What changed in FRANKLIN COVEY CO's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of FRANKLIN COVEY CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+511 added−518 removedSource: 10-K (2023-11-13) vs 10-K (2022-11-14)
Top changes in FRANKLIN COVEY CO's 2023 10-K
511 paragraphs added · 518 removed · 420 edited across 2 sections
- Item 2. Properties+415 / −433 · 349 edited
- Item 1A. Risk Factors+96 / −85 · 71 edited
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
71 edited+25 added−14 removed74 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
71 edited+25 added−14 removed74 unchanged
2022 filing
2023 filing
Biggest changeIf enacted, the proposed American Data Privacy and Protection Act would largely preempt state privacy legislation; however, the scope of preemption and enforcement-related matters remain uncertain. The Federal Trade 17 Table of Contents Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data.
Biggest changeFurthermore, various drafts of a comprehensive federal privacy bill have been introduced to congress, and more will likely be introduced in the coming months. Some of the proposed bills, including the proposed American Data Privacy and Protection Act would largely preempt state privacy legislation; however, the scope of preemption and enforcement-related matters remain uncertain.
Although our intent is to educate and improve individual lives and organizational cultures without offense, an unfavorable interpretation by an individual or organization of the language, concepts, or images used in our content or materials may harm our reputation and brand, cause us to lose business, and adversely affect our business and results of operations.
Although our intent is to educate and improve individual lives and organizational cultures without offense, an unfavorable interpretation by an individual or organization of the language, concepts, or images used in our content or materials may harm our reputation and brand, cause us to lose business, and adversely affect our results of operations.
Findings from an audit may result in our being required to prospectively adjust previously agreed upon rates for our work, which may affect our future margins. If a governmental client discovers improper activities in the course of audits or investigations, we may become subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from doing business with other agencies of that government. Political and economic factors such as pending elections, the outcome of elections, revisions to governmental tax policies, sequestration, debt ceiling negotiations, and reduced tax revenues can affect the number and terms of new governmental contracts signed.
Findings from an audit may result in our being required to prospectively adjust previously agreed upon rates for our work, which may adversely affect our future margins. If a governmental client discovers improper activities in the course of audits or investigations, we may become subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from doing business with other agencies of that government. Political and economic factors such as pending elections, the outcome of elections, revisions to governmental tax policies, sequestration, debt ceiling negotiations, and reduced tax revenues can affect the number and terms of new governmental contracts signed.
Some terminology, language, or content in our offerings may be deemed offensive by certain individuals due to rapidly changing societal norms, which may cause damage to our brand or reputation. Our mission is to enable greatness in individuals and organizations regardless of race, religion, gender, or other individual characteristics.
Some terminology, language, or content in our offerings may be deemed offensive by certain individuals due to rapidly changing societal norms, which may cause damage to our brand or reputation. Our mission is to enable greatness in individuals and organizations everywhere regardless of race, religion, gender, or other individual characteristics.
Changes in governmental priorities or other political developments, including disruptions in governmental operations, could result in changes in the scope of, or in termination of, our existing contracts. Governmental entities often reserve the right to audit our contract costs, including allocated indirect costs, and conduct inquiries and investigations of our business practices with respect to our government contracts.
Changes in governmental priorities or other political developments, including disruptions in governmental operations, could result in reductions in the scope of, or in termination of, our existing contracts. Governmental entities often reserve the right to audit our contract costs, including allocated indirect costs, and conduct inquiries and investigations of our business practices with respect to our government contracts.
The loss of proprietary content or the unauthorized use of our intellectual property may create greater competition, loss of revenue, adverse publicity, and may limit our ability to reuse that intellectual property with other clients.
The loss of proprietary content or the unauthorized use of our intellectual property may create greater competition, loss of revenue, and adverse publicity, and may also limit our ability to reuse that intellectual property with other clients.
In addition, the physical changes prompted by climate 22 Table of Contents change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results, and financial condition. ITEM 1B . UNRESOLVED STAFF COMMENTS None.
In addition, the physical changes prompted by climate change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results, and financial condition. ITEM 1B . UNRESOLVED STAFF COMMENTS None. 24 Table of Contents
Any of these factors could have an adverse effect on our business or our results of operations. 15 Table of Contents Cybersecurity and Information Technology Risks The All Access Pass and Leader in Me subscription services are internet-based platforms, and as such we are subject to increased risks of cyber-attacks and other security breaches that could have a material adverse effect on our business.
Any of these factors could have an adverse effect on our business or our results of operations. Cybersecurity and Information Technology Risks The All Access Pass and Leader in Me subscription services are internet-based platforms, and as such we are subject to increased risks of cyber-attacks and other security breaches that could have a material adverse effect on our business.
Instability in the global credit markets; the impact of uncertainty regarding global central bank monetary policy; instability in the geopolitical environment in many parts of the world, including international hostilities; inflation; energy shortages and pricing; the current economic challenges in China, including the global economic ramifications of Chinese economic difficulties; and other disruptions may continue to put pressure on global economic conditions.
Instability in global credit markets; uncertainty regarding global central bank monetary policy; instability in the geopolitical environment in many parts of the world, including international hostilities; inflation; energy shortages and pricing; the current economic challenges in China, including the global economic ramifications of Chinese economic difficulties; and other disruptions may continue to put pressure on the global economy.
Such events would have an adverse effect 18 Table of Contents upon our business and operations as there can be no assurance that we may be able to obtain other forms of financing or raise additional capital on terms that would be acceptable to us.
Such events would have an adverse effect upon our business and operations as there can be no assurance that we may be able to obtain other forms of financing or raise additional capital on terms that would be acceptable to us.
Our future success will depend, in part, on the continued service of key executive officers and personnel. The loss of the services of any key individuals could harm our business. Our future success also depends on our ability to identify, 14 Table of Contents attract, and retain additional qualified senior personnel.
Our future success will depend, in part, on the continued service of key executive officers and personnel. The loss of the services of any key individuals could harm our business. Our future success also depends on our ability to identify, attract, and retain additional qualified senior personnel.
If we need to hire additional personnel to maintain a specified number of sales personnel or are required to re-assign personnel from other geographic areas, it could increase our costs and adversely affect our profit margins.
If we need to hire additional personnel to maintain a specified number of sales personnel or are required to re-assign personnel from other geographic areas, it could increase 15 Table of Contents our costs and adversely affect our profit margins.
There is a risk that we will find it difficult to hire and retain a sufficient number of employees with the skills or backgrounds we require, or that it will prove difficult to retain them in a competitive and inflationary labor market.
There is a risk that we will be unable to hire and retain a sufficient number of employees with the skills or backgrounds we require, or that it will prove difficult to retain them in a competitive and inflationary labor market.
Unauthorized disclosure of personal, sensitive, or confidential client or employee data, whether through systems failure, employee negligence, fraud, or misappropriation could damage our reputation and cause us to lose clients. Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve.
Unauthorized disclosure, loss or alteration of personal, sensitive, or confidential client or employee data or client or end-user systems, whether through systems failure, employee negligence, fraud, or misappropriation could damage our reputation and cause us to lose clients. Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve.
General Business Risks Our results of operations may be adversely impacted by the costs of persistent and rising inflation if we are unable to pass these costs on to our clients. In recent quarters inflation has increased significantly in the United States and in many of the countries where we conduct business.
Our results of operations may be adversely impacted by the costs of persistent and rising inflation if we are unable to pass these costs on to our clients. In recent years, inflation has increased significantly in the United States and in many of the countries where we conduct business.
If the reputation, perception, or image of any of our brands is tarnished or if we receive negative publicity, our financial condition and results of operations could be materially and adversely affected.
If the reputation, perception, or image of any of our brands is 14 Table of Contents tarnished or if we receive negative publicity, our financial condition and results of operations could be materially and adversely affected.
We expect that our stock price may continue to experience volatility in the future due to a variety of potential factors that may include the following: Fluctuations in our quarterly results of operations and cash flows Increased overall market volatility Variations between our actual financial results and market expectations Changes in key balances, such as cash and cash equivalents Currency exchange rate fluctuations Unexpected asset impairment charges These factors, among others, may have an adverse effect upon our stock price in the future.
We expect that our stock price may continue to experience volatility in the future due to a variety of potential factors that may include the following: Fluctuations in our quarterly results of operations and cash flows Overall market volatility Variations between our actual financial results and market expectations Changes in key balances, such as cash and deferred revenues 21 Table of Contents Currency exchange rate fluctuations Unexpected asset impairment charges These factors, among others, may have an adverse effect upon our stock price in the future.
Extreme weather conditions and natural disasters could negatively impact our operating results and financial condition. Extreme weather conditions in the areas in which our suppliers, customers, distribution facilities, offices, and headquarters are located could adversely affect our operating results and financial condition.
Extreme weather conditions in the areas in which our suppliers, customers, distribution facilities, offices, and headquarters are located could adversely affect our operating results and financial condition.
In addition, the terms of existing or future debt agreements, including our 2019 Credit Agreement (as defined below) and subsequent modifications, may restrict us from pursuing any of these alternatives.
In addition, the terms of existing or future debt agreements, including our 2023 Credit Agreement and subsequent modifications, may restrict us from pursuing any of these alternatives.
If we fail to meet the financial guidance that we provide, or if we find it necessary to revise such guidance during the year, the market value of our common stock could be adversely affected. 19 Table of Contents Our future quarterly operating results are subject to factors that can cause fluctuations in our stock price.
If we fail to meet the financial guidance that we provide, or if we find it necessary to revise such guidance during the year, the market value of our common stock could be adversely affected. Our future quarterly operating results are subject to factors that can cause fluctuations in our stock price. Historically, our stock price has experienced significant volatility.
