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Educational Development Corp. Reports Operating Results (10-Q)

October 15, 2009 | About:
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10qk

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Educational Development Corp. (EDUC) filed Quarterly Report for the period ended 2009-08-31.

Educational Development Corporation is the United States trade publisher of a line of children's books produced in the United Kingdom by Usborne Publishing Limited. The Home Business Division distributes these books through independent sales consultants who hold book showings in individual homes and through book fairs fund raisers and direct sales. The Home Business Division is also responsible for sales to school and public libraries. The company's Publishing Division distributes the books to book stores toy stores specialty stores and other retail outlets. Educational Development Corp. has a market cap of $20.5 million; its shares were traded at around $5.25 with a P/E ratio of 11.04 and P/S ratio of 0.7. The dividend yield of Educational Development Corp. stocks is 7.55%. Educational Development Corp. had an annual average earning growth of 10.5% over the past 10 years. GuruFocus rated Educational Development Corp. the business predictability rank of 2.5-star.

Highlight of Business Operations:

The Publishing Division’s discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAM Division due to the different customer markets that each division targets. The Publishing Division’s discounts and allowances were $2,837,200 and $2,485,800 for the quarterly periods ended August 31, 2009 and 2008, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the

Cost of sales decreased 1.4% for the three months ended August 31, 2009 when compared with the three months ended August 31, 2008. Cost of sales as a percentage of gross sales was 25.9% for the three months ended August 31, 2009 and for the three months ended August 31, 2008 was 26.7%. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses, not in cost of sales. These costs totaled $274,700 in the quarter ended August 31, 2009 and $265,900 in the quarter ended August 31, 2008.

Cost of sales decreased 7.8% for the six months ended August 31, 2009 when compared with the six months ended August 31, 2008, consistent with the decrease in sales for the period. Cost of sales as a percentage of gross sales was 26.1% for the six months ended August 31, 2009 and for the six months ended August 31, 2008 was 26.9%. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses. These costs totaled $561,200 in the six months ended August 31, 2009 and $557,800 in the six months ended August 31, 2008. When comparing our gross margins with the gross margins of other companies, note that we do not include the costs of our distribution network in our cost of sales.

For the six months ended August 31, 2009, we experienced a negative cash flow from operating activities of $1,371,400. Cash flow from operating activities was decreased primarily by an increase in inventory of $2,712,700 and accounts receivable of $298,400, offset by net income after taxes of $640,800 and increases in current liabilities of $913,100.

For the six months ended August 31, 2009, cash used in financing activities was $1,267,200 from dividend payments of $1,536,600, revolving credit payments of $847,600 and the purchase of $3,700 of treasury stock, offset by revolving credit borrowings of $1,000,000 and the sale of $120,700 in treasury stock.

Bank Credit Agreement Effective June 30, 2009, we signed an Eleventh Amendment to the Credit and Security Agreement with Arvest Bank which provided a reduced $2,500,000 line of credit through June 30, 2010. Interest is payable monthly at the greater of 5.00% or the Wall Street Journal prime-floating rate minus 0.75% (3.25% at August 31, 2009) and borrowings are collateralized by substantially all of our assets. At August 31, 2009 we had $152,400 outstanding under this agreement. Available credit under the revolving credit agreement was $2,347,600 at August 31, 2009.

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