BUS 4633 CU Business Law & Educational Development Corporation Paper & Questions

instructions are here:BUS 4633 Assignment 1:  Industry Analysis that is Taranin 16Analyze the industry in which one of the following two firms competes:  either Abita Brewing or Southwest Airlines.  (Be careful to analyze the industry, not the company.)  Your paper should have seven typed paragraphs as follows:Define the industry—describe which sorts of firms are competing in this industry and which are not and explain the differences between the two (the boundaries of the industry).What factors (pos. & neg.) have a significant influence on Competitive rivalryWhat factors (pos. & neg.) have a significant influence on The bargaining power of suppliersWhat factors (pos. & neg.) have a significant influence on The bargaining power of buyersWhat factors (pos. & neg.) have a significant influence on The threat of substitute productsWhat factors (pos. & neg.) have a significant influence on The threat of new entrantsOverall rating for the industry (1=very unattractive, 10=very attractive).  Justify your rating using your analysis in the preceding paragraphs.  What are the Key Success Factors (KSFs) for this industry?Assignment 2: Taranin 13In no more than five typed pages, discuss the ways in which EDC’s resources differ from those of its competitor, Scholastic, and how those resource differences may explain differences in the performance of the two firms.  You may complete this assignment alone or with up to four other students. and teh attached case name is Educational Development Corporation Case 2020

Educational Development Corporation: David among the Goliaths
By the end of 2019, Educational Development Corporation (“EDC”) had seen several years of dramatic growth in a
declining industry. EDC had published U.S. versions of the educational children’s books produced in the United
Kingdom by Usborne Publishing Limited for more than 40 years. In 2008, the firm added young adult fiction to its
offerings with the acquisition of Kane/Miller Book Publishers. EDC was publicly traded on the NASDAQ stock
market and had been recognized in November 1997 by Forbes Magazine as one of the 200 Best Small Companies in
America.
EDC was unique among publishers in several ways. EDC’s product line was unique in that they published primarily
U.S. versions of children’s books originally published in other countries and other languages. EDC also offered a
wide range of toys, gifts, and activity books to enhance the line. The firm also differed from most publishers in its
sales methods. In addition to sales through bookstores, EDC’s publishing division marketed its products through toy
stores, gift shops and museums. Most of the firm’s sales, though, came from its Usborne Books and More (UBAM)
division, which sold directly to individuals, schools and libraries using a multilevel direct selling model similar to
that popularized by Mary Kay Cosmetics and Tupperware. One of the firm’s challenges was to recruit, retain, and
motivate the independent consultants who accounted for most of the company’s sales.
EDC also faced challenges in its more traditional sales through bookstores. Book sales by U.S. publishers had
declined by more than $2 billion since 2014. That decline reflected a 24% decline in bricks-and-mortar bookstores
that had been partially offset by a 17% increase in online sales. In recent years, many booksellers from one-unit
independents to giants like Borders had exited the industry and Barnes and Noble had been acquired by venture
capital firm Elliott Management.
The Risky Move
In 2012, EDC created a stir when it announced that it would no longer sell its books through Amazon.com, the
world’s largest retailer of books. Though Amazon had accounted for more than 20% of sales for the firm’s
publishing division, such sales were causing bad feelings with the UBAM consultants as well as with small retailers
and independent book stores. A consultant might spend hours meeting with a school or library or attending a home
show, only to have the customer go online and buy the book from Amazon, thereby avoiding sales taxes and often
buying at Amazon’s steeply discounted prices. As CEO Randall White put it, “They were becoming showrooms for
Amazon.” Such “showrooming” had contributed to the demise of firms like Radio Shack and Borders. EDC also
cut off sales to Walmart, Sam’s Club, Target, and other “big box” discounters and cancelled its account with its
biggest wholesaler, Baker and Taylor, when they refused to stop reselling to Amazon.
In a 2007 interview, CEO Randall White had declared that “(o)ur main strategy is to try to increase our market
penetration. We did about $32 million last year. So when you are talking about a $1.3 billion marketplace, there is
room to grow.” The Amazon decision, coupled with the increasing use of social media as a selling tool had spurred
significant growth for EDC. Dealing with and sustaining that growth presented a new challenge for EDC.
Performance for previous years is detailed below and in Appendices A and B.
SELECTED FINANCIAL DATA
Year
Revenues
2019
118,811,300
2018
111,984,600
2017
108,628,100
2016
63,618,300
2015
32,548,300
Earnings
Before
Taxes
9,180,800
7,832,700
4,612,100
3,545,900
1,402,500
Total
Assets
69,266,300
61,837,900
65,980,300
49,695,000
18,013,200
1
2014
40,558,000
2013
39,215,300
2012
40,906,200
873,500
1,282,000
2,277,700
16,758,300
17,900,800
18,011,400
Mission
The unique characteristics of EDC stem directly from the firm’s mission: “The future of our world depends on the
education of our children. EDC delivers educational excellence one book at a time. We provide economic
opportunity while fostering strong family values. We touch the lives of children for a lifetime.” To achieve this
mission and increase its market penetration, EDC listed three goals: Delighted Customers, Enabled Employees, and
Industry Respect.
