EDUCATIONAL DEVELOPMENT CORPORATION Factors Affecting Forward-Looking Statements
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our success in recruiting and retaining new consultants, our ability to locate and procure desired books, our ability to ship the volume of orders that are received without creating backlogs, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, the COVID-19 pandemic, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year endedFebruary 28, 2021 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See "Cautionary Remarks Regarding Forward-Looking Statements" in the front of this Quarterly Report on Form 10-Q. Overview We are the exclusiveUnited States trade co-publisher ofUsborne children's books and the owner of Kane Miller. We operate two separate segments, UBAM and Publishing, to sell ourUsborne andKane Miller children's books. These two segments each have their own customer base. The UBAM segment markets its products through a network of independent sales consultants using a combination of home shows, internet party plan events and book fairs. The Publishing segment markets its products on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two segments. Other expenses consist primarily of the compensation of our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate office and distribution facility.
The following table shows our condensed statements of earnings data:
Three Months Ended Nine Months Ended
November 30, November 30,
2021 2020 2021 2020
Net revenues $ 45,112,300 $ 66,750,300 $ 118,914,600 $ 164,292,100
Cost of goods sold 13,897,300 19,597,800 36,426,000 48,302,800
Gross margin 31,215,000 47,152,500 82,488,600 115,989,300
Operating expenses Operating and selling 7,354,500 11,616,200 19,037,000 28,488,300 Sales commissions 14,515,500 22,960,300 37,587,400 56,865,200 General and administrative 5,915,000 7,082,200 15,847,900 17,282,200 Total operating expenses 27,785,000 41,658,700
72,472,300 102,635,700
Interest expense 228,300 119,300 609,800 441,500 Other income (400,900 ) (399,800 ) (1,514,800 ) (1,305,600 ) Earnings before income taxes 3,602,600 5,774,300 10,921,300 14,217,700 Income taxes 956,000 1,504,700 2,938,400 3,762,000 Net earnings$ 2,646,600 $ 4,269,600 $ 7,982,900 $ 10,455,700
See the detailed discussion of revenues, gross margin and general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods.
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Non-Segment Operating Results for the Three Months Ended
Total operating expenses not associated with a reporting segment decreased$0.8 million , or 13.1%, to$5.3 million for the three-month period endedNovember 30, 2021 , when compared to$6.1 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a$0.8 million decrease in warehouse labor and a$0.3 million decrease in freight handling expenses, both resulting from a decrease in gross sales, offset by a$0.2 million increase in depreciation expense and a$0.1 million increase in other various expenses. Interest expense increased$0.1