FC US Equity☆

10-K

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form10k_11132020.htm

FORM 10K FY20 11-13-20

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

OR

Franklin Covey Co.

(Exact name of registrant as specified in its charter)

2200 West Parkway Boulevard

Salt Lake City, Utah 84119-2331

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (801) 817-1776

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbol Name of Each Exchange on Which Registered

Common Stock, $.05 Par Value FC New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required

to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this

chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated

filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ☐ Accelerated Filer ☑

Non-accelerated Filer ☐ Smaller Reporting Company ☑

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of February 28, 2020, the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was approximately $378.2 million, which was based upon the closing price of $31.45 per share as reported by the New York

Stock Exchange.

As of October 31, 2020, the Registrant had 14,025,413 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant's Definitive Proxy Statement for the Annual Meeting of Shareholders, which is scheduled to be held on January 22, 2021, are incorporated by reference in Part III of this Form 10-K.

Franklin Covey Co.

TABLE OF CONTENTS

PART I 2

Item 1 Business 2

Item 1A Risk Factors 10

Item 1B Unresolved Staff Comments 19

Item 2 Properties 20

Item 3 Legal Proceedings 20

Item 4 Mine Safety Disclosures 20

Item 6 Selected Financial Data 23

Item 7A Quantitative and Qualitative Disclosures About Market Risk 43

Item 8 Financial Statements and Supplementary Data 45

Item 9A Controls and Procedures 91

Item 9B Other Information 92

PART III 92

Item 10 Directors, Executive Officers and Corporate Governance 92

Item 11 Executive Compensation 93

Item 14 Principal Accountant Fees and Services 94

Item 15 Exhibits and Financial Statement Schedules 95

Signatures 99

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PART I

Disclosure Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the

Exchange Act), and such forward-looking statements involve risks and uncertainties. Statements about future sales, costs, margins, cost savings, foreign currency exchange rates, earnings, earnings per share, cash flows, plans, objectives,

expectations, growth, profitability, or recovery from the COVID-19 pandemic are forward-looking statements based on management’s estimates, assumptions, and projections. Words such as “could,” “may,” “will,” “should,” “likely,” “anticipates,”

“expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and variations on such words, including similar expressions, are used to identify these forward-looking statements. These forward-looking statements are only predictions, subject

to risks and uncertainties, and actual results could differ materially from those discussed in this, and other reports, filed with the Securities and Exchange Commission (SEC) and elsewhere. Forward-looking statements are not guarantees of future

performance and involve risks, uncertainties, and assumptions that are difficult to predict. Risks, uncertainties, and other factors that might cause such differences, some of which could be material, include, but are not limited to, the factors

discussed under the section of this report entitled “Risk Factors.”

Forward-looking statements in this report are based on management’s current views and assumptions regarding future events and speak only as of the date when made. Franklin Covey Co. undertakes no obligation to publicly update or revise any

forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

In this Annual Report on Form 10-K, unless the context requires otherwise, the terms “the Company,” “Franklin Covey,” “us,” we,” and “our” refer to Franklin Covey Co. and its subsidiaries.

ITEM 1. BUSINESS

General Information

Franklin Covey is a global company focused on organizational performance improvement. Our mission is to “enable greatness in people and organizations everywhere,” and our global structure is designed to help individuals and organizations

achieve sustained superior performance through changes in human behavior. From the foundational work of Dr. Stephen R. Covey in leadership and personal effectiveness, and Hyrum W. Smith in productivity and time management, we have developed deep

expertise that extends to helping organizations and individuals achieve lasting behavioral change. We believe that our clients are able to utilize our content and offerings to create cultures whose hallmarks are high-performing, collaborative

individuals, led by effective, trust building leaders who execute with excellence and deliver measurably improved results for all of their key stakeholders.

The Company was incorporated in 1983 under the laws of the state of Utah, and we merged with the Covey Leadership Center in 1997 to form Franklin Covey Co. Our consolidated net sales for the fiscal year ended August 31, 2020 totaled $198.5

million and our shares of common stock are traded on the New York Stock Exchange (NYSE) under the ticker symbol “FC.”

Our fiscal year ends on August 31 of each year. Unless otherwise noted, references to fiscal years apply to the 12 months ended August 31 of the specified year.

The Company’s principal executive offices are located at 2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331, and our telephone number is (801) 817‐1776. Our website is www.franklincovey.com.

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Business Development

Our business is currently structured around two divisions, the Enterprise Division and the Education Division. The Enterprise Division consists of our Direct Office and International Licensee segments and is focused on selling our offerings to

corporations, governments, not-for-profits, and other related organizations. Franklin Covey offerings delivered through the Enterprise Division are designed to help organizations and individuals achieve their own great results. Our Education

Division is centered around the principles found in the Leader in Me and is dedicated to helping educational institutions build cultures that will produce great results, including increased student

performance, improved school culture, and increased parental and teacher involvement.

During 2016, we introduced the All Access Pass (AAP), which we believe is a ground-breaking subscription service that allows our clients unlimited access to our content through an electronic portal. We believe the AAP is a revolutionary and

innovative way to deliver our content to clients of various sizes, including large, multinational organizations, in a flexible and cost-effective manner. Clients may utilize complete offerings such as The 7

Habits of Highly Effective People and The 5 Choices to Extraordinary Productivity, or use individual concepts from any of our well-known offerings to create a custom solution to fit their

organizational or individual training needs. Since the introduction of the All Access Pass, we have invested in additional implementation specialists to provide our clients with the direction necessary to create meaningful impact journeys using

our tools and content. An impact journey is a customized plan to utilize the content and offerings on the AAP to achieve a client’s specific goals and to provide them with the keys to obtain maximum value from the pass. We have also translated

All Access Pass materials into numerous additional languages, which allows the AAP to be used effectively by multinational entities and provides for greater international sales opportunities. The AAP is primarily sold through our Enterprise

Division.

In our Education Division, we have launched the Leader in Me membership, which provides access to the Leader in Me online service, and authorizes use of Franklin

Covey’s proprietary intellectual property. The Leader in Me online service provides access to student leadership guides, leadership lessons, illustrated leadership stories, and a variety of other resources

to enable an educational institution to effectively implement and utilize the Leader in Me program. We believe that the tools and resources available through the Leaderin Me membership will provide measurable results that are designed to develop student leadership, improve school culture, and increase academic proficiency.

We believe that continued investments in personnel, content, and technological innovation are key to subscription service renewals and the future growth of our offerings.