Products
In the Usborne line of books, EDC offered over 2,000 different titles in a wide range of subjects covering hobbies,
history, science, nature, foreign language, parent’s guides and more. Many were interactive in nature, including
Touchy-Feely board books, jigsaw puzzle books, activity and flashcards, adventure and search books, art books,
sticker books and foreign language books. Many titles were also published in Spanish. The acquisition of
Kane/Miller incorporated fiction to EDC’s line. The majority of the titles published by Kane/Miller Book
Publishers originally were published in other countries in their native languages.
The firm also offered a broad line of ‘internet-linked’ books which allowed readers to expand their educational
experience by referring them to relevant non-Usborne websites researched by the firm. These books included
science and math titles, as well as chapter books and novels. EDC also produced and distributed “Usborne Kid
Kits”, which combined an Usborne book with specialty items or toys that complemented the information contained
in the book. In recent years, toy and gift sales had grown to 62% of EDC’s publishing division revenue.
The firm’s Usborne and Kane/Miller books had won scores of awards from a wide variety of sources (see Appendix
E for a sampling). The firm’s bestsellers Everybody Poops and Wilfred Gordon McDonald Partridge had each sold
more than one million copies by 2014. Award-winner Guji-Guji sold 65,000 copies in its first year of publication.
The Sticker Dolly Dressing line of activity books had shown double digit growth in sales for several years in a row.
The Anna Hibiscus series had also enjoyed significant popularity. Usborne was named the United Kingdom
Children’s Publisher of the year in 2012 and the Publisher of the year in 2014.
Operations
The firm outsourced the actual printing and binding of its books to firms in Europe, China, Singapore, India,
Malaysia, and Dubai. Printing required a three to four month lead time between order and delivery to EDC. The
principle supplier, Usborne, accounted for $29.8 million of the firm’s annual $42.8 million in inventory purchases in
the fiscal year that ended in February of 2019. Usborne, located in England, required a minimum print run of 6,500
copies of a title for a solo print run. For smaller orders, EDC had to share a print run with the suppliers’ other
customers, which could further delay delivery. EDC used analysis of past customer purchases of similar titles to
forecast ordering or reordering of inventory.
To deal with its growth, EDC purchased a headquarters and distribution facility located on a 40acre complex in Tulsa, Oklahoma in 2015. The complex included multiple buildings that combined
to create approximately 400,000 square feet of office and warehouse space. EDC used a
170,000 square foot warehouse in the complex to house three flow-rack systems to expedite
order fulfillment, packaging, and shipment. Another 181,300 square feet was leased to the
former owner of the property until 2030. EDC retained its former facility in Tulsa (95,000
square feet of warehouse space and 10,000 square feet of office space) to store overflow
inventory. Approximately 8,000 square feet of this facility was leased to another third-party
tenant.
EDC, in turn, leased a small office in San Diego, CA to house its Kane/Miller publishing staff.
2
Once inventory was received, EDC filled orders using three automated fulfillment lines. In 2016, the firm had
begun a three year program to increase the automation in its distribution facility. They expanded from a single line
using multiple shifts to the three lines operating in 2019. The automation included adding pick-to-light technology
and a divert system that automatically diverted orders only into zones that contained an item within that order, as well
as using excess line equipment to deliver the completed line orders directly into outbound shipping trailers. These
capital expenditures not only reduced the amount of warehouse labor needed, but also reduced error rates, while
handling significantly increased volume. By the third quarter of 2019, the busiest quarter for EDC, the firm was
able to operate on one shift, working extended hours, rather than expanding to a second and third shift as had been
required in the previous two years. Shipping and handling costs, which were included under operating and selling
expenses, were $17,263,000 and $15,990,800 for the years ended February 28, 2019 and 2018,
respectively.
Technology
OrderPro online, or OPOL, a proprietary web-based software developed internally for the firm’s Usborne Books &
More consultants, and InTouch, a communications suite of tools (part of OrderPro) were created to facilitate
communication between sales consultants and their customers. OPOL and InTouch also provided sales tools to help
consultants market to their customers effectively and efficiently. Coupled with its rack flow system, OPOL and
InTouch allowed the firm to ship 95% of orders on the same day the order was received.
