10302 E. 55th Place • Tulsa, Oklahoma 74146-6515
Financial Highlights
Fiscal Years ended February 28 (29)
Financial Information
Net revenues
Earnings before income taxes
Net earnings
2013
$ 25,487,500
$ 1,282,000
802,900
$
2012
$ 26,273,300
$ 2,277,700
$ 1,420,900
Earnings per share:
Basic
Diluted
$
$
0.20
0.20
$
$
0.36
0.36
Capital expenditures
Total assets
Shareholders’ equity
$
29,300
$ 17,900,800
$ 13,451,800
$
76,100
$ 18,011,400
$ 14,217,600
Common Stock
Shares outstanding at year end
Cash dividends paid
Book value at year end
Market price range
High
Low
Market price at year end
3,960,812
0.48
$
3.40
$
3,913,183
0.48
$
3.63
$
$
$
$
5.00
3.79
3.91
$
$
$
6.90
3.80
4.96
Business Segments
Net Revenues
Publishing
Usborne Books & More
$ 10,811,600
$ 14,675,900
$ 10,981,100
$ 15,292,200
Total
$ 25,487,500
$ 26,273,300
DIRECTORS
CORPORATE DATA
John A. Clerico
Co-founder and Chairman
ChartMark Investments, Inc.
Ronald T. McDaniel
Retired V.P. Sales
Educational Development Corporation
Kara Gae Neal
Director, School of Urban Education
The University of Tulsa
Betsy Richert
Media Specialist,
Tulsa Public Schools
Randall W. White
Chairman, President and
Chief Executive Officer – EDC
OFFICERS
Randall W. White
Chairman, President and
Chief Executive Officer
Marilyn Pinney
Controller and Corporate Secretary
Craig M. White
Vice President - Information Systems
Notice of Annual Meeting
July 18, 2013, 10:00 a.m.
Educational Development Corporation
Executive Conference Room
10302 E. 55th Place
Tulsa, Oklahoma
Form 10-K
Educational Development Corporation’s
Form 10-K filed with the Securities and
Exchange Commission is available upon
request. Write to:
Randall W. White, President
Educational Development Corporation
10302 E. 55th Place
Tulsa, Oklahoma 74146-6515
Transfer Agent
American Stock Transfer and Trust Company
New York, New York
Auditors
HoganTaylor LLP
Tulsa, Oklahoma
Corporate Offices
10302 E. 55th Place
Tulsa, Oklahoma 74146-6515
Phone (918) 622-4522
Fax (918) 665-7919
www.edcpub.com
Letter From The President
Dear Shareholders,
Our fiscal year started with making the bold, but difficult decision to discontinue
sales to Amazon, which represented approximately 20% of the Publishing Division annual
revenue. This decision was the culmination of realizing that Amazon sales were negatively
impacting all other aspects of our Company - from retail stores, online sales and our
direct selling division, Usborne Books & More. I am somewhat relieved to report that our
retail customers rallied around our decision with unprecedented support which allowed
the Publishing Division to replace the loss of Amazon’s sales and finish the year with a
small revenue decline of 2%. I am very appreciative of our loyal customers whose support
reinforced our decision.
It has been a somewhat controversial year in the Publishing industry with litigation
over e-book pricing, debate and pending legislation over the “fair tax provision” which
would allow states to enforce sales tax provisions on Internet sales, and many other issues
which revolve around one company becoming the dominant outlet for book sales. Many
publishing executives in the industry feel this concentration of power is “dangerous”,
however, the consumer will ultimately decide where their purchases will be made. Our
position is definitely in favor of the “fair tax provision” which levels the playing field by
not favoring Internet sales over local retail outlets.
How this affects EDC has been significant this year. Industry experts estimate that
over $20 BILLION a year in state sales tax goes uncollected on Internet sales which
prompts many states to look for additional revenue, several which are near bankruptcy.
EDC collects and files sales tax returns for over 1,000 taxing entities and strives to be
compliant in all areas; however, this year we have had audits that reversed previous rulings
and then made the new rulings retroactive for the five previous years. This is in addition
to several taxing entities assessing franchise tax obligations not previously known, and
again, retroactive for five years plus penalty. The cumulative effect of these issues resulted
in a $250,000 pretax provision in our fiscal year earnings. We are protesting these new
provisions, but are somewhat limited in resources to battle multiple state and local
government taxing authorities. Hopefully the “fair tax provision” discrepancy will be
corrected very soon as it puts our retail outlets and direct sales force at a disadvantage in
the ultimate retail pricing.
I have never wavered from the philosophy that our products are better served when
presented to the consumer by someone knowledgeable, whether it is one of our loyal retail
outlets or our direct sales division. During this year, we committed additional incentives
to the Direct Selling Division to support their efforts to be competitive in the marketplace
and will continue this practice in the future. In addition, we have recently added several
products in the e-book format and also enhanced apps for the iPad. We will continually
add additional products to these formats.
While we were able to overcome the loss of revenue from Amazon, the issues
mentioned above impacted our net earnings more significantly; hopefully next year will
produce more of a normal year without incurring the retroactive tax provisions and the
additional marketing expenses.
We have an excellent leadership team in place, a loyal customer base and award
winning product lines and we are excited about the prospects for fiscal year 2014.
EDC is a company you can be proud to work for
and one you can be proud to own.
Cordially yours,
Randall W. White
Chairman of the Board, President
and Chief Executive Officer
About Us
Since 1965, Educational Development Corporation has been committed to
literacy, learning, and innovation. From the development of curriculum materials
in the early years, to the creation of the Publishing Division in 1978, the Home
Business Division launch in 1989, the acquisition of Kane Miller Book Publishers
in 2008, and the 2011 investment in Demibooks, this commitment has fueled
company growth and development.
EDC is proud to be the United States publisher of Usborne Books. Originating
in the United Kingdom, and celebrating its 40th anniversary, Usborne Books offers
over 1,400 of the best non-fiction books for children and young adults. Kane Miller’s
line of international picture books and fiction is a perfect complement, and with
Demibooks enhanced picture book apps and Storytime reader, the market is covered
– past, present and future.
EDC’s Home Business Division’s independent sales consultants represent
Usborne Books, Kane Miller Books and Storytime (together, Usborne Books &
More) at home parties and book fairs, and through direct and online sales. In
addition, they represent all three lines to schools and libraries, offering one-on-one
sales opportunities, fundraisers, matching grant programs and more, reinforcing the
company’s support of literacy and education. EDC’s Publishing Division markets
and sells to book stores, toy stores, gift stores, museum stores and specialty outlets
throughout the United States, solidifying EDC’s strong presence in the marketplace.
Operations
Headquartered in Tulsa, Oklahoma, the EDC home office and adjacent
100,000 square foot warehouse provide for a streamlined operational and
management workflow. The warehouse’s six hundred-foot-long flow-rack system
expedites order fulfillment and delivery, with over 95% of orders receiving same-
day turnaround.
Personalized consultant websites and IMN weekly newsletters, together with
OrderPro (our proprietary software), e-commerce site, and a strong and growing
social media presence, add to the success and sustainability of the Usborne Books
& More Home Business Division.
Our Product Lines
Usborne Books are produced and created in the United Kingdom by Usborne
Publishing Limited. Sold in over 85 countries in more than 75 languages, Usborne
Books have long been recognized as the benchmark of non-fiction children’s books.
As the United States publisher of Usborne Books, EDC offers a wide-range of titles
and subjects to customers, and with the nationwide implementation of Common
Core standards, is more than ready to meet the opportunities in the changing school
market. Kane Miller Books, an award-winning publisher of children’s picture books
and fiction from around the world, is based in San Diego, California. Kane Miller
Books offers EDC the flexibility to respond to market needs, publishing books that
meet the demands of the sales force and its customers. Together with Demibooks
Storytime, those books can now be published and delivered in e-book form as well as
traditional print, serving the needs of all customers.
Usborne Books
With subjects ranging from history to art, horses to ballet, sticker books to pop-
ups, math dictionaries to first readers and baby bath books, every child’s age, stage,
subject and interest can be matched with an Usborne Book. Highly illustrated, easy
to pore over and dip into and written with humor, drama and intelligence, Usborne
books enrich children’s interests, helping them discover a myriad of subjects with ease
and success. There are internet linked reference books, stroller books, encyclopedias,
historical fiction and more, all with accessible, vibrant, distinctive design and mass
commercial appeal.
Kane Miller Books
Kane Miller searches the world for great picture books and fiction that enrich the
lives and imagination of the children who read them. With art and text that combine
to bring the world closer to children, sharing stories and ideas while exploring
differences, Kane Miller Books offer a window to other countries, cultures and
communities – including those in the U.S.
Recognitions
EDC is pleased and proud to announce that Usborne Publishing was named
the UK 2012 Children’s Publisher of the Year. Among past awards, Usborne Books
were Parents Choice Recommended Award winners, and Kane Miller books were
recognized with a Boston Globe - Horn Book honor and were named to the USBBY
Best International Booklist and the Bank Street College of Education Best Books of the
Year list.
The Home Business Division
Usborne Books & More (UBAM), our Home Business Division, markets our
product lines through a network of over 7,000 independent sales consultants.