In addition to the internal development of our offerings as previously described, we have sought to grow our sales through acquisitions of businesses and content licenses, and opening new international offices. Over previous years, these

activities have included the following:

Impact of COVID-19 on Franklin Covey

COVID-19 was first identified in China during December 2019, and subsequently declared a pandemic by the World Health Organization. Since its discovery, COVID-19 has surfaced in nearly all regions of the world and has produced travel

restrictions and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally, including our licensees, through office, government, and school closures. In particular, these closures impacted our

third and fourth quarters of fiscal 2020 as described throughout this Annual Report on Form 10-K for fiscal 2020.

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After strong financial performance during the first two quarters of fiscal 2020, our financial results in the third and fourth quarters of fiscal 2020 were adversely impacted by the COVID-19 pandemic. We closed our corporate offices and

restricted travel to protect the health and safety of our associates and clients in an effort to slow the spread of the pandemic. Our international direct offices also followed the same pattern of closures and restrictions on associate travel and

delivery of our offerings. These actions, and similar steps taken by most of our clients, resulted in decreased sales during the third and fourth quarters as previously scheduled onsite events, client-facilitated presentations, and coaching days

were postponed or canceled.

However, during the widespread closure of offices, schools, and other gathering places, we accelerated our connection and engagement with clients through the use of our digital delivery systems, including the All Access Pass in the Enterprise

Division and the Leader in Me subscription service in the Education Division. Our subscription service clients are able to access content and programs from remote locations, which allows continued

engagement of personnel and students during long periods of displacement from normal working or classroom conditions. To be successful in our industry, it is important to create effective learning environments for our clients and students, and we

believe our previous investments in digital and remote delivery modalities are key to surviving and then thriving in the current environment. According to the Training magazine 2020 Training Industry

Report, most companies expect to retain at least some aspects of remote learning after the COVID-19 pandemic is over. We believe our ability to deliver content and offerings over a broad array of modalities to suit a client’s needs will prove to

be a valuable strategic advantage, and we believe these capabilities will accelerate our recovery from the effects of the pandemic and will generate increased opportunities in future periods.

Franklin Covey Services and Offerings

We operate globally with one common brand and a business model designed to enable us to provide clients around the world with the same high level of service. To achieve this high level of service we have sales and support associates in various

locations around the United States and Canada, and operate wholly owned subsidiaries in Australia, China, Japan, the United Kingdom, Germany, Switzerland, and Austria. In foreign locations where we do not have a directly owned office, we may

contract with independent licensee partners who deliver our content and provide services in 150 other countries and territories around the world.

Our mission is to “enable greatness in people and organizations everywhere,” and we believe that we are experts at solving certain pervasive, intractable problems, each of which requires a change in human behavior. We seek to consistently

deliver world-class content with the broadest and deepest distribution capabilities through the most flexible content delivery modalities. We believe these characteristics distinguish us from our competitors as follows:

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We hold ourselves responsible for and measure ourselves by our clients’ achievement of transformational results. Further information about our content and services can be found on our website at www.franklincovey.com. However, the information

contained in, or that can be accessed through, our website does not constitute any part of this Annual Report.

Seasonality

Our fourth quarter of each fiscal year typically has higher sales and operating income than other fiscal quarters primarily due to increased revenues in our Education Division (when school administrators and faculty have professional development

days) and to increased sales that typically occur during that quarter from year-end incentive programs. Overall, training sales are moderately seasonal because of the timing of corporate training, which is not typically scheduled as heavily during

holiday and certain vacation periods.

Our Industry and Clients

According to the Training magazine 2020 Training Industry Survey, the total size of the U.S. training industry is estimated to be $82.5 billion. The training industry is highly fragmented and includes a

wide variety of training and service providers of varying sizes. We believe our competitive advantages in this industry stem from our fully integrated principle-centered training offerings, our wide variety of delivery options, and various

implementation tools to help organizations and individuals measurably improve their effectiveness.

We operate in a highly competitive and rapidly changing global marketplace and compete with a variety of organizations of various sizes that offer services comparable with ours. Based upon our annual sales, we believe that we are a significant

competitor in the performance skills and education market. Other significant comparative companies that compete with our Enterprise Division include: Design Dimension International, GP Strategies Corp., LinkedIn Learning, Center for Creative

Leadership, SkillSoft, and Vital Smarts. Our Education Division competes with entities such as: Character Counts, Responsive Classroom, 7 Mindsets, Second Step, and K12.

We believe that the principal competitive factors in the industry in which we compete include the following:

• Quality of offerings, services, and solutions

• Skills and capabilities of people

• Innovative training and consulting services combined with effective products

• Ability to add value to client operations

• Reputation and client references

• Pricing

• Availability of appropriate resources

• Global reach and scale

• Branding and name recognition in our marketplace

Given the relative ease of entry into the training market, the number of our competitors could increase, many of whom may imitate existing methods of distribution, or could offer similar content and programs at lower prices. However, we believe

that we have several areas of competitive differentiation in our industry. We believe that our competitive advantages include: (1) the quality of our content, as indicated by our strong gross margins, branded content, and best-selling books; (2) the

breadth of delivery options we are able to offer to customers for utilizing our content, including the AAP and Leader in Me membership, digital presentations hosted by live presenters, live presentations by

our own training consultants, live presentations though Company certified client-employed facilitators, intellectual property licensing, other web-based presentations, and film-based presentations; (3) our global reach, which allows truly

multinational clients to scale our content uniformly across the globe, through our mix of direct offices and our global licensee network; and (4) the significant impact which our offerings can have on our clients’ results.

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We have a relatively broad base of clients, which includes thousands of organizational, governmental, educational, and individual clients in both the United States and in other countries that are served through our directly owned operations. We

have thousands of additional organizational clients throughout the world which are served through our global licensee partner network, and we believe that our content, in all its forms, delivers results that encourage strong client loyalty. Our

clients are in a broad array of industries and we are not dependent on a single client or industry group. During the periods presented in this report, none of our clients were responsible for more than ten percent of our consolidated revenues.

Our Intellectual Property

Our success has resulted in part from our proprietary content, methodologies, and other intellectual property rights. We seek to protect our intellectual property through a combination of trademarks, copyrights, and confidentiality agreements.

We claim rights for over 640 trademarks in the United States and foreign countries, and we have obtained registration in the United States and numerous foreign countries for many of our trademarks including

FranklinCovey, The 7 Habits of Highly Effective People, The 4 Disciplines of Execution, and The 7 Habits. We consider our trademarks and other proprietary rights to be important and material to our

business.

We claim over 220 registered copyrights, and own sole or joint copyrights on our books, manuals, text and other printed information provided in our training programs, and other electronic media products, including audio and video media. We may

license, rather than sell, facilitator workbooks and other seminar and training materials in order to protect our intellectual property rights therein. We place trademark and copyright notices on our instructional, marketing, and advertising

materials. In order to maintain the proprietary nature of our product information, we enter into written confidentiality agreements with certain executives, product developers, sales professionals, training consultants, other employees, and

licensees.