In addition to the warehouse expansion and automation, EDC also completed two information technology projects in
2018. The first project included the rollout of a new certification and training program for the firm’s School and
Library educational sales representatives (“ESR”s). This program created a standardized training and certification
program, including a criminal background check that allowed ESR-certified consultants to monitor and request new
school listings to increase sales with new and existing schools and libraries. The second information technology
project expanded payment options for online shopping customers to include PayPal. This payment option had
become a standard in e-commerce and had been a prime request of EDC’s sales consultants. EDC began offering
this payment option in 2019.
Human Resources
EDC’s rapid growth initially expanded the number of full time employees at the firm from 74 to over 200. Many of
the 74 employees in 2014 had been with the company for 10 years or more. Increasing automation in the assembly
and distribution warehouse allowed the firm to reduce that number to 178 full time employees in 2019. About 63%
of those employees worked in the assembly and distribution warehouse. The reductions were accomplished by not
replacing workers who left voluntarily. The firm offered full time employees a benefit package including health,
dental and vision insurance, a 401(k) plan with matching ($113,300.00 in 2019), paid time off, flexible spending
accounts, life insurance, and discounts on company products.
Marketing
EDC sold its Usborne and Kane/Miller children’s book lines through two divisions. The Publishing Division
marketed books to bookstores, toy stores, specialty stores, museums and other retail outlets throughout the United
States. The Usborne Books and More or “UBAM” division distributed books through independent consultants who
held book showings on social media, in individual homes, and through book fairs at schools and libraries, direct
sales and internet sales. The UBAM division had begun in 1989, more than a decade after the publishing division,
and had shown fast growth in its early years. By 2014, though, the UBAM division had experienced 9 consecutive
years of declining sales and increasing difficulty in recruiting and retaining sales consultants. The decision to cease
sales through Amazon soon revitalized the UBAM division, as shown in the tables below. Each division faced its
own challenges.
Percent of Net Revenues by Division
2019
2018
2017
3
2016
2015
2014
Publishing
UBAM
Total revenues
9%
91%
100%
7%
93%
100%
11%
89%
100%
17%
83%
100%
35%
65%
100%
42%
58%
100%
Usborne Books and More (UBAM) Division. The UBAM Division used multi-level direct selling through
independent sales representatives (consultants) located in all 50 states. While many U.S. firms had multilevel
marketing programs, EDC was the only one exclusively selling books. EDC’s mission expressly included providing
economic opportunity while fostering strong family values. The UBAM division was central to this mission,
offering time- and place-flexible opportunities for its sales consultants.
Consultants received commissions from each sale they made with the rate determined by the marketing program
under which the sale was made. In addition, consultants received a four percent bonus on all sales once their sales
reached a $1,000.00 monthly goal and could become eligible for year-end cruises and other rewards for high
performance. Consultants who recruited other consultants and met other criteria could become team leaders. Team
leaders received monthly override payments based on the sales of their downline groups. Once team leaders met
additional criteria, they became senior team leaders and were eligible to earn promotion bonuses on their
consultants’ sales. When senior team leaders met a further set of established criteria, they became executive team
leaders, senior executive team leaders, then directors or senior directors, receiving an additional monthly payment
based on the sales of their downline groups.
Recruiting, motivating, and retaining sales consultants were keys to UBAM performance. Current active consultants
recruited new sales consultants. UBAM helped by providing low-cost signing kits and an extensive handbook to
new recruits explaining the firm’s different sales programs. The initial cost for a new UBAM consultant was
$119.00 for a starter kit which contained a collection of EDC sample books (retail value $275.00), a guide to selling
the firm’s products, and a personal e-commerce web site designed and maintained by EDC without charge for the
first year. Consultants who wished to continue using the web site after the first year could do so for a $50.00 per
year fee. Orders placed on the consultant’s web site were directed to EDC headquarters, which shipped directly to
the customer and credited the consultant’s commission account (paid monthly). EDC also offered “mini-kits” with a
smaller supply of samples for $69.00. In addition to sales commissions, consultants could earn incentives like yearend trips or cruises. An annual three-day convention in Tulsa, Oklahoma gave consultants the opportunity to meet
each other, share ideas and learn new techniques for their businesses. The company also held periodic Advanced
Leadership retreats to help team leaders grow their businesses. With the increasing use of social media platforms,
increasing interest in “gig” employment and EDC’s image for favoring consultants over Amazon, the firm had seen
significant increases in the number of new consultants as well as the number of active consultants selling for
UBAM.
New Sales Representatives
Active Sales Representatives End of Fiscal Year
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
4,000
6,500
18,000
24,600 32,400 21,500
5,900
7,800
19,600
25,800 35,500 31,800
Beginning in 2016 and in the years that followed, the UBAM division had seen strong growth in internet sales.
Much of the increase in sales resulted from the use of social media party plan platforms to host virtual parties,
frequently referred to as ‘‘Facebook Parties,’’ and from the increase in the number of sales consultants. These
platforms allowed consultants to ‘‘present’’ and customers to ‘‘attend’’ online purchasing events from any location.