Sustainability and protecting our natural environment are significant priorities at Franklin Covey and we strive to implement practices and policies that support this concern. However, we cannot predict the long-term impacts on us from climate change or related regulatory responses.
Sustainability and protecting our natural environment are significant priorities at Franklin Covey and we strive to implement practices and policies that support this concern. We recognize that there are inherent climate-related risks wherever business is conducted; however, we cannot predict the long-term impacts on us from climate change or related regulatory responses.
We obtained a new credit agreement in August 2019 (the 2019 Credit Agreement) with our existing lender that expires in August 2024. We expect to regularly renew or amend our lending agreement in the future to maintain the availability of this credit facility.
We obtained a new credit agreement in March 2023 (the 2023 Credit Agreement) with a new lender that expires in March 2028. We expect to regularly renew or amend our lending agreement in the future to maintain the availability of this credit facility.
On June 4, 2021, the European Commission adopted new SCCs, which imposed on companies additional obligations relating to data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer and the laws and practices of the destination country, to implement additional security measures, and to update internal 16 Table of Contents privacy practices.
The new SCCs imposed on companies additional obligations relating to data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer and the laws and practices of the destination country, to implement additional security measures, and to update internal privacy practices.
Failure to comply with the terms and conditions of our credit facility may have an adverse effect upon our business and operations. Our secured credit agreement and subsequent modifications require us to be in compliance with customary non-financial terms and conditions as well as specified financial ratios.
Failure to comply with the terms and conditions of our credit facility may have an adverse effect upon our business and operations. Our secured credit agreement obtained in fiscal 2023 requires us to comply with customary non-financial terms and conditions as well as specified financial ratios.
These risks may be magnified due to regulatory uncertainty and short periods to achieve compliance. Additionally, under the PIPL, we may be subject to additional liabilities, claims, penalties, or causes of action in the event of a breach of customer personal information.
These risks may be magnified due to regulatory uncertainty. Additionally, under the PIPL or DSL, we may be subject to additional liabilities, claims, penalties, or causes of action in the event of a breach or various security violations of customer personal information.
Our inability to import personal information to the United States and other countries may decrease the functionality or effectiveness of our products and services, increase costs, and adversely impact our marketing efforts, plans, and activities. Further, on August 20, 2021, China adopted the PRC Personal Information Protection Law, or PIPL. The PIPL took effect on November 1, 2021.
Our inability to import personal information to the United States and other countries may decrease the functionality or effectiveness of our products and services, increase costs, and adversely impact our marketing efforts, plans, and activities. Further, in 2021, China adopted the PRC Personal Information Protection Law, or PIPL, and the Data Security Law, or DSL.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results may be harmed and we could fail to meet our financial reporting obligations.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results may be harmed and we could fail to meet our financial reporting obligations. 23 Table of Contents Extreme weather conditions and natural disasters could negatively impact our operating results and financial condition.
ITEM 1A. RISK FACTORS Our business environment, current domestic and international economic conditions, impacts from the ongoing COVID-19 pandemic, geopolitical circumstances, changing social standards, and other specific risks may affect our future business decisions and financial performance.
ITEM 1A. RISK FACTORS Our industry and business environment, domestic and international economic conditions, geopolitical circumstances, changing social standards, lingering COVID-19 issues, and other specific risks may affect our future business decisions and financial performance.
For example, in May 2018 the General Data Protection Regulation (GDPR) became effective in the European Union (EU). The GDPR imposed strict requirements on the collection, use, security, and transfer of personal information in and from EU member states.
For example, in May 2018 the General Data Protection Regulation (GDPR) became effective in the European Union (EU) and other countries within the European Economic Area. The GDPR imposes strict requirements on the collection, use, security, and transfer of personal information in and from applicable countries.
There can be no assurance that further deterioration in markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. Our global operations pose complex management, foreign currency, legal, tax, and economic risks, which we may not adequately address.
There can be no assurance that further deterioration in markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, or continued unpredictable and unstable market conditions.
Since the introduction of our online subscription services, our dependence on the use of sophisticated technologies and information systems has increased. Moreover, our technology platforms will require continuing cash investments (including business acquisitions such as the acquisition of Strive in fiscal 2021) by us to expand existing offerings, improve the client experience, and develop complementary offerings.
Moreover, our technology platforms will require continuing cash investments (including business acquisitions such as the acquisition of Strive in fiscal 2021) by us to expand existing offerings, improve the client experience, and develop complementary offerings.
Furthermore, with the United Kingdom’s (UK) transition out of the EU as of January 1, 2021, we may encounter additional complexity with respect to data privacy and data transfers to and from the UK under the UK GDPR. Other countries, such as Brazil and South Africa, have also enacted data protection laws analogous to GDPR.
Furthermore, with the United Kingdom’s (UK) transition out of the EU as of January 1, 2021, we may encounter additional complexity with respect to data privacy and data transfers to and from the UK under the UK GDPR.
We have implemented controls and procedures, including a team dedicated to data protection, to comply with the requirements of GDPR/UK GDPR and analogous laws. However, these new procedures and controls may not be completely effective in preventing unauthorized breaches of personal data. In addition, on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-U.S.
We have implemented policies, controls, and procedures, including a team dedicated to data protection, to comply with the requirements of GDPR/UK GDPR and analogous laws. However, these new procedures and controls may not be completely effective in preventing unauthorized breaches of personal data.
We have sales offices in Australia, China, Japan, Germany, Switzerland, Austria, and the United Kingdom. We also have licensed operations in numerous other foreign countries.
We have directly owned offices that serve clients in Austria, Australia, China, Germany, Ireland, Japan, New Zealand, Switzerland, and the United Kingdom. We also have licensed operations in numerous other foreign countries.
In addition, our success in maintaining, extending, and expanding our brand image depends 13 Table of Contents on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and digital dissemination of advertising campaigns on our digital platforms and through our digital experiences.
In addition, our success in maintaining, extending, and expanding our brand image depends on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and digital dissemination of advertising campaigns on our digital platforms and through our digital experiences. We could be adversely impacted if we fail to achieve any of these objectives.
To the extent we are involved in any future cyber-attacks or other breaches, our brand and reputation could be affected, and these conditions could also have a material adverse effect on our business, financial condition, or results of operations.
To the extent we are involved in any future cyber-attacks or other breaches, our brand and reputation could be affected, and these conditions could also have a material adverse effect on our business, financial condition, or results of operations. 16 Table of Contents We could incur additional liabilities or our reputation could be damaged if we do not protect client data or if our information systems are breached.
Negative claims or publicity involving us, our culture and values, our products, services and experiences, consumer data, or any of our affiliates could seriously damage our reputation and brand image, regardless of whether such claims are accurate.
Our brand value also depends on our ability to maintain a positive consumer perception of our corporate integrity, purpose, and brand culture. Negative claims or publicity involving us, our culture and values, our products, services and experiences, consumer data, or any of our affiliates could seriously damage our reputation and brand image, regardless of whether such claims are accurate.
As a result, we are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the various U.S. federal and state laws governing the protection of personal data.
We are also required at times to manage, utilize, and store personal data, including sensitive or confidential client or employee data. As a result, we are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the various U.S. federal and state laws governing the protection of personal data.
The global credit and financial markets have from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability.
General Business Risks Unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and operations. The global credit and financial markets have from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability.
If electricity is not readily available or affordable, we may not be able to deliver our products and services and our operating results may be adversely impacted.
For example, the delivery of our services is dependent on reliable and relatively inexpensive electricity. If electricity is not readily available or affordable, we may not be able to deliver our products and services and our operating results may be adversely impacted.
The analysts’ estimates are based on their own opinions and are often different from our estimates or expectations. The price of our common stock could, however, decline if an analyst downgrades our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
The price of our common stock could, however, decline if an analyst downgrades our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Failure to adapt and improve these areas could have an adverse effect on our business, including our results of operations, financial position, and cash flows.
Failure to adapt and improve these areas could have an adverse effect on our business, including our results of operations, financial position, and cash flows. Our use of artificial intelligence technologies may not be successful and may present business, compliance, and reputational risks.
Privacy Shield, a framework that had enabled companies to transfer data from EU member states to the U.S. On September 8, 2020, the Swiss Federal Data Protection and Information Commissioner followed suit, and announced that the Swiss-U.S. Privacy Shield Framework was inadequate for personal information transfers from Switzerland to the U.S.
In addition, on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-U.S. Privacy Shield, a framework that had enabled companies to transfer data from EU member states to the U.S. On September 8, 2020, the Swiss Federal Data Protection and Information Commissioner followed suit, and announced that the Swiss-U.S.
The PIPL establishes comprehensive requirements relating to the collection, use, transfer, security, and other processing of personal information in or from China.
The PIPL took effect on November 1, 2021 and the DSL took effect on September 1, 2021. The PIPL and DSL in combination establish comprehensive requirements relating to the collection, use, transfer, security, and other processing of personal information in or from China.
If we, our associates, business partners, or our service providers negligently disregard or intentionally breach our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, and/or criminal prosecution.
If we, our associates, business partners, or our service providers negligently disregard or intentionally breach our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, and/or criminal prosecution, as well as litigation from parties impacted by a breach of their data or harm to their systems as a result of malware or other security incidents within our own networks or systems.
We strive to employ global best practices in securing and monitoring code, applications, systems, processes, and data, and our data protection practices are regularly reviewed and validated by an external auditing firm.
To the extent any of these laws include a private right of action, we may also face increased risk of litigation. We strive to employ global best practices in securing and monitoring code, applications, systems, processes, and data, and our data protection practices are regularly reviewed and validated by an external auditing firm.
