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Franklin Covey Co. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: April 7, 2011 05:19PM
Franklin Covey Co. (FC) filed Quarterly Report for the period ended 2011-02-26. Franklin Covey Company has a market cap of $157.2 million; its shares were traded at around $9.22 with a P/E ratio of 51.1 and P/S ratio of 1.1.
Highlight of Business Operations:
For the quarter ended February 26, 2011, our consolidated sales increased $5.7 million, or 19 percent, to $35.5 million compared to $29.8 million in the corresponding quarter of the prior year. Improved sales helped to produce significant improvements in our operating results as we recognized income from operations of $1.5 million compared to a loss from operations of $1.1 million in the second quarter of fiscal 2010. For the quarter ended February 26, 2011, we recognized pre-tax earnings from continuing operations of $0.9 million compared with a loss from continuing operations before taxes of $1.9 million in the prior year. Including the impact of the income taxes, we recognized net income of $0.3 million ($.02 earnings per diluted share) in the second quarter of fiscal 2011 compared with a net loss of $0.4 million ($.03 loss per common share) for the quarter ending February 27, 2010.
Selling, General and Administrative – Our selling, general, and administrative (SG&A) expenses increased $1.4 million compared to the prior year. However, as a percent of sales, our SG&A expenses declined to 56.1 percent in the second quarter of fiscal 2011 compared with 62.1 percent of sales in the second quarter of fiscal 2010. The increase in SG&A expenses was primarily due to 1) a $1.7 million increase in associate costs primarily resulting from increased commissions on improved sales compared to the prior year and new personnel; 2) a $0.2 million increase in travel costs; 3) a $0.2 million increase in share-based compensation costs; and 4) a $0.1 million increase in contracted services cost. These increases were partially offset by reductions in costs resulting from the prior year reimbursement of airfare costs previously paid by the Company s CEO for
Selling, General and Administrative – Our SG&A expenses increased $4.0 million compared to the prior year. As a percent of sales, SG&A expenses declined to 53.0 percent compared to 57.9 percent of sales in the first two quarters of fiscal 2010. The increase in SG&A expenses was primarily due to 1) a $2.9 million increase in associate costs resulting from increased commissions on improved sales and the addition of new personnel; 2) a $0.8 million increase in conference costs from our sales and delivery conference, which has been previously held on a smaller scale; 4) a $0.5 million increase in share-based compensation costs; and 5) a $0.4 million increase in travel expenses. These increases were partially offset by reductions in costs resulting from the prior year reimbursement of airfare costs previously paid by the Company s CEO for business travel pursuant to a change in policy approved by the Board of Directors, and bonuses for the income tax consequences resulting from the forgiveness of certain management stock loans. These costs, which totaled $1.0 million, did not repeat during fiscal 2011.
At February 26, 2011 we had $1.3 million of cash and cash equivalents compared to $3.5 million at August 31, 2010 and our net working capital (current assets less current liabilities) increased significantly to $10.9 million at February 26, 2011 compared to $4.6 million at August 31, 2010. During the first two quarters of fiscal 2011, we used the majority of our available cash to make payments on the outstanding obligation on our line of credit facility, which was contractually reduced to $10.0 million at December 31, 2010. The balance on our line of credit facility was $1.5 million at February 26, 2011 compared to $9.5 million at August 31, 2010.
Our cash provided by operating activities totaled $8.3 million for the two quarters ended February 26, 2011 compared to $3.8 million during the first two quarters of fiscal 2010. The improvement was primarily due to improved operating income in the first two quarters of fiscal 2011 compared to the first two quarters of the prior year. Our primary source of cash from operating activities was the sale of services and goods to our customers in the normal course of business. The primary uses of cash for operating activities were payments for direct costs necessary to conduct training programs, payments for selling, general, and administrative expenses, and payments to suppliers for materials used in products sold. Our primary sources and uses of cash from/for working capital included $3.2 million of cash from collections of accounts receivable and $5.3 million of cash used primarily to pay accrued bonuses and commissions from seasonally high amounts at August 31.
Net cash used for financing activities during the two quarters ended February 26, 2011 totaled $8.3 million. We used $8.0 million of cash to reduce our line of credit balance and $0.4 million for principal payments on our financing obligation. These uses were partially offset by $0.2 million of cash received from participants in the employee stock purchase plan to purchase shares of our common stock.
Stocks Discussed: FC,