Customer’s internet orders were received via the consultant’s customized website, hosted by the Company. Internet
orders were processed through a shopping cart and the consultant received sales credit and commission on the sales.
All internet orders were shipped directly to the end customer.
Home shows were hosted gatherings in private homes with free books for the host or hostess who invited others to a
presentation by a UBAM consultant. Also included in this program were increasingly popular “Facebook Parties”
4
using social media sites in place of a host home. Consultants earned a 25% commission on sales at home shows
with a minimum total order of $85.00. The hostess received free books based on the amount sold at the party. The
cost of the free books was recorded as operating and selling expense in the statements of earnings.
Direct sales were sales without a hostess being involved and offered the same commission rate. The UBAM
division offered many promotions (customer specials) throughout the year. These promotions offered the customer
the opportunity to purchase selected items at a discount if the customer met the defined criteria. The discounts
under these promotions were recorded in discounts and allowances.
School and library sales were restricted to consultants who had received additional, specialized training. The
UBAM consultants were the only source that a library or school had for most EDC products. Commissions on sales
to schools or libraries ranged from 20-25% of the total order. This program included book fairs, which could be held
with almost any organization as the sponsor. The consultant provided promotional materials to acquaint parents
with the books and parents turned in their orders at a designated time. The book fair program generated free books
for the sponsoring organization. UBAM also had a Reach for the Stars fundraiser program. This was a pledgebased reading incentive program that provided cash and books to the sponsoring organization and books for the
children. Book Fair Sales paid a 17% commission for the consultant, while the sponsoring organization received
free books up to 50% of the sales generated at the event. The fund-raising program, Cards for a Cause, allowed
organizations to sell variety boxes of greeting cards and keep a portion of the proceeds to help support their causes.
Randall White estimated that most consultants could easily earn $500.00 for about 15 hours’ work, but noted that to
do really well would require more effort by the consultant. Total UBAM commissions, bonuses and over-rides
averaged over 26% of UBAM gross sales. UBAM consultants sold directly to individual purchasers through home
shows, direct sales, internet sales, book fairs and contracts with school and public libraries with the results for each
program detailed below.
Shifting Emphasis: Percent of Net Revenues by UBAM Marketing Program
FY 2014
28%
2%
43%
15%
3%
9%
100%
Home Shows
Direct Sales
School & Library
Internet
Fund Raisers
Transportation Revenues
Totals
FY 2016
12%
0%
20%
54%
2%
12%
100%
Publishing Division. The Publishing Division used a combination of commissioned sales representatives located
throughout the country and a commissioned telesales group located in the Tulsa headquarters. The Vice President of
the Publishing Division managed sales to the national chains. Commissioned trade representatives called on book,
toy, specialty stores and other retail outlets, as well as through in-house marketing by telephone to the trade. Sales
commissions in the publishing division averaged about 2.9% of sales net of discounts and allowances
.
Publishing Division Sales by Market Type
FY
2014
FY
2018
National chain stores
26%
8%
%
14%
All other
74%
92% %
86%
Total net sales
100%
100% % 100%
5
FY
2019
Publishing Division personnel attended national trade shows held by the book selling industry each year as well as
major toy and gift conventions like the Museum Store Association and the New York, San Francisco, Los Angeles
and Atlanta Toy Fairs. EDC personnel actively targeted the national chains through joint promotional efforts and
institutional advertising in trade publications. The Publishing Division also participated with certain customers in a
cooperative advertising allowance program, under which EDC paid back up to 2% of the net sales to that
customer. EDC products were then featured in promotions, such as catalogs, offered by the vendor. Advertising
expenses, included under selling and operating expenses, were $629,900 and $546,600 for the years
ended February 28, 2019 and 2018, respectively.
EDC occasionally paid to acquire an end cap position in a bookstore (a product display on the end of a shelf), which
they considered to be an advantageous location in the bookstore. The costs of these promotions were classified as
reductions in revenue in the statements of earnings. The Publishing Division’s in-house telesales group targeted the
smaller independent book and gift store market. Semi-annual, full-color, 160-page catalogs, were mailed to over
5,000 customers and potential customers. These catalogs were also available online in .pdf format.
Like most children’s publishers, EDC’s business was seasonal with a significant increase in sales in the third quarter
of each year (which includes the Christmas season). While the books were no longer available on Amazon, they
were available through EDC’s numerous websites, including www.edcpub.com, www.usbornebooksandmore.co,
and www.kanemiller.com as well as the thousands of websites developed and hosted by EDC on behalf of individual
sales consultants.
Finance
Funding the increased automation and growth of the firm had left EDC with accumulated long term debt of $19
million at the end of February 2019. The firm also had access to a $15 million revolving line of credit which
allowed the firm to issue letters of credit to suppliers. Interest was set at the greater of 4% or prime plus 0.75%.