Our Products and Sustainability

We offer training materials and related accessories in either digital or paper formats. Our printed training materials are primarily comprised of paper, which we believe is a renewable and sustainable resource. We purchase our training materials

and related products from various vendors and suppliers located both domestically and internationally, and we are not dependent upon any one vendor for the production of our training and related materials as the raw materials for these products are

readily available. Our training materials are primarily warehoused and distributed from an independent warehouse facility located in Des Moines, Iowa.

Human Capital

Our mission is to enable greatness in people and organizations everywhere. To fulfill that mission and successfully implement our strategy, we must attract, develop, and retain highly qualified associates

for each role in the organization. Our goal is to have every employee feel they are a valued member of a winning team doing meaningful work in an environment of trust. To accomplish this goal, we are

focused on attracting, developing, and retaining talent while looking through the lens of diversity, equity, and inclusion in each area. The following is a description of our efforts to manage human capital within our organization.

Attracting Talent

Our recruiting team and hiring managers begin with the creation of detailed job descriptions, containing clearly outlined skills and experience, necessary for success in each role. We believe these steps are essential to effectively interview for

identifiable skillsets and not just “personality fits.” We have historically attracted “mission driven” people who care deeply about making a difference in the world. Our recruiting and hiring efforts cast a wide net when looking for candidates by

partnering with many groups and agencies including, alumni organizations, multiple diversity job boards, diversity career fairs, the Utah Governor’s Committee on Employment of People with Disabilities and Business Relations, and ElevatHER – an

organization designed to promote women in leadership. Through these efforts, from June 1, 2019 through May 31, 2020, which are the annual dates of our Affirmative Action Plan year, over 71 percent of our new hires were women. Currently, over 64

percent of our employee population are women and over 76 percent of our promotions during this same time period were women.

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We also remain steadfast in our commitment to being an Affirmative Action Employer and have an objective to increase the population of our Black, Indigenous, and People of Color (BIPOC) employees. In an effort to increase the population of BIPOC

employees, we have expanded our recruitment efforts. We hope to increase the number of BIPOC applicants to ensure we are hiring the most qualified people while increasing our diversity. We are also actively engaged in ensuring that out employee

promotions are fair and equitable.

Developing Talent

We currently have approximately 940 associates, nearly all of whom are full-time employees, around the world who are dedicated to providing the best service possible for our clients. The diverse and global makeup of our workforce allows us to

serve a variety of clients with different needs on a worldwide basis. We believe that creating an environment which encourages continual learning and development is essential for us to maintain a high level of service and to achieve our goal to have

every employee feel they are a valued member of a winning team doing meaningful work in an environment of trust. Franklin Covey is one of the premier training and consulting organizations in the world, and

we develop and deliver various offerings, including leadership and individual effectiveness, to clients around the globe. Our associates have unlimited access to our content and training through the All Access Pass, where they are able to experience

the same high-quality solutions available to our clients. During their first year, we encourage new associates to participate in our foundational offering, The 7 Habits of Highly Effective People, which is

used as the cultural operating system for our organization. We are currently delivering our new Unconscious Bias training to our associates. This program is designed to strengthen organizations by promoting

the inclusion of various viewpoints from the natural talents and abilities of its people regardless of race, sexual orientation, gender, religion, or other differences.

In the event an employee is struggling with reaching their goals or producing the results required of their role, a thoughtful and thorough performance plan is created and implemented by their manager and our Chief People Officer. The intent of

the performance plan is to help the associate recalibrate and bring their performance up to expectations. Through this transparent coaching process, struggling employees have been able to learn how to improve their performance and become engaged,

successful contributors in their role. We believe this process strengthens our associate base while reducing the cost of finding and training new associates.

Retaining Talent

The war for talent is real, and talented people are always in high demand. During the period of June 1, 2019 through May 31, 2020, our employee turnover rate in the United States and Canada was 10.7 percent, which we believe is reasonable for our

industry and the make-up of our workforce. To retain our associates, we believe it is critical to continually focus on making sure our employees are highly engaged and feel valued. We address these retention efforts in a number of ways, including

training our leaders in our solution entitled, The 6 Critical Practices for Leading a Team. Our employee retention practices include holding consistent, effective one-on-one interviews, where leaders

regularly take time to connect with their employees, and to understand what is working well for them and what is not working so well. Based on these interviews, leaders are encouraged to “clear the path” of those things which may be holding the

employee back. We are also focused on creating a culture of feedback, where feedback for both leaders and employees is a normal and helpful part of how work gets done. We believe these efforts are key to creating an atmosphere of continuous

improvement.

Our compensation plans are audited periodically to confirm ongoing pay equity. We provide a generous personal time off benefit as well as a flexible and inclusive holiday schedule, reflecting the diversity of our workforce and the celebration of

various cultural and religious affiliations. We also offer 100% salary continuance for up to 12 weeks in a rolling 12-month period, for qualifying medical leaves, and provide many other “employee minded” benefits.

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Our focus on human capital has been a hallmark of FranklinCovey for decades, understanding that people truly are a company’s most valuable asset, and that culture is an organization’s ultimate competitive advantage. In 2017, our Organization and

Compensation Committee determined to make Talent Stewardship a standing agenda item at committee meetings. The committee is actively involved in helping to determine best practices and implement new and innovative ways to help us continually improve

in attracting, developing, and retaining top talent for Franklin Covey.

Information About Our Executive Officers

On November 7, 2019, we appointed Paul S. Walker as President and Chief Operating Officer of Franklin Covey Co. and on November 1, 2020, Scott J. Miller transitioned from his role as Executive Vice-President of Thought Leadership to that of an

independent contractor and senior advisor to the Company’s thought leadership and marketing operations. Each of the executive officers of Franklin Covey Co. listed below served with the described responsibilities throughout the fiscal year ended

August 31, 2020:

M. Sean Covey, 56, currently serves as President of the Franklin Covey Education Division, and has led the growth of this Division from its infancy to its status today. The Education

Division works with thousands of education entities throughout the world in Higher Education and the K-12 market. Mr. Covey previously ran the Franklin Covey international licensee network and has been an Executive Officer since September 2008.

Sean also served as the Executive Vice President of Innovations from 2003 to 2018, where he led the development of many of the Company’s offerings, including the The 4 Disciplines of Execution and The Leader in Me. Prior to 2006, Sean ran the Franklin Covey retail chain of stores. Previous to Franklin Covey, Sean worked for the Walt Disney Company, Trammel Crow Ventures, and Deloitte & Touche

Consulting. Mr. Covey is also a New York Times best-selling author and has authored or coauthored several books, including The 4 Disciplines of Execution and the international bestseller The 7 Habits of Highly Effective Teens. Sean graduated from Brigham Young University with a Bachelor’s degree in English and earned an MBA from Harvard Business School.