The sales consultants offer our products in various venues including home shows,
direct sales, book fairs, Internet sales, fundraisers, and sales to schools and public
libraries. EDC Educational Services, a sub-division of UBAM, markets the product
line to schools and libraries through independent Educational Consultants. This
allows additional opportunities for the sales consultants. Although there are several
ways to sell, home shows continue to be the base of our business, providing a source of
constant income and business growth, increasing the networking base and providing
sales opportunity leads for additional marketing avenues.
Consultants have individual UBAM websites available to market their business
and to set up home shows and book fairs via the Internet. In this technological
age, UBAM is also using Facebook, LinkedIn and Twitter to promote the business
opportunity. Reach for the Stars!!, a pledge-based reading incentive program, has
proven its success with hundreds of thousands of dollars in cash and books distributed
to the participating schools and organizations. This last year, we continued our reach
with the immensely successful Cards for a Cause Fundraisers program.
Usborne Books & More strives for excellence and creativity in training,
recognition and incentive programs to encourage growth. UBAM will hold its 17th
National Convention in June, 2013, in Tulsa, Oklahoma. This three-day event offers
an excellent opportunity for consultants to meet their peers, exchange ideas and learn
how to build their business at all levels. It also allows the Home Office to award
and recognize national achievement. The Home Office also sponsors an Advanced
Leadership Retreat for UBAM Leaders, providing the tools to build their business
quickly and efficiently.
Independent consultants also have the opportunity to earn additional prizes and
incentives throughout the year, including an incentive travel trip which can be earned
working part-time on a steady basis. Recent trips include a Western Mediterranean
Cruise in May, 2013, and a trip to British Columbia in April, 2012. Our upcoming
trip is to Atlantis in the Bahamas in May, 2014.
Heather Cobb
Director
National Sales
Todd R. White
Manager
Educational Services
Pat Wright
Manager
Consultant Services
The Publishing Division
In Fiscal 2013 EDC posted a minor decrease of 2.1% in net sales in the
Publishing Division. Net sales were recorded at ten million, eight hundred eight
thousand dollars. The corporate decision, taken in February 2012, to cease
supplying internet retailers impacted the Publishing Division’s sales, resulting in a
loss of two million, two hundred thousand dollars in that sector. Sales to the large
national chains increased by 56.7%, due in large part, to the ongoing increased
penetration of some of our bestselling series, such as Sticker Dolly Dressing and other
activity books. This increase offset some of the losses from internet retail sales,
resulting in a net loss of one million, four-hundred thousand dollars.
The independent brick-and-mortar retailers reacted positively to the corporate
decision to cease supplying internet retailers, resulting in an increase in that sector
of 35%, buoying up overall sales by adding five hundred seventy-two thousand
dollars of volume.
The toy and gift markets continue their growth trend. In fiscal 2012 the
segment grew to 62% % of the Publishing Division’s total net sales. In fiscal
2013, the segment grew again to 62.7%. EDC maintains a continued presence
at important national trade shows such as Toy Fair, New York Gift Show, San
Francisco Gift Show, Los Angeles Gift Show, Atlanta Gift Show, ASTRA and the
Museum Store Association Show.
Moving forward, the focus will be to continue the growth of the national chain
sector, and the independent retail sector, while maintaining the growth of the toy
and gift markets. The Publishing Division will continue to maintain the marketing
efforts that have proven successful in the past, in all areas of our business.
Jeanie Crone
Vice President
Publishing
Kira Lynn
Editor
Kane/Miller
STOCK PRICES AND DIVIDENDS PAID
Fiscal Year
Stock Prices
Cash Dividend Paid
2013
2012
2011
2010
2009
High
Low
$
$
$
$
$
5.00
6.90
7.00
6.48
6.80
$
$
$
$
$
3.79
3.80
5.15
3.10
3.11
$
$
$
$
$
0.48
0.48
0.54
0.67
0.80
PERFORMANCE GRAPH COMPARISON OF THE FIVE-YEAR CUMULATIVE RETURN
Among the Company, Nasdaq Stock Market Total Return Index
and Nasdaq Non-Financial Stock Index
The following graph compares the cumulative total return of our common stock for the 5-year
period ending February 28, 2013, against the cumulative total return of the Nasdaq Stock Market
Total Return Index and the Nasdaq Non-Financial Stock Index. The graph and table assume $100
was invested on February 29, 2008, and that all dividends were reinvested.
$160
$140
$120
$100
$80
$60
$40
$20
$0
2/29/08
2/28/09
2/28/10
2/28/11
2/29/12
2/28/13
Total Return Index NonFinancial Index EDUC Stock
CUMULATIVE TOTAL RETURN
Cumulative Value of $100 Investment, through February 28 (29),
EDC Stock:
100.00 62.81 107.02 114.04 85.96
68.60
2008
2009
2010
2011
2012
2013
Nasdaq Stock Market
Total Return Index:
Nasdaq Non-Financial
Stock Index:
100.00 62.36 101.29 127.80 139.70 152.13
100.00 61.68 102.49 129.78 140.88 150.99
Craig M. White
Vice President
Information systems
Marilyn Pinney
Controller & Corporate
Secretary
__________________________________________________________________________________
__________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________________
__________________________________________________________________________________
FORM 10-K
⌧⌧⌧⌧
(cid:2)(cid:2)(cid:2)(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
(Mark One)
For the fiscal year ended February 28, 2013
OR
TRANSITION REPORT PURSUANT TO 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
(State or other jurisdiction of
incorporation or organization)
10302 East 55th Place, Tulsa, Oklahoma
(Address of principal executive offices)
73-0750007
(I.R.S. Employer
Identification No.)
74146-6515
(Zip Code)
Registrant’s telephone number, including area code (918) 622-4522
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:2)
Yes (cid:2)
No ⌧
No ⌧
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 ⌧
No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ⌧
No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-
2 of the Exchange Act. (Check one):
Large accelerated filer(cid:2)
Non-accelerated filer (cid:2)
(Do not check if a smaller reporting company)
Accelerated filer (cid:2)
Smaller reporting company ⌧
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes (cid:2)
No ⌧
The aggregate market value of the voting shares held by non-affiliates of the registrant at the price at which the common stock
was last sold on August 31, 2012, on the NASDAQ Stock Market, LLC was $15,528,300.
As of May 23, 2013, 3,969,866 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for fiscal year 2013 relating to our Annual Meeting of Shareholders to be held on July 18, 2013
are incorporated by reference into Part III of this Report on Form 10-K.
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART
II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item
9A(T).
Item 9B. Other Information
Controls and Procedures
PART
III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant’s Fees and Services
PART
IV
Item 15. Exhibits and Financial Statement Schedules
4
4
6
6
6
6
6
7
7
8
15
15
15
16
16
17
17
17
17
17
18
PART I
FORWARD LOOKING STATEMENTS
This report contains statements that are forward-looking. You should read the following discussion in connection with
our financial statements, including the notes to those statements, included in this document. These forward-looking statements
are not historical facts but are expectations or projections based on certain assumptions and analyses made by our senior
management in light of their experience and perception of historical trends, current conditions, expected future developments and
other factors. Actual events and results may be materially different from anticipated results described in such statements. As
used in this Annual Report on Form 10-K, the terms “EDC,” “we,” “our” or “us” mean Educational Development Corporation,
a Delaware corporation, unless the context indicates otherwise.
Our ability to achieve such results is subject to certain risks and uncertainties which are not currently known to us. We
caution you not to place undue reliance on these forward-looking statements, which speak only as of the date that they are
made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events
or circumstances after the date of this report.
Item 1. BUSINESS
(a) General Development of Business
Educational Development Corporation (“EDC”) is the exclusive United States trade publisher of the line of educational
children’s books produced in the United Kingdom by Usborne Publishing Limited (“Usborne”). We were incorporated on August
23, 1965. Our fiscal years end on February 28 (29).
We also own Kane/Miller Book Publishers; award-winning publishers of International children’s books.
Our company motto is “The future of our world depends on the education of our children. EDC delivers educational
excellence one book at a time. We provide economic opportunity while fostering strong family values. We touch the lives of
children for a lifetime.”
(b) Financial Information about Industry Segments
While selling children’s books is our only line of business, we sell them through two divisions:
·
·
Home Business Division (“Usborne Books and More” or “UBAM”) - This division distributes books nationwide
through independent consultants who hold book showings in individual homes, and through book fairs, direct
sales and Internet sales. The UBAM Consultants also distribute these titles to school and public libraries.
Publishing Division (“Publishing”) – This division markets books to bookstores (including major national
chains), toy stores, specialty stores, museums and other retail outlets throughout the country.
Publishing
UBAM
Total revenues
Percent Net Revenues by Division
2013
2012
42%
58%
100%
42%
58%
100%
4
Table of Contents
(c) Narrative Description of Business
Products
As the sole United States trade publisher of the Usborne line of books, we offer over 1,500 different titles. Many are
interactive in nature, including our Touchy-Feely board books, jigsaw puzzle books, activity and flashcards, adventure and search
books, art books, sticker books and foreign language books. The majority of the titles published by Kane/Miller Book Publishers
originally were published in other countries in their native languages.