On February 16, 2017, the firm suspended dividends to focus all resources and cash requirements toward financing
future growth. With the completion of the capital expenditures projects in May 2018, the Board of Directors of the
Company approved the reinstatement of the dividends. On July 24, 2018, EDC’s Board of Directors
authorized a two-for-one stock split in the form of a stock dividend. The stock dividend was
distributed on August 22, 2018 to shareholders of record as of August 14, 2018.
Appendices A
and B show the financial position of the firm in 2019. All share-based data, including the number of shares
outstanding, have been retroactively adjusted to reflect the stock split for all periods presented.
Year
2014
2015
2016
2017
2018
2019
High
3.95
2.90
8.49
7.30
11.40
13.45
EDC Stock Price Range (in $U.S.)
Low
2.49
1.79
1.99
3.55
3.38
7.37
Dividend
.32
.16
.17
.18
0
.15
The Industry
The U.S. Publishing industry was still dealing with significant changes in 2020. Both the format of books and the
channels of distribution were quite different from even a decade earlier. According to the Association of American
Publishers (AAP), U.S. publishers (NAICS 511130) had net sales of $25.82 billion in 2018, continuing a slow
decline from $27.9 billion in 2014. Sales in the trade industry, defined as wholesale sales to retailers, rose slightly
6
to $16.19 billion for 2018 while sales in other categories declined. The report, which used data from government
filings, sales data from 1800 U.S. publishers, and other third party sources, noted wide variation among types of
books within the “Trade” category.
U.S. Publishing Industry Sales 2014-2018 (in $ Billions)
Trade
Higher Education
PreK-12
Professional
University Presses
Other
Total
2014
$15.43
$4.85
$4.27
$3.09
$0.30
$0.01
$27.96
2015
$15.82
$4.53
$4.11
$3.05
$0.29
$0.01
$27.80
2016
$15.90
$3.96
$3.73
$2.37
$0.28
$0.04
$26.27
2017
$15.95
$3.98
$3.62
$2.35
$0.29
$0.04
$26.23
2018
$16.19
$3.69
$3.46
$2.15
$0.27
$0.06
$25.82
Source: AAP StatShot Annual Report for Calendar Year 2018
Nonfiction books showed the largest percentage growth from 2014 to 2018 with Adult Nonfiction sales up 22.8%
and Young Adult Nonfiction up 38.5% to $730 million. Adult Fiction constituted $4.4 billion in sales (up 0.4%)
while Children’s and Young Adult Fiction categories grew 1.6% to $3.72 billion.
Paperbacks and Hardbacks remained the most popular formats, with 45.1% of sales, but E-books were gaining
ground with 24.5% of sales. E-book sales first overtook audiobooks in 2009 with sales reaching $313 million. By
2014, E-book sales had reached $3.37 billion but growth in e-book sales had slowed. Audio books constituted
13.7% of industry sales in 2018. Instructional materials also passed audio books, with 14.5% of industry sales.
The channels for book sales had changed as well. Online sales were the dominant channel in 2018, with $8.03
billion in sales while physical retail “bricks and mortar” booksellers added $6.90 billion in revenues. Physical retail
sales had declined 24.5% over the last 5 years, only partly offset by the 17.4% increase in online sales.
EDC faced competition from publishers with sales ranging from less than $1million per year to giants like
Scholastic, McGraw-Hill, Penguin, Simon and Schuster and Random House who were substantially larger and better
known than EDC. Scholastic, for example, employed more than 6,900 people in the United States and another 3,000
people outside the United States in 2019. (Scholastic’s income statements and balance sheets are attached as
appendices C and D for comparison.)
Conclusion
As the firm entered 2020, Educational Development Corporation had award-winning products, a state-of-the-art
distribution system and a novel business plan and had soared with the growth in the U.S. economy. Along the way,
EDC also had acquired a much larger facility, a greatly expanded workforce and significant debt. As Randall White
noted in his 2019 letter to investors, though, “what is more important is where we go from here.”
References
Anderson, Porter. (June 23, 2019). AAP Issues Annual 2018 Statshot Look at U.S. Publishing Industry Revenues.
Publishing Perspectives. Retrieved from https://publishingperspectives.com/2019/06/aap-issues-annual2018-statshot-look-at-us-publishing-industry-revenues/
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Association of American Publishers (February 12, 2019). AAP StatShot: Trade Book Publisher Revenue Increased
by 4.6% in 2018. Retrieved from https://newsroom.publishers.org/aap-statshot-trade-book-publisherrevenue-increased-by-46-in-2018/ and http://www.publishers.org.
Britton, Jason; Diane Roback (March 11, 2002). “Catching Up: A look at recent changes in children”. Publishers
Weekly.