Colleen Dom, 58, was appointed to be the Executive Vice-President of Operations in September 2013. Ms. Dom began her career with the Company in 1985 and served as the first “Client

Service Coordinator,” providing service and seminar support for some of the Company’s very first clients. Prior to her appointment as an Executive Vice President, Ms. Dom served as Vice President of Domestic Operations since 1997 where she had

responsibility for the Company’s North American operations, including client support, supply chain, and feedback operations. During her time at Franklin Covey Co., Colleen has been instrumental in creating and implementing systems and processes

that have supported the Company’s strategic objectives and has more than 35 years of experience in client services, sales support, operations, management, and supply chain. Due to her valuable understanding of the Company’s global operations, Ms.

Dom has been responsible for numerous key assignments that have enhanced client support, optimized operations, and built capabilities for future growth. Prior to joining the Company, Colleen worked in retail management and in the financial

investment industry.

C. Todd Davis, 63, is an Executive Vice President and Chief People Officer, and has been an Executive Officer since September 2008. Todd has over 30 years of experience in training,

training development, sales and marketing, human resources, coaching, and executive recruiting. He has been with Franklin Covey for the past 24 years. Previously, Mr. Davis was a Director of our Innovations Group where he led the development of

core offerings including The 7 Habits of Highly Effective People – Signature Program. Todd also worked for several years as our Director of Recruitment and was responsible for attracting, hiring, and

retaining top talent for the organization. Prior to joining Franklin Covey, Mr. Davis worked in the medical industry for 9 years where he recruited physicians and medical executives along with marketing physician services to hospitals and clinics

throughout the country. Todd is the author of The Wall Street Journal’s best-selling book, Get Better: 15 Proven Practices to Build Effective Relationships at Work and co-author of The Wall Street Journal’s

best-selling book, Everyone Deserves A Great Manager – The 6 Critical Practices for Leading A Team.

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Scott J. Miller, 52, is the Executive Vice-President of Thought Leadership at Franklin Covey. Mr. Miller, who has been with the Company for 24 years, was previously the Executive

Vice-President of Business Development and Marketing and has served as an executive of the Company since March 2012. Scott’s role as Executive Vice-President caps 12 years on our front line, working with thousands of client facilitators across many

markets and countries. Prior to his appointment as Vice-President of Business Development and Marketing, Mr. Miller served as the general manager of our central regional sales office for six years. Scott originally joined the Covey Leadership

Center in 1996 as a client partner with the Education Division. Mr. Miller started his professional career with the Disney Development Company, the real estate development division of the Walt Disney Company, in 1992. During his time with the

Disney Development Company, Scott identified trends and industry best practices in community development, education, healthcare, architectural design, and technology. Mr. Miller received a Bachelor of Arts in Organizational Communication from

Rollins College in 1996.

Paul S. Walker, 45, is beginning his twenty-first year with Franklin Covey Co. Today, Mr. Walker serves as the Company’s President and Chief Operating Officer. Paul began his career

with the Company in 2000 in the role of business developer, and quickly moved to become a Client Partner and then an Area Director. In 2007, Mr. Walker became General Manager of the North America Central Region. In 2014, Paul assumed responsibility

for the Company’s United Kingdom operations in addition to his role as General Manager of the Central Region. In 2016, Mr. Walker relocated to the Company’s Salt Lake City, Utah headquarters where, prior to his current role, he served as Executive

Vice President Global Sales and Delivery and as President of the Company’s Enterprise Division. Mr. Walker graduated from Brigham Young University with a Bachelor of Arts in Communications.

Robert A. Whitman, 67, has served as Chairman of the Board of Directors since June 1999 and as Chief Executive Officer of the Company since January 2000. Mr. Whitman previously served as

a director of the Covey Leadership Center from 1994 to 1997. Prior to joining us, Mr. Whitman served as President and Co‐Chief Executive Officer of The Hampstead Group from 1992 to 2000 and is a founding partner at Whitman Peterson. Mr. Whitman

received his Bachelor of Arts degree in Finance from the University of Utah and his MBA from the Harvard Business School.

Stephen D. Young, 67, joined FranklinCovey as Executive Vice President of Finance, was appointed Chief Accounting Officer and Controller in January 2001, Chief Financial Officer in

November 2002, and Corporate Secretary in March 2005. Prior to joining us, he served as Senior Vice-President of Finance, Chief Financial Officer, and director of international operations for Weider Nutrition for seven years; as Vice-President of

Finance at First Health for ten years; and as an auditor at Fox and Company, a public accounting firm, for four years. Mr. Young has more than 40 years of accounting and management experience and is a Certified Public Accountant. Mr. Young was

awarded a Bachelor of Science in Accounting from Brigham Young University.

Available Information

We regularly file reports with the SEC. These reports include, but are not limited to, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and security transaction reports on Forms 3, 4, or 5. The SEC also

maintains electronic versions of the Company’s reports, proxy and information statements, and other information that the Company files with the SEC on its website at www.sec.gov.

The Company makes our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished with the SEC available to the public, free of charge, through our website at

www.franklincovey.com. These reports are provided through our website as soon as is reasonably practicable after we file or furnish these reports with the SEC.

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ITEM 1A. RISK FACTORS

Our business environment, current domestic and international economic conditions, ongoing impacts from the COVID-19 pandemic, geopolitical circumstances, and other specific risks may affect our future business decisions and financial

performance. The matters discussed below may cause our future results to differ from past results or those described in forward-looking statements and could have a material effect on our business, financial condition, liquidity, results of

operations, and stock price, and should be considered in evaluating our Company.

The risks included here are not exhaustive. Other sections of this report may include additional risk factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing

global environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or

combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a

prediction of actual results.

COVID-19 Pandemic Risks

Our results of operations have been adversely affected and could be materially impacted in the future by the COVID-19, or coronavirus, pandemic.

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption during fiscal 2020. The extent to which the 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; the ability to create effective vaccines and effective therapeutic treatments; 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 and actions taken in response; the effect on our clients, including educational

institutions, and client demand for our services; 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 to access credit and capital markets as needed; and any closure of our offices. Any of these events, or related conditions, could cause or contribute to the risks and

uncertainties described in this section of our Annual Report and could materially adversely affect our business, financial condition, results of operations, cash flows, and stock price.

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. 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. 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. Any one of these

circumstances could have an adverse effect on our ability to obtain new business and successfully deliver our services.

