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Franklin Covey Co. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: November 14, 2011 07:52PM
Franklin Covey Co. (FC) filed Annual Report for the period ended 2011-08-31. Franklin Covey Co. has a market cap of $156.56 million; its shares were traded at around $9.16 with a P/E ratio of 33.93 and P/S ratio of 0.97.
Highlight of Business Operations:For the fiscal year ended August 31, 2011, our consolidated sales increased 17 percent to $160.8 million compared with $136.9 million in fiscal 2010. Increased sales and continued strong gross margins contributed to improved operating results in fiscal 2011 as we recognized income from operations of $11.1 million compared with $4.0 million in the prior year. Our income before the provision for income taxes was $8.4 million, a $7.2 million improvement over the $1.2 million recognized in fiscal 2010. We recorded a $3.6 million income tax provision during fiscal 2011 compared with $2.5 million in fiscal 2010, primarily due to increased pre-tax earnings. These improvements contributed to our improvement in net income, which totaled $4.8 million, or $0.27 per diluted share, in fiscal 2011 compared to a net loss of $0.5 million, or ($0.04) per share in fiscal 2010.
International Direct – Our three international offices are located in Australia, Japan, and the United Kingdom. The improvement in international direct sales was primarily due to increased sales in Japan, which increased $3.3 million (on a continuing operations basis) compared to fiscal 2010. Despite the effects of the devastating earthquake and tsunami that struck northern Japan during March 2011 and caused our office to be closed for two weeks, we were able to recognize improved sales primarily due to increased publishing sales and the favorable impact of translating Yen-denominated sales to U.S. dollars. Although the natural disaster produced increased cancelations during the fiscal year, training and consulting sales remained flat compared to the prior year. We anticipate that the lingering effects of the earthquake and resulting economic weakness may continue to have an adverse impact on our training and consulting service sales in Japan in future periods. Sales were also up $0.5 million at our office in Australia, and sales decreased by $0.6 million at our office in the United Kingdom.
Selling, General and Administrative – Our SG&A expenses increased $7.7 million compared with fiscal 2010. However, as a percent of sales, SG&A expenses declined to 53.0 percent compared to 56.7 percent of sales in the prior year. The increase in SG&A expenses was primarily due to 1) a $2.4 million increase in commissions and bonuses resulting from improved sales and financial results compared to the prior year; 2) a $2.3 million increase in salaries and related costs resulting primarily from the addition of new personnel; 3) a $1.7 million increase in share-based compensation costs primarily from awards granted during the fourth quarter of fiscal 2011; 4) a $0.9 million increase in conference costs from our sales and delivery conference, which has been previously held on a smaller scale; 5) a $0.8 million increase in travel expenses; and a 6) $0.3 million increase in research and development costs related to the maintenance and development of training programs and curriculum. These increases were partially offset by reductions in costs resulting from the prior year reimbursement of airfare costs previously paid by our 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.
U.S./Canada Direct – During fiscal 2010, we had improved sales performance in this channel primarily due to increased sales from our government services group, improved sales at three of our four regional offices, increased revenue per training day, and decreased cancellation rates compared to fiscal 2009. Sales through our government services group increased primarily due to governmental service contracts obtained during the fourth quarter of fiscal 2010. We recognized $6.7 million from these contracts during the fourth quarter of fiscal 2010. Sales through our regional sales offices increased $2.9 million compared to fiscal 2009.
Selling, General and Administrative – Our SG&A expenses increased by $1.8 million compared to fiscal 2009. However, as a percent of sales, consolidated SG&A expense decreased to 56.7 percent of sales in fiscal 2010 compared to 61.6 percent in the prior year. The increase in SG&A expenses was primarily due to increased sales and the corresponding increase in commissions, severance costs, reimbursement of airfare costs previously paid by our CEO for business travel, and costs associated with the forgiveness of certain management stock loans. Due to the significant increase in sales during our fourth quarter of fiscal 2010, our commissions also increased as many of our sales personnel substantially exceeded sales goals, which provides for special bonus compensation. However, as our sales performance improves, annual sales goals are adjusted higher, which we believe provides incentive for continued growth. Of the $3.3 million increase in associate costs, we believe that $1.7 million was attributable to these special commissions. During the fourth quarter of fiscal 2010, it was mutually determined that our co-Chief Operating Officers would terminate their employment with the Company. As a result of this decision, we paid the former co-Chief Operating Officers severance according to our corporate policy, which totaled $0.9 million. During fiscal 2010 we also expensed $0.7 million for the reimbursement of airfare costs previously paid by our CEO for business travel pursuant to a change in policy approved by the Board of Directors. We also expensed $0.3 million related to bonuses for the income tax consequences resulting from the forgiveness of certain management stock loans during the fiscal year.
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