Bluestone, Marisa (June 10, 2015). U.S. Publishing Industry’s Annual Survey Reveals $28 Billion in Revenue in
2014. Association of American Publishers (AAP).
Coombs, Andrea (Jan 27, 2003). “Golden Opportunities”, CBS Market Watch, available at cbsmarketwatch.com.
Educational Development Corporation Annual Report, 2008, 2009, 2010, 2012, 2014, 2015, 2017, 2018, 2019.
Educational Development Corporation 2014 UBAM Fall Catalog, available at www.friends.kanemiller.com.
Evatt, Robert (June 21, 2014). Educational Development Corporation succeeds despite Amazon. Tulsa World.
Tulsa OK. Retrieved from www.Tulsaworld.com/businesshomepage1.
Gell, Aaron (Aug. 27 2014). How One Publisher Ditched Amazon and Succeeded. Slate Magazine, Business Insider.
Retrieved from retrieved from www.slate.com/blogs/business insider/2014/08/27/
http://www.edcpub.com/
http://www.usbornebooksandmore.com/UBAMbusiness.aspx?loc=1
http://www.kanemiller.com/default.asp
“Kane/Miller Book Publishers Inc.”. BusinessWeek.
Literacy for a Lifetime.org.
Lodge, Sally (April 4, 2005). “What’s your niche? Five children’s publishers have identified specific needs, and are
targeting those markets”. Publishers Weekly.
MyUBAM.com. Usborne Books and More.
Risk Management Associates (2019) Key Industry Averages and Financial Ratios.
Scholastic Corporation 10-K Report, 2015, 2019.
Streitfeld, David (April 15, 2012). Daring to Cut off Amazon. New York Times Retrieved from
www.NewYorkTimes.com/2012.
The Wall Street Transcript July 09, 2007 Educational Development Corporation CEO Speaks About His Company.
http://seekingalpha.com/article/40420-educational-development-corporation-ceo-speaks-about-hiscompany
Wartman, Nancy and Tom (2015) www.UsborneUSA.com
Wikipedia.org/wiki/Kane/Miller.
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APPENDIX A: EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 28,
2019
GROSS SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less discounts and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$157,870,100 $139,040,400
(49,754,000) (38,103,500)
10,695,200
11,047,700
NET REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COST OF GOODS SOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,811,300
39,063,600
79,747,700
111,984,600
35,824,300
76,160,300
OPERATING EXPENSES:
Operating and selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,550,600
36,480,400
16,164,300
17,694,700
35,359,000
15,736,300
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,195,300
68,790,000
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
931,300
(1,559,700)
1,119,500
(1,581,900)
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,180,800
7,832,700
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,502,400
2,618,000
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,678,400
$ 5,214,700
BASIC AND DILUTED EARNINGS PER SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.82
$ 0.64
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.81
$ 0.64
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT
SHARES OUTSTANDING:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,189,149
8,175,996
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,196,628
8,181,322
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
$ 0.20
$—
APPENDIX B: EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS AS OF FEBRUARY 28,
2019
2018
$ 3,199,300
$ 2,723,300
3,258,800
33,445,600
1,603,500
2,913,700
26,618,600
1,259,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,507,200
33,514,600
INVENTORIES – Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTY, PLANT AND EQUIPMENT – Net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
575,000
27,164,600
19,500
435,900
27,860,500
26,900
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69,266,300
$ 61,837,900
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued salaries and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,228,600
965,600
945,900
2,039,000
756,400
410,100
4,177,900
$ 12,469,000
693,000
881,200
2,007,900
1,798,800
—
3,517,900
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,523,500
21,367,800
LONG-TERM DEBT – Net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED INCOME TAXES – Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,830,700
872,600
109,000
43,335,800
19,825,100
136,900
106,000
41,435,800
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $268,600 (2019)
and $297,100 (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories – Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS (Note 7)
SHAREHOLDERS’ EQUITY:
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued
12,092,080 shares; Outstanding 8,195,082 (2019) and 8,179,612 (2018)
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,418,400
8,975,100
25,754,900
2,418,400
8,573,300
20,714,500
37,148,400
(11,217,900)
31,706,200
(11,304,100)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,930,500
20,402,100
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . .
$ 69,266,300
$ 61,837,900
Less treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Appendix C: Scholastic Corporation
Consolidated Statements of Operations
(Amounts in millions, except per share
data)
For fiscal years ended May 31,
2019
2018
2017
$ 1,653.9
$ 1,628.4
$ 1,741.6
Cost of goods sold
779.9
744.6
814.5
Selling, general and administrative expenses
Revenues
Operating costs and expenses:
781.4
765.7
777.5
Depreciation and amortization
56.1
41.4
38.7
Severance
10.6
9.9
14.9
0.9
11.2
6.8
1,628.9
1,572.8
1,652.4
25.0
55.6
89.2
Asset impairments
Total operating costs and expenses
Operating income
Interest income
5.6
3.1
1.4
Interest expense
(2.2)
(2.0)
(2.4)
Other components of net periodic benefit (cost)
(1.4)
(58.2)
(0.3)
Gain (loss) on investments and other
(1.0)
0.0
—
Earnings (loss) from continuing operations before income taxes
26.0
(1.5)
87.9
Provision (benefit) for income taxes
10.4
3.5
35.4
Earnings (loss) from continuing operations
15.6
(5.0)
52.5
—
(0.2)
—
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
$
15.6
$
(5.0)
$
15.6
$
Earnings (loss) from continuing operations
$
0.44
$
Earnings (loss) from discontinued operations
Net income (loss)
$
—
$
$
0.44
$
(0.14)
Earnings (loss) from continuing operations
$
0.43
$
(0.14)
$
1.48
Earnings (loss) from discontinued operations
$
—
$
$
(0.01)
Net income (loss)
$
0.43
$
(0.14)
$
1.47
Dividends declared per share of Class A and Common Stock
$
0.60
$
0.60
$
0.60
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Scholastic Corporation
$
52.3
(5.0)
$
52.3
(0.14)
$
1.51
$
(0.00)
$
1.51
—
0.0
—
Basic and diluted earnings (loss) per share of Class A and
Common Stock
Basic:
—
Diluted:
See accompanying notes
11
—
APPENDIX D: Scholastic Corporation Consolidated Balance Sheet
(Amounts in millions)
Balances at May 31,
ASSETS
2019
2018
$ 334.1
$ 391.9
Accounts receivable, net
250.1
204.9
Inventories, net
323.7
294.9
52.7
66.6
960.6
958.3
577.7
555.6
Prepublication costs, net
70.2
55.3
Royalty advances, net
47.5
44.8
Current Assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Noncurrent Assets:
Property, plant and equipment, net
Goodwill
125.2
119.2
Noncurrent deferred income taxes
37.0
25.2
Other assets and deferred charges
60.3
67.0
917.9
867.1
$1,878.5
$1,825.4
$
$
Total noncurrent assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Lines of credit and current portion of long-term debt
Accounts payable
7.3
7.9
195.3
198.9
Accrued royalties
41.9
34.6
Deferred revenue
130.8
24.7
Other accrued expenses
164.8
177.9
Accrued income taxes
1.4
1.8
541.5
445.8
—
—
Other noncurrent liabilities
64.2
58.8
Total noncurrent liabilities
64.2
58.8
—
—
Total current liabilities
Noncurrent Liabilities:
Long-term debt
Commitments and Contingencies:
Stockholders’ Equity:
Preferred Stock, $1.00 par value: Authorized, 2.0 shares; Issued and Outstanding, none
Class A Stock, $0.01 par value: Authorized, 4.0 shares; Issued and Outstanding, 1.7 shares
Common Stock, $0.01 par value: Authorized, 70.0 shares; Issued, 42.9 shares; Outstanding,
33.4 and 33.3 shares, respectively
$
—
$
—
0.0
0.0
0.4
0.4
Additional paid-in capital
620.8
614.4
Accumulated other comprehensive income (loss)
(59.7)
(55.7)
Retained earnings
1,012.6
Treasury stock at cost: 9.5 shares and 9.6 shares, respectively
Total stockholders’ equity of Scholastic Corporation
(302.6)
1,271.5
12
1,065.2
(303.5)
1,320.8
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
1.3
—
1,272.8
1,320.8
$1,878.5
$1,825.4
See accompanying notes
Appendix E: Selected EDC Book Awards
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ALA Notable Children’s Book Guji Guji, Waiting for Winter, Wilfrid Gordon
Amazon.com Bestseller in Category Everyone Poops
Americus Award Commended Title Nina Bonita
ASPCA Henry Bergh Children’s Book Award Finalist Lucky, A Dog’s Best Friend
Booklist Editors’ Choice Award I’m a Pill Bug
CBC Notable Social Studies Trade Book Are We There Yet?
Child Magazine Best of the Year Duck’s Key, Where Can it Be?
Family Choice Award Winner Dougal the Garbage Dump Bear
Hans Christian Andersen Medal Winner Selma
IBBY Outstanding Books for Young People with Disabilities Fox, Samsara Dog, Sosu’s Call, Yellow Umbrella
Learning Magazine Teacher’s Choice Award Sebastian’s Roller Skates, Wash Your Hands!
Mom’s Choice Award It’s Christmas, Who’s Hiding?
New York Magazine Top 5 Books for Summer Reading Will You Carry Me?
