01 - $180,600
2/28/01 - $224,300) 2,258,300 1,478,400
Inventories - Net 7,946,800 9,211,900
Prepaid expenses and other assets 270,500 247,100
Income tax receivable -- 72,600
Deferred income taxes 75,000 97,800
------------ ------------
Total current assets 10,689,200 11,376,100
INVENTORIES - Net 945,000 1,005,000
PROPERTY AND EQUIPMENT
at cost (less accumulated depreciation:
05/31/01 - $1,394,900; 2/28/01 - $1,390,100) 110,900 84,200
DEFERRED INCOME TAXES 29,100 6,300
------------ ------------
$ 11,774,200 $ 12,471,600
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 627,000 $ 1,084,000
Accounts payable 1,000,900 1,703,100
Accrued salaries and commissions 301,500 325,700
Income tax payable 136,400 --
Dividends payable 78,200 --
Other current liabilities 109,700 118,700
------------ ------------
Total current liabilities 2,253,700 3,231,500
DEFERRED INCOME TAXES 24,300 24,300
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, $.20 par value (Authorized
6,000,000 shares; Issued 5,429,240
shares; Outstanding 3,908,000 and
3,911,400 shares) 1,085,800 1,085,800
Capital in excess of par value 4,413,600 4,413,600
Retained earnings 8,561,900 8,270,600
------------ ------------
14,061,300 13,770,000
Less treasury shares, at cost (4,565,100) (4,554,200)
------------ ------------
9,496,200 9,215,800
------------ ------------
$ 11,774,200 $ 12,471,600
============ ============
See notes to financial statements.
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EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended May 31
-------------------------------
2001 2000
------------ ------------
GROSS SALES $ 7,283,800 $ 6,742,000
Less discounts & allowances (2,483,200) (2,491,600)
------------ ------------
Net sales 4,800,600 4,250,400
COST OF SALES 1,972,800 1,797,400
------------ ------------
Gross margin 2,827,800 2,453,000
------------ ------------
OPERATING EXPENSES:
Operating & selling 832,600 760,300
Sales commissions 1,033,000 805,600
General & administrative 354,200 420,200
Interest 16,000 34,000
------------ ------------
2,235,800 2,020,100
------------ ------------
OTHER INCOME 6,600 14,600
------------ ------------
EARNINGS BEFORE INCOME TAXES 598,600 447,500
INCOME TAXES 229,100 171,400
------------ ------------
NET EARNINGS $ 369,500 $ 276,100
============ ============
BASIC AND DILUTED EARNINGS
PER SHARE $ .09 $ .07
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:
Basic 3,914,707 4,069,128
============ ============
Diluted 4,006,222 4,121,164
============ ============
DIVIDENDS DECLARED PER
COMMON SHARE $ .02 $ .02
============ ============
See notes to financial statements.
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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, 2001 5,429,240 $ 1,085,800 $ 4,413,600 $ 8,270,600 1,517,840 $(4,554,200) $ 9,215,800
Purchases of treasury
stock -- -- -- -- 10,400 (31,900) (31,900)
Sales of treasury stock -- -- -- -- (7,000) 21,000 21,000
Dividends declared -- -- -- (78,200) -- -- (78,200)
Net earnings -- -- -- 369,500 -- -- 369,500
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MAY 31, 2001 5,429,240 $ 1,085,800 $ 4,413,600 $ 8,561,900 1,521,240 $(4,565,100) $ 9,496,200
=========== =========== =========== =========== =========== =========== ===========
See notes to financial statements.
