Educational Development
Corporation
Annual Report
10302 E. 55th Place • Tulsa, Oklahoma 74146-6515
Financial Highlights
Fiscal Years ended February 28
Financial Information
Net revenues
Earnings before income taxes
Net earnings
2014
$ 26,097,000
873,500
$
357,600
$
2013
$ 25,487,500
$ 1,282,000
802,900
$
Earnings per share:
Basic
Diluted
$
$
0.09
0.09
$
$
0.20
0.20
Capital expenditures
Total assets
Shareholders’ equity
$
77,500
$ 16,758,300
$ 12,582,400
$
29,300
$ 17,900,800
$ 13,451,800
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
3,977,943
0.32
$
3.16
$
3,960,812
0.44
$
3.40
$
$
$
$
3.89
2.49
3.75
$
$
$
5.00
3.79
3.91
Business Segments
Net Revenues
EDC Publishing
Usborne Books & More
$ 10,968,400
$ 15,128,600
$ 10,811,600
$ 14,675,900
Craig M. White
Vice President - Information Systems
www.edcpub.com
Controller and Corporate Secretary
Tulsa, Oklahoma 74146-6515
Total
$ 26,097,000
$ 25,487,500
DIRECTORS
CORPORATE DATA
John A. Clerico
Co-founder and Chairman
ChartMark Investments, Inc.
Notice of Annual Meeting
July 17, 2014, 10:00 a.m.
Educational Development Corporation
Executive Conference Room
Ronald T. McDaniel
Retired V.P. Sales
Educational Development Corporation
10302 E. 55th Place
Tulsa, Oklahoma
Kara Gae Neal
Director, School of Urban Education
Form 10-K filed with the Securities and
The University of Tulsa
Exchange Commission is available upon
Form 10-K
Educational Development Corporation’s
request. Write to:
Randall W. White, President
Educational Development Corporation
10302 E. 55th Place
Tulsa, Oklahoma 74146-6515
Chief Executive Officer – EDC
American Stock Transfer and Trust Company
Betsy Richert
Media Specialist
Tulsa Public Schools
Randall W. White
Chairman, President and
OFFICERS
Randall W. White
Chairman, President and
Chief Executive Officer
Marilyn Pinney
Transfer Agent
New York, New York
Auditors
HoganTaylor LLP
Tulsa, Oklahoma
Corporate Offices
10302 E. 55th Place
Phone (918) 622-4522
Fax (918) 665-7919
Letter From The President
Dear Shareholders,
It has now been just over two years since making the bold decision to discontinue
sales to Amazon, which had represented approximately 20% of the Publishing Division’s
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. Last year I was very relieved that
the support from our loyal retail customers allowed the Publishing Division to finish
with only a 2% decline in annual sales, and I am ecstatic to report the trend continued in
this past fiscal year with the Publishing Division reporting its largest revenue year in our
history. I am very appreciative of our loyal customers, and new customers whose support
has reinforced our decision. This increase in sales occurred during the period when
industry-wide retail sales in our category was down 6.6%.
As I have stated, I believed Amazon had a very negative impact on our Company
and was a significant factor in the sales decline of our direct selling division. Too often,
our direct sales representatives would present our products to the consumer only to have
them order from Amazon and avoid sales tax, which our Company is obligated to collect.
I believe in “Sales 101” which dictates that whoever makes the sale must be compensated
and, when this did not happen, we lost numerous sales representatives resulting in a sales
decline for the past nine years. However, I am delighted to report, this trend has been
reversed and our direct selling division reported a sales increase in this past fiscal year, and
actually has now recorded 11 consecutive months of sales gain when compared to the
same month the previous year. This renewed confidence in our sales representatives has
resulted in over 2,000 new sales associates joining our organization since January 2014 and
a 50% increase in our registration for our Annual Convention in June 2014.
There are many factors that are responsible for the turnaround in our Company
sales, and of course the Amazon decision looms as the largest, however many other
elements enter into these results and certainly not the least is the fact that we represent
the very best products in the industry, with award-winning titles from Kane Miller and
Usborne Publishing. We are very proud of our product line and delighted to report
Usborne Publishing was named Children’s Publisher of the Year in 2012 and most
recently named overall Independent Publisher of the Year in Great Britain.
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 and support to our direct selling division and publishing division in their efforts
to be competitive in the marketplace and we will continue this practice in the future.
During the past year we made significant improvements to our Company, including
staff changes, write-offs of non producing assets and reserving for potential losses in our
inventory consignment program. While these changes impacted our results for this fiscal
year, we are confident they will result in significant increases in the new fiscal year. We
have an excellent leadership team in place, a loyal customer base, award-winning products
and we are excited about the prospects for the fiscal year 2015.
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
Educational Development Corporation was founded in 1965 to develop
supplemental curriculum material for schools. In 1978, EDC acquired the rights
to publish children’s books from Usborne Publishing, Ltd. in England and began
distributing Usborne books through the Publishing Division (EDC Publishing).
What began as a supplement to the corporation’s product line has grown to become
the largest product line for the company.
During the 1980s, EDC eliminated the other product lines to concentrate
exclusively on Usborne books. On March 1, 1989, EDC created the direct selling
division, Usborne Books at Home (currently known as Usborne Books & More). In
late 2008, EDC acquired Kane Miller Publishing, an internationally known publisher
of children’s books with over 25 years in the industry. Concurrently with that
acquisition, the name of the direct selling division was changed to Usborne Books
& More.
Educational Development Corporation presently has two divisions. EDC
Publishing distributes books to bookstores, toy stores, museums, specialty stores and
other retail outlets. Usborne Books & More distributes books through independent
consultants who sell directly to consumers via home shows, direct sales, book fairs,
and web sites. Consultants, when registered as educational consultants, also have the
opportunity to sell to the school & library market. This is done through offering
one-on-one sales opportunities, fundraisers, book fairs, matching grant programs
and more, which reinforce the company’s support of literacy and education.
The company’s strategic plan includes growing market share in both divisions.
Everyone benefits from having Usborne and Kane Miler books available in their
homes, classrooms, libraries and stores. Our books make learning fun! Usborne and
Kane Miller books are the most exciting, engaging, and educational books on the
market today. They are high quality, innovative, lavishly-illustrated and, best of all, they
are the books kids love to read. There are almost 1600 bright, colorful and fun titles to
choose from - covering a wide assortment of subjects. We offer an incredible variety
of fiction and non-fiction titles in all age ranges.
Usborne Books
Over forty years ago, Peter Usborne pioneered a new generation of books that
prove it is possible to create books that compete with the vast media that attracts
children today. From activity books, to fascinating fiction series, to internet-linked
science and history encyclopedias, Usborne does books better. With subjects ranging
from history to art, horses to ballet, sticker books to activity cards, math dictionaries
to first readers and touchy-feely board 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, written with humor, drama and intelligence, Usborne books enrich
children’s interests, helping them discover a myriad of subjects with ease and success.
All of the books in the Usborne line have an accessible, vibrant, distinctive design
and mass commercial appeal. Usborne books are currently sold in over 85 countries
in more than 75 different languages.
Kane Miller Books
For more than 25 years, Kane Miller, based in San Diego, California, has been
publishing award-winning children’s books from around the world. The books chosen
to publish are done so with extraordinary care and attention. Kane Miller searches
the world for great picture books and fiction that enrich the lives and imaginations 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. Books teach attitudes, they reinforce or break stereotypes, they make the world
seem a bigger place or a smaller one, they humanize events, and they make children
feel empathy, sympathy and wonder. Books can personalize the world. Kane Miller
strives to publish books that make kids say “Wow that’s just like me” and also “Wow,
that’s different.” Books that make kids say, “I want to go there someday,” or even just
sometimes “Wow, what a silly story.” And for them to know that maybe someone in
another part of the world is saying “Wow” about the exact same book.
Recognitions
EDC is proud to announce that Usborne Publishing was named 2014 Children’s
Publisher of the Year and 2014 Overall Independent Publisher of the Year by IPG in England.
This honor is especially astounding as they were judged against multiple publishers of
varying sizes and subjects. As was quoted by one of the IPG judges, “the way it not
just keeps going but keeps growing is really impressive. Its presence around the world
is phenomenal, and it is evangelical about getting people to read. All publishers could
learn something from Usborne.”
The Kane Miller title, Splash, Anna Hibiscus!, was selected as a 2014 Summer
Reading selection from The Horn Book (on a shortlist of ten titles).
Usborne Books & More (UBAM)
Upon completion of our National Convention in June 2013, the Usborne
Books & More division began to see positive change occur. After training and
inspiring our sales consultants with our message of “Mission: Possible – Changing the
World One Book at a Time”, they took that message to heart and, more importantly,
back to their local communities to share.
After nine years of sales decline, the home business division experienced a
sales recovery and finished Fiscal 2014 up 3.1%, with a total of $15,128,600 in net
revenues. Total number of new consultants continued to increase as well, with 4,420
new Consultants in Fiscal 2014, up 28% over Fiscal 2013.
Attendance numbers for training events also rose – our Advanced Leadership
Retreat held at Big Cedar Lodge saw a 50% increase in attendance in January 2014,
with the largest number of attendees ever. National Convention, scheduled for June
2014, currently has 53% more registered than attended last year. These numbers
indicate a definite positive trend, especially when compared to data from other direct
sales companies, which shows a downturn in net sales and new recruits.
The continued growth and success is generated from individual UBAM
Consultants, including sales from websites, home parties, book fairs, matching grant
programs, fundraisers and more. Sales numbers are promotion driven in a party-plan
business and much of the success experienced in the last year is due to innovative
incentive programs offered, including ones that reward with cash bonuses, gifts and
prizes. The biggest incentive program each year is the travel incentive, which requires
a minimum level of requirements to be met in order to earn dream vacations all over
the world. Incorporating the theme, “Books are my Ticket to the World”, trip earners
most recently enjoyed the beautiful Atlantis resort in Paradise Island, Bahamas. The
next travel incentive trip will be announced at National Convention in June 2014 to
a very excited audience. It is our expectation that we will have the largest number of
trip earners yet.
t
Celebr a
i ng 25 Yea
r
s
1989 - 2014
U
S
B
O
R
NE BOO K S & M O
E
R
Heather Cobb
Vice President
UBAM
Todd R. White
Manager
Educational Services
Pat Wright
Manager
Consultant Services
EDC Publishing
In Fiscal 2014, EDC Publishing posted the best performance in the division’s
history with an increase of 1.5% in net revenues. Net revenues were recorded
at $10,968,400. Sales to large national chains increased by 6%, due in large part
to the continuing increased penetration of some of our bestselling series, such
as Sticker Dolly Dressing and other activity books. The increased volume has
resulted in the chains giving EDC a more prominent stake of real estate in their
stores.
The toy and gift markets continue their growth trend. In Fiscal 2014, these
markets represented 63% of EDC Publishing’s total net revenues. In one specialty
retail toy chain EDC has become the number one book vendor in their stores,
up from number three a few years ago. EDC maintains a continued presence
at prominent 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 sustain the success of the national chain
and independent retail sectors, while continuing the growth of the toy and gift
markets. The EDC Publishing Division will utilize the marketing efforts that have
proven successful in the past, in all areas of our business.
Jeanie Crone
Vice President
EDC Publishing
Kira Lynn
Publisher
Kane Miller
STOCK PRICES AND DIVIDENDS PAID
Fiscal Year
Stock Prices
Cash Dividend Paid
2014
2013
2012
2011
2010
High
Low
$
$
$
$
$
3.95
5.00
6.90
7.00
6.48
$
$
$
$
$
2.49
3.79
3.80
5.15
3.10
$
$
$
$
$
0.32
0.44
0.48
0.54
0.67
Operations
Headquartered in Tulsa, Oklahoma, the EDC corporate 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.
Craig M. White
Vice President
Information Technology
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, 2014
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.
Yes (cid:2) No ⌧
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) 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 ⌧
(cid:3)
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, 2013, on the NASDAQ Stock Market, LLC was $12,188,600.
As of May 23, 2014, 3,989,126 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for fiscal year 2014 relating to our Annual Meeting of Shareholders to be held on July 17, 2014 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.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant’s Fees and Services
Exhibits and Financial Statement Schedules
4
4
5
6
6
6
6
7
7
8
15
15
15
15
15
16
16
16
16
16
17
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.
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 & More” or “UBAM”) - This division distributes books nationwide
through independent consultants, who hold book showings in individual homes, and through social media, book
fairs, direct sales and Internet sales. The UBAM consultants also distribute these titles to school and public
libraries.
Publishing Division (“EDC Publishing”) – This division markets books to bookstores (including major national
chains), toy stores, specialty stores, museums and other retail outlets throughout the country.
Percent Net Revenues by Division
UBAM
Publishing
Total revenues
2014
2013
58%
42%
100%
58%
42%
100%
4
(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, 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 5,900 consultants in 50 states at February 28, 2014.
EDC Publishing markets through commissioned trade representatives who call on book, toy, and specialty stores along
with other retail outlets. We also do in-house marketing by telephone to these potential customers. This division markets to
approximately 5,000 book, toy and specialty stores. Significant orders, totaling 26% of the Publishing division’s net 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, 2014, 74 full-time employees worked at our Tulsa and San Diego facilities; about 40% of those are in the
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.
Item 1A. RISK FACTORS
We are a smaller reporting company and are not required to provide this information.
5
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 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
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 2014 and 2013, as reported by the National Association of Securities Dealers, Inc., were as
follows:
Period
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
2014
2013
High
Low
High
Low
3.95
3.58
3.11
3.89
3.45
3.04
2.49
2.89
5.00
4.64
4.13
4.12
4.25
3.85
3.79
3.80
The number of shareholders of record of EDC's common stock at February 28, 2014 was 620.
During fiscal year 2014, we paid quarterly dividends totaling $0.32 per share as follows: $0.08 per share dividend on
March 22, 2013, $0.08 per share dividend on June 21, 2013, $0.08 per share dividend on September 20, 2013, and $0.08 per share
dividend on December 20, 2013. An additional $0.08 per share dividend was declared on February 28, 2014 and was paid during
fiscal year 2015 to shareholders of record on March 14, 2014.
The following table shows repurchases of our common stock which we made during the fourth quarter of fiscal year 2014.
ISSUER PURCHASES OF EQUITY SECURITIES
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
- $
- $
- $
- $
-
-
-
-
-
-
-
-
304,654
304,654
304,654
Period
December 1 - 31,
2013
January 1 - 31, 2014
February 1 - 28, 2014
Total
(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
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.
Management Summary
Educational Development Corporation is the sole distributor in the United States of the Usborne line of children’s books
and is the owner of Kane Miller Book Publishers. We operate two separate divisions, EDC Publishing and Usborne Books & 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. EDC Publishing markets its products on a wholesale basis to
various retail accounts. UBAM markets its products to individual consumers as well as to school and public libraries through
direct-selling consultants.
Publishing Division
EDC Publishing 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 chain customers.
Publishing Division Sales by Market Type
National chain stores
All other
Total net sales
FY 2014
FY 2013
26%
74%
100%
28%
72%
100%
EDC Publishing 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.
EDC Publishing’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
FY 2014
FY 2013
$
10,968,400
$
10,811,600
Publishing division’s net revenues increased $156,800 in fiscal year 2014 from fiscal year 2013, or 1.5%. Net revenues
were up 10.2% for smaller retail stores and 3.0% for inside sales, offset by a decrease of 5.3% for national chain stores.
8
Usborne Books & More (“UBAM”) Division
UBAM 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
4,000
5,900
2,700
4,700
FY 2014
FY 2013
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 Revenues by UBAM Marketing Program
FY 2014
FY 2013
Home Shows
Direct Sales
School & Library
Internet
Fund Raisers
Transportation Revenues
Totals
28%
2%
43%
15%
3%
9%
100%
27%
2%
46%
12%
5%
8%
100%
Number of Orders by UBAM Marketing Program
FY 2014
FY 2013
Home Shows
Direct Sales
School & Library
Internet
Fund Raisers
18,300
2,800
11,000
43,200
1,000
76,300
17,100
3,100
11,000
33,800
1,400
66,400
9
Net revenues, after commissions, from home shows increased 3% or $76,400 during fiscal year 2014. This was primarily
due to 8% more orders placed during the period offset by a 4% decrease in average order size. Consultants contact individuals
(“hostesses”) to hold book shows in their homes or via social media. 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 22% or $47,700 during fiscal year 2014. This resulted from a
12% decrease in both the number of orders placed during the year and in the average order size. 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, decreased 1% or $57,800 during fiscal
year 2014, primarily due to a per-order average decrease 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 most of our titles. They are
not available through 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 up 34% or $406,200 during fiscal year 2014. This resulted from a 28% increase in
the number of orders placed during the year and a 3% increase in average order size. 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, decreased 34% or $167,500 in sales over the prior
year. This resulted from a 29% decrease in the number of orders placed during the year and an 8% decrease in average order
size. Organizations sell variety boxes of greeting-type cards and keep a portion of the proceeds to help support themselves and their
related causes.
Transportation revenues increased 12% or $95,400 during fiscal year 2014. 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 direct sales companies, UBAM continues to be the only such 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 our 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 2014, we utilized our bank credit
facility to meet some short-term cash requirements. At fiscal year end, our bank credit facility loan balance was $0.
10
We expect our ongoing cash flow to continue to exceed cash required to operate the business. As such, we expect our
short-term borrowings to be limited during fiscal year 2015.
During fiscal year 2014, we experienced a positive cash flow from our operations of $2,765,100. Cash flow from net
earnings of $357,600 was increased due to the provision for doubtful accounts and sales returns of $978,000, an increase in current
liabilities of $835,700, the impairment of our investment in nonmarketable equity securities of $430,300, a $370,200 increase in net
income tax payable, a $165,900 decrease in prepaid expenses and other assets, a decrease in deferred income taxes of $127,600, and
depreciation expense of $115,400, offset by an increase in accounts receivable of $559,700, and an increase in inventories of
$55,900.
Cash used in investing activities was $77,500 for capital expenditures. We estimate that cash used in investing activities
for fiscal year 2015 will be less than $250,000. This would consist of property improvements, software and hardware enhancements
to our existing data processing equipment, and additional warehouse equipment.
Cash used in financing activities was $2,476,700 which was primarily due to $2,500,000 in payments under our revolving
credit agreement, dividend payments of $1,271,500, and $129,200 paid to acquire treasury stock. These were offset by cash
received of $1,250,000 from borrowings under our revolving credit agreement and $174,000 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 2014
and 2013, we declared dividends equal to 356% and 216%, respectively, of net income after taxes.
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.
(3) Results of Operations
Earnings as a Percent of Net Revenues
FY 2014
FY 2013
Net revenues
Cost of sales
Gross margin
Operating expenses:
Operating and selling
Sales commissions
General and administrative
Total operating expenses
Other income (expense)
Earnings before income taxes
Income taxes
Net earnings
100.0%
40.3%
59.7%
27.8%
18.9%
8.1%
54.8%
(1.5%)
3.4%
2.0%
1.4%
100.0%
41.2%
58.8%
26.3%
18.7%
9.0%
54.0%
0.2%
5.0%
1.9%
3.1%
11
Fiscal Year 2014 Compared with Fiscal Year 2013
The following presents an overview of our results of operations for years ended February 28, 2014 and 2013. We had
earnings before income taxes of $873,500 for fiscal year 2014 compared with $1,282,000 for fiscal year 2013.
Revenues
FY 2014
FY 2013
$ Change
Gross sales
Less discounts & allowances
Transportation revenue
Net revenues
$
$
$
40,558,000
(15,414,200)
953,200
26,097,000
$
$
39,215,300
(14,585,800)
858,000
25,487,500
$
1,342,700
(828,400)
95,200
609,500
UBAM’s gross sales increased 5.2% or $865,200 during fiscal year 2014 when compared with fiscal year 2013. This
increase is attributable to an increase in home party and internet markets, offset by lower sales in fund raisers, school and
library/book fair and direct sales. The overall number of orders was up 15% due to increases in internet and home show orders, offset
by decreases in the number of fund raisers and direct sales. Average sales per order for this division were down 10%.
EDC Publishing’s gross sales increased 2.1% or $477,500 during fiscal year 2014 when compared with fiscal year
2013. Sales increased by 38% to smaller retail stores and 17% by inside sales, offset by a decrease in sales to national chain stores of
35%.
UBAM’s discounts and allowances were $3,414,200 in fiscal year 2014 and $2,906,300 in fiscal year 2013. Most sales by
UBAM are at retail. As a part of UBAM’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. UBAM’s discounts and allowances were 19.4% of
UBAM’s gross sales in fiscal year 2014 and 17.3% in fiscal year 2013.
EDC Publishing’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 $12,000,000 in fiscal year 2014 and $11,679,500 in fiscal year 2013. To be competitive with other wholesale book
distributors, EDC Publishing 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. EDC Publishing’s discounts and allowances were 52.3% of their gross sales in fiscal year 2014
and 52.0% in fiscal year 2013.
Transportation revenues increased $95,200 in fiscal year 2014, primarily due to the increase in UBAM gross sales during
the year.
Expenses
Cost of sales
Operating and selling
Sales commissions
General and administrative
Total
FY 2014
10,523,500
7,258,500
4,939,800
2,123,500
24,845,300
$
$
FY 2013
10,494,200
6,714,600
4,764,900
2,285,700
24,259,400
$
$
$
$
$ Change
29,300
543,900
174,900
(162,200)
585,900
Cost of sales increased 0.3% in fiscal year 2014 when compared with fiscal year 2013. Our cost of products is 25% to 28%
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 79% of our products come from one
vendor, where the cost of the products is a fixed percentage of the retail price.
12
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 $1,133,100 in fiscal year 2014 and $1,019,200 in fiscal year 2013. 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 and UBAM divisions, along with the order entry and customer service functions. Operating and selling expenses as
a percentage of gross sales were 17.9% for fiscal year 2014 and 17.1% for fiscal year 2013.
Sales commissions for EDC Publishing increased $27,200 for the fiscal year ended 2014. 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 2.9% for fiscal year 2014 and 2.7% for fiscal year 2013.
Sales commissions for UBAM increased $147,700. UBAM division sales commissions are paid based on the retail price of
non-promotional products sold and were 26.2% of gross sales for fiscal year 2014 and 26.7% for fiscal year 2013. 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 increase in sales commissions is the
result of higher 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 5.2% for fiscal year 2014 and 5.8% for fiscal year 2013.
The tax provision for fiscal year 2014 was $515,900. The effective rate for fiscal year 2014 was 59.1% and for fiscal year
2013 was 37.4%. Our effective tax rate is higher than the Federal statutory rate due to state income and franchise taxes and a
fully-reserved capital loss carry forward, which we do not reasonably expect to deduct for income tax purposes.
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.
13
Revenue Recognition
Sales are recognized and recorded when products are shipped. Products are shipped FOB shipping point. UBAM’s sales
are paid at the time the product is shipped. These sales accounted for 58% of net revenues in both fiscal years 2014 and 2013.
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 represents the amount billed to the customer for shipping the
product and is recorded when the product is shipped. Management has estimated and included a reserve for sales returns of
$100,000 for the years ended February 28, 2014 and 2013.
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 uncollectible 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 an allowance for doubtful accounts of $233,900 and $471,900 as of February 28, 2014 and 2013,
respectively.
Inventory
Management continually estimates and calculates the amount of noncurrent 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 $824,000 and $934,000 at February 28, 2014 and 2013, 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 $378,800 and $400,000 as of
February 28, 2014 and
2013, 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.
14
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 22.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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, 2014. 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 in 1992. 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, 2014.
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
15
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 17, 2014.
(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 17, 2014.
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 17, 2014.
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 17, 2014.
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 17, 2014.
16
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets - February 28, 2014 and 2013
Statements of Earnings - Years ended February 28, 2014 and 2013
Statements of Shareholders' Equity -Years ended February 28, 2014 and February 28, 2013
Statements of Cash Flows - Years ended February 28, 2014 and 2013
Notes to Financial Statements
Page
20
21
22
23
24
25-32
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
10.1
10.2
10.3
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.
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).
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).
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).
17
10.4
10.5
10.6
10.7
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).
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).
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).
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
10.10
10.11
10.12
10.13
Eleventh Amendment dated June 30, 2009 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
Twelfth Amendment dated June 30, 2010 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
Thirteenth Amendment dated June 30, 2011 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
Fourteenth Amendment dated June 30, 2012 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
Fifteenth Amendment dated June 30, 2013 to Restated Loan Agreement between the Company and Arvest
Bank, Tulsa, OK.
*23.1
Consent of Independent Registered Public Accounting Firm.
*31.1
*31.2
*32.1
Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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.
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*Filed Herewith
18
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.
SIGNATURES
EDUCATIONAL DEVELOPMENT CORPORATION
Date: May 28, 2014 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, 2014 /s/ Randall W. White
Randall W. White
Chairman of the Board
President, Treasurer and
Director
May 28, 2014 /s/ John A. Clerico
John A. Clerico, Director
May 28, 2014 /s/ Ronald McDaniel
Ronald McDaniel, Director
May 28, 2014 /s/ Kara Gae Neal
Kara Gae Neal, Director
May 28, 2014 /s/ Betsy Rickert
Betsy Rickert, Director
May 28, 2014 /s/ Marilyn Pinney
Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Educational Development Corporation
We have audited the accompanying balance sheets of Educational Development Corporation as of February 28, 2014 and 2013, 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, 2014 and 2013, 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, 2014
20
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
AS OF FEBRUARY 28, ________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts and
sales returns $333,900 (2014) and $571,900 (2013)
Inventories—Net
Prepaid expenses and other assets
Income tax receivable
Deferred income taxes
Total current assets
INVENTORIES—Net
PROPERTY, PLANT AND EQUIPMENT—Net
2014
2013
$
680,000 $
469,100
3,000,800
9,869,400
262,200
-
259,300
14,071,700
3,419,100
9,724,700
438,800
229,300
381,400
14,662,400
470,200
559,000
1,877,600
1,915,500
INVESTMENT IN NONMARKETABLE EQUITY SECURITIES
-
430,300
267,400
256,700
71,400
76,900
$
16,758,300 $
17,900,800
$
2,543,700 $
-
514,900
140,900
318,200
658,200
4,175,900
1,862,100
1,250,000
439,300
-
317,900
579,700
4,449,000
1,208,200
8,548,000
14,280,500
24,036,700
(11,454,300)
12,582,400
16,758,300 $
1,208,200
8,548,000
15,194,700
24,950,900
(11,499,100)
13,451,800
17,900,800
$
OTHER ASSETS
DEFERRED INCOME TAXES
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Line of credit
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 3,977,943 (2014) and 3,960,812 (2013) shares
Capital in excess of par value
Retained earnings
Less treasury stock, at cost
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See notes to financial statements.
21
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 28,
__________________________________________________________________________________
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 (EXPENSE)
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.
2014
2013
$
40,558,000 $
(15,414,200)
953,200
26,097,000
10,523,500
15,573,500
39,215,300
(14,585,800)
858,000
25,487,500
10,494,200
14,993,300
7,258,500
4,939,800
2,123,500
14,321,800
6,714,600
4,764,900
2,285,700
13,765,200
(378,200)
53,900
873,500
1,282,000
515,900
357,600 $
479,100
802,900
0.09 $
0.09 $
0.20
0.20
3,968,214
3,968,214
0.32 $
3,934,352
3,934,352
0.44
$
$
$
$
22
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED FEBRUARY 28,
__________________________________________________________________________________
Common Stock
(par value $0.20 per share)
Number of
Capital in
Treasury Stock
Shares
Issued
Amount
Excess of
Par Value
Retained
Earnings
Number of
Shares
Amount
Shareholders
’
Equity
BALANCE—March 1, 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
Purchases of treasury stock
Sales of treasury stock
Dividends declared ($0.08/share)
Dividends paid ($0.24/share)
Net earnings
BALANCE—February 28, 2014
See notes to financial statements.
6,041,040
1,208,200
6,041,040
1,208,200
$
-
-
-
-
-
$
-
-
-
-
-
$
$
-
-
-
-
-
$
-
-
-
-
-
$
8,548,000
-
-
-
-
-
8,548,000
-
-
-
-
-
8,548,000
$ 16,124,900
-
-
(317,900)
(1,415,200)
802,900
$ 15,194,700
-
-
(318,200)
(953,600)
357,600
2,127,857
12,106
(59,735)
-
-
-
2,080,228
43,349
(60,480)
-
-
-
(56,700)
221,100
-
-
-
$ (11,663,500) $ 14,217,600
(56,700)
221,100
(317,900)
(1,415,200)
802,900
$ (11,499,100) $ 13,451,800
(129,200)
174,000
(318,200)
(953,600)
357,600
$ (11,454,300) $ 12,582,400
(129,200)
174,000
-
-
-
2,063,097
6,041,040
1,208,200
$ 14,280,500
23
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28,
__________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Impairment of investment in nonmarketable equity securities
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:
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 INCREASE (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.
2014
2013
$
357,600 $
802,900
430,300
115,400
127,600
978,000
-
114,200
(12,600)
1,508,700
(559,700)
(55,900)
165,900
(1,352,800)
118,300
(117,300)
835,700
370,200
2,407,500
2,765,100
-
(77,500)
(77,500)
(128,900)
(293,500)
(163,900)
639,000
(180,300)
(29,300)
(209,600)
174,000
(129,200)
1,250,000
(2,500,000)
(1,271,500)
(2,476,700)
210,900
469,100
680,000 $
221,100
(56,700)
2,185,000
(1,185,000)
(1,884,800)
(720,400)
(291,000)
760,100
469,100
34,500 $
11,000 $
24,300
785,100
$
$
$
24
EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2014 AND 2013
__________________________________________________________________________________
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business—Educational Development Corporation (“we”, “our”, or “the Company”) distributes books and
publications through our EDC Publishing and Usborne Books & 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 Book 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 Usborne. Purchases from
them were approximately $9.0 million and $8.6 million for the years ended February 28, 2014 and 2013, respectively. Total
inventory purchases for those same periods were approximately $11.4 million and $11.3 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. Insurance coverage on our
non-interest bearing cash balances was limited 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. Cash and cash equivalents includes demand and time deposits, money
market funds and other marketable securities with maturities of three months or less when acquired.
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 as income 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.
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, 2014 and 2013.
25
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 that are “more
likely than not” 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 2014 and 2013.
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, 2014 and 2013.
Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the
product is shipped.
Advertising Costs—Advertising costs are expensed as incurred. Advertising expenses, included in selling and operating
expenses in the statements of earnings, were $348,600 and $222,600 for the years ending February 28, 2014 and 2013, 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 $2,595,800 and $2,348,900 for the years ending February 28, 2014 and 2013,
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.
The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted
earnings per share (“EPS”) is shown below.
Earnings Per Share:
Net earnings applicable to common shareholders
Shares:
Weighted average shares outstanding–basic
Assumed exercise of options
Year Ended February 28,
2014
2013
$ 357,600 $ 802,900
3,968,214 3,934,352
-
-
Weighted average shares outstanding–diluted
3,968,214 3,934,352
Basic Earnings Per Share
Diluted Earnings Per Share
$
$
0.09 $
0.20
0.09 $
0.20
Stock options not considered above because they were
antidilutive
11,000
16,000
26
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, 2014 and 2013.
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
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,
2014
2013
9,894,400
(25,000)
9,869,400
824,000
(353,800)
470,200
$
$
$
$
9,749,700
(25,000)
9,724,700
934,000
(375,000)
559,000
February 28,
2014
250,000
2,124,700
2,363,800
75,700
4,814,200
(2,936,600)
1,877,600
2013
250,000
2,124,700
2,287,900
74,100
4,736,700
(2,821,200)
1,915,500
$
$
$
$
$
$
$
$
27
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 are as follows:
Current:
Deferred tax assets:
Allowance for doubtful accounts
Inventory overhead capitalization
Inventory valuation allowance
Allowance for sales returns
Accruals
Deferred tax assets-current
Noncurrent:
Deferred tax assets:
Inventory valuation allowance
Capital loss carryforward
Subtotal deferred tax assets
Less valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Property and equipment
Deferred tax liabilities
$
$
2014
2013
$
$
58,500
79,000
9,500
38,000
74,300
259,300
134,400
163,600
298,000
(163,600)
134,400
(63,000)
(63,000)
175,900
77,800
9,500
38,000
80,200
381,400
140,600
-
140,600
140,600
(63,700)
(63,700)
Net deferred tax asset-noncurrent
$
71,400
$
76,900
Management has assessed the evidence to estimate whether sufficient future capital gains will be generated to utilize the
existing capital loss carryforward. As no current expectation of capital gains exists, Management has objectively determined that a
valuation allowance is necessary to reduce the carrying value of deferred tax assets as it is “more likely than not” that such assets are
unrealizable.
The amount of the deferred tax asset considered realizable, however, could be adjusted if future capital gains are generated
during the carryforward period. Management has determined that no valuation allowance is necessary to reduce the carrying value
of other deferred tax assets as it is “more likely than not” that such assets are realizable.
The components of income tax expense are as follows:
Current:
Federal
State
Deferred:
Federal
State
Total income tax expense
February 28,
2014
2013
$
$
299,000
89,300
388,300
133,200
(5,600)
127,600
515,900
$
$
411,000
80,700
491,700
(10,600)
(2,000)
(12,600)
479,100
28
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
Change in capital loss valuation allowance
Other
Total income tax expense
February 28,
2014
2013
$
$
297,000
70,100
163,600
(14,800)
515,900
$
$
435,900
50,400
-
(7,200)
479,100
We file our tax returns in the U.S. and certain state jurisdictions. We are no longer subject to income tax examinations by tax
authorities for fiscal years before 2011. We are currently the subject of an income tax examination for fiscal year 2012 by the IRS.
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 $57,100 and $67,500 in the fiscal years ended February 28, 2014 and 2013, 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 60,480 net shares and 57,367 net shares in the fiscal years ended February 28,
2014 and 2013, 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, 2014, the rate in effect was 4.00%. The revolving credit agreement is collateralized by substantially
all of our assets and matures on June 30, 2014.
We had no borrowings outstanding on the above revolving credit agreement at February 28, 2014 and $1,250,000 in
borrowings outstanding at February 28, 2013. Available credit under the revolving credit agreement was $2,500,000 at February
28, 2014. 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, 2014
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, 2014, we had outstanding purchase commitments for inventory totaling approximately $5,270,800.
Rent expense for the year ended February 28, 2014 was $57,200. As of February 28, 2014, we did not have any lease
commitments in excess of one year.
29
8.
CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
The Board of Directors adopted the 2002 Incentive Stock Option Plan (the “2002 Plan”) in June of 2002. The 2002 Plan also
authorized us to grant up to 1,000,000 stock options.
Options granted under 2002 Incentive Plan 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, 2014 expire
beginning in March 2014 through December 2019.
A summary of the status of our Incentive Plans as of February 28, 2014 and 2013, and changes during the years then ended is
presented below:
Outstanding at
Beginning of Year
Exercised/canceled
February 28,
2014
Weighted
Average
Exercise
Price
Shares
2013
Weighted
Average
Exercise
Price
Shares
16,000 $
5.55
16,000 $
5.55
(5,000)
(5.25)
-
-
Outstanding at End of Year
11,000 $
5.68
16,000 $
5.55
All options outstanding are exercisable at February 28, 2014.
9.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended February 28, 2014 and 2013.
2014
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
2013
First quarter
Second quarter
Third quarter
Fourth quarter
Total year
Net
Revenues
Earnings
Gross Margin Net Earnings Per Share
Basic
Diluted
Earnings
Per Share
$
$
$
$
5,990,500 $
5,715,100
8,502,000
5,889,400
26,097,000 $
3,514,300 $
3,054,100
5,207,500
3,797,600
15,573,500 $
66,600 $
56,400
547,800
(313,200)
357,600 $
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 $
0.02 $
0.01
0.14
(0.08)
0.09 $
0.09 $
0.04
0.13
(0.06)
0.20 $
0.02
0.01
0.14
(0.08)
0.09
0.09
0.04
0.13
(0.06)
0.20
30
10. BUSINESS SEGMENTS
We have two reportable segments: EDC Publishing and Usborne Books & 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.
·
·
EDC Publishing 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.
Information by industry segment for the years ended February 28, 2014 and 2013 is set forth below:
NET REVENUES
2014
10,968,400
15,128,600
-
26,097,000
$
$
$
$
EARNINGS (LOSS) BEFORE INCOME TAXES
2014
3,448,900
2,159,700
(4,735,100)
873,500
$
$
$
$
2013
10,811,600
14,675,900
-
25,487,500
2013
3,457,900
2,105,800
(4,281,700)
1,282,000
$
$
$
$
$
$
$
$
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 2014, we purchased 43,349 shares of common stock
at an average price of $2.98 per share totaling approximately $129,200. The maximum number of shares that may be repurchased in
the future is 304,654.
12. RECEIVABLE FROM CUSTOMER IN BANKRUPTCY
At February 28, 2013, we had a receivable due from a customer who has filed for protection from its creditors under Chapter
11 of the Bankruptcy Reform Act of 1978 in the amount of $364,300, of which $340,000 was reserved in the allowance for doubtful
accounts during a prior year. During fiscal year 2014, we received a final bankruptcy payment towards this receivable in the amount
of $44,800 representing 12% of the allowed amount of our general unsecured claim. The remaining balance was written off against
the reserve during the year ended February 28, 2014.
31
13. STOCK PURCHASE AGREEMENT
As of February 28, 2013, we acquired a 15.6% position with Demibooks, Inc. for an investment of $430,300 under a Stock
Purchase Agreement. We 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. During the year ended 2014, we identified an impairment indicator in the value of
our investment in Demibooks, and determined the impairment to be other than temporary. The Company estimated the fair value of
the investment to be $0 based on the estimated future cash flows, and recognized an impairment loss of $430,300, which is reflected
on the statements of earnings under other expenses.
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 $0 and $1,250,000 at February 28, 2014 and 2013,
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.
15. SUBSEQUENT EVENT
On March 21, 2014, we paid the previously declared $0.08 dividend per share to shareholders of record as of March 14, 2014.
******
32
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, 2014, appearing in this Annual Report on Form 10-K of
Educational Development Corporation for the year ended February 28, 2014.
/s/ HoganTaylor LLP
Tulsa, Oklahoma
May 28, 2014
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, 2014
/s/ Randall W. White
Chairman of the Board, President
and Chief Executive Officer
Exhibit 31.2
I, Marilyn Pinney, 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, 2014
/s/ Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
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, 2014, 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, 2014 By /s/ Randall W. White
Randall W. White
President and Chief Executive Officer
Date: May 28, 2014 By /s/ Marilyn Pinney
Marilyn Pinney
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
Financial Highlights
Fiscal Years ended February 28
Financial Information
Net revenues
Earnings before income taxes
Net earnings
2014
$ 26,097,000
873,500
357,600
2013
$ 25,487,500
$ 1,282,000
$
802,900
$
$
$
$
$
$
$
$
$
$
0.09
0.09
0.20
0.20
77,500
$ 16,758,300
$ 12,582,400
29,300
$ 17,900,800
$ 13,451,800
0.32
3.16
3.89
2.49
3.75
0.44
3.40
5.00
3.79
3.91
$
$
$
$
$
$
$
$
Earnings per share:
Basic
Diluted
Capital expenditures
Total assets
Shareholders’ equity
Common Stock
Cash dividends paid
Book value at year end
Market price range
High
Low
Market price at year end
Business Segments
Net Revenues
EDC Publishing
Usborne Books & More
$ 10,968,400
$ 15,128,600
$ 10,811,600
$ 14,675,900
Total
$ 26,097,000
$ 25,487,500
Shares outstanding at year end
3,977,943
3,960,812
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 17, 2014, 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
Educational Development
Corporation
Annual Report
10302 E. 55th Place • Tulsa, Oklahoma 74146-6515