Further, climate change may increase both the frequency and severity of extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as well as the activities of our vendors, suppliers, and customers. For example, the delivery of our services is somewhat dependent on reliable and relatively inexpensive electricity.
We will continue to monitor the impacts of these issues on our business and consider responsive action as needed. Further, climate change may increase both the frequency and severity of extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as well as the activities of our vendors, suppliers, and customers.
As a result of these foreign operations and their impact upon our financial statements, we are subject to a number of risks, including: Restrictions on the movement of cash The absence in some jurisdictions of effective laws to protect our intellectual property rights Political instability Currency exchange rate fluctuations 20 Table of Contents In addition, the United Kingdom’s withdrawal from the EU, or Brexit, became effective on January 21, 2020.
As a result of these foreign operations and their impact upon our financial statements, we are subject to a number of risks, including, but not limited to: 22 Table of Contents Restrictions on the movement of cash The absence in some jurisdictions of effective laws to protect our intellectual property rights Political instability Currency exchange rate fluctuations These and other related risks could adversely affect our ability to access sources of liquidity, increase costs related to regulatory compliance, and adversely affect our results of operations.
Early enforcement actions under PIPL have included civil actions against companies that fail to obtain proper consent for processing sensitive personal information or other unlawful data collection. Recent regulatory actions have centered on ineffective channels for data subjects to exercise rights, the over-collection of personal information, and deceptive practices.
Recent regulatory actions have centered on ineffective channels for data subjects to exercise rights, the over-collection of personal information, and deceptive practices.
The CPRA amendments expand the private right of action for consumers, expands the CCPA’s limitation on sharing of personal information, and removes the 30-day window to cure alleged noncompliance before being subject to administrative enforcement.
The CPRA amendments expand consumer rights related to sharing of personal information, grant additional rights to consumers, remove the exceptions for business-to-business and employment data, and remove the 30-day window to cure alleged noncompliance before being subject to administrative enforcement.
In addition, one or more of our competitors may develop and implement training courses or methodologies that may adversely affect our ability to sell our offerings and products to new clients. Any one of these circumstances could have an adverse effect on our ability to obtain new business and successfully deliver our services.
Some of our competitors may have greater financial and other resources than we do. In addition, one or more of our competitors may develop and implement training courses or methodologies that may adversely affect our ability to sell our offerings and products to new clients.
Other governmental authorities throughout the U.S. and around the world are considering or have adopted similar types of legislative and regulatory proposals concerning data protection. For example, in June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (the CCPA), which was took effect on January 1, 2020.
Other governmental authorities throughout the U.S. and around the world are considering or have adopted similar types of legislative and regulatory proposals concerning data protection.
However, these efforts may be insufficient to protect sensitive information against illegal activities and we may be exposed to additional liabilities from the various data protection laws enacted within the jurisdictions where we operate. Our business is becoming increasingly dependent on information technology and will require additional cash investments in order to grow and meet the demands of our clients.
However, these efforts may be insufficient to protect sensitive information against illegal activities and we may be exposed to additional liabilities from the various data protection laws enacted within the jurisdictions where we operate, as well as a risk of litigation in jurisdictions where there is a private right of action related to violations.
Violations of these regulations could subject us to criminal or civil enforcement actions, including fines and suspension or disqualification from United States federal procurement contracting, any of which could have an adverse effect on our business. We have significant intangible assets, goodwill, and long-term asset balances that may be impaired if cash flows from related activities decline.
Violations of these regulations could subject us to criminal or civil enforcement actions, including fines and suspension or disqualification from United States federal procurement contracting, any of which could have an adverse effect on our business. The Company’s use of accounting estimates involves judgment and could impact our financial results.
Any of these events, or related conditions, could cause or contribute to the risks and uncertainties described in this Annual Report and could materially adversely affect our business, financial condition, results of operations, cash flows, and stock price. 12 Table of Contents Training Industry and Related Risks We operate in an intensely competitive industry and our competitors may develop programs, services, or courses that adversely affect our ability to sell our offerings.
Any of these events, or related conditions, could cause or contribute to the risks and uncertainties described in this Annual Report and could materially adversely affect our business, financial condition, results of operations, cash flows, and stock price. Our global operations pose complex management, foreign currency, legal, tax, and economic risks, which we may not adequately address.
In the event the law requires us to store data in China, or limits our ability to transfer data across borders, we may experience increased costs, business inefficiencies, lost sales, decreased demand, and decreased competitiveness, as we may be unable to provide our services or certain features, or provide them in an efficient or centralized manner.
As we observe China’s enforcement of the PIPL, DSL and associated laws and regulations over time, we may need to adjust our compliance activities, and we may experience increased costs, business inefficiencies, lost sales, decreased demand, and decreased competitiveness, as we may be unable to provide our services or certain features, or provide them in an efficient or centralized manner.
Other states, including Colorado, Virginia, and Utah have also passed comprehensive privacy laws that are now in effect or will come into effect in the coming years. Furthermore, in June 2022, the first draft of a comprehensive federal privacy bill was introduced to congress.
Other states, including Colorado, Connecticut, Virginia, and Utah have also passed comprehensive privacy laws that are now in effect or will 18 Table of Contents come into effect by the end of this year.
Liquidity and Capital Resource Risks We may not be able to generate sufficient cash to service our indebtedness, and we may be forced to take other actions to satisfy our payment obligations under our indebtedness, which may not be successful.
Furthermore, we may be unable to obtain the necessary capital on terms or conditions that are favorable to us, or at all. 20 Table of Contents We may not be able to generate sufficient cash to service our indebtedness, and we may be forced to take other actions to satisfy our payment obligations under our indebtedness, which may not be successful.
These privacy, security, and data protection laws and regulations continue to evolve and enforcement in the U.S. and internationally continues to increase.
The Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. These privacy, security, and data protection laws and regulations continue to evolve and enforcement in the U.S. and internationally continues to increase.
Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and their levels of business activity. Global economic and political conditions affect our clients’ businesses and the markets in which they operate.
Global economic and political conditions affect our clients’ businesses and the markets in which they operate.
We could incur additional liabilities or our reputation could be damaged if we do not protect client data or if our information systems are breached. We are dependent on information technology networks and systems to process, transmit, and store electronic information and to communicate between our locations around the world and with our clients.
We are dependent on information technology networks and systems to process, transmit, and store electronic information and to communicate between our locations around the world and with our clients. Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of personal or confidential information.
If we are unable to increase our prices to sufficiently offset the increased costs of doing business, our results of operations and profitability may be adversely impacted. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and operations.
If we are unable to increase our prices to sufficiently offset the increased costs of doing business, our results of operations and profitability may be adversely impacted. Our results of operations have been adversely affected and could be materially impacted in the future by lingering coronavirus (COVID-19) issues and additional public safety concerns.
Under GDPR, fines of up to 20 million Euros or up to four percent of the annual global revenues of the infringer, whichever is greater, could be imposed. Although GDPR applies across the European Union, local data protection authorities still have the ability to interpret GDPR, which may create inconsistencies in application on a country-by-country basis.
Under GDPR, fines of up to 20 million Euros or up to four percent of the annual global revenues of the infringer, whichever is greater, could be imposed.
The training and consulting services industry is intensely competitive with relatively easy entry. Competitors continually introduce new programs, services, and delivery methods that may compete directly with our offerings, or that may make our offerings uncompetitive or obsolete.
Training Industry and Related Risks We operate in an intensely competitive industry and our competitors may develop programs, services, or courses that adversely affect our ability to sell our offerings. The training and consulting services industry is intensely competitive with relatively easy entry.
Our common stock is publicly traded on the New York Stock Exchange (NYSE), and at any given time various securities analysts follow our financial results and issue reports on us. These periodic reports include information about our historical financial results as well as the analysts’ estimates of our future performance.
Public Company Risks We may fail to meet analyst expectations, which could cause the price of our stock to decline. Our common stock is publicly traded on the NYSE, and at any given time various securities analysts follow our financial results and issue reports on us.
Larger competitors may have superior abilities to compete for clients and skilled professionals, reducing our ability to deliver quality work to our clients. Some of our competitors may have greater financial and other resources than we do.
Competitors continually introduce new programs, services, and delivery methods that may compete directly with our offerings, or that may make our offerings uncompetitive or obsolete. Larger competitors may have superior abilities to compete for clients and skilled professionals, reducing our ability to deliver quality work to our clients.
Complying with regulations relating to climate change, including, for example, disclosure of the impacts of climate change on our business, could require us to expend significant resources, and could adversely affect our results of operations and financial condition. We will continue to monitor the impacts of such issues on our business and consider responsive action as needed.
This increased scrutiny will likely require us to expend significant resources and could adversely affect our results of operations and financial condition. Additionally, we expect that the complexity of compliance with climate disclosure regulations will increase as various countries take different approaches to such regulation.
COVID-19 Pandemic Risks Our results of operations have been adversely affected and could be materially impacted in the future by the ongoing coronavirus (COVID-19) pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption in the United States and elsewhere in the world over the past several quarters.
The recent COVID-19 pandemic created significant volatility, uncertainty, and economic disruption in the United States and elsewhere in the world over the past few years.
The PIPL incorporates many requirements common to international privacy laws, such as GDPR, and adds unique regulatory requirements relating to data localization, international data transfers, consumer consent, the processing of “sensitive personal information,” and the operations of certain “internet platform services.” While several new regulations and practical guidelines have been published by the PRC in order to implement the PIPL, key regulations are not yet in force, including those concerning contractual clauses for international data transfers and other requirements relating to international data transfers and data localization.