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EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended May 31
----------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 379,300 $ 280,900
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (41,100) (600)
----------- -----------
Net cash used in investing activities (41,100) (600)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 1,399,000 1,865,000
Payments under revolving credit agreement (1,856,000) (1,609,000)
Cash received from sales of treasury stock 21,000 --
Cash paid to acquire treasury stock (31,900) (561,500)
----------- -----------
Net cash used in financing activities (467,900) (305,500)
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Net Decrease in Cash and Cash Equivalents (129,700) (25,200)
Cash and Cash Equivalents, Beginning of Period 268,300 214,300
----------- -----------
Cash and Cash Equivalents, End of Period $ 138,600 $ 189,100
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 17,600 $ 27,900
=========== ===========
Cash paid for income taxes $ 20,000 $ 45,000
=========== ===========
Supplemental Disclosure of Non Cash Operating Activities:
Dividends declared $ 78,200 $ 79,000
=========== ===========
See notes to financial statements.
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EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - The information shown with respect to the three months ended May 31,
2001 and 2000, 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 ended May 31,
2001 and 2000, 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 28, 2001.
Note 2 - 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 (6.75% at May 31, 2001).
The note is collateralized by substantially all the assets of the Company.
Available credit under the revolving credit agreement was $2,873,000 at May 31,
2001.
Effective June 30, 2001 the Company signed a Second 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, 2002. This note bears interest at the Wall Street
Journal prime floating rate minus 0.25% payable monthly. The note is
collateralized by substantially all the assets of the Company.
Note 3 - Inventories consist of the following:
May 31, 2001 February 28, 2001
------------ -----------------
Current:
Book Inventory $ 7,993,200 $ 9,258,300
Reserve for Obsolescence (46,400) (46,400)
----------- -----------
Inventories net - current $ 7,946,800 $ 9,211,900
=========== ===========
Non-current:
Book Inventory $ 1,051,600 $ 1,051,600
Reserve for Obsolescence (106,600) (46,600)
----------- -----------
Inventories - non-current $ 945,000 $ 1,005,000
=========== ===========
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 ("EPS") is computed by dividing net earnings
by the weighted average number of common shares outstanding during the period.
Diluted EPS is based on the combined weighted average number of common shares
outstanding and dilutive potential common shares issuable which include, where
appropriate, the assumed exercise of options. In computing diluted EPS the
Company has utilized the treasury stock method.
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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 May 31,
-----------------------------
2001 2000
------------ ------------
Net Earnings $ 369,500 $ 276,100
============ ============
Basic EPS:
Weighted Average Shares Outstanding 3,914,707 4,069,128
============ ============
Basic EPS $ .09 $ .07
============ ============
Diluted EPS:
Weighted Average Shares Outstanding 3,914,707 4,069,128
Assumed Exercise of Options 91,515 52,036
------------ ------------
Shares Applicable to Diluted Earnings 4,006,222 4,121,164
============ ============
Diluted EPS $ .09 $ .07
============ ============
Since March 1, 1998, when the Company began its stock repurchase program,
1,550,571 shares of the Company's common stock at a total cost of $4,681,400
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 May
31, 2001 was $8,435,500 compared with $8,144,600 at the end of fiscal year 2001.
Accounts receivable increased 43.2% during the first quarter of fiscal year
2002. Several sizable orders were received during the first quarter of fiscal
year 2002 with payment due during the second quarter, resulting in the increase
in accounts receivable. Inventory levels declined 12.3% during the first quarter
of fiscal year 2002. The level of inventory will fluctuate 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. Accounts payable decreased 41.2% during the first
quarter of fiscal year 2002. 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. The note payable to the
bank decreased 42.2% during the first quarter of fiscal year 2002. Increased
sales in the Home Business Division, which are primarily cash sales, contributed
to the decrease in the note payable to the bank.
Pre-tax margins were 12.5% for the first quarter ended May 31, 2001 compared
with 10.5% for the first quarter ended May 31, 2000. Increased sales and lower
sales discounts during the current quarter contributed to the improved pre-tax
margins.
RESULTS OF OPERATIONS
Revenues - Net sales from the Home Business Division increased 28.7% to
$2,803,500 for the first quarter of fiscal year 2002 when compared with
$2,178,700 for the same quarter last year. The Company attributes this to an
increase in new sales consultants and the retention of existing sales
consultants. The Company continues to offer new and exciting incentive programs,
travel contests and regional seminars to help stimulate sales and recruiting.