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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. Our financial results are somewhat dependent on the amount that current and prospective clients budget for training. A serious

and/or prolonged economic downturn combined with a negative or uncertain political climate could adversely affect our clients’ financial condition and the amount budgeted for training by our clients. These conditions may reduce the demand for our

services or depress the pricing of those services and have an adverse impact on our results of operations. Changes in global economic conditions may also shift demand to services for which we do not have competitive advantages, and this could

negatively affect the amount of business that we are able to obtain. Such economic, political, and client spending conditions are influenced by a wide range of factors that are beyond our control and that we have no comparative advantage in

forecasting. If we are unable to successfully anticipate these changing conditions, we may be unable to effectively plan for and respond to those changes, and our business could be adversely affected.

Our business success also depends in part upon continued growth in the use of training and consulting services and the renewal of existing contracts by our clients. In challenging economic environments, our clients may reduce or defer their

spending on new services and consulting solutions in order to focus on other priorities. At the same time, many companies have already invested substantial resources in their current means of conducting their business and they may be reluctant or

slow to adopt new approaches that could disrupt existing personnel and/or processes. If growth in the general use of training and consulting services in business or our clients’ spending on these items declines, or if we cannot convince our

clients or potential clients to embrace new services and solutions, our results of operations could be adversely affected.

In addition, our business tends to lag behind economic cycles and, consequently, the benefits of an economic recovery following a period of economic downturn may take longer for us to realize than other segments of the economy.

We have only a limited ability to protect our intellectual property rights, which are important to our success.

Our financial success is partially dependent on our ability to protect our proprietary offerings and other intellectual property. The existing laws of some countries in which we provide services might offer only limited protection of our

intellectual property rights. To protect our intellectual property, we rely upon a combination of confidentiality policies, nondisclosure and other contractual arrangements, as well as copyright and trademark laws. The steps we take in this

regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we might not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property

rights, especially in foreign jurisdictions.

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 for other clients. Any

limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future engagements.

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We depend on key personnel, the loss of whom could harm our business.

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. Competition for such individuals in our industry is intense, and we may not be successful in attracting and retaining such personnel.

If we are unable to attract, retain, and motivate high-quality employees, including sales personnel and training consultants, we may not be able to grow our business as projected or may not be able to compete

effectively.

Our success and ability to grow are partially dependent on our ability to hire, retain, and motivate sufficient numbers of talented people with the increasingly diverse skills needed to serve our clients and grow our business. Competition for

skilled personnel is intense at all levels of experience and seniority. 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 labor market. If we are unable to hire and retain talented sales and delivery employees with the skills, and in the locations, we require, we might not be able to grow our business at projected levels or may not be

able to effectively deliver our content and services. 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. In addition, the inability of newly hired sales personnel to achieve projected sales levels may inhibit our ability to attain anticipated growth.

Our work with governmental clients exposes us to additional risks that are inherent in the government contracting process.

Our clients include national, state, provincial, and local governmental entities, and our work with these governmental entities has various risks inherent in the governmental contracting process. These risks include, but are not limited to, the

following:

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The occurrences or conditions described above could affect not only our business with the particular governmental agency involved, but also our business with other agencies of the same or other governmental entities. Additionally, because of

their visibility and political nature, governmental contracts may present a heightened risk to our reputation. 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 online service 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.

As part of selling subscription-based services, we collect, process, and retain a limited amount of sensitive and confidential information regarding our customers. Because our subscription services are internet-based platforms, our facilities

and systems may be vulnerable to external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, stolen intellectual property, programming or human errors, or other similar events.

The access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our customers or our own proprietary information, software, methodologies, and business secrets could result in significant legal and

financial exposure, damage to our reputation, or a loss of confidence in the security of our systems, products, and services, which could 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.

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. Security breaches of this infrastructure

could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information. We are also required at times to manage, utilize, and store 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 individually identifiable information. If any person,

including any of our associates, negligently disregards or intentionally breaches 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. Unauthorized disclosure of 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.

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Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve. For example, the European Union and the U.S. formally entered into a new framework in July 2016 that provided a mechanism for

companies to transfer data from European Union member states to the U.S. On July 16, 2020, the Court of Justice of the European Union (the Court of Justice) invalidated the E.U.-U.S. Privacy Shield Framework on the grounds that the Privacy Shield

failed to offer adequate protections to E.U. personal data transferred to the United States. On August 10, 2020, the U.S. Department of Commerce and the European Commission announced new discussions to evaluate the potential for an enhanced

E.U.-U.S. Privacy Shield framework to comply with the July 16 judgment of the Court of Justice. The Privacy Shield and other data protection mechanisms face a number of legal challenges by both private parties and regulators, which may lead to

uncertainty about the legal basis for data transfers across the Atlantic. Ongoing legal reviews may result in burdensome or inconsistent requirements affecting the location and movement of our customer and internal employee data as well as the

management of that data. Compliance may require changes in services, business practices, or internal systems that may result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms.

Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity.

In addition, during May 2018 the new General Data Protection Regulation (GDPR) became effective in the European Union. The GDPR imposes strict requirements on the collection, use, security, and transfer of personal information in and from

European Union member states. The GDPR is designed to unify data protection within the European Union under a single law, which may result in significantly greater compliance burdens and costs related to our European Union operations and

customers. 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. Furthermore, as the United Kingdom transitions out of the European Union, we may encounter additional complexity

with respect to data privacy and data transfers from the United Kingdom. We have implemented new controls and procedures, including a team dedicated to data protection, to comply with the Privacy Shield and the requirements of GDPR, which were

effective for us in May 2018. However, these new procedures and controls may not be completely effective in preventing unauthorized breaches of personal data.

Other governmental authorities throughout the U.S. and around the world are considering 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 effective on January 1, 2020. The CCPA requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing

practices, and allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches. However, legislators have stated that they intend to propose amendments to the CCPA, and it remains unclear

what, if any, modifications will be made to the CCPA or how it will be interpreted. Additionally, 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. Each of these privacy, security, and data protection laws and regulations could impose significant limitations, require changes to our business, or restrict our use or storage of personal

information, which may increase our compliance expenses and make our business more costly or less efficient to conduct.

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We employ global best practices in securing and monitoring code, applications, systems, processes and data, and our security practices are regularly reviewed and validated by an external auditing firm. 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.

Since the introduction of our subscription services, our dependence on the use of sophisticated technologies and information systems has increased. Moreover, our technology platforms will require continuing cash investments by us to expand

existing offerings, improve the client experience, and develop complementary offerings. Our future success depends in part on our ability to adapt our services and infrastructure while continuing to improve the performance, features, and

reliability of our services in response to the evolving demands of the marketplace. 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.

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.