The PIPL and DSL together incorporate many requirements common to international privacy and security laws, such as GDPR, and adds unique regulatory requirements relating to data localization, international data transfers, consumer consent, the processing of “sensitive personal information,” and the operations of certain “internet platform services.” Fines and penalties under the PIPL range from fines up to RMB 50,000,000 or five percent of global annual turnover, and fines under the DSL related to data transfer violations may range up to RMB 10,000,000 and data transfers may be suspended as a result of violations.
Any additional capital raised through the sale of equity could dilute current shareholders’ ownership percentage in us. Furthermore, we may be unable to obtain the necessary capital on terms or conditions that are favorable to us, or at all. Public Company Risks We may fail to meet analyst expectations, which could cause the price of our stock to decline.
Any additional capital raised through the sale of equity could dilute current shareholders’ ownership percentage in us.
Fines and penalties under the PIPL range from fines up to RMB 50,000,000 or five percent of global annual turnover, to the cancellation of business authorizations, personal liability or professional restrictions for responsible company officers, as well as criminal and civil liability.
Violations of these laws may also result in the cancellation of business authorizations, personal liability or professional restrictions for responsible company officers, as well as criminal and civil liability. Early enforcement actions under PIPL have included civil actions against companies that fail to obtain proper consent for processing sensitive personal information or other unlawful data collection.
Removed
The extent to which the ongoing COVID-19 pandemic impacts our business, operations, and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope, and severity of the pandemic; governmental, business, and individuals’ actions that have been taken, and continue to be taken, in response to the pandemic; the impact of the pandemic on worldwide economic activity, including related supply chain issues (including, for example, shipping delays, capacity constraints, increasing labor costs, and supply shortages), and actions taken in response to such impacts; the effect on our clients, including educational institutions, and client demand for our services; our ability to conduct in-person programs; our ability to sell and provide our services and solutions, including the impact of travel restrictions and from people working from home; the ability of our clients to pay for our services on a timely basis or at all; the ability to maintain sufficient liquidity; and any closure of our offices.
Added
Any one of these circumstances could have an adverse effect on our ability to obtain new business and successfully deliver our services. 13 Table of Contents Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and their levels of business activity.
Removed
We could be adversely impacted if we fail to achieve any of these objectives. Our brand value also depends on our ability to maintain a positive consumer perception of our corporate integrity, purpose, and brand culture.
Added
Although GDPR applies across the European Economic Area, local data protection authorities still have the ability to interpret GDPR, and in some areas to legislate requirements even more stringent than those in the GDPR, which occasionally creates inconsistencies in application on a country-by-country basis.
Removed
Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of personal or confidential information. We are also required at times to manage, utilize, and store personal data, including sensitive or confidential client or employee data.
Added
Other countries, such as Brazil, Australia, Canada, Japan, and South Africa, have also enacted data protection laws, some of which are analogous to GDPR and others which have different and additional requirements, which may include data localization.
Removed
Both cases raised questions about the viability of Standard Contractual Clauses (SCCs) as a Privacy-Shield alternative.
Added
In addition, as the laws in certain countries are fairly new, there may not always be sufficient guidance from the applicable regulators, or case law interpreting the laws.
Removed
Decisions in several countries in the EU have created additional uncertainty surrounding the conditions necessary to properly implement the SCCs in the context of U.S. transfers, in particular, the nature of the technical and organizational controls necessary for such transfers to be lawful.
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Item 2. Properties
Properties — owned and leased real estate
349 edited+66 added−84 removed176 unchanged
Item 2. Properties
Properties — owned and leased real estate
349 edited+66 added−84 removed176 unchanged
2022 filing
2023 filing
Biggest changeINCOME TAXES Our benefit (provision) for income taxes consisted of the following (in thousands): YEAR ENDED AUGUST 31, 2022 2021 2020 Current: Federal $ - $ - $ ( 15 ) State ( 1,221 ) ( 286 ) ( 87 ) Foreign ( 2,202 ) ( 1,773 ) ( 1,145 ) ( 3,423 ) ( 2,059 ) ( 1,247 ) Deferred: Federal ( 9,339 ) 2,869 2,306 State ( 889 ) 13 98 Foreign 24 24 ( 77 ) Operating loss carryforward 7,150 ( 3,058 ) ( 50 ) Valuation allowance 2,845 10,546 ( 11,261 ) Foreign tax credit carryforward reduction ( 2 ) ( 787 ) - ( 211 ) 9,607 ( 8,984 ) $ ( 3,634 ) $ 7,548 $ ( 10,231 ) The allocation of our total income tax benefit (provision) is as follows (in thousands): YEAR ENDED AUGUST 31, 2022 2021 2020 Net income (loss) $ ( 3,634 ) $ 7,548 $ ( 10,231 ) Other comprehensive income (loss) 176 11 16 $ ( 3,458 ) $ 7,559 $ ( 10,215 ) 76 Table of Contents Income (loss) before income taxes consisted of the following (in thousands): YEAR ENDED AUGUST 31, 2022 2021 2020 United States $ 21,152 $ 6,834 $ 3,062 Foreign 912 ( 759 ) ( 2,266 ) $ 22,064 $ 6,075 $ 796 The differences between income taxes at the statutory federal income tax rate and the consolidated income tax rate reported in our consolidated statements of operations and comprehensive income (loss) were as follows: YEAR ENDED AUGUST 31, 2022 2021 2020 Federal statutory income tax rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State income taxes, net of federal effect ( 3.9 ) ( 1.6 ) 16.9 Valuation allowance 12.9 173.6 ( 1,412.9 ) Foreign tax credit carryforward reduction - ( 13.0 ) - Executive stock options - 7.7 199.9 Foreign jurisdictions tax differential ( 1.1 ) ( 4.0 ) 1.4 Tax differential on income subject to both U.S. and foreign taxes ( 0.2 ) ( 0.7 ) 11.9 Uncertain tax positions ( 0.8 ) ( 3.0 ) 13.8 Non-deductible executive compensation ( 5.5 ) ( 5.8 ) ( 18.2 ) Non-deductible meals and entertainment ( 0.1 ) ( 0.2 ) ( 22.3 ) Other stock-based compensation 2.5 - - Payout of deferred compensation (NQDC) - - 6.1 Other 0.7 ( 7.8 ) ( 59.3 ) ( 16.5 ) % 124.2 % ( 1,283.7 ) % Our effective income tax expense r ate for fiscal 2022 of 16.5 percent was lower than the statutory tax rate primarily due to a $ 2.8 million decrease in the valuation allowance against our deferred income tax assets and a $ 0.6 million benefit for share-based compensation deductions in excess of the corresponding book expense.
Biggest changeINCOME TAXES Our benefit (provision) for income taxes consisted of the following (in thousands): YEAR ENDED AUGUST 31, 2023 2022 2021 Current: Federal $ - $ - $ - State ( 791 ) ( 1,221 ) ( 286 ) Foreign ( 2,389 ) ( 2,202 ) ( 1,773 ) ( 3,180 ) ( 3,423 ) ( 2,059 ) Deferred: Federal 1,545 ( 9,339 ) 2,869 State 225 ( 889 ) 13 Foreign 216 24 24 Operating loss carryforward ( 7,201 ) 7,150 ( 3,058 ) Valuation allowance 372 2,845 10,546 Foreign tax credit carryforward reduction ( 65 ) ( 2 ) ( 787 ) ( 4,908 ) ( 211 ) 9,607 $ ( 8,088 ) $ ( 3,634 ) $ 7,548 The allocation of our total income tax benefit (provision) is as follows (in thousands): YEAR ENDED AUGUST 31, 2023 2022 2021 Net income $ ( 8,088 ) $ ( 3,634 ) $ 7,548 Other comprehensive income ( 80 ) 176 11 $ ( 8,168 ) $ ( 3,458 ) $ 7,559 Income before income taxes was generated as follows (in thousands): YEAR ENDED AUGUST 31, 2023 2022 2021 United States $ 23,574 $ 21,152 $ 6,834 Foreign 2,295 912 ( 759 ) $ 25,869 $ 22,064 $ 6,075 76 Table of Contents The differences between income taxes at the statutory federal income tax rate and the consolidated income tax rate reported in our consolidated income statements and statements of comprehensive income were as follows: YEAR ENDED AUGUST 31, 2023 2022 2021 Federal statutory income tax rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State income taxes, net of federal effect ( 4.7 ) ( 3.9 ) ( 1.6 ) Valuation allowance 1.4 12.9 173.6 Foreign tax credit carryforward reduction ( 0.3 ) - ( 13.0 ) Executive stock options - - 7.7 Foreign jurisdictions tax differential ( 0.2 ) ( 1.1 ) ( 4.0 ) Tax differential on income subject to both U.S. and foreign taxes ( 1.4 ) ( 0.2 ) ( 0.7 ) Uncertain tax positions ( 0.9 ) ( 0.8 ) ( 3.0 ) Non-deductible executive compensation ( 3.6 ) ( 5.5 ) ( 5.8 ) Non-deductible meals and entertainment ( 0.7 ) ( 0.1 ) ( 0.2 ) Other stock-based compensation ( 0.4 ) 2.5 - Other 0.5 0.7 ( 7.8 ) ( 31.3 ) % ( 16.5 ) % 124.2 % Our effective income tax expense rate for fiscal 2023 of 31.3 percent was higher than the statutory tax rate primarily due to tax expense of $ 0.9 million for non-deductible executive compensation and $ 0.4 million in tax differential on income subject to both U.S. and foreign taxes, which were partially offset by a $ 0.4 million decrease in the valuation allowance against our deferred income tax assets.