New York Times Best Illustrated Book While We Were Out, Yellow Umbrella
New York Times Bestseller Guji Guji
Nick Jr. Magazine Best Book of the Year The Nights of the World
NPR Weekend Edition Review Book Brush, Guji Guji, Nina Bonita, Yellow Umbrella
Oppenheim Toy Portfolio Gold Book Award Apollo, Unique Monique
Outstanding Science Trade Books This is the Tree
Parenting Magazine Best Books of the Year Half of an Elephant, Yellow Umbrella
Parent’s Choice Recommended Winner Wash Your Hands!
Public Television Storytime Book Wilfrid Gordon McDonald Partridge
Publishers Weekly Best Children’s Books of the Year On My Way to Buy Eggs, The Costume Party
Reading Rainbow Feature Book Brush, Sosu’s Call, Unique Monique
Redbook’s Top 10 Picture Books for Kids The Fish Who Could Wish
13
Appendix F: Revenue Comparison: UBAM Division Versus Publishing Division, Year Ended Feb. 28, 2019
Marketing Division
UBAM
Publishing
Gross Revenues
$135,792,500
$22,072,600
Discounts and Allowances
$38,072,600
$11,681,400
Transportation revenue
$10,661,400
$33,800
$108,381,300
$10,430,000
Cost of Goods Sold
$33,602,100
$5,461,400
Gross Margin
$74,779,200
$4,968,500
Sales Commissions
$36,122,100
Operating Expenses
$15,242,100
Net Revenues
General and Administrative Expenses
$2,082,700
$4,164,900
Operating Income
$19,250,100
14
$2,885,800
1. Define the industry—describe which sorts of firms are competing in this
industry and which are not and explain the differences between the two (the
boundaries of the industry).
The industry is Airlines and the competing company in that industry is Southwest
Airlines. An airline can be defined as a company that offers regular services for
transporting passengers or goods via the air. The airlines can be classified as major,
national and regional. If it doesn’t involve a plane it is not included in the industry.
2. What factors (pos. & neg.) have a significant influence on Competitive
rivalry
Positive factors: Safety, Prices, On-plane service, Customer service, if every passenger
was well accommodated, Waiting times, shorter the wait, makes clients happier and
more likely to book with them again.
Negative: Commercial Revenue, private benefits to an airport, maybe the airline
chooses to fly during a bad weather to keep the money from the purchased tickets while
compromising the safety of the passengers
3. What factors (pos. & neg.) have a significant influence on The bargaining
power of suppliers
In the airline industry there are only two significant suppliers exist: Airbus and Boeing.
They control the fuel prices and therefore, the bargaining power of suppliers in the
airline industry is very high. While a strong supplier may affect the profitability and
quality of products in a good way, it may also force companies to raise prices which is
not so good. For example, everyone wants a plane to be solid and safe to fly, therefore
better quality parts on the plane provide that extra safety, but at the same time it costs
more money, which in the result will increase the prices of the tickets which will lead to
the airline to earn more money. That is an instance where the supplier has the
bargaining power because they are suppling a possible “Money maker” for the airline.
4. What factors (pos. & neg.) have a significant influence on The bargaining
power of buyers
Well since the airline business depends on how many people choose to fly with your
company, then the buyer does hold some bargaining power. Many instances the buyer
will manage to get a refund on a non-refundable ticket because he/she is a valuable
customer, and the company cannot afford to lose those types of customers. But at the
same time, if other customers find out of such privileges they might start demanding the
same treatment and it might hurt companies standing.
5. What factors (pos. & neg.) have a significant influence on The threat of
substitute products
I am not sure how this is applicable as I do not know what substitute can be made to
flying at the moment. Sure, you can drive to the place, but it is a possibility right now too
and people still choose to fly instead.
6. What factors (pos. & neg.) have a significant influence on The threat of
new entrants.
There are many airlines in the industry, and they all have positives and negatives, some
people have preferences. I honestly just look for a cheaper ticket. But I am also aware
that cheaper tickets, means cuts in some other areas, and it is a choice that I make for
myself. Therefore, the threat of new airlines may hurt some already established airlines,
but it just depends on what they have to offer. If it is a smaller airline that does not have
as many expenses, therefore their tickets are cheaper, yeah people with less money will
choose that. But if it is not as comfortable or secure, it won’t be a threat to an existing
competition.
7. Overall rating for the industry (1=very unattractive, 10=very
attractive). Justify your rating using your analysis in the preceding
paragraphs. What are the Key Success Factors (KSFs) for this industry?
I think of airline industry as a very big necessity. I am an international without airplanes I
probably won’t be in the states right now. Therefore, as a personal opinion I will give it
an 8, because it still expensive. Current KSFs for the airline industry are structure,
culture, strategic alliances, planning and forecasting, technology, marketing and
branding and outsourcing.