Our ability to make scheduled payments on or to refinance our indebtedness depends on our future performance, including the performance of our subsidiaries, which will be affected by financial, business and economic conditions, competition, and

other factors. We are unable to control many of these factors, such as the general economy, economic conditions in the industries in which we operate, and competitive pressures. Our cash flow may not be sufficient to allow us to pay principal and

interest on our indebtedness and to meet our other obligations. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell

assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may be unsuccessful and we may not meet our scheduled debt service obligations. In addition, the terms of existing or future debt

agreements, including our 2019 Credit Facility and subsequent modifications, may restrict us from pursuing any of these alternatives.

In the event that we need to refinance all or a portion of our outstanding indebtedness before maturity or as it matures, we may not be able to obtain terms as favorable as the terms of our existing indebtedness or refinance our existing

indebtedness at all. If interest rates or other factors existing at the time of refinancing result in higher interest rates upon refinancing, we will incur higher interest expense. Furthermore, if any rating agency changes our credit rating or

outlook, our debt and equity securities could be negatively affected, which could adversely affect our financial condition and financial results.

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 these terms and conditions or maintain

adequate financial performance to comply with specific financial ratios entitles the lender to certain remedies, including the right to immediately call due any amounts owed on the credit agreement. 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.

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We may need additional capital in the future, and this capital may not be available to us on favorable terms or at all.

We may need to raise additional funds through public or private debt offerings or equity financings in order to:

• Develop new services, programs, or offerings

• Take advantage of opportunities, including business acquisitions

• Respond to competitive pressures

Going forward, we will continue to incur costs necessary for the day-to-day operation and potential growth of the business and may use our available revolving line of credit facility and other financing alternatives, if necessary, for these

expenditures. We obtained a new credit agreement in August 2019 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.

Additional potential sources of liquidity available to us include factoring receivables, issuance of additional equity, or issuance of debt from public or private sources. If necessary, we will evaluate all of these options and select one or more

of them depending on overall capital needs and the associated cost of capital.

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.

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. These periodic reports include information about our historical financial results as well

as the analysts’ estimates of our future performance. The analysts’ estimates are based on their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public

market analysts and investors, our stock price could decline. If our stock price is volatile, we may become involved in securities litigation following a decline in price. Any litigation could result in substantial costs and a diversion of

management’s attention and resources that are needed to successfully run our business.

Our business performance may not be sufficient for us to meet the financial guidance that we provide publicly.

We may provide financial guidance to the public based upon expectations regarding our financial performance. While we believe that our annual financial guidance provides investors and analysts with insight into our view of the Company’s future

performance, such financial guidance is based on assumptions that may not always prove to be accurate and may vary from actual results. If we fail to meet the full-year 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.

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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. 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 our key balances, such as cash and cash equivalents

• Currency exchange rate fluctuations

• Unexpected asset impairment charges

• Increased or decreased analyst coverage

These factors may have an adverse effect upon our stock price in the future.

General Business Risks

Recent developments in international trade may have a negative effect on global economic conditions and our business, financial results, and financial condition.

The United States recently proposed and enacted certain tariffs. In addition, there have been ongoing discussions and activities regarding changes to other U.S. trade policies and treaties. In response, some countries in which we operate,

including China, are threatening to implement or have already implemented tariffs on U.S. imports or otherwise imposed non-tariff barriers. These developments may have a material adverse effect on global economic conditions and the stability of

global financial markets, and they may significantly reduce global trade and, in particular, trade between China and the United States. Any of these factors could depress economic activity, create anti-American consumer sentiment, restrict our

access to suppliers or customers, and have a material adverse effect on our business, financial condition, and results of operations. In addition, any actions by non-U.S. markets to implement further trade policy changes, including limiting

foreign investment or trade, increasing regulatory scrutiny or taking other actions which impact U.S. companies’ ability to obtain necessary licenses or approvals could negatively impact our business.

Our global operations pose complex management, foreign currency, legal, tax, and economic risks, which we may not adequately address.

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. 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

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• Political instability

• Currency exchange rate fluctuations

• Longer payment cycles

• Price controls or restrictions on exchange of foreign currencies

For instance, on June 23, 2016, the United Kingdom held a referendum in which a majority of voters chose to exit the European Union, commonly referred to as “Brexit.” The outcome of this referendum produced significant currency exchange rate

fluctuations and volatility in global stock markets. The British government has commenced negotiations to determine the terms of Brexit, but the terms have not yet been determined and the process and effects of such separation remain uncertain.

Given the lack of comparable precedent, the implications of Brexit or how such implications might affect us are unclear. Brexit could, among other things, disrupt trade and the free movement of data, goods, services, and people between the United

Kingdom and the European Union or other countries as well as create legal and global economic uncertainty. These and other potential implications of Brexit could adversely affect our business and financial results.

Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.

Because we provide services to clients in many countries, we are subject to numerous, and sometimes conflicting, regulations on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation,

sanctions, government affairs, internal and disclosure control obligations, data privacy, and labor relations. Violations of these regulations in the conduct of our business could result in fines, criminal sanctions against us or our officers,

prohibitions on doing business, and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our clients also could result in liability for monetary damages, fines, unfavorable publicity,

and allegations by our clients that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may be insufficient to protect our rights.

In many parts of the world, including countries in which we operate, practices in the local business community might not conform to international business standards and could violate anticorruption regulations, including the United States

Foreign Corrupt Practices Act, which prohibits giving anything of value intended to influence the awarding of government contracts. Although we have policies and procedures to ensure legal and regulatory compliance, our employees, licensee

operators, and agents could take actions that violate these requirements. 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.

Due to the nature of our business, we have significant amounts of intangible assets, including goodwill, resulting from events such as the acquisition of businesses and the licensing of content. Our intangible assets are evaluated for

impairment based on qualitative factors or upon cash flows and estimated royalties from revenue streams (indefinite-lived intangible assets) if necessary. Our goodwill is evaluated through qualitative factors and by comparing the fair value of the

reporting units to the carrying value of our net assets if necessary. Although our current sales, cash flows, and market capitalization are sufficient to support the carrying basis of these long-lived assets, if our sales, cash flows, or common

stock price decline, we may be faced with significant asset impairment charges that would have an adverse impact upon our results of operations.

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The Company’s use of accounting estimates involves judgment and could impact our financial results.

Our most critical accounting estimates are described in Management’s Discussion and Analysis found in Item 7 of this report under the section entitled “Use of Estimates and Critical Accounting Policies.” In addition, as discussed in various

footnotes to our financial statements as found in Item 8, we make certain estimates for loss contingencies, including decisions related to legal proceedings and reserves. Because, by definition, these estimates and assumptions involve the use of

judgment, our actual financial results may differ from these estimates. If our estimates or assumptions underlying such contingencies and reserves prove incorrect, we may be required to record additional adjustments or losses relating to such

matters, which would negatively affect our financial results.