We define Adjusted EBITDA as net income or loss excluding the impact of interest expense, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions.
We define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions.
Our primary uses of liquidity include payments for operating activities, purchases of our common stock, debt payments, capital expenditures (including curriculum development), working capital expansion, business acquisitions, and contingent payments from previous business acquisitions.
Our primary uses of liquidity include payments for operating activities, purchases of our common stock, debt payments, working capital expansion, capital expenditures (including curriculum development), business acquisitions, and contingent payments from previous business acquisitions.
These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
This determination was reached after considering that our web-based functionality and content, in combination with our intellectual property, each represent inputs that transform into a combined output that represents the intended outcome of the AAP, which is to provide a continuously accessible, customized, and dynamic learning and development solution only accessible through the AAP platform.
This determination was reached after considering that our web-based functionality and content, in combination with our intellectual property, each represent inputs that transform into a combined output that represents the intended outcome of the AAP, which is to provide a continuously accessible, customized, and dynamic learning and development solution only accessible through the AAP platform.
Such risks and uncertainties include, but are not limited to, the matters discussed in Item 1A of this annual report on Form 10-K for the fiscal year ended August 31, 2022, entitled “Risk Factors.” In addition, such risks and uncertainties may include unanticipated developments in any one or more of the following areas: cybersecurity risks; unanticipated costs or capital expenditures; delays or unanticipated outcomes relating to our strategic plans; dependence on existing products or services; the rate and consumer acceptance of new product introductions, including the All Access Pass and Impact Platform; competition; the impact of foreign exchange rates; the number and nature of customers and their product orders, including changes in the timing or mix of product or training orders; pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.
Such risks and uncertainties include, but are not limited to, the matters discussed in Item 1A of this annual report on Form 10-K for the fiscal year ended August 31, 2023, entitled “Risk Factors.” In addition, such risks and uncertainties may include unanticipated developments in any one or more of the following areas: cybersecurity risks; unanticipated costs or capital expenditures; delays or unanticipated outcomes relating to our strategic plans; dependence on existing products or services; the rate and consumer acceptance of new product introductions, including the All Access Pass and Impact Platform; competition; the impact of foreign exchange rates; the number and nature of customers and their product orders, including changes in the timing or mix of product or training orders; pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.
(also referred to as we, us, our, the Company, and Franklin Covey) and subsidiaries. This discussion and analysis should be read together with the accompanying consolidated financial statements and related notes contained in Item 8 of this Annual Report on Form 10-K (Form 10-K) and the Risk Factors discussed in Item 1A of this Form 10-K.
(also referred to as we, us, our, the Company, FranklinCovey, and Franklin Covey) and subsidiaries. This discussion and analysis should be read together with the accompanying consolidated financial statements and related notes contained in Item 8 of this Annual Report on Form 10-K (Form 10-K) and the Risk Factors discussed in Item 1A of this Form 10-K.
The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into the following three levels based on reliability: Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date. Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following: a. quoted prices for similar, but not identical, instruments in active markets; b. quoted prices for identical or similar instruments in markets that are not active; c. inputs other than quoted prices that are observable for the instrument; or d. inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.
The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into the following three levels based on reliability: Level 1 valuations are based on quoted prices in active markets for identical instruments that we can access at the measurement date. Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following: a. quoted prices for similar, but not identical, instruments in active markets; b. quoted prices for identical or similar instruments in markets that are not active; c. inputs other than quoted prices that are observable for the instrument; or d. inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.
In our reports and filings we may make forward-looking statements regarding, among other things, our expectations about future sales levels and financial results, expected effects from the COVID-19 pandemic, including effects on how we conduct our business and our results of operations, the timing and duration of the recovery from the COVID-19 pandemic, future training and consulting sales activity, expected benefits from the All Access Pass and the electronic delivery of our content, anticipated renewals of subscription offerings, the impact of new accounting standards on our financial condition and results of operations, the amount and timing of capital expenditures, anticipated expenses, including SG&A expenses, depreciation, and amortization, future gross margins, the release of new services or products, the adequacy of existing capital resources, our ability to renew or extend our line of credit facility, the amount of cash expected to be paid for income taxes, our ability to maintain adequate capital for our operations for at least the upcoming 12 months, the seasonality of future sales, future compliance with the terms and conditions of our line of credit, the ability to borrow on our line of credit, expected 42 Table of Contents collection of accounts receivable, estimated capital expenditures, and cash flow estimates used to determine the fair value of long-lived assets.
In our reports and filings we may make forward-looking statements regarding, among other things, our expectations about future sales levels and financial results, expected effects from the COVID-19 pandemic, including effects on how we conduct our business and our results of operations, the timing and duration of the recovery from the COVID-19 pandemic, future training and consulting sales activity, expected benefits from the All Access Pass and the electronic delivery of our content, anticipated renewals of subscription offerings, the impact of new accounting standards on our financial condition and results of operations, the amount and timing of capital expenditures, anticipated expenses, including SG&A expenses, depreciation, and amortization, future gross margins, the release of new services or products, the adequacy of existing capital resources, our ability to renew or extend our line of credit facility, the amount of cash expected to be paid for income taxes, our ability to maintain adequate capital for our operations for at least the upcoming 12 months, the seasonality of future sales, future compliance with the terms and conditions of our line of credit, the ability to borrow on our line of credit, expected collection of accounts receivable, estimated capital expenditures, and cash flow estimates used to determine the fair value of long-lived assets.
The major classes of assets and liabilities to which we have allocated the purchase price were as follows (in thousands): Cash acquired $ 345 Accounts receivable 154 Prepaid and other current assets 56 Property and equipment 13 Intangible assets 7,976 Goodwill 7,000 Assets acquired 15,544 Deferred revenue ( 52 ) Accrued liabilities ( 135 ) Deferred income tax liability ( 1,037 ) Notes payable, current portion ( 835 ) Notes payable, less current portion ( 2,931 ) Liabilities assumed ( 4,990 ) $ 10,554 The allocation of the purchase price to the intangible assets acquired was as follows (in thousands): Weighted Average Description Amount Life Non-compete agreements $ 171 2 years Content 389 5 years Customer relationships 764 3 years Tradename 889 5 years Internally developed software 5,763 8 years $ 7,976 7 years The goodwill generated by the Strive acquisition is primarily attributable to the technology, content, and software development capabilities that complement our existing AAP subscription and was allocated to our operating segments based on relative fair value.
The major classes of assets and liabilities to which we have allocated the purchase price were as follows (in thousands): 61 Table of Contents Cash acquired $ 345 Accounts receivable 154 Prepaid and other current assets 56 Property and equipment 13 Intangible assets 7,976 Goodwill 7,000 Assets acquired 15,544 Deferred revenue ( 52 ) Accrued liabilities ( 135 ) Deferred income tax liability ( 1,037 ) Notes payable, current portion ( 835 ) Notes payable, less current portion ( 2,931 ) Liabilities assumed ( 4,990 ) $ 10,554 The allocation of the purchase price to the intangible assets acquired was as follows (in thousands): Weighted Average Description Amount Life Non-compete agreements $ 171 2 years Content 389 5 years Customer relationships 764 3 years Tradename 889 5 years Internally developed software 5,763 8 years $ 7,976 7 years The goodwill generated by the Strive acquisition is primarily attributable to the technology, content, and software development capabilities that complement our existing AAP subscription and was allocated to our operating segments based on relative fair value.
Reserved. ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis is intended to provide a summary of the principal factors affecting the results of operations, liquidity and capital resources, and the critical accounting estimates of Franklin Covey Co.
ITEM 6 . Reserved. ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis is intended to provide a summary of the principal factors affecting the results of operations, liquidity and capital resources, and the critical accounting estimates of Franklin Covey Co.
Other key factors that influence our operating results include: the number of organizations that are active customers; the number of people trained within those organizations; the continuation or renewal of existing services contracts, especially subscription renewals; the availability of budgeted training spending at our clients and prospective clients, which, in certain content categories, can be significantly influenced by general economic conditions; client satisfaction with our offerings and services; the number and productivity of our international licensee operations; and our ability to manage operating costs necessary to develop and provide meaningful offerings and related products to our clients. 29 Table of Contents Results of Operations The following table sets forth, for the fiscal years indicated, the percentage of total sales represented by the line items through income or loss before income taxes in our consolidated statements of operations.
Other key factors that influence our operating results include: the number of organizations that are active customers; the number of people trained within those organizations; the continuation or renewal of existing services contracts, especially subscription renewals; the availability of budgeted training spending at our clients and prospective clients, which, in certain content categories, can be significantly influenced by general economic conditions; client satisfaction with our offerings and services; the number and productivity of our international licensee operations; and our ability to manage operating costs necessary to develop and provide meaningful offerings and related products to our clients. 32 Table of Contents Results of Operations The following table sets forth, for the fiscal years indicated, the percentage of total sales represented by the line items through income before income taxes in our consolidated income statements.
Gains and losses resulting from the sale of property and equipment are recorded in income from operations. Depreciation of capitalized subscription portal costs is included in depreciation expense in the accompanying consolidated statements of operations and comprehensive income (loss).
Gains and losses resulting from the sale of property and equipment are recorded in income from operations. Depreciation of capitalized subscription portal costs is included in depreciation expense in the accompanying consolidated income statements and statements of comprehensive income.
The aggregate consideration for the purchase of Strive may total up to $ 20.0 million and is comprised of the following: Approximately $ 10.6 million paid in cash on the Closing Date of the transaction, including $ 1.0 million placed in escrow for 18 months from the Closing Date to serve as the first source of funds to satisfy certain indemnification obligations of Strive. Approximately $ 4.2 million payable in equal cash payments on the first five anniversaries of the Closing Date (Note 6).
