<PAGE> 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 SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file no. 1-11107
FRANKLIN QUEST CO.
(Exact name of registrant as specified in its charter)
Utah 87-0401551
(State of incorporation) (I.R.S. Employer
Identification No.)
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code: (801) 975-1776
Indicate by check mark whether the registrant (1) has filed all reports
required 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
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date:
19,732,672 shares of Common Stock as of January 6, 1997
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN QUEST CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
------------ ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,813 $ 24,041
Accounts receivable, less allowance for
doubtful accounts of $1,263 and $889 38,556 28,706
Inventories 44,987 49,463
Income taxes receivable 5,064
Other current assets 7,420 5,743
--------- ---------
Total current assets 103,776 113,017
Property and equipment, net 102,522 102,063
Intangible assets, net 63,031 51,115
Other long-term assets 2,937 2,250
--------- ---------
$ 272,266 $ 268,445
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,321 $ 12,585
Other current liabilities 19,370 16,092
--------- ---------
Total current liabilities 34,691 28,677
Long-term debt, less current portion 5,717 5,500
Deferred income taxes 2,787 2,433
--------- ---------
Total liabilities 43,195 36,610
--------- ---------
Shareholders' equity:
Common stock, $0.05 par value, 40,000,000
shares authorized, 22,025,000 shares issued 1,101 1,101
Additional paid-in capital 133,887 132,959
Retained earnings 143,873 130,849
Deferred compensation (1,904) (1,240)
Cumulative translation adjustments (1,016) (940)
--------- ---------
275,941 262,729
Less 2,302,367 and 1,497,407 shares of treasury stock, at cost (46,870) (30,894)
--------- ---------
Total shareholders' equity 229,071 231,835
--------- ---------
$ 272,266 $ 268,445
========= =========
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
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FRANKLIN QUEST CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
November 30, November 30,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
Sales $102,377 $91,880
Cost of sales 43,275 39,327
-------- -------
Gross margin 59,102 52,553
Operating expenses 37,381 31,360
-------- -------
Income from operations 21,721 21,193
Interest and other 75 516
-------- -------
Income before provision for income taxes 21,796 21,709
Provision for income taxes 8,772 8,705
-------- -------
Net income $ 13,024 $13,004
======== =======
Net income per share $ 0.62 $ 0.57
======== =======
Weighted average number of common and
common equivalent shares 20,909 22,867
======== =======
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
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FRANKLIN QUEST CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
-------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,024 $ 13,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,574 3,554
Other changes in assets and liabilities 2,010 (8,367)
-------- --------
Net cash provided by operating activities 19,608 8,191
-------- --------
Cash flows from investing activities:
Acquisition of businesses (11,684)
Purchases of property and equipment (3,237) (7,183)
-------- --------
Net cash used in investing activities (14,921) (7,183)
-------- --------
Cash flows from financing activities:
Payments on short-term borrowings (245)
Proceeds from long-term debt 164
Payments on long-term debt and capital leases (181) (130)
Purchase of treasury shares (16,016) (2,274)
Proceeds from treasury stock issuance 194 467
-------- --------
Net cash used in financing activities (15,839) (2,182)
-------- --------
Effect of foreign exchange rates (76) (105)
-------- --------
Net decrease in cash and cash equivalents (11,228) (1,279)
Cash and cash equivalents at beginning of period 24,041 35,006
-------- --------
Cash and cash equivalents at end of period $ 12,813 $ 33,727
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 143 $ 56
Income taxes paid 107 1,154
Supplemental schedule of non-cash investing and financing activities:
Fair value of assets acquired $ 12,155
Liabilities assumed from acquisition 1,810
Tax effect of exercise of affiliate stock options 13 175
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
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FRANKLIN QUEST CO.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The attached unaudited consolidated condensed financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
and results of operations of Franklin Quest Co. (the "Company"), as of the dates
and for the periods indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Securities and Exchange
Commission rules and regulations. The Company suggests the information included
in this report on Form 10-Q be read in conjunction with the financial statements
and related notes included in the Company's Annual Report to Shareholders for
the fiscal year ended August 31, 1996.
Certain reclassifications have been made in the consolidated condensed
financial statements to conform with the current year presentation.
The results of operations for the three months ended November 30, 1996,
are not necessarily indicative of results for the entire fiscal year ending
August 31, 1997.
NOTE 2 - NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average
number of common and common equivalent (stock options) shares outstanding for
the periods.
NOTE 3 - INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
Finished Goods $ 31,758 $ 36,156
Work in Process 3,848 4,969
Raw Materials 9,381 8,338
----------- -----------
$ 44,987 $ 49,463
=========== ===========
</TABLE>
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NOTE 4 - TRUENORTH ACQUISITION
Effective October 1, 1996, the Company acquired the assets of TrueNorth
Corporation ("TrueNorth"). TrueNorth, a Utah corporation, is a leading provider
of post-instructional personal coaching to corporations and individuals.
TrueNorth develops and delivers one-on-one personalized coaching which is
designed to augment the effectiveness and duration of training curricula. The
purchase price was $10.0 million in cash. In addition, contingent payments may
be made over the next five years based on TrueNorth's operating performance.
TrueNorth had sales for the twelve months ended July 31, 1996, of approximately
$16.0 million. The impact on the accompanying consolidated condensed financial
statements would be immaterial, had TrueNorth been acquired on September 1,
rather than October 1, of 1996.
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FRANKLIN QUEST CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and Management's Discussion
and Analysis included in the Company's Annual Report to Shareholders for the
fiscal year ended August 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth selected data concerning the sales of
the Company's services and products:
<TABLE>
<CAPTION>
Three Months Ended
November 30,
--------------------------
1996 1995 Change
---- ---- ------
(in thousands)
<S> <C> <C> <C>
Product $ 74,934 $ 65,197 15%
Training 20,667 18,732 10%
Services 6,776 7,951 (15%)
----------- -----------
$ 102,377 $ 91,880 11%
=========== ===========
</TABLE>
Three Months Ended November 30, 1996 Compared with Three Months Ended November
30, 1995
Sales for the three months ended November 30, 1996, increased $10.5
million, or 11%, over the same period in 1995, primarily as a result of an
increase in the number of Franklin Day Planners sold, an increase in the number
of participants attending public seminars and the favorable effect of corporate
acquisitions.
Product sales experienced an increase of $9.7 million or 15% compared
to the first quarter of fiscal 1995. Increases in retail store sales comprised
$3.4 million of this amount. The increase in retail store sales is due in large
part to the number of stores opened during the past twelve months. At the end of
the current quarter, there were 93 retail stores open compared to 78 retail
stores at November 30, 1995. The increase in comparable store sales (comparing
the 70 stores that were open during the entire first quarter in both years) was
5%. An additional $3.9 million of the increase was due to current quarter
revenues of Productivity Plus, Inc. ("Productivity Plus"), which was acquired
subsequent to the first quarter of the prior year. Catalog sales contributed
another $2.1 million of the increase in product sales compared to the first
quarter last year.
Training sales increased by $1.9 million or 10% compared to the first
quarter of fiscal 1996. This increase was a result of an additional $2.4 million
in training revenue from the acquisition of TrueNorth. Sales by the Company's
Consulting Group (formerly Shipley Associates) decreased by $0.4 million from
the same quarter a year ago. The Company expects that training sales as a
percentage of
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total sales will continue to decline because product sales increases are
disproportionately positively affected by strong replacement planner renewal
rates for the Franklin Day Planner.
Service revenues, comprised of the external sales of Publishers Press,
Inc., decreased by $1.2 million or 15% compared to the first quarter last year.
The decrease was primarily a result of unusually strong sales in the first
quarter a year ago from printing a nationally best selling book and reduced
per-unit revenues due to paper price decreases in the first quarter of the
current fiscal year.
Gross margin was 57.7% of sales in the three months ended November 30,
1996, compared to 57.2% for the same period in 1995. The increase was primarily
caused by the effect of the margins of TrueNorth, acquired as of October 1,
1996, which are somewhat higher than the Company's average margins. Gross
margins were adversely impacted by the cost of implementation of a new inventory
tracking system, estimated at $1.0 million in the quarter ended November 30,
1996.
Operating expenses, consisting primarily of selling, general and
administrative expenses, increased by 2.4% as a percentage of sales during the
three months ended November 30, 1996 (36.5% compared to 34.1% in the same period
of 1995). Operating expenses at TrueNorth are higher as a percentage of sales
than expenses in the Company's core business. The Company's employee expenses
grew more quickly than revenue as a result of increased employee count.
Depreciation and leasehold amortization charges were higher by $0.8 million
because of new equipment purchased to augment management information systems,
the addition of leasehold improvements in new stores, the completion of the new
headquarters building, and expansion of the facilities at the Franklin Quest
Institute of Fitness. Amortization charges also increased by $0.3 million from
amortization of intangible assets acquired in connection with the acquisitions
of Productivity Plus and TrueNorth.
Income taxes have been accrued using an effective rate of 40.3% for the
three months ended November 30, 1996, and 40.1% for the same quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been net
cash provided by operating activities, long-term borrowing, capital lease
financing, and sale of Common Stock. Working capital requirements have also been
financed through short-term borrowing. At November 30, 1996, the Company had
$12.8 million in cash and cash equivalents.
Net cash provided by operating activities during the three months ended
November 30, 1996, was $19.6 million. Net cash used in investing activities was
$14.9 million. Of this total, $3.2 million was invested in property and
equipment, and the balance was used in the acquisition of TrueNorth and a
contingent payment due as part of the acquisition of Productivity Plus. During
the first three months of fiscal 1997, the Company used $16.0 million to
repurchase 860,000 shares of its Common Stock on the open market.
Working capital during the period decreased by $15.3 million.
Management believes that cash flows and resources are sufficient to meet working
capital requirements, including increases in accounts receivable and inventories
associated with anticipated sales increases.
During the current quarter, the Company obtained a $50.0 million line
of credit to provide for potential future financing needs. The Company has
available lines of credit, not utilized at November 30, 1996, totaling $59.0
million. Management anticipates that its existing capital resources will enable
it to maintain its current level of operations and its planned internal growth
for the foreseeable future.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held its Annual Meeting of Shareholders on
November 18, 1996. The following members of the Board of
Directors were elected for three-year terms expiring at the
annual meeting of shareholders to be held in 1999, or until
their respective successors are elected and qualified.
<TABLE>
<CAPTION>
Name Shares Voted For
---- ----------------
<S> <C>
Hyrum W. Smith 18,291,679
Robert F. Bennett 17,484,097
Beverly B. Campbell 17,849,786
</TABLE>
The shareholders also ratified the appointment of Arthur
Andersen LLP independent certified public accountants for the
fiscal year ending August 31, 1997.
Item 5. Other information:
In March 1996, the Board of Directors approved the repurchase
of 1,000,000 shares of the Company's Common Stock. As of
January 7, 1997, 345,000 of these shares had been purchased,
at an average price of $19.55.
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits:
Not applicable.
(B) Reports on Form 8-K:
Not applicable.
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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.
FRANKLIN QUEST CO.
Date: By:
---------------------------- ----------------------------
Jon H. Rowberry
Executive Vice President
Chief Operating Officer
Date: By:
---------------------------- ----------------------------
John L. Theler
Executive Vice President
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 12,813
<SECURITIES> 0
<RECEIVABLES> 38,556
<ALLOWANCES> 1,263
<INVENTORY> 44,987
<CURRENT-ASSETS> 103,776
<PP&E> 102,522
<DEPRECIATION> 0
<TOTAL-ASSETS> 272,266
<CURRENT-LIABILITIES> 34,691
<BONDS> 8,504
0
0
<COMMON> 1,101
<OTHER-SE> 227,970
<TOTAL-LIABILITY-AND-EQUITY> 272,266
<SALES> 0
<TOTAL-REVENUES> 102,377
<CGS> 0
<TOTAL-COSTS> 43,275
<OTHER-EXPENSES> 37,381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (75)
<INCOME-PRETAX> 21,796
<INCOME-TAX> 8,772
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,024
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
