Business Context and Reporting Period
Company: Franklin Covey Co.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended August 31, 1998
Business Overview: Franklin Covey is an international professional services and leadership development firm. Its core offerings include the Franklin Planner (time management system), training workshops (e.g., "The 7 Habits of Highly Effective People"), consulting services, and printing services. The company operates through direct sales, a catalog, 120 domestic retail stores, and international licensed operations.
Key Financial Metrics
The filing provides specific revenue breakdowns by segment but incorporates detailed profit, cash flow, and balance sheet data by reference to the Annual Report to Shareholders. The following revenue figures are explicitly stated in the text:
- Total Sales (Fiscal 1998): $546.6 million
- Product Sales: $343.8 million (62.9% of total sales)
- Training Services: $174.9 million (32.0% of total sales)
- Printing Services: $27.9 million (5.1% of total sales)
- Stock Price (Nov 1, 1998): $19.75 per share
- Shares Outstanding (Nov 1, 1998): 21,261,142
- Market Value (Non-affiliates): Approximately $419.9 million
Note: Specific values for net income, operating margins, cash flow, and total debt are not provided in the text of this filing; they are incorporated by reference to the Annual Report to Shareholders.
Material Changes vs. Prior Period
Comparing fiscal 1998 to fiscal 1997, the company demonstrated significant growth in both total revenue and service mix:
- Total Revenue Growth: Increased from $433.3 million in 1997 to $546.6 million in 1998.
- Training Services Expansion: Training revenue grew from $107.4 million (24.8% of sales) in 1997 to $174.9 million (32.0% of sales) in 1998, indicating a strategic shift toward higher-margin services.
- Product Sales Mix: While product revenue increased in absolute dollars ($301.7M to $343.8M), its percentage of total sales declined from 69.6% to 62.9%.
- Printing Services: Revenue increased slightly from $24.2 million to $27.9 million, though its share of total sales decreased from 5.6% to 5.1%.
Guidance, Outlook, and Strategic Initiatives
Strategic Alliances and Distribution:
- Office Depot: In November 1998, the company signed an agreement to sell selected planners and binders through Office Depot's 580 stores to increase accessibility, anticipating that volume gains would offset lower margins.
- At-A-Glance: Formed an alliance in January 1998 to sell products through the contract stationer channel (e.g., Staples, Office Express).
Product and Curriculum Updates:
- Launched a new time management seminar, "What Matters Most," in October 1998 to replace older "TimeQuest" and "First Things First" seminars.
- Expanded the "Franklin Covey Leadership Library" video series.
Risks and Contingencies:
- Competition: The product market is intensely competitive with low barriers to entry. Competitors include Day-Timer, At-A-Glance, and DayRunner. The training market is fragmented but includes significant players like Development Dimensions International.
- Supply Chain: The company relies on a single primary paper supplier (a Fortune 500 subsidiary) but maintains alternative sources. Binders are sourced from multiple suppliers globally.
- Intellectual Property: The company relies heavily on trademarks and copyrights (e.g., "The 7 Habits") and faces risks of imitation by competitors.
Dividends: The company does not intend to pay cash dividends in the foreseeable future, preferring to retain earnings for growth.
Investor Verification Checklist
- Profitability Metrics: Verify net income, operating margins, and earnings per share in the referenced Annual Report to Shareholders, as these are not detailed in the 10-K text.
- Cash Flow and Debt: Review the Consolidated Statements of Cash Flows and Balance Sheets to assess liquidity, working capital, and the $3.6 million mortgage on Salt Lake City facilities.
- Margin Impact of New Channels: Monitor the financial impact of the Office Depot and At-A-Glance alliances to ensure volume increases compensate for the anticipated lower margins.
- Training Revenue Sustainability: Assess the recurring revenue model from client-facilitated training and the success of the new "What Matters Most" seminar in maintaining the growth trajectory of the services segment.
- Inventory Levels: Confirm inventory turnover rates, noting the company maintains 3-4 months of inventory, to evaluate potential obsolescence risks in the planner market.