The aggregate consideration for the purchase of Strive may total up to $ 20.0 million and is comprised of the following: Approximately $ 10.6 million was paid in cash on the Closing Date of the transaction, including $ 1.0 million placed in escrow for 18 months from the Closing Date to serve as the first source of funds to satisfy certain indemnification obligations of Strive. Approximately $ 4.2 million payable in equal cash payments on the first five anniversaries of the Closing Date (Note 7).
For a reconciliation of our segment Adjusted EBITDA to net income or loss, a related GAAP measure, please refer to Note 16 Segment Information to our consolidated financial statements as presented in Item 8 of this Form 10-K. EXECUTIVE SUMMARY General Overview Franklin Covey Co. is a global company focused on individual and organizational performance improvement.
For a reconciliation of our segment Adjusted EBITDA to net income or loss, a related GAAP measure, please refer to Note 17 Segment Information to our consolidated financial statements as presented in Item 8 of this Form 10-K. EXECUTIVE SUMMARY General Overview Franklin Covey Co. is a global company focused on individual and organizational performance improvement.
Other Related Party Transactions We pay an executive officer of the Company a percentage of the royalty proceeds received from the sales of certain books authored by him in addition to his annual salary. During each of the fiscal years ended August 31, 2022, 2021, and 2020, we expensed $ 0.1 million for these royalties.
Other Related Party Transactions We pay an executive officer of the Company a percentage of the royalty proceeds received from the sales of certain books authored by him in addition to his annual salary. During each of the fiscal years ended August 31, 2023, 2022, and 2021, we expensed $ 0.1 million for these royalties.
LEGAL PROCEEDINGS From time to time, we are the subject of certain legal actions, which we consider routine to our business activities. At August 31, 2022, we were not party to any litigation or legal proceeding that, in the current opinion of management, could have a material adverse effect on our financial position, liquidity, or results of operations.
LEGAL PROCEEDINGS From time to time, we are the subject of certain legal actions, which we consider routine to our business activities. At August 31, 2023, we were not party to any litigation or legal proceeding that, in the current opinion of management, could have a material adverse effect on our financial position, liquidity, or results of operations.
Because of the cumulative pre-tax losses over the past three fiscal years, combined with the expected continued disruptions and negative impact to our business resulting from uncertainties related to the recovery from the pandemic, we were unable to overcome accounting guidance indicating that it is more-likely-than-not that insufficient taxable income will be available to realize all of our deferred tax assets before they expire, which are primarily foreign tax credit carryforwards and a portion of our net operating loss carryforwards.
Because of the cumulative pre-tax losses over the past three fiscal years, combined with the expected continued disruptions and negative impact to our business resulting from uncertainties related to the recovery from the pandemic, we 43 Table of Contents were unable to overcome accounting guidance indicating that it is more-likely-than-not that insufficient taxable income will be available to realize all of our deferred tax assets before they expire, which are primarily foreign tax credit carryforwards and a portion of our net operating loss carryforwards.
We believe this atmosphere produces better solutions for our clients and feelings of well-being and satisfaction for our associates. Through our efforts to improve our culture, we have made great progress in our diversity, equity, and inclusion initiatives and created a welcoming environment for the many new and talented associates that joined us during fiscal 2022.
We believe this atmosphere produces better solutions for our clients and feelings of well-being and satisfaction for our associates. Through our efforts to improve our culture, we have made great progress in our diversity, equity, and inclusion initiatives and created a welcoming environment for the many new and talented associates that joined us during fiscal 2023.
A valuation allowance is provided against deferred income tax assets when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. Interest and penalties related to uncertain tax positions are recognized as components of income tax benefit or expense in our consolidated statements of operations and comprehensive income (loss).
A valuation allowance is provided against deferred income tax assets when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. Interest and penalties related to uncertain tax positions are recognized as components of income tax benefit or expense in our consolidated income statements and statements of comprehensive income.
Property and Equipment Property and equipment are recorded at cost. Depreciation expense, which includes depreciation on our corporate campus that is accounted for as a financing obligation (Note 7), is calculated using the straight-line method over the lesser of the expected useful life of the asset or the contracted lease period.
Property and Equipment Property and equipment are recorded at cost. Depreciation expense, which includes depreciation on our corporate campus that is accounted for as a financing obligation (Note 8), is calculated using the straight-line method over the lesser of the expected useful life of the asset or the contracted lease period.
Breadth and Scalability of Delivery Options – We have a wide range of content delivery options, including: the All Access Pass, the Leader in Me membership, and other intellectual property licenses, digital online learning, on-site training, training led through certified facilitators, blended learning, and organization-wide transformational processes, including consulting and coaching.
Breadth and Scalability of Delivery Options – We have a wide range of content delivery options, including: the All Access Pass, the Leader in Me membership subscriptions, intellectual property licenses, digital online learning, on-site training, training led through certified facilitators, blended learning, and organization-wide transformational processes, including consulting and coaching.
Our effective income tax rate for fiscal 2022 was lower than the statutory rate due primarily to a $2.8 million decrease in the valuation allowance against our deferred income tax assets and a $0.6 million benefit for share-based compensation deductions in excess of the corresponding book expense.
O ur effective income tax rate for fiscal 2022 was lower than the statutory rate due primarily to a $2.8 million decrease in the valuation allowance against our deferred income tax assets and a $0.6 million benefit for share-based compensation deductions in excess of the corresponding book expense.
In addition, we do not enter into derivative contracts for trading or speculative purposes, nor are we party to any leveraged derivative instrument. During the fiscal years ended August 31, 2022, 2021, and 2020, we were not party to any foreign exchange contracts, interest rate swap agreements, or similar derivative instruments.
In addition, we do not enter into derivative contracts for trading or speculative purposes, nor are we party to any leveraged derivative instrument. During the fiscal years ended August 31, 2023, 2022, and 2021, we were not party to any foreign exchange contracts, interest rate swap agreements, or similar derivative instruments.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed and traded on the NYSE under the symbol “FC.” We did not pay or declare dividends on our common stock during the fiscal years ended August 31, 2022 or 2021.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed and traded on the NYSE under the symbol “FC.” We did not pay or declare dividends on our common stock during the fiscal years ended August 31, 2023 or 2022.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
In determining the SSP, the Company considers the size and volume of transactions, price lists, historical sales, and contract prices. 46 Table of Contents Given the increased extent of audit effort in evaluating management’s judgments in determining SSP, we identified the determination of SSP for the Leader in Me membership offerings as a critical audit matter.
In determining the SSP, the Company considers the size and volume of transactions, price lists, historical sales, and contract prices. 47 Table of Contents Given the increased extent of audit effort in evaluating management’s judgments in determining SSP, we identified the determination of SSP for the Leader in Me membership offerings as a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s determination of SSP for these performance obligations, included the following, among others: We tested the effectiveness of internal controls over the determination of SSP. We selected a sample of customer agreements and performed the following: Obtained and read customer contracts and invoices for each selection to evaluate if relevant contractual terms have been appropriately considered by management. Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions. Assessed the reasonableness of management’s estimates of stand-alone selling prices for products and services and the allocation of the transaction price to identified performance obligations determined on a relative stand-alone selling basis. Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. /s/ Deloitte & Touche LLP Salt Lake City, Utah November 14, 2022 We have served as the Company’s auditor since 2016. 47 Table of Contents FRANKLIN COVEY CO.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s determination of SSP for these performance obligations, included the following, among others: We tested the effectiveness of internal controls over the determination of SSP. We selected a sample of customer agreements and performed the following: Obtained and read customer contracts and invoices for each selection to evaluate if relevant contractual terms have been appropriately considered by management. Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions. Assessed the reasonableness of management’s estimates of stand-alone selling prices for products and services and the allocation of the transaction price to identified performance obligations determined on a relative stand-alone selling basis. Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. /s/ Deloitte & Touche LLP Salt Lake City, Utah November 13, 2023 We have served as the Company’s auditor since 2016. 48 Table of Contents FRANKLIN COVEY CO.
We have determined that the Company’s chief operating decision maker continues to be the CEO, and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts reported by other companies.
We have determined that the Company’s chief operating decision maker is the CEO, and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts reported by other companies.
Based on the results of our goodwill impairment analysis during fiscal 2022, we determined that no impairment existed at August 31, 2022, as we determined that it was more likely than not that each reportable operating segment’s estimated fair value exceeded its carrying value.
Based on the results of our goodwill impairment analysis during fiscal 2023, we determined that no impairment existed at August 31, 2023, as we determined that it was more likely than not that each reportable operating segment’s estimated fair value exceeded its carrying value.
The fair value of shares awarded to the directors was $ 0.7 million in each of fiscal 2022, fiscal 2021, and fiscal 2020 as calculated on the grant date of the awards. The corresponding compensation cost of each award is recognized over the service period of the award, which is one year.
The fair value of shares awarded to the directors was $ 0.7 million in each of fiscal 2023, fiscal 2022, and fiscal 2021 as calculated on the grant date of the awards. The corresponding compensation cost of each award is recognized over the service period of the award, which is one year.
The range of remaining estimated useful lives and weighted-average amortization period over which we are amortizing the major categories of finite-lived intangible assets at August 31, 2022 were as follows: Category of Intangible Asset Range of Remaining Estimated Useful Lives Weighted Average Original Amortization Period Acquired content 4 to 5 years 24 years License rights 5 to 7 years 26 years Customer lists 2 to 4 years 11 years Acquired technology 7 years 6 years Trade names 4 years 5 years Non-compete agreements and other 1 to 5 years 3 years 63 Table of Contents Our aggregate amortization expense from finite-lived intangible assets totaled $ 5.3 million, $ 5.0 million, and $ 4.6 million for the fiscal years ended August 31, 2022, 2021, and 2020.