Ineffective internal controls could impact our business and operating results.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal

controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

As of August 31, 2020, our principal executive offices in Salt Lake City, Utah occupy approximately 84,000 square feet of leased office space that is accounted for as a financing arrangement, which expires in 2025. This facility accommodates

our executive team and corporate administration, as well as other professionals. The master lease agreement on our principal executive offices contains six five-year renewal options that may be exercised at our discretion. Additionally, we occupy

leased sales and administrative offices both in the United States and various countries around the world as shown below. These leased facilities are accounted for as operating leases.

We consider our existing facilities to be in good condition and suitable for our current and expected level of operations in the upcoming fiscal year and in future periods.

U.S./Canada Sales Office

Columbus, Ohio

International Sales Offices

Banbury, England

Tokyo, Japan

China: Beijing, Shanghai, Guangzhou, and Shenzhen

ITEM 3. 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, 2020, 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. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expectations.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol “FC.”

We did not pay or declare dividends on our common stock during the fiscal years ended August 31, 2020 or 2019. Any determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our results of

operations, financial condition, terms of our financing arrangements, and such other factors as the board deems relevant. We currently anticipate that we will retain all available funds to repay our liabilities, finance future growth and business

opportunities, and to repurchase outstanding shares of our common stock.

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As of October 31, 2020, we had 14,025,413 shares of common stock outstanding, which were held by 523 shareholders of record. A number of our shareholders hold their shares in street name; therefore, we believe that there are substantially more

beneficial owners of our common stock.

Purchases of Common Stock by the Issuer

We did not have any purchases of our common stock during the fourth quarter of fiscal 2020.

On November 15, 2019, our Board of Directors approved a new plan to repurchase up to $40.0 million of our outstanding common stock. The previously existing common stock repurchase plan was canceled and the new common share repurchase plan does

not have an expiration date. Through August 31, 2020, we have purchased 5,000 shares of our common stock for $0.2 million under the terms of this Board approved plan.

The actual timing, number, and value of common shares repurchased under this plan will be determined at our discretion and will depend on a number of factors, including, among others, general market and business conditions, the trading price of

common shares, and applicable legal requirements. 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.

Performance Graph

The following graph demonstrates a five-year comparison of cumulative total returns for Franklin Covey Co. common stock, the S&P SmallCap 600 Index, and the S&P 600 Commercial & Professional Services Index. The graph assumes an

investment of $100 on August 31, 2015 in each of our common stock, the stocks comprising the S&P SmallCap 600 Index, and the stocks comprising the S&P 600 Commercial & Professional Services Index. Each of the indices assumes that all

dividends were reinvested.

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The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make or endorse any predictions as to our future stock performance.

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.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related footnotes as found in Item 8 of this Annual Report on Form 10-K.

In thousands, except per-share data

Income Statement Data:

Earnings (loss) per share:

Basic and diluted $ (.68 ) $ (.07 ) $ (.43 ) $ (.52 ) $ .47

Balance Sheet Data:

_______________________

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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, contractual obligations, and the critical accounting policies of

Franklin Covey Co. (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. Forward-looking statements in this discussion are qualified by the cautionary statement under the heading “Safe Harbor Statement

Under the Private Securities Litigation Reform Act Of 1995” contained later in Item 7 of this Form 10-K.

Non-GAAP Measures

This management’s discussion and analysis includes the concepts of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) and “constant currency,” which are non-GAAP measures. 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. 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.

We reference these non-GAAP financial measures in our decision making because they provide supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe they

provide investors with greater transparency to evaluate operational activities and financial results. For a reconciliation of our segment Adjusted EBITDA to net loss, a comparable 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. Our mission is to “enable greatness in people and organizations everywhere,” and our worldwide resources are organized to help individuals

and organizations achieve sustained superior performance through changes in human behavior. We believe that our content and services create the connection between capabilities and results. We believe that our clients are able to utilize our

content to create cultures whose hallmarks are high-performing, collaborative individuals, led by effective, trust-building leaders who execute with excellence and deliver measurably improved results for all of their key stakeholders.

In the training and consulting marketplace, we believe there are three important characteristics that distinguish us from our competitors.

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We hold ourselves responsible for and measure ourselves by our clients’ achievement of transformational results.

We have some of the best-known offerings in the training industry, including a suite of individual-effectiveness and leadership-development training content based on the best-selling books, The 7 Habits of

Highly Effective People, The Speed of Trust, Multipliers, and The 4 Disciplines of Execution, and proprietary

content in the areas of Execution, Sales Performance, Productivity, Customer Loyalty, Leadership, and Education. We believe that our offerings help individuals, teams, and entire organizations transform their results

through achieving systematic, sustainable, and measurable changes in human behavior. Our offerings are described in further detail at www.franklincovey.com. The information contained in, or that can be accessed through, our website does

not constitute a part of this annual report, and the descriptions found therein should not be viewed as a warranty or guarantee of results.

Our fiscal year ends on August 31, and unless otherwise indicated, fiscal 2020, fiscal 2019, and fiscal 2018 refer to the twelve-month periods ended August 31, 2020, 2019, 2018, and so forth.

Impact of COVID-19 Pandemic on Fiscal 2020

COVID-19 was first identified in China during December 2019, and subsequently declared a pandemic by the World Health Organization. Since its discovery, COVID-19 has surfaced in nearly all regions around the world and has resulted in

government-imposed travel restrictions and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally, including our licensees, through office and school closures. In particular, these closures

impacted our third and fourth quarters of fiscal 2020 as described throughout this Annual Report on Form 10-K for fiscal 2020.

After strong financial performance during the first two quarters of fiscal 2020, our financial results in the third and fourth quarters of fiscal 2020 were adversely impacted by the COVID-19 pandemic and the resulting closure of offices and

educational institutions throughout the United States and in the countries where we operate direct offices and contract with licensee partners to deliver our offerings. We closed our corporate offices and restricted travel to protect the health

and safety of our associates and clients in an effort to slow the spread of the pandemic. Our international direct offices also followed the same pattern of closures and restrictions on associate travel and delivery of our offerings. These

actions, and similar steps taken by most of our clients, resulted in decreased sales during the third and fourth quarters as previously scheduled onsite events, client-facilitated presentations, and coaching days were postponed or canceled.

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Despite the difficult economic environment in the second half of fiscal 2020, we were pleased with the continued strength of our subscription sales and the quick pivot to delivering content live-online and through our other digital modalities.