The Company continues to offer its leadership skills program for the
supervisors. This training program is designed to help supervisors build their
business. Management is encouraged by the results in the Home Business Division
and believes it will continue.
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EDUCATIONAL DEVELOPMENT CORPORATION
Net sales from the Publishing Division were $1,997,100 for the three months
ended May 31, 2001, a decrease of 3.6% when compared with net sales of
$2,071,700 for the same three month period a year ago. The juvenile paperback
market is highly competitive. Industry sales last year were $753 million
annually. The Publishing Division's annual sales are approximately 1% of
industry sales. Competitive factors include product quality, price and
deliverability. National chains continue to dominate the bookstore market. The
Company has taken a very aggressive approach towards increasing sales in this
market segment by the use of cooperative advertising, joint promotional efforts
and institutional advertising in trade publications. Management believes that
the Publishing Division can maintain its 1% market share.
Operating Expenses - The Company's cost of sales was $1,972,800 for the three
months ended May 31, 2001, an increase of 9.8% over the cost of sales of
$1,797,400 for the same three months ended May 31, 2000. Cost of sales expressed
as a percentage of gross sales was 27.1% for the first quarter of fiscal year
2002 and 26.7% for the first quarter of fiscal year 2001. Cost of sales as a
percentage of gross sales will fluctuate depending upon the product mix sold.
Operating and selling expenses were $832,600 for the quarter ended May 31, 2001
and $760,300 for the quarter ended May 31, 2000, an increase of 9.5%. These
expenses expressed as a percentage of gross sales were 11.4% and 11.3%
respectively, for the quarters ended May 31, 2001 and 2000. Increases in travel
costs in both the Publishing Division and the Home Business Division contributed
to the increase in operating and selling expenses. Increased credit card fees in
the Home Business Division, the result of increased sales, also contributed to
the increase in selling and operating expenses.
Sales commissions increased 28.2% to $1,033,000 during the first three months
ended May 31, 2001 when compared with $805,600 for the three months ended May
31, 2000. These costs expressed as a percentage of gross sales were 14.2% for
the three months ended May 31, 2001 and 12.0% for the three months ended May 31,
2000. Sales commissions as a percentage of gross sales is determined by the
product mix sold and the division which makes the sale. Commission expense in
the Publishing Division declined 2.8% during the three months ended May 31,
2001, the results of lower sales in that division. Commission expense in the
Home Business Division increased 29.5% for the three months ended May 31, 2001,
the result of increased sales in that division.
General and administrative costs were $354,200 for the first quarter of fiscal
year 2002 and $420,200 for the first quarter of fiscal year 2001, a decrease of
15.7%. General and administrative costs expressed as a percentage of gross sales
were 4.9% for the first quarter of the current fiscal year and 6.2% for the same
quarter a year ago. A decrease in depreciation expense contributed to the
decrease in general and administrative expenses for the first quarter of fiscal
year 2002.
Interest expense was $16,000 for the three months ended May 31, 2001 versus
$34,000 for the three months ended May 31, 2000, a decrease of 52.9%. As a
percentage of gross sales, interest expense was 0.2% and 0.5% for the three
month periods ending May 31, 2001 and 2000 respectively. Lower borrowings and
lower interest rates contributed to the decrease in interest expense.
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.
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.
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EDUCATIONAL DEVELOPMENT CORPORATION
Information by industry segment for the three months ended May 31, 2001 and 2000
is set forth below:
Publishing UBAH Other Total
------------ ------------ ------------ ------------
THREE MONTHS ENDED MAY 31, 2001
Net sales from external customers $ 1,997,100 $ 2,803,500 $ -- $ 4,800,600
Earnings before income taxes 751,900 605,200 (758,500) 598,600
THREE MONTHS ENDED MAY 31, 2000
Net sales from external customers $ 2,071,700 $ 2,178,700 $ -- $ 4,250,400
Earnings before income taxes 783,200 478,400 (814,100) 447,500
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material market risk.
PART II OTHER INFORMATION
None
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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, 2001
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