The range of remaining estimated useful lives and weighted-average amortization period over which we are amortizing the major categories of finite-lived intangible assets at August 31, 2023 were as follows: 63 Table of Contents Category of Intangible Asset Range of Remaining Estimated Useful Lives Weighted Average Original Amortization Period Acquired content 3 to 4 years 24 years License rights 4 to 6 years 26 years Customer lists 1 to 4 years 11 years Acquired technology 6 years 6 years Trade names 3 years 5 years Non-compete agreements and other 4 to 6 years 3 years Our aggregate amortization expense from finite-lived intangible assets totaled $ 4.3 million, $ 5.3 million, and $ 5.0 million for the fiscal years ended August 31, 2023, 2022, and 2021.
The resulting translation differences are recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
The resulting translation differences are recorded as a component of accumulated other comprehensive loss in shareholders’ equity.
Comprehensive Income (Loss) Comprehensive income (loss) includes changes to equity accounts that were not the result of transactions with shareholders. Comprehensive income (loss) is comprised of net income or loss and other comprehensive income and loss items. Our other comprehensive income and losses generally consist of changes in the cumulative foreign currency translation adjustment, net of tax.
Comprehensive Income Comprehensive income includes changes to equity accounts that were not the result of transactions with shareholders. Comprehensive income is comprised of net income and other comprehensive income and loss items. Our other comprehensive income and losses generally consist of changes in the cumulative foreign currency translation adjustment, net of tax. 2.
We tested goodwill for impairment at August 31, 2022 at the reporting unit level using a qualitative approach. We determined that it was more likely than not that the fair value of each of our reporting units was more than their carrying values.
We tested goodwill for impairment at August 31, 2023 at the reporting unit level using a qualitative approach. We determined that it was more likely than not that the fair value of each of our reporting units was more than their carrying values.
Accordingly, the fair values may not represent the actual values of the financial instruments that could have been realized at August 31, 2022 or 2021, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.
Accordingly, the fair values may not represent the actual values of the financial instruments that could have been realized at August 31, 2023 or 2022, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.
We have U.S. state net operating loss carryforwards generated in fiscal 2009 and before in various jurisdictions that expire primarily between September 1, 2022 and August 31, 2029. The U.S. state net operating loss carryforwards generated in fiscal 2017 and fiscal 2018 primarily expire on August 31, 2037 and 2038, respectively.
We have U.S. state net operating loss carryforwards generated in fiscal 2009 and before in various jurisdictions that expire primarily between September 1, 2023 and August 31, 2029. The U.S. state net operating loss carryforwards generated in fiscal 2017 and fiscal 2018 primarily expire on August 31, 2037 and 2038, respectively.
We consistently seek to provide our clients world-class solutions, using the best technology, that will allow them to transform their organizations into high performing entities. Refresh our Brand and Messaging – We are focused on telling our story more broadly and powerfully, with the goal of helping significantly more people understand what we do and how we can help them.
We consistently seek to provide our clients world-class solutions, using the best technology, that will allow them to transform their organizations into high performing entities. 31 Table of Contents Refresh our Brand and Messaging – We are focused on telling our story more broadly and powerfully, with the goal of helping significantly more people understand what we do and how we can help them.
The remaining two tranches of the fiscal 2019 award are based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the measurement period that originally ended August 31, 2021.
The remaining two tranches of the fiscal 2019 award were based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the measurement period that originally ended August 31, 2021.
For reporting purposes, w e define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions, and other unusual or infrequent items .
For reporting purposes, w e define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and 81 Table of Contents certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions, and other unusual or infrequent items .
Total rent expense recorded in selling, general, and administrative expense from our lease agreements totaled $ 1.5 million, $ 1.6 million, and $ 1.5 million for the fiscal years ended August 31, 2022, 2021, and 2020. Lessor Accounting We have subleased the majority of our corporate headquarters campus located in Salt Lake City, Utah to multiple tenants.
Total rent expense recorded in selling, general, and administrative expense from our lease agreements totaled $ 1.2 million, $ 1.5 million, and $ 1.6 million for the fiscal years ended August 31, 2023, 2022, and 2021. Lessor Accounting We have subleased the majority of our corporate headquarters campus located in Salt Lake City, Utah to multiple tenants.
Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 24,649 shares.
Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 24,138 shares.
However, the timing and amount of common stock purchases is dependent on a number of factors, including available resources and market conditions, and we are not obligated to make purchases of our common stock during any future period.
However, the timing and amount of common stock purchases is dependent on a number of factors, including available resources, and we are not obligated to make purchases of our common stock during any future period.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Based on the fiscal 2022 evaluation of the Covey trade name, we believe the fair value of the Covey trade name substantially exceeds its carrying value. No impairment charges were recorded against the Covey trade name during the periods presented in this report.
Based on the fiscal 2023 evaluation of the Covey trade name, we believe the fair value of the Covey trade name substantially exceeds its carrying value. No impairment charges were recorded against the Covey trade name during the periods presented in this report.
In addition, development costs incurred in the research and development of new offerings and software products to be sold, leased, or otherwise marketed are expensed as incurred until economic and technological feasibility has been established.
In addition, development costs incurred in the research and development of new offerings and software products to be sold, leased, or otherwise marketed are expensed as incurred until economic and technological feasibility have been established.
Refer to the disaggregated revenue information presented in Note 16, Segment Information , for our royalty revenues in the fiscal years presented in this report. Contracts with Multiple Performance Obligations We periodically enter into contracts that include multiple performance obligations.
Refer to the disaggregated revenue information presented in Note 17, Segment Information , for our royalty revenues in the fiscal years presented in this report. Contracts with Multiple Performance Obligations We periodically enter into contracts that include multiple performance obligations.
Based on the factors described above, we concluded that realization of our deferred tax assets, except those subject to the valuation allowances described above, is more likely than not at August 31, 2022.
Based on the factors described above, we concluded that realization of our deferred tax assets, except those subject to the valuation allowances described above, is more likely than not at August 31, 2023.
The performance graph above is being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 24 Table of Contents ITEM 6 .
The performance graph above is being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Exchange Act, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Our international licensee revenues are primarily comprised of royalty revenues. During fiscal 2022, our licensee revenues increased primarily due to increased royalty revenues from certain licensees as economies in many of the countries where our licensees operate continue to recover from the pandemic.
Our international licensee revenues are primarily comprised of royalty revenues. During fiscal 2023 our licensee revenues increased primarily due to increased royalty revenues from certain licensees as economies in many of the countries where our licensees operate continue to recover from the pandemic.
We have determined that it is most appropriate to account for the AAP as a single performance obligation and recognize the associated transaction price ratably over the term of the underlying contract beginning on the commencement date of each contract, which is the date the Company’s platforms and resources are made available to the customer.
We have determined that it is most appropriate to account for the AAP as a single performance obligation and recognize the associated transaction price ratably over the term of the underlying contract beginning on the commencement date of each 58 Table of Contents contract, which is the date the Company’s platforms and resources are made available to the customer.
During fiscal years ended August 31, 2022, 2021, and 2020, we expensed $ 2.5 million, $ 2.1 million, and $ 2.1 million for services provided under the terms of our warehouse and distribution outsourcing contract. The total amount expensed each year includes freight charges, which are billed to us based upon activity.
During fiscal years ended August 31, 2023, 2022, and 2021, we expensed $ 2.7 million, $ 2.5 million, and $ 2.1 million for services provided under the terms of our warehouse and distribution outsourcing contract. The total amount expensed each year includes freight charges, which are billed to us based upon activity.
The net accruals and reversals of interest and penalties increased our income tax expense by $ 0.1 million in fiscal 2022 and had an insignificant effect on our income taxes in each of fiscal 2021 and fiscal 2020.
The net accruals and reversals of interest and penalties increased our income tax expense by $ 0.1 million in each of fiscal 2023 and 2022 and had an insignificant effect on our income taxes in fiscal 2021.
On April 26, 2021 (the Closing Date), through our wholly-owned subsidiary Franklin Covey Client Sales, Inc., we purchased all of the issued and outstanding stock of Strive Talent, Inc. (Strive), a San Francisco-based technology company which has developed and markets an innovative learning deployment platform.
On April 26, 2021 (the Closing Date), through our wholly owned subsidiary Franklin Covey Client Sales, Inc., we purchased all of the issued and outstanding stock of Strive Talent, Inc. (Strive), a San Francisco-based technology company which developed and marketed an innovative learning deployment platform.
The total value of this consideration is contingent upon sales and growth of the AAP subscription and subscription services revenues during the five-year period measurement ending in May 2026. The contingent earn out payments are conditional upon the continued employment of former principal 60 Table of Contents owner of Strive over the first four years of the measurement period.
The total value of this consideration is contingent upon sales and growth of the AAP subscription and subscription services revenues during the five-year period measurement ending in May 2026. The contingent earn out payments are conditional upon the continued employment of former principal owner of Strive over the first four years of the measurement period.
Based on this assessment, we increased the valuation allowance against our deferred tax assets, which generated $ 11.3 million of additional income tax expense in fiscal 2020. 77 Table of Contents Our strong financial performance during fiscal 2021 produced cumulative three-year pre-tax income through August 31, 2021.