Our subscription service clients are able to access content and programs from remote locations, which allows continued engagement of personnel and students during long periods of displacement from normal working or classroom conditions. To be

successful in our industry, it is important to create effective learning environments for our clients and students, and we believe our previous investments in digital and remote delivery modalities are key to surviving and then thriving in the

current environment. According to the Training magazine 2020 Training Industry Report, most companies expect to retain at least some aspects of remote learning after the COVID-19 pandemic is over. We

believe our ability to deliver content and offerings over a broad array of modalities to suit a client’s needs will prove to be a valuable strategic advantage, and we believe these capabilities will accelerate our recovery from the effects of the

pandemic and will generate increased opportunities in future periods. However, our recovery from the COVID-19 pandemic is dependent upon a number of factors, many of which are not within our control, such as the timing of re-opening national,

state, and local economies; continuing effects of the pandemic on client operations; and other governmental responses to address the impacts of the pandemic. We will continue to monitor these developments and their actual and potential impacts on

our financial position, results of operations, and liquidity.

On March 27, 2020, in response to COVID-19, the United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act is a relief package consisting of various stimulus measures, such as tax

payment deferrals, various business incentives, and makes certain technical corrections to the U.S. Tax Cuts and Jobs Act of 2017. While beneficial to the economy and business overall, the enactment of the CARES Act and similar legislation in

other countries throughout the world did not have a material impact on our fiscal 2020 consolidated financial statements.

Financial Overview

Our fiscal 2020 financial results are a tale of two halves. After strong financial performance during the first two quarters of fiscal 2020, our financial results in the third and fourth quarters of fiscal 2020 were adversely impacted by the

COVID-19 pandemic. Financial results in the first two quarters of fiscal 2020 showed strong growth in revenues, operating results, and cash flows over the prior year. Consolidated sales through February 29, 2020 grew 8 percent, with Enterprise

Division sales increasing $5.0 million, or 6 percent, and Education Division revenues increasing $1.9 million, or 10 percent, compared with the prior year. Cash flows from operating activities increased 30 percent over the first two quarters of

fiscal 2019. Then, as the COVID-19 outbreak expanded in March 2020 and developed into a global pandemic, most of the world’s governments enacted strict measures to prevent people from gathering or meeting in person. While we were able to continue

to deliver content through our digital modalities and recognize subscription revenues, the in-person meeting restrictions had a significant impact on all of our segment operations during the third and fourth quarters of fiscal 2020 as our clients

transitioned to remote learning environments and previously scheduled training and coaching events were postponed or canceled.

Although the second half of fiscal 2020 was a difficult economic environment, our revenues were favorably impacted by the continued strength of our subscription business, including the All Access Pass (AAP) in the Enterprise Division and the Leader in Me membership in the Education Division. Throughout the pandemic, our AAP sales have been strong and resilient as new pass sales and multi-year contract sales increased over the prior year. During

the third and fourth quarters of fiscal 2020, All Access Pass sales grew 15 percent compared with the prior year. All Access Pass revenue retention remained strong and was over 90 percent for fiscal 2020. Following the initial impact of the

pandemic, our U.S.\Canada and governmental clients quickly transitioned to our digital delivery options, and by July our booking pace for add-on coaching and services was equal to that achieved in the prior year and then exceeded last year’s pace

through August. We remain optimistic that sales and revenue retention for All Access Pass subscription sales, and the booking pace for AAP-related add-on services will continue to be strong in future periods. Our China and Japan direct offices

and many of our licensee partners had just started to sell the All Access Pass and had not developed a strong base of subscription revenue at the onset of the pandemic. These operations were highly dependent on the delivery of in-person training

and stay-at-home restrictions made it necessary to reschedule nearly all of their training and coaching events. As a result, sales declined disproportionately at these operations compared with our U.S./Canada operations. However, these foreign

offices are beginning to recover and we are optimistic that international momentum will continue to rebuild in fiscal 2021. We were also encouraged by the performance of the Education Division in the third and fourth quarters of fiscal 2020.

Despite the significant uncertainties in educational funding as a result of the pandemic, nearly 2,200 schools renewed their Leader in Me memberships (a higher number than in fiscal 2019) and the Company

added 320 new schools to the Leader in Me program. We believe this performance from the Education Division was remarkable in the current education and economic environment.

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Our subscription revenue grew 16 percent in fiscal 2020 compared with the prior year. At August 31, 2020, we had $68.9 million of deferred revenue compared with $65.8 million at August 31, 2019. Consolidated deferred revenue reported above at

August 31, 2020 and August 31, 2019 includes $2.2 million and $3.6 million, respectively, of deferred revenue that was classified as long-term based on expected recognition. At August 31, 2020, our unbilled deferred revenue grew 32 percent to

$39.6 million compared with $29.9 million at the end of fiscal 2019. At August 31, 2020, our deferred subscription revenue plus unbilled deferred subscription revenue totaled $100.2 million. Unbilled deferred revenue represents business that is

contracted, but unbilled and therefore excluded from our balance sheet.

The following table sets forth our consolidated net sales by division and by reportable segment for the fiscal years indicated (in thousands):

Enterprise Division:

Gross profit consists of net sales less the cost of services provided or the cost of goods sold. Our cost of sales includes the direct costs of delivering content onsite at client locations, including presenter costs, materials used in the

production of training products and related assessments, assembly, manufacturing labor costs, and freight. Gross profit may be affected by, among other things, the mix of services sold to clients, prices of materials, labor rates, changes in

product discount levels, and freight costs. Consolidated cost of sales in fiscal 2020 totaled $53.1 million compared with $66.0 million in fiscal 2019. The decrease was primarily due to decreased sales in fiscal 2020 resulting from the COVID-19

pandemic as described above. Our gross profit for the fiscal year ended August 31, 2020 was $145.4 million, compared with $159.3 million in fiscal 2019. Our gross margin, which is gross profit as a percent of sales, increased to 73.3 percent

compared with 70.7 percent primarily due to increased subscription and digital delivery revenues when compared with the prior year.

Our operating expenses in fiscal 2020 decreased $14.3 million compared with fiscal 2019. The decrease was primarily due to a $10.6 million decrease in selling, general, and administrative (SG&A) expenses, and a $5.4 million decrease in

stock-based compensation expense. These decreases were partially offset by $1.6 million of restructuring costs. Decreased SG&A expense was primarily related to decreased variable compensation such as commissions, bonuses, and incentives;

decreased travel and entertainment; decreased contingent consideration liability expense; and cost savings from various areas of the Company’s operations in response to the pandemic-related reduction in sales. We reevaluate our stock-based

compensation instruments at each reporting date. Due to the adverse impact of COVID-19 and uncertainties related to the expected recovery, we determined that certain tranches of previously granted performance awards would not vest prior to their

expiration. Based on our analyses, we reversed previously recognized stock-based compensation expense for these tranches during the third quarter of fiscal 2020, which resulted in a $0.6 million net credit to stock-based compensation for the

year. During the fourth quarter of fiscal 2020 we restructured certain areas of our operations to reflect changes in our strategy and client needs. The restructuring costs totaled $1.6 million, which were comprised of severance costs for impacted

personnel.

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