We have a broad line of ‘internet-linked’ books which allow readers to expand their educational experience by referring
them to relevant non-Usborne websites. Our books include science and math titles, as well as chapter books and novels. We
continually introduce new titles across all lines of our products.
UBAM markets the books through commissioned consultants using a combination of direct sales, home parties, book
fairs and the Internet. The division had approximately 4,700 consultants in 50 states at February 28, 2013.
Publishing markets through commissioned trade representatives who call on book, toy, specialty stores and other retail
outlets, as well as through in-house marketing by telephone to the trade. This division markets to approximately 5,000 book, toy
and specialty stores. Significant orders totaling 28% of the Publishing Division’s sales have been received from major book
chains.
Key Customers
No customer represents more than 10% of our net sales.
Seasonality
Sales for both divisions are greatest during the fall due to the holiday season.
Competition
We face competition on two fronts for our UBAM Division from several other larger direct selling companies - for sales
and consultants. However, no other direct selling company exclusively sells children’s books. Our school and library market
faces competition from Scholastic Books for the book fair market.
Publishing faces strong competition from large U.S. and international companies. Historically, this division's sales
represent less than 1.0% of industry sales of juvenile paperbacks.
Employees
As of April 1, 2013, 75 full-time and 1 part-time employees worked at our Tulsa and San Diego facilities; about half of
those are in the assembly/distribution warehouse. We believe our relations with our employees are good.
Company Reports
Our annual and quarterly reports (Forms 10-K and 10-Q), current Form 8-K reports and amendments to those reports
filed with the SEC are available for download from the Investor Relations portion of our Internet website at www.edcpub.com.
5
Table of Contents
Item 1A. RISK FACTORS
We are a smaller reporting company and are not required to provide this information.
Item 1B. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
We are located at 10302 E. 55th Pl., Tulsa, Oklahoma. These facilities are owned by us and contain approximately
105,000 square feet of office and warehouse space. All product distributions are made from this warehouse. We believe that our
operating facility meets both present and future capacity needs.
We lease 11,400 square feet of additional warehouse space two blocks from our main facilities. This space is located at
5432 S. 103rd E. Ave., Tulsa, Oklahoma, and is used to store longer-term inventory requirements.
We also lease a small office in San Diego, California which houses Kane/Miller Book Publishers.
Item 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings.
Item 4. MINE SAFETY DISCLOSURES
None
6
Table of Contents
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of EDC is traded on the NASDAQ Stock Market, LLC (symbol--EDUC). The high and low
quarterly common stock quotations for fiscal years 2013 and 2012, as reported by the National Association of Securities Dealers,
Inc., were as follows:
Period
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
2013
2012
High
Low
High
Low
5.00
4.64
4.13
4.12
4.25
3.85
3.79
3.80
6.90
5.81
5.70
5.40
4.18
5.00
3.80
4.75
The number of shareholders of record of EDC's common stock at February 28, 2013 was 663.
During fiscal year 2013, we paid quarterly dividends totaling $0.48 per share as follows: $0.12 per share dividend on
March 16, 2012, $0.12 per share dividend on June 22, 2012, $0.12 per share dividend on September 21, 2012, and $0.12 per share
dividend on December 21, 2012. An additional $0.08 per share dividend was declared on February 28, 2013 and was paid during
fiscal year 2014 to shareholders of record on March 8, 2013.
The following table shows repurchases of our common stock which we made during the fourth quarter of fiscal year
2013.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total # of
Shares
Purchased
Average Price
Paid per
Share
Total # of
Shares
Purchased as
Part of
Publicly
Announced
Plan (1)
Maximum # of
Shares that
May
be
Repurchased
under the
Plan
December 1 - 31, 2012
January 1 - 31, 2013
February 1 - 28, 2013
Total
0 $
646 $
0 $
646 $
0.00
3.92
0.00
3.92
0
646
0
646
348,649
348,003
348,003
(1)
In April 2008 the Board of Directors authorized us to purchase up to 500,000 additional shares of our common stock
under a plan initiated in 1998. This plan has no expiration date.
Item 6. SELECTED FINANCIAL DATA
We are a smaller reporting company and are not required to provide this information.
7
Table of Contents
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MD&A contains statements that are forward-looking and include numerous risks which you should carefully
consider. Additional risks and uncertainties may also materially and adversely affect our business. You should read the
following discussion in connection with our financial statements, including the notes to those statements, included in this
document. Our fiscal years end on February 28 (29).
Management Summary
Educational Development Corporation is the sole distributor in the United States of the Usborne line of children’s
books. We operate two separate divisions, Publishing and Usborne Books and More (“UBAM”), to sell these books. Our
Corporate headquarters, including the distribution facility for both divisions, is located in Tulsa, Oklahoma.
These two divisions each have their own customer base. The Publishing Division markets its products on a wholesale
basis to various retail accounts. The UBAM Division markets its products to individual consumers as well as to school and public
libraries through direct-selling consultants.
Publishing Division
The Publishing Division operates in a market that is highly competitive, with a large number of companies engaged in
the selling of books. The Publishing Division’s customer base includes national book chains, regional and local bookstores, toy
and gift stores, school supply stores and museums. To reach these markets, the Publishing Division utilizes a combination of
commissioned sales representatives located throughout the country and a commissioned inside sales group located in our
headquarters. The Vice President of the Publishing Division manages sales to the national chains.
Publishing Division Sales by Market Type
National chain stores
All other
Total net sales
FY 2013
FY 2012
28%
72%
100%
40%
60%
100%
The Publishing Division uses a variety of methods to attract potential new customers and maintain current
customers. Company personnel attend many of the national trade shows held by the book selling industry each year, allowing us
to make contact with potential buyers who may be unfamiliar with our books. We actively target the national chains through joint
promotional efforts and institutional advertising in trade publications. The Publishing Division also participates with certain
customers in a cooperative advertising allowance program, under which we pay back up to 2% of the net sales to that
customer. Our products are then featured in promotions, such as catalogs, offered by the vendor.
We may also acquire, for a fee, an end cap position in a bookstore (our products are placed on the end of a shelf), which
in the publishing industry is considered an advantageous location in the bookstore. The costs of these promotions have been
classified as reductions in revenue in the statements of earnings.
The Publishing Division’s in-house telesales group targets the smaller independent book and gift store market. Our semi-
annual, full-color, 160-page catalogs, are mailed to over 5,000 customers and potential customers. We also offer two display
racks to assist stores in displaying our products.
Net Revenues for Publishing Division
Net Revenues
FY 2013
FY 2012
$
10,811,600
$
10,981,100
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Publishing Division’s net revenues decreased $169,500 in fiscal year 2013 from fiscal year 2012, or 1.5%. Net revenues
were down 31.0% for national chain stores, offset by an increase of 25.0% for smaller retail stores, and 13.6% for inside sales.
Usborne Books and More (“UBAM”) Division
The UBAM Division is a multi-level direct selling organization that markets its products through independent sales
representatives (“consultants”) located throughout the United States. The customer base of UBAM consists of individual
purchasers, as well as school and public libraries. Revenues are generated through home shows, direct sales, Internet sales, book
fairs and contracts with school and public libraries.
An important factor in the continued growth of the UBAM Division is the addition of new sales consultants and the
retention of existing consultants. Current active consultants recruit new sales consultants. UBAM makes it easy to recruit by
providing low-cost signing kits. UBAM provides an extensive handbook that is a valuable tool in explaining the various programs
to the new recruit.
Consultants During Year
New Sales Representatives
Active Sales Representatives End of Fiscal Year
2,700
4,700
4,300
6,100
FY 2013
FY 2012
The UBAM Division presently has six levels of sales representatives:
·
·
·
·
·
·
Consultants
Team Leaders
Senior Team Leaders
Executive Team Leaders
Senior Executive Team Leaders
Directors
Upon signing up, each individual is considered a consultant. Consultants receive commissions from each sale they make;
the commission rate being determined by the marketing program under which the sale is made. In addition, consultants receive a
monthly sales bonus once their sales reach an established monthly goal. Consultants who recruit other consultants and meet
certain established criteria are eligible to become team leaders. Upon reaching this level, they receive monthly override payments
based upon the sales of their downline groups.
Once team leaders reach certain established criteria, they become senior team leaders and are eligible to earn promotion
bonuses on their consultants. Once senior team leaders reach certain established criteria, they become executive team leaders,
senior executive team leaders or directors. Executive team leaders and higher may receive an additional monthly override
payment based upon the sales of their downline groups.
Percent of Net Sales by UBAM Marketing Program
FY 2013
FY 2012
Home Shows
Direct Sales
School & Library
Internet
Fund Raisers
Transportation Revenues
Totals
27%
2%
46%
12%
5%
8%
100%
32%
2%
43%
12%
3%
8%
100%
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Number of Orders by UBAM Marketing Program
Home Shows
Direct Sales
School & Library
Internet
Fund Raisers
FY 2013
FY 2012
17,100
3,100
11,000
33,800
1,400
66,400
19,200
3,300
11,000
34,600
900
69,000
Net revenues, after commissions, from home shows declined 14% or $449,500 during fiscal year 2013. This was
primarily due to 11% fewer orders placed during the period and a 3% decrease in average order size. Consultants contact
individuals (“hostesses”) to hold book shows in their homes. The consultant assists the hostess in setting up the details for the
show and makes a presentation at the show and takes orders for the books. The hostess earns free books based upon the total sales
at the show. Customer specials are available for customers when they order a selected amount. Additionally, home shows
provide an excellent opportunity for recruiting new consultants.
Net revenues, after commissions, from direct sales decreased 5% or $11,500 during fiscal year 2013. This resulted from
a 6% decrease in the number of orders placed during the year. Direct sales are sales without a hostess being involved.
The UBAM Division offers many promotions (customer specials) throughout the year. These promotions offer the
customer the opportunity to purchase selected items at a discount if the customer meets the defined criteria. The discounts under
these promotions are recorded in discounts and allowances.
The school and library marketing program, after commissions, including book fairs, increased 2% or $86,200 during
fiscal year 2013, primarily due to the per-order average increase of 2%.
School and library sales are restricted to consultants who have received additional, specialized training which allows
them to sell to schools and libraries. The UBAM consultant is the only source that a library or school has for library-bound
Usborne books and for most Kane/Miller titles. They are not available through any of the school supply distribution companies.
This program includes our book fairs. Book fairs can be held with almost any organization as the sponsor. The
consultant provides promotional materials to acquaint parents with the books. Parents turn in their orders at a designated
time. The book fair program generates free books for the sponsoring organization. UBAM also has a Reach for the Stars
fundraiser program. This is a pledge-based reading incentive program that provides cash and books to the sponsoring
organization and books for the children.
Internet sales, after commissions, were down 10% or $129,700 during fiscal year 2013. Consultants utilize in-house-
developed and hosted web sites in their businesses for a nominal annual fee. They can customize the web sites to their own
particular needs or they can maintain the generic site. Orders are transmitted to us through a shopping cart arrangement and the
consultant receives sales credit and commission on the sales.
Our fund-raising program, after commissions, Cards for a Cause, which was added during the second quarter of the prior
fiscal year, increased 39% or $136,100 in sales over its inaugural year. Organizations sell variety boxes of greeting-type cards
and keep a portion of the proceeds to help support themselves and their related causes.
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Transportation revenues decreased 11% or $101,900 during fiscal year 2013. Transportation revenues are based on order
sales, with minimums per order depending on order type.
The cost of free books provided under the various UBAM marketing programs is recorded as operating and selling
expense in the statements of earnings.
While there are many, UBAM continues to be the only multi-level company in the United States exclusively selling
books. We believe this is a fertile market with opportunities for growth. The keys to future growth in the UBAM Division are
recruiting and retaining consultants.
(1-2) Liquidity and Capital Resources
EDC has a history of profitability and positive cash flow. We can continue to grow with minimal additional capital
requirements. Our primary source of cash is generated from operations. Outside of cash used in operating activities, generally
our primary uses of cash are to pay dividends and acquire treasury stock. During fiscal year 2013, we have utilized our bank
credit facility to meet some short-term cash requirements.
We expect our ongoing cash flow to continue to exceed cash required to operate the business. Consequently, we expect
to pay down our short-term borrowings during fiscal year 2014.
During fiscal year 2013, we experienced a positive cash flow from operations of $639,000. Cash flow from net earnings
of $802,900 was increased due to the provision for doubtful accounts and sales returns of $1,508,700, a decrease in inventories of
$118,300 and depreciation expense of $114,200, offset by an increase in accounts receivable of $1,352,800, a $293,500 increase
in net income tax receivable, a decrease in deferred income taxes of $12,600, a decrease in current liabilities of $128,900, and a
$117,300 increase in prepaid expenses and other assets.
Cash used in investing activities was $209,600 due to an additional $180,300 investment in Demibooks and $29,300 for
capital expenditures. We estimate that cash used in investing activities for fiscal year 2014 will be less than $200,000. This
would consist of software and hardware enhancements to our existing data processing equipment, property improvements and
additional warehouse equipment.
Cash used in financing activities was $720,400 which was primarily due to dividend payments of $1,884,800, $1,185,000
payments under our revolving credit agreement, and $56,700 paid to acquire treasury stock. These were offset by cash received of
$2,185,000 from borrowings under our revolving credit agreement and $221,100 from the sale of treasury stock. In September
2002, the Board of Directors authorized a minimum annual cash dividend of 20% of net earnings. In fiscal years 2013 and 2012,
we declared dividends equal to 216% and 132%, respectively, of net earnings.
Our Board of Directors adopted a stock repurchase plan in which we may purchase up to an additional 500,000 shares as
market conditions warrant. Management believes the stock is undervalued and when stock becomes available at an attractive
price, we can utilize free cash flow to repurchase shares. Management believes this enhances the value to the remaining
stockholders and that these repurchases will have no adverse effect on our short-term and long-term liquidity.
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(3) Results of Operations
Earnings as a Percent of Net Revenues
FY 2013
FY 2012
Net revenues
Cost of sales
Gross margin
Operating expenses:
Operating and selling
Sales commissions
General and administrative
Total operating expenses
Other income
Earnings before income taxes
Income taxes
Net earnings
100.0%
41.2%
58.8%
26.3%
18.7%
9.0%
54.0%
0.2%
5.0%
1.9%
3.1%
100.0%
40.2%
59.8%
25.5%
18.5%
7.5%
51.5%
0.4%
8.7%
3.3%
5.4%
Fiscal Year 2013 Compared with Fiscal Year 2012
The following presents an overview of our results of operations for years ended February 28, 2013 and February 29,
2012. We had earnings before income taxes of $1,282,000 for fiscal year 2013 compared with $2,277,700 for fiscal year 2012.
Revenues
FY 2013
FY 2012
$ Change
Gross sales
Less discounts & allowances
Transportation revenue
Net revenues
$
$
$
39,215,300
(14,585,800)
858,000
25,487,500
$
$
40,906,200
(15,592,000)
959,100
26,273,300
$
(1,690,900 )
1,006,200
(101,100 )
(785,800 )
The UBAM Division’s gross sales decreased 6.9% or $1,243,700 during fiscal year 2013 when compared with fiscal year
2012. This decrease is attributable to lower sales in the home party, direct sales, and internet markets, offset by an increase in
fund raisers and school and library/book fair sales. Average sales per order for this division were down 0.3% and the overall
number of orders was down 3.8% due to reductions in each of those markets, except fund raisers which were up.
The Publishing Division’s gross sales decreased 2.0% or $447,200 during fiscal year 2013 when compared with fiscal
year 2012. Sales to national chain stores decreased 31%, offset by increases of 25% in sales to smaller retail stores and 14% in
inside sales.
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 $11,679,500 in fiscal year 2013 and $11,956,400 in fiscal year 2012. 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 order. The Publishing Division’s discounts and allowances were 52.0% of
Publishing’s gross sales in fiscal year 2013 and 52.2% in fiscal year 2012.
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The UBAM Division’s discounts and allowances were $2,906,300 in fiscal year 2013 and $3,635,600 in fiscal year
2012. Most sales in the UBAM Division are at retail. As a part of the UBAM Division’s marketing programs, discounts between
40% and 50% of retail are offered on selected items at various times throughout the year. The discounts and allowances in the
UBAM Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAM
Division’s discounts and allowances were 17.3% of UBAM’s gross sales in fiscal year 2013 and 20.2% in fiscal year 2012.
Transportation revenues decreased $101,100 in fiscal year 2013, primarily due to the decrease in UBAM sales during the
year.
Expenses
Cost of sales
Operating and selling
Sales commissions
General and administrative
Total
FY 2013
10,494,200
6,714,600
4,764,900
2,285,700
24,259,400
$
$
FY 2012
10,549,000
6,710,400
4,855,200
1,972,500
24,087,100
$
$
$
$
$ Change
(54,800)
4,200
(90,300)
313,200
172,300
Cost of sales decreased 0.5% in fiscal year 2013 when compared with fiscal year 2012. Our cost of products is 25% to
34% of the gross sales price, depending upon the product. In comparing the percentage change in gross sales with the percentage
change in cost of goods, consideration must be given to the mix of products sold. Approximately 76% of our products come from
one vendor, where the cost of the products is a fixed percentage of the retail price.
Cost of sales is the inventory cost of product sold (including the cost of the product itself and inbound freight
charges). Operating and selling expenses include purchasing and receiving, inspection, warehousing, and other costs of our
distribution network. These costs totaled $1,283,900 in fiscal year 2013 and $1,274,100 in fiscal year 2012. 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.
In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses
of the Publishing Division, the UBAM Division and the order entry and customer service functions. Operating and selling
expenses as a percentage of gross sales were 17.1% for fiscal year 2013 and 16.4% for fiscal year 2012.
Sales commissions in the Publishing Division increased $55,900 for the fiscal year ended 2013. Sales commissions for
this division fluctuate depending upon the amount of sales made to our “house accounts,” which are our largest customers and do
not have any commission expense associated with them, and sales made by our outside sales representatives. Publishing Division
sales commissions are paid on net sales and were 2.7% for fiscal year 2013 and 2.1% for fiscal year 2012.
Sales commissions in the UBAM Division decreased $146,200. UBAM Division sales commissions are paid based on
the retail price of non-promotional products sold and were 26.7% of gross sales for fiscal year 2013 and 25.7% for fiscal year
2012. The fluctuation in the percentages of commission expense to gross sales is the result of the type of sale. Home shows, book
fairs, school and library sales and direct sales have different commission rates. Also contributing to the fluctuations in the
percentages is the payment of overrides and bonuses, both dependent on consultants’ monthly sales and downline sales. The
decrease in sales commissions is the result of lower gross sales in the UBAM Division.
General and administrative expenses include the executive department, accounting department, information services
department, general office management and building facilities management. General and administrative expenses as a percentage
of gross sales were 5.8% for fiscal year 2013 and 4.8% for fiscal year 2012.
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The tax provision for fiscal year 2013 was $479,100. The effective rate for fiscal year 2013 was 37.4% and for fiscal
year 2012 was 37.6%. Our effective tax rate is higher than the Federal statutory rate due to state income taxes.
Contractual Obligations
We are a smaller reporting company and are not required to provide this information.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to our valuation of inventory, allowance for uncollectable accounts receivable, allowance for
sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may materially differ from these estimates under different assumptions or conditions. Historically,
however, actual results have not differed materially from those determined using required estimates. Our significant accounting
policies are described in the notes accompanying the financial statements included elsewhere in this report. However, we
consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.
Stock-Based Compensation
We account for stock-based compensation whereby share-based payment transactions with employees, such as stock
options and restricted stock, are measured at estimated fair value at date of grant and recognized as compensation expense.
Revenue Recognition
Sales are recognized and recorded when products are shipped. Products are shipped FOB shipping point. The UBAM
Division’s sales are paid at the time the product is shipped. These sales accounted for 58% of net revenues in both fiscal years
2013 and 2012.
Estimated allowances for sales returns are recorded as sales are recognized and recorded. Management uses a moving
average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged
returns are primarily from the retail stores. The damages occur in the stores, not in shipping to the stores. It is industry practice to
accept returns from wholesale customers. Transportation revenue, the amount billed to the customer for shipping the product, is
recorded when products are shipped. Management has estimated and included a reserve for sales returns of $100,000 as of both
February 28, 2013 and February 29, 2012.
Allowance for Doubtful Accounts
We maintain an allowance for estimated losses resulting from the inability of our customers to make required
payments. An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer
receivable balances, age of customer receivable balances, customers’ financial conditions and current economic
trends. Management has estimated allowance for doubtful accounts of $471,900 and $456,300 as of February 28, 2013 and
February 29, 2012, respectively.
14
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Inventory
Management continually estimates and calculates the amount of non-current inventory. The inventory arises due to
occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to
minimum order requirements of our primary supplier. Noncurrent inventory was estimated by management using the current year
turnover ratio by title. All inventory in excess of 2 Ѕ years of anticipated sales was classified as noncurrent inventory. Noncurrent
inventory balances were $934,000 and $888,000 at February 28, 2013 and February 29, 2012, respectively.
Inventories are presented net of a valuation allowance. Management has estimated and included a valuation allowance
for both current and noncurrent inventory. This allowance is based on management’s identification of slow moving inventory on
hand. Management has estimated a valuation allowance for both current and noncurrent inventory of $400,000 and $365,000 as
of February 28, 2013 and
February 29, 2012, respectively.
Our product line contains approximately 1,500 titles, each with different rates of sale, depending upon the nature and
popularity of the title. Almost all of our product line is saleable as the books are not topical in nature and remain current in
content today as well as in the future. Most of our products are printed in Europe, China, Singapore, India, Malaysia and Dubai
resulting in a three to four-month lead-time to have a title reprinted and delivered to us.
Our principal supplier, based in England, generally requires a minimum reorder of 6,500 or more of a title in order to get
a solo print run. Smaller orders would require a shared print run with the supplier’s other customers, which can result in more
lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of
similar titles in the same series. We then place the initial order or re-order based upon this analysis.
These factors and historical analysis have led Management to determine that 2 Ѕ years represents a reasonable estimate of
the normal operating cycle for our products.
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort
to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded
that the recently issued accounting standards are not applicable to us.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company and are not required to provide this information.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 begins at page 21.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
15
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Item 9A. CONTROLS AND PROCEDURES
An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of February 28, 2013. This evaluation was conducted under the
supervision and with the participation of our management, including our Chief Executive Officer and our Controller/Corporate
Secretary (Principal Financial and Accounting Officer).
Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective to ensure
that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized and reported in accordance within the time periods specified in Securities and Exchange Commission
rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the
likelihood of future events.
During the fourth fiscal quarter of the fiscal year covered by this report on Form 10-K, there have been no changes in our
internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal
control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the "Exchange Act"). Under the supervision and
with the participation of our management, including our President and our Controller, we evaluated the effectiveness of our
internal control over financial reporting based on the framework in INTERNAL CONTROL-INTEGRATED FRAMEWORK
issued by the Committee of Sponsoring Organizations of the Treadway Commission. All internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Based on our evaluation under that framework and applicable SEC
rules, our management concluded that our internal control over financial reporting was effective as of February 28, 2013.
This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual
report.
Item 9B. OTHER INFORMATION
None
16
Table of Contents
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
PART III
The information required by this Item 10 is furnished by incorporation by reference to the information under the caption
"Election of Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be
held on July 18, 2013.
(b) Identification of Executive Officers
Information regarding our executive officers required by Item 401 of Regulation S-K is presented in Item 1 hereof under
the subcaption "Executive Officers" as permitted by General Instruction G (3) to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
(c) Compliance with Section 16 (a) of the Exchange Act
The information required by this Item 10 is furnished by incorporation by reference to the information under the caption
"Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on July 18, 2013.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is furnished by incorporation by reference to the information under the caption
"Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to
be held on July 18, 2013.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item 12 is furnished by incorporation by reference to the information under the captions
"Security Ownership of Certain Beneficial Owners and Management" and "Compensation Plans" in our definitive Proxy
Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 18, 2013.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Item 14. PRINCIPAL ACCOUNTANT’S FEES AND SERVICES
The information required by this Item 14 is furnished by incorporation by reference to the information under the caption
"Independent Registered Public Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting
of Shareholders to be held on July 18, 2013.
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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets - February 28, 2013 and February 29, 2012
Statements of Earnings - Years ended February 28, 2013 and February 29, 2012
Statements of Shareholders' Equity -Years ended February 28, 2013 and February 29, 2012
Statements of Cash Flows - Years ended February 28, 2013 and February 29, 2012
Notes to Financial Statements
Page
21
22
23
24
25
26 - 34
Schedules have been omitted as such information is either not required or is included in the financial statements.
2. Exhibits
3.1
3.2
3.3
3.4
3.5
3.6
4.1
Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21,
1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-
4957).
Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein
by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-4957).
By-Laws as amended are incorporated herein by reference to Exhibit 20.2 to Form 10-K for fiscal year ended
February 28, 1981 (File No. 0-4957).
Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated
herein by reference to exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-4957).
Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein
by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-4957).
Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by
reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-4957).
Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to
Registration Statement on Form 10-K (File No. 0-4957) filed June 29, 1970.
10.1 Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated
November 25, 1988 is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989
(File No. 0-4957).
10.2
Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March
14, 1989 is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-
4957).
10.3 Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company
and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated
February 29, 1992 (File No. 0-4957).
10.4 Educational Development Corporation 1992 Incentive Stock Option Plan is incorporated herein by reference to
Exhibit 4(c) to Registration Statement on Form S-8 (File No. 33-60188).
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10.5 Restated Loan Agreement dated June 30, 1999 between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.24 to Form 10-K dated February 29, 2000 (File No. 0-4957).
10.6 Educational Development Corporation 2002 Incentive Stock Option Plan is incorporated herein by reference to
Exhibit A to definitive proxy statement on Schedule 14A dated May 23, 2002 (File No. 0-4957).
10.7 Amendment dated November 12, 2002 to Usborne Agreement – Contractual agreement by and between we and
Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.24 to Form 10-K dated February
28, 2003 (File No. 0-4957).
10.8 Employment Agreement between Randall W. White and the Company dated February 28, 2004.
10.9
Fifth Amendment dated June 30, 2004 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.10 Sixth Amendment dated June 30, 2005 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.11 Seventh Amendment dated September 2, 2005 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
10.12 Eighth Amendment dated June 30, 2006 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.13 Ninth Amendment dated June 30, 2007 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.14 Tenth Amendment dated June 30, 2008 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.15 Eleventh Amendment dated June 30, 2009 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.16 Twelfth Amendment dated June 30, 2010 to Restated Loan Agreement between the Company and Arvest Bank,
Tulsa, OK.
10.17 Thirteenth Amendment dated June 30, 2011 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
10.18 Fourteenth Amendment dated June 30, 2012 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
*23.1 Consent of Independent Registered Public Accounting Firm.
*31.1 Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
*31.2 Certification of the Controller and Corporate Secretary (Principal Financial and Accounting Officer) of
Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
____________________________________________________________________________________________________
*Filed Herewith
19
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION
Date: May 28, 2013 By /s/ Marilyn Pinney
Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
Date: May 28, 2013 /s/ Randall W. White
Randall W. White
Chairman of the Board
President, Treasurer and
Director
May 28, 2013 /s/ John A. Clerico
John A. Clerico, Director
May 28, 2013 /s/ Ronald McDaniel
Ronald McDaniel, Director
May 28, 2013 /s/ Kara Gae Neal
Kara Gae Neal, Director
May 28, 2013 /s/ Betsy Rickert
Betsy Rickert, Director
May 28, 2013 /s/ Marilyn Pinney
Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
20
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Educational Development Corporation
We have audited the accompanying balance sheets of Educational Development Corporation as of February 28, 2013 and
February 29, 2012, and the related statements of earnings, shareholders’ equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Educational Development Corporation as of February 28, 2013 and February 29, 2012, and the results of its operations and its
cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ HOGANTAYLOR LLP
Tulsa, Oklahoma
May 28, 2013
21
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EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
AS OF FEBRUARY 28 (29),
____________________________________________________________________________________________________
2013
2012
$
469,100 $
760,100
3,419,100
9,724,700
438,800
229,300
381,400
14,662,400
3,575,000
9,854,000
277,100
-
379,800
14,846,000
559,000
548,000
1,915,500
2,000,400
430,300
250,000
256,700
76,900
301,100
65,900
$
17,900,800 $
18,011,400
$
1,862,100 $
1,250,000
439,300
-
317,900
579,700
4,449,000
1,793,900
250,000
436,700
64,200
469,600
779,400
3,793,800
1,208,200
8,548,000
15,194,700
24,950,900
(11,499,100)
13,451,800
17,900,800 $
1,208,200
8,548,000
16,124,900
25,881,100
(11,663,500)
14,217,600
18,011,400
$
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts and
sales returns $571,900 (2013) and $556,300 (2012)
Inventories—Net
Prepaid expenses and other assets
Income tax receivable
Deferred income taxes
Total current assets
INVENTORIES—Net
PROPERTY, PLANT AND EQUIPMENT—Net
INVESTMENT IN NONMARETABLE EQUITY SECURITIES
OTHER ASSETS
DEFERRED INCOME TAXES
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Line of credit, current portion
Accrued salaries and commissions
Income taxes payable
Dividends payable
Other current liabilities
Total current liabilities
COMMITMENTS (Note 7)
SHAREHOLDERS’ EQUITY:
Common stock, $0.20 par value; Authorized 8,000,000 shares;
Issued 6,041,040
Outstanding 3,960,812 (2013) and 3,913,183 (2012) shares
Capital in excess of par value
Retained earnings
Less treasury stock, at cost
TOTAL
See notes to financial statements.
22
Table of Contents
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 28 (29),
____________________________________________________________________________________________________
GROSS SALES
Less discounts and allowances
Transportation revenue
NET REVENUES
COST OF SALES
Gross margin
OPERATING EXPENSES:
Operating and selling
Sales commissions
General and administrative
Total operating expenses
OTHER INCOME
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
NET EARNINGS
BASIC AND DILUTED EARNINGS PER SHARE:
Basic
Diluted
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT
SHARES OUTSTANDING:
Basic
Diluted
Dividends per share
See notes to financial statements.
2013
2012
$
39,215,300 $
(14,585,800)
858,000
25,487,500
10,494,200
14,993,300
40,906,200
(15,592,000)
959,100
26,273,300
10,549,000
15,724,300
6,714,600
4,764,900
2,285,700
13,765,200
6,710,400
4,855,200
1,972,500
13,538,100
53,900
91,500
1,282,000
2,277,700
479,100
802,900 $
856,800
1,420,900
0.20 $
0.20 $
0.36
0.36
3,934,352
3,934,352
0.42 $
3,898,145
3,898,793
0.48
$
$
$
$
23
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EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED FEBRUARY 28 (29),
____________________________________________________________________________________________________
Common Stock
(par value $0.20 per
share)
Number of
Capital in
Treasury Stock
Shares
Issued
Excess of Retained Number of
Sharehold
ers’
Amount Par Value Earnings Shares
Amount Equity
-
-
-
-
-
-
-
-
BALANCE—March 1, 2011 6,041,040 $ 1,208,200 $ 8,548,000 $
-
Purchases of treasury stock
Sales of treasury stock
-
Dividends declared
($0.12/share)
Dividends paid
($0.36/share)
Net earnings
BALANCE—February 29,
2012
Purchases of treasury stock
Sales of treasury stock
Dividends declared
($0.08/share)
Dividends paid
($0.36/share)
Net earnings
BALANCE—February 28,
2013
6,041,040 $ 1,208,200 $ 8,548,000 $
-
-
6,041,040 $ 1,208,200 $ 8,548,000 $
-
-
-
-
-
-
-
-
-
-
-
-
16,575,10
(11,672,8
14,658,50
0
36,731 (214,300) (214,300)
(44,015) 223,600 223,600
0 2,135,141 $
-
-
00) $
- (469,600)
(1,401,50
-
0)
- 1,420,900
16,124,90
-
- (469,600)
(1,401,50
-
-
-
0)
- 1,420,900
14,217,60
0 2,127,857 $
0
(56,700)
12,106
-
(59,735) 221,100 221,100
-
00) $
(56,700)
(11,663,5
- (317,900)
(1,415,20
-
0)
- 802,900
15,194,70
-
-
-
- (317,900)
(1,415,20
-
0)
- 802,900
13,451,80
0
00) $
(11,499,1
0 2,080,228 $
See notes to financial statements.
24
Table of Contents
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28 (29),
____________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation
Deferred income taxes
Provision for doubtful accounts and sales returns
Changes in assets and liabilities:
Accounts receivable
Inventories, net
Prepaid expenses and other assets
Accounts payable, accrued salaries and commissions,
and other current liabilities
Income tax payable/receivable
Total adjustments
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in nonmarketable equity securities
Purchases of property, plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable
Cash received from sale of treasury stock
Cash paid to acquire treasury stock
Borrowings under revolving credit agreement
Payments under revolving credit agreement
Dividends paid
Net cash used in financing activities
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS—END OF YEAR
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
See notes to financial statements.
2013
2012
$
802,900 $
1,420,900
114,200
(12,600)
1,508,700
118,100
(22,700)
874,800
(1,352,800)
118,300
(117,300)
(1,373,500)
201,100
(6,200)
(128,900)
(293,500)
(163,900)
639,000
(180,300)
(29,300)
(209,600)
(469,000)
40,400
(637,000)
783,900
(250,000)
(76,100)
(326,100)
-
221,100
(56,700)
2,185,000
(1,185,000)
(1,884,800)
(720,400)
(291,000)
760,100
469,100 $
(75,000)
223,600
(214,300)
250,000
-
(1,870,200)
(1,685,900)
(1,228,100)
1,988,200
760,100
24,300 $
785,100 $
3,700
839,100
$
$
$
25
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EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012
____________________________________________________________________________________________________
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business—We distribute books and publications through our Publishing and Usborne Books and More
(“UBAM”) Divisions to book, toy and gift stores, libraries and home educators located throughout the United States (“U.S.”). We
are the sole U.S. distributor of books and related items, which are published by an England-based publishing company, Usborne,
our primary supplier. We are also in the direct publishing market through our ownership of Kane/Miller Publishers.
Estimates—Our financial statements were prepared in conformity with accounting principles generally accepted in the
United States of America, which requires management to make estimates and assumptions that affect the amounts and disclosures
in the financial statements. Actual results could differ from these estimates.
Business Concentration—A significant portion of our inventory purchases are concentrated with an England-based
publishing company. Purchases from this company were approximately $8.6 million for the year ended February 28, 2013 and
$8.3 million for the year ended February 29, 2012. Total inventory purchases for those same periods were approximately $11.3
million and $11.4 million, respectively.
Cash and Cash Equivalents—Cash and cash equivalents are maintained at financial institutions and, at times, balances
may exceed federally insured limits. We have never experienced any losses related to these balances. Effective January 1, 2013,
insurance coverage on our non-interest bearing cash balances reverted to $250,000 and our non-interest bearing cash balances
exceed federally insured limits. The majority of payments due from banks for third party credit card transactions process within
two business days. These amounts due are classified as cash and cash equivalents.
Accounts Receivable— Accounts receivable are uncollateralized customer obligations due under normal trade terms
generally requiring payment within thirty days from the invoice date. Trade accounts are stated at the amount management
expects to collect from outstanding balances. Delinquency fees are not assessed. Payments of accounts receivable are allocated to
the specific invoices identified on the customers’ remittance advice. Accounts receivable are carried at original invoice amount
less an estimated reserve made for returns and discounts based on quarterly review of historical rates of returns and expected
discounts to be taken. The carrying amount of accounts receivable is reduced, if needed, by a valuation allowance that reflects
management’s best estimate of the amounts that will not be collected.
Management periodically reviews accounts receivable balances and, based on an assessment of historical bad debts,
current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic
trends, estimates the portion, of the balance that will not be collected. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation account based on its assessment of the current status of the individual
accounts. Balances which remain outstanding after management has used reasonable collection efforts are written off through a
charge to the valuation allowance and a credit to trade accounts receivable. Recoveries of trade receivables previously written off
are recorded when received.
Inventories—Inventories are stated at the lower of cost or market. Cost is determined using the FIFO method. We present
a portion of our inventory as a noncurrent asset. Occasionally we purchase book inventory in quantities in excess of what will be
sold within the normal operating cycle due to minimum order requirements of our primary supplier. These excess quantities are
included in noncurrent inventory. We estimate noncurrent inventory using the current year turnover ratio by title. All inventory
in excess of 2½ years of anticipated sales is classified as noncurrent inventory.
26
Table of Contents
Inventories are presented net of a valuation allowance. Management has estimated and included an allowance for slow
moving inventory for both current and noncurrent inventory. This allowance is based on management’s analysis of inventory on
hand at February 28, 2013 and February 29, 2012.
Property, Plant and Equipment—Property, plant and equipment are stated at cost and depreciated on a straight-line basis
over the estimated useful lives, as follows:
Building
Machinery and equipment
Furniture and fixtures
30 years
3 - 10 years
3 years
Income Taxes—We account for income taxes using the liability method. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using
the current tax laws and rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts
more likely than not expected to be realized.
Revenue Recognition—Sales are recognized and recorded when products are shipped. Products are shipped FOB shipping
point. The UBAM Division’s sales are paid at the time the product is shipped. These sales accounted for 58% of net revenues in
both fiscal years 2013 and 2012.
Estimated allowances for sales returns are recorded as sales are recognized and recorded. Management uses a moving
average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged
returns are primarily from the retail stores related to damages which occur in the stores, not in shipping to the stores. It is industry
practice to accept returns from wholesale customers. Management has estimated and included a reserve for sales returns of
$100,000 as of February 28, 2013 and February 29, 2012.
Transportation revenue, the amount billed to the customer for shipping the product, is recorded when products are shipped.
Advertising Costs—Advertising costs are expensed as incurred. Advertising expenses, included in selling and operating
expenses in the statements of earnings, were $222,600 and $219,900 for the years ending February 28, 2013 and February 29,
2012, respectively.
Shipping and Handling Costs— We classify shipping and handling costs as operating and selling expenses in the
statements of earnings. Shipping and handling costs were $2,348,900 and $2,289,700 for the years ending February 28, 2013 and
February 29, 2012, respectively.
Earnings per Share—Basic earnings per share (“EPS”) is computed by dividing net income 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 we have utilized the treasury stock method.
27
Table of Contents
The following reconciles the diluted earnings per share:
Year Ended February 28 (29),
2013
2012
Diluted Earnings Per Share:
Net earnings applicable to common shareholders $
802,900
$
1,420,900
Shares:
Weighted average shares outstanding–basic
Assumed exercise of options
3,934,352
-
3,898,145
648
Weighted average shares outstanding–diluted
3,934,352
3,898,793
Diluted Earnings Per Share
$
0.20
$
0.36
There were no stock options for the fiscal year ended February 28, 2013 included in the diluted earnings per share
calculation as they were all anti-dilutive. At February 29, 2012 no options were excluded from the diluted earnings per share
calculation.
Long-Lived Asset Impairment— We review the value of long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable based on estimated future cash flows. No
impairment was noted as a result of such review during the years ended February 28, 2013 and February 29, 2012.
Stock-Based Compensation—Share-based payment transactions with employees, such as stock options and restricted
stock, are measured at estimated fair value at date of grant and recognized as compensation expense.
New accounting pronouncements—The Financial Accounting Standards Board (“FASB”) periodically issues new
accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the
recently issued pronouncements and concluded that the recently issued accounting standards are not applicable to us.
2. INVENTORIES
Inventories consist of the following:
Current:
Book inventory
Inventory valuation allowance
Inventories net–current
Noncurrent:
Book inventory
Inventory valuation allowance
Inventories net–noncurrent
February 28 (29),
2013
2012
9,749,700
(25,000)
9,724,700
$
$
9,879,000
(25,000)
9,854,000
934,000
(375,000)
559,000
$
$
888,000
(340,000)
548,000
$
$
$
$
28
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3.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Land
Building
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
February 28 (29),
2013
250,000
2,124,700
2,287,900
74,100
4,736,700
(2,821,200)
1,915,500
$
$
2012
250,000
2,124,700
2,258,600
74,100
4,707,400
(2,707,000)
2,000,400
$
$
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items
comprising our net deferred tax assets and liabilities as of February 28 (29) are as follows:
Current:
Deferred tax assets:
Allowance for doubtful accounts
Inventory overhead capitalization
Allowance for slow moving inventory
Allowance for sales returns
Accruals
Deferred tax assets
Noncurrent:
Deferred tax assets:
Allowance for slow moving inventory
2013
2012
$
$
175,900
77,800
9,500
38,000
80,200
381,400
173,600
78,500
9,500
38,000
80,200
379,800
$
140,600
$
129,200
Deferred tax assets
140,600
129,200
Deferred tax liabilities:
Property and equipment
Deferred tax liabilities
(63,700)
(63,700)
(63,300)
(63,300)
Deferred tax asset–Net
$
76,900
$
65,900
Management has determined that no valuation allowance is necessary to reduce the carrying value of deferred tax assets as
it is more likely than not that such assets are realizable.
29
Table of Contents
The components of income tax expense are as follows:
Current:
Federal
State
Deferred:
Federal
State
$
Total income tax expense
$
February 28 (29),
2013
2012
411,000
80,700
491,700
(10,600)
(2,000)
(12,600)
479,100
$
$
737,500
142,000
879,500
(19,100)
(3,600)
(22,700)
856,800
The following reconciles our expected income tax expense utilizing statutory tax rates to the actual tax expense:
Tax expense at federal statutory rate
State income tax–net of federal tax benefit
Other
Total income tax expense
$
$
435,900
50,400
(7,200)
479,100
$
$
774,400
89,800
(7,400)
856,800
February 28 (29),
2013
2012
We file our tax returns in the US and certain state jurisdictions. We are no longer subject to income tax examinations by tax
authorities for fiscal years before 2010. We are not currently the subject of any income tax examinations by any tax authorities.
Based upon a review of our income tax filing positions, we believe that our positions would be sustained upon an audit and
do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no reserves for
uncertain income tax positions have been recorded. We classify interest and penalties associated with income taxes as a
component of income tax expense on the statement of earnings.
5.
EMPLOYEE BENEFIT PLAN
We have a profit sharing plan that incorporates the provisions of Section 401(k) of the Internal Revenue Code. The 401(k)
plan covers substantially all employees meeting specific age and length of service requirements. Matching contributions are
discretionary and amounted to $67,500 and $74,400 in the fiscal years ended February 28, 2013 and February 29, 2012,
respectively. The 401(k) plan includes an option for employees to invest in our stock, which is purchased from our Treasury stock
shares. Shares purchased for the 401(k) plan from Treasury stock amounted to 57,367 net shares and 41,689 net shares in the
fiscal years ended February 28, 2013 and February 29, 2012, respectively.
6.
DEBT
We have a $2,500,000 revolving credit agreement, with interest payable monthly at the greater of (a) prime rate minus
0.75% or (b) 4.00%. At February 28, 2013, the rate in effect was 4.00%, collateralized by substantially all of our assets and
maturing on June 30, 2013.
30
Table of Contents
We had $1,250,000 in borrowings outstanding on the above revolving credit agreement at February 28, 2013 and $250,000
in borrowings at February 29, 2012. Available credit under the revolving credit agreement was $1,250,000 at February 28, 2013.
This agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue, or obtain issuance
of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than June 30, 2013 and
that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. The agreement
contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers
or consolidation, disallow additional debt, and limit the amount of compensation, salaries, investments, capital expenditures and
leasing transactions. We intend to renew the bank agreement or obtain other financing upon maturity.
7. COMMITMENTS
At February 28, 2013, we had outstanding purchase commitments for inventory totaling approximately $3,128,200 and
outstanding payment commitments for contracts related to custom sports stories totaling approximately $80,000.
Rent expense for the year ended February 28, 2013 was $81,000. The following table provides a summary of our future
lease obligations as of February 28, 2013:
Total lease payments due
$
20,500
$
11,500
$
9,000
Total
2014
2015
8.
CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
The Board of Directors adopted the 1992 Incentive Stock Option Plan (the “1992 Plan”) in June of 1992, which authorized
us to grant up to 1,000,000 stock options. The 1992 Plan expired in June of 2002 upon which the Board of Directors adopted the
2002 Stock Option Plan (the “2002 Plan”). The 2002 Plan also authorized us to grant up to 1,000,000 stock options.
Options granted under the 1992 Plan and 2002 Plan (collectively the “Incentive Plans”) vest at date of grant and are
exercisable up to ten years from the date of grant. The exercise price on options granted is equal to the market price at the date of
grant. Options outstanding at February 28, 2013 expire beginning in March 2014 through December 2019.
A summary of the status of our Incentive Plans as of February 28, 2013 and February 29, 2012, and changes during the
years then ended is presented below:
February 28, 2013
February 29, 2012
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
Outstanding at Beginning of Year
16,000 $
5.55
16,000 $
5.55
Exercised/canceled
-
-
-
-
Outstanding at End of Year
16,000 $
5.55
16,000 $
5.55
All options outstanding are exercisable at February 28, 2013.
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Table of Contents
9.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended February 28, 2013 and February 29,
2012.
2013
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
2012
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
Net
Revenues
Earnings
Gross Margin Net Earnings Per Share
Basic
Diluted
Earnings
Per Share
$
$
$
$
6,594,600 $
5,464,400
7,864,400
5,564,100
25,487,500 $
4,118,700 $
3,024,200
4,813,200
3,037,200
14,993,300 $
350,200 $
138,200
525,700
(211,200)
802,900 $
6,264,400 $
5,437,100
8,690,400
5,881,400
26,273,300 $
3,824,000 $
3,036,700
5,283,600
3,580,000
15,724,300 $
300,200 $
126,200
724,900
269,600
1,420,900 $
0.09 $
0.04
0.13
(0.06)
0.20 $
0.08 $
0.03
0.19
0.06
0.36 $
0.09
0.04
0.13
(0.06)
0.20
0.08
0.03
0.19
0.06
0.36
10. BUSINESS SEGMENTS
We have two reportable segments: Publishing and Usborne Books and More (“UBAM”) which 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, toy and gift stores, school supply
stores and museums, through commissioned sales representatives, trade and specialty wholesalers and an internal
telesales group.
UBAM markets its product line through a nationwide network of independent sales consultants using a combination of
direct sales, home shows and book fairs. The UBAM Division also distributes to school and public libraries.
The accounting policies of the segments are the same as those described in the summary of significant accounting
policies. We evaluate segment performance based on earnings (loss) before income taxes of the segments, which is defined as
segment net sales reduced by direct cost of sales and direct expenses. Corporate expenses, depreciation, interest expense and
income taxes are not allocated to the segments, but are listed in the “other” column. Corporate expenses include the executive
department, accounting department, information services department, general office management and building facilities
management. Our assets and liabilities are not allocated on a segment basis.
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Information by industry segment for the years ended February 28, 2013 and February 29, 2012 is set forth below:
NET REVENUES
$
$
$
$
2013
10,811,600
14,675,900
-
25,487,500
$
$
$
$
2012
10,981,100
15,292,200
-
26,273,300
EARNINGS (LOSS) BEFORE INCOME TAXES
$
$
$
$
2013
3,457,900
2,105,800
(4,281,700)
1,282,000
$
$
$
$
2012
3,635,100
2,582,500
(3,939,900)
2,277,700
Publishing
UBAM
Other
Total
Publishing
UBAM
Other
Total
11.
STOCK REPURCHASE PLAN
In April 2008, the Board of Directors authorized us to purchase up to an additional 500,000 shares of our common stock
under the plan initiated in 1998. This plan has no expiration date. During fiscal year 2013, we purchased 12,106 shares of
common stock at an average price of $4.68 per share totaling approximately $56,700. The maximum number of shares that may
be repurchased in the future is 348,003.
12. RECEIVABLE FROM CUSTOMER IN BANKRUPTCY
At February 28, 2013, we had a receivable in the amount of $364,500 due from a customer who has filed for protection
from its creditors under Chapter 11 of the Bankruptcy Reform Act of 1978 ("Act"). It had been unable to secure further financing
to satisfy the claims of its creditors. At February 28, 2013, this receivable remains $364,500, of which, $340,000 is reserved.
13. STOCK PURCHASE AGREEMENT
During fiscal year 2012, we signed a Stock Purchase Agreement to acquire an 11% position with Demibooks, Inc. for an
initial investment of $250,000. We have accounted for this investment using the cost method, as reflected on the balance sheet
under ‘investment in nonmarketable equity securities’. Demibooks provides a publishing platform, Composer, which is a code-
free way for publishers and self-published authors and illustrators to create interactive books for the iPad on the device itself. We
utilize the Composer platform to create proprietary interactive products. The Stock Purchase Agreement allowed for an additional
$250,000 investment, of which we have invested an additional $180,300 during fiscal year 2013, resulting in a total position of
15.6%. Our investment in Demibooks is subject to a high degree of risk because such securities are illiquid and the value of such
securities could decline causing us to write-down or write-off the value of our investment, which would result in a negative impact
to our earnings.
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14. FAIR VALUE MEASUREMENTS
The valuation hierarchy included in U.S. GAAP considers the transparency of inputs used to value assets and liabilities as
of the measurement date. The less transparent or observable the inputs used to value assets and liabilities, the lower the
classification of the assets and liabilities in the valuation hierarchy. A financial instrument's classification within the valuation
hierarchy is based on the lowest level of input that is significant to its fair value measurement. The three levels of the valuation
hierarchy and the classification of our financial assets and liabilities within the hierarchy are as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date.
Level 2 - Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or
indirectly. If an asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of
the asset or liability.
Level 3 - Unobservable inputs for the asset or liability.
We do not report any assets or liabilities at fair value in the financial statements. However, the estimated fair value of our
line of credit is estimated by management to approximate the carrying value of $1,250,000 and $250,000 at February 28, 2013 and
February 29, 2012, respectively. Management's estimates are based on the obligations' characteristics, including floating interest
rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.
It was not practicable to estimate the fair value of an investment representing 15.6% of the issued common stock of an
untraded company; that investment is carried at its original cost of $430,300 and $250,000 at February 28, 2013, and February 29,
2012, respectively.
There were no transfers among Level 1, Level 2 or Level 3 assets during the years ended February 28, 2013 and February
29, 2012.
15. SUBSEQUENT EVENT
On March 22, 2013, we paid the previously declared $0.08 dividend per share to shareholders of record as of March 15,
2013.
******
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements No. 33-60188 and 333-100659 of Educational
Development Corporation on Form S-8 of our report dated May 28, 2013, appearing in this Annual Report on Form 10-K of
Educational Development Corporation for the year ended February 28, 2013.
/s/ HoganTaylor LLP
Tulsa, Oklahoma
May 28, 2013
35
Table of Contents
Exhibit 31.1
I, Randall W. White, certify that:
CERTIFICATION
1.
2.
3.
4.
a.
b.
c.
d.
5.
a.
b.
I have reviewed this Annual Report on Form 10-K of Educational Development Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: May 28, 2013
/s/ Randall W. White
Chairman of the Board, President
and Chief Executive Officer
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Table of Contents
Exhibit 31.2
I, Marilyn Pinney, certify that:
CERTIFICATION
1.
2.
3.
4.
a.
b.
c.
d.
5.
e.
f.
I have reviewed this Annual Report on Form 10-K of Educational Development Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: May 28, 2013
/s/ Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
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Table of Contents
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In connection with the Annual Report of Educational Development Corporation (the “Company”) on Form 10-K for the
period ending February 28, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: May 28, 2013 By /s/ Randall W. White
Randall W. White
President and Chief Executive Officer
Date: May 28, 2013 By /s/ Marilyn Pinney
Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
38
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Financial Highlights
Fiscal Years ended February 28 (29)
Financial Information
Net revenues
Earnings before income taxes
Net earnings
2013
$ 25,487,500
$ 1,282,000
802,900
$
2012
$ 26,273,300
$ 2,277,700
$ 1,420,900
Earnings per share:
Basic
Diluted
$
$
0.20
0.20
$
$
0.36
0.36
Capital expenditures
Total assets
Shareholders’ equity
$
29,300
$ 17,900,800
$ 13,451,800
$
76,100
$ 18,011,400
$ 14,217,600
Common Stock
Shares outstanding at year end
Cash dividends paid
Book value at year end
Market price range
High
Low
Market price at year end
3,960,812
0.48
$
3.40
$
3,913,183
0.48
$
3.63
$
$
$
$
5.00
3.79
3.91
$
$
$
6.90
3.80
4.96
Business Segments
Net Revenues
Publishing
Usborne Books & More
$ 10,811,600
$ 14,675,900
$ 10,981,100
$ 15,292,200
Total
$ 25,487,500
$ 26,273,300
DIRECTORS
CORPORATE DATA
John A. Clerico
Co-founder and Chairman
ChartMark Investments, Inc.
Ronald T. McDaniel
Retired V.P. Sales
Educational Development Corporation
Kara Gae Neal
Director, School of Urban Education
The University of Tulsa
Betsy Richert
Media Specialist,
Tulsa Public Schools
Randall W. White
Chairman, President and
Chief Executive Officer – EDC
OFFICERS
Randall W. White
Chairman, President and
Chief Executive Officer
Marilyn Pinney
Controller and Corporate Secretary
Craig M. White
Vice President - Information Systems
Notice of Annual Meeting
July 18, 2013, 10:00 a.m.
Educational Development Corporation
Executive Conference Room
10302 E. 55th Place
Tulsa, Oklahoma
Form 10-K
Educational Development Corporation’s
Form 10-K filed with the Securities and
Exchange Commission is available upon
request. Write to:
Randall W. White, President
Educational Development Corporation
10302 E. 55th Place
Tulsa, Oklahoma 74146-6515
Transfer Agent
American Stock Transfer and Trust Company
New York, New York
Auditors
HoganTaylor LLP
Tulsa, Oklahoma
Corporate Offices
10302 E. 55th Place
Tulsa, Oklahoma 74146-6515
Phone (918) 622-4522
Fax (918) 665-7919
www.edcpub.com
10302 E. 55th Place • Tulsa, Oklahoma 74146-6515