Based on this assessment, we increased the valuation allowance against our deferred tax assets, which generated $ 11.3 million of additional income tax expense in fiscal 2020. Our strong financial performance during fiscal 2021 produced cumulative three-year pre-tax income through August 31, 2021.
Other Assets – Our other assets, including notes receivable, were recorded at the net realizable value of estimated future cash flows from these instruments. Debt Obligations – At August 31, 2022, our debt obligations consisted primarily of variable-rate term notes payable and a note payable to the former owners of Strive.
Other Assets – Our other assets, including notes receivable, were recorded at the net realizable value of estimated future cash flows from these instruments. Debt Obligations – At August 31, 2023, our debt obligations consisted primarily of a variable-rate term loan payable and a note payable to the former owners of Strive.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 14, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 13, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Constant currency is a non-GAAP financial measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year.
Constant currency is a non-GAAP financial 27 Table of Contents measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year.
During fiscal 2021 we reversed nearly all of the valuation allowance amounts that we recorded in 2020. The remaining valuation allowance at August 31, 2021 related primarily to the foreign tax credit carryforward from fiscal 79 Table of Contents 2011, which we expected to expire in fiscal 2022, and losses of certain foreign subsidiaries.
During fiscal 2021 we reversed nearly all of the valuation allowance amounts that we recorded in fiscal 2020. The remaining valuation allowance at August 31, 2021 related primarily to the foreign tax credit carryforward from fiscal 2011, which we expected to expire in fiscal 2022, and losses of certain foreign subsidiaries.
Because of the variable component of the agreement, our payments for warehouse and distribution services may fluctuate in the future due to changes in sales and levels of specified activities. Purchase Commitments During the normal course of business, we issue purchase orders to various vendors for products and services.
Because of the variable component of the agreement, our payments for warehouse and distribution services may fluctuate in the future due to changes in sales and levels of specified activities. 68 Table of Contents Purchase Commitments During the normal course of business, we issue purchase orders to various vendors for products and services.
These payments may be made in either cash or shares of our common stock at our sole discretion. Approximately $ 1.0 million will be paid 18 months following the Closing Date to stockholders and option holders of Strive who are still employed by the Company or its affiliates as of such 18-month date, subject to certain exceptions.
These payments may be made in either cash or shares of our common stock at our sole discretion. Approximately $ 1.0 million was paid 18 months following the Closing Date to stockholders and option holders of Strive who were still employed by the Company or its affiliates as of such 18-month date, subject to certain exceptions.
Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Franklin Covey Co. and subsidiaries (the “Company”) as of August 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Franklin Covey and subsidiaries (the “Company”) as of August 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Under this approach, deferred income taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The income tax provision represents income taxes paid or payable for the current year plus the change in deferred taxes during the year.
Under this approach, deferred income taxes represent the future tax consequences expected to occur when the reported 57 Table of Contents amounts of assets and liabilities are recovered or paid. The income tax provision represents income taxes paid or payable for the current year plus the change in deferred taxes during the year.
We have no obligation to repurchase any common shares under the authorization, and the repurchase plan may be suspended, discontinued, or modified at any time for any reason.
We have no obligation to purchase any common shares under the authorization, and the purchase plan may be suspended, discontinued, or modified at any time for any reason.
The book values of our financial instruments at August 31, 2022 and 2021 approximated their fair values. The assessment of the fair values of our financial instruments is based on a variety of factors and assumptions.
The book values of our financial instruments at August 31, 2023 and 2022 approximated their fair values. The assessment of the fair values of our financial instruments is based on a variety of factors and assumptions.
Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020 and the uncertainties surrounding the recovery of the world’s economies and our business, we determined that the LTIP award tranches based on qualified Adjusted EBITDA for outstanding LTIP awards (except the fiscal 2018 LTIP award) would not vest before the end of the respective service periods.
Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020 and the uncertainties surrounding the recovery of the world’s economies and our business, we determined that nearly all LTIP award tranches based on qualified Adjusted EBITDA for outstanding LTIP awards would not vest before the end of the respective service periods.
Fiscal 2020 LTIP Award – On October 18, 2019, the Compensation Committee of the Board of Directors granted a new LTIP award to our executive officers and members of senior management.
Fiscal 2020 LTIP Award – On October 18, 2019, the Compensation Committee granted a new LTIP award to our executive officers and members of senior management.
The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. If the assets acquired, net of liabilities assumed, are greater than the purchase price paid, then a bargain purchase has occurred and the Company will recognize the gain immediately in earnings.
The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. If the assets acquired, net of liabilities assumed, are greater than the purchase price paid, then a bargain purchase has occurred and the Company will 42 Table of Contents recognize the gain immediately in earnings.
Employee Stock Purchase Plan We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day 75 Table of Contents of each quarter.
Employee Stock Purchase Plan We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day of each quarter.
Global Capability – We have sales professionals in the United States and Canada who serve clients in the private sector, in government, and in educational institutions; wholly owned subsidiaries in Australia, China, Japan, the United Kingdom, Germany, Switzerland, and Austria; and we contract with independent licensee partners who deliver our content and provide services in 150 countries and territories around the world.
Global Capability – We have sales professionals in the United States and Canada who serve clients in the private sector, in government, and in educational institutions; wholly owned subsidiaries that serve clients in Australia, New Zealand, China, Japan, the United Kingdom, Ireland, Germany, Switzerland, and Austria; and we contract with independent licensee partners who deliver our content and provide services in 150 countries and territories around the world.
At August 31, 2022, we believe that, after consultation with legal counsel, any potential liability to us under these other actions will not materially affect our financial position, liquidity, or results of operations. 10. SHAREHOLDERS’ EQUITY Preferred Stock We have 14.0 million shares of preferred stock authorized for issuance.
At August 31, 2023, we believe that, after consultation with legal counsel, any potential liability to us under these other actions will not materially affect our financial position, liquidity, or results of operations. 11. SHAREHOLDERS’ EQUITY Preferred Stock We have 14.0 million shares of preferred stock authorized for issuance.
The cost of the common stock issued from treasury for these awards was $ 0.2 million in fiscal 2022, $ 0.4 million in fiscal 2021, and $ 0.3 million in fiscal 2020.
The cost of the common stock issued from treasury for these awards was $ 0.3 million in fiscal 2023, $ 0.2 million in fiscal 2022, and $ 0.4 million in fiscal 2021.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Franklin Covey Co. and subsidiaries (the “Company”) as of August 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended August 31, 2022, and the related notes (collectively referred to as the “financial statements”).
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Franklin Covey Co. and subsidiaries (the “Company”) as of August 31, 2023 and 2022, the related consolidated income statements and statements of comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended August 31, 2023, and the related notes (collectively referred to as the “financial statements”).
We received cash proceeds for these shares from ESPP participants totaling $ 1.3 million in fiscal 2022; $ 1.1 million in fiscal 2021; and $ 1.0 million during fiscal 2020. Fully Vested Stock Awards We have a stock-based incentive program that is designed to reward our client partners and training consultants for exceptional long-term performance.
We received cash proceeds for these shares from ESPP participants totaling $ 1.5 million in fiscal 2023; $ 1.3 million in fiscal 2022; and $ 1.1 million during fiscal 2021. Fully Vested Stock Awards We have a stock-based incentive program that is designed to reward our client partners and training consultants for exceptional long-term performance.
Covey royalties for the use of certain intellectual property developed by him. The amount expensed for these royalties totaled $ 1.8 million, $ 1.5 million, and $ 1.6 million during the fiscal years ended August 31, 2022, 2021, and 2020. As part of the acquisition of CoveyLink, we signed an amended license agreement as well as a speaker services agreement.
Covey royalties for the use of certain intellectual property developed by him. The amount expensed for these royalties totaled $ 1.7 million, $ 1.8 million, and $ 1.5 million during the fiscal years ended August 31, 2023, 2022, and 2021. As part of the acquisition of CoveyLink, we signed an amended license agreement as well as a speaker services agreement.
We use an estimate of undiscounted future net cash flows of the assets over their remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the anticipated future cash flows of the 40 Table of Contents assets, we calculate an impairment loss.
We use an estimate of undiscounted future net cash flows of the assets over their remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the anticipated future cash flows of the assets, we calculate an impairment loss.
The objective of our foreign currency risk management activities is to reduce foreign currency risk in the consolidated financial statements. In order to manage 43 Table of Contents foreign currency risks, we may make limited use of foreign currency forward contracts and other foreign currency related derivative instruments.
The objective of our foreign currency risk management activities is to reduce foreign currency risk in the consolidated financial statements. In order to manage foreign currency risks, we may make limited use of foreign currency forward contracts and other foreign currency related derivative instruments.
Stock-Based Compensation We record the compensation expense for all stock-based payments, including grants of stock options and the compensatory elements of our employee stock purchase plan, in our consolidated statements of operations and comprehensive income (loss) based upon their fair values over the requisite service period. For more information on our stock-based compensation plans, refer to Note 12.
Stock-Based Compensation We record the compensation expense for all stock-based payments, including grants of stock options and the compensatory elements of our employee stock purchase plan, in our consolidated income statements and statements of comprehensive income based upon their fair values over the requisite service period. For more information on our stock-based compensation plans, refer to Note 13.
We pay a company owned by the brother of a member of our executive management team for the production of video segments used in our offerings. During the fiscal years ended August 31, 2022 and 2021, we paid $ 0.3 million and $ 0.8 million to this company for services provided. 86 Table of Contents
We pay a company owned by the brother of a member of our executive management team for the production of video segments used in our offerings. During the fiscal years ended August 31, 2023, 2022, and 2021 we paid $ 0.2 million, $ 0.3 million, and $ 0.8 million to this company for services provided. 85 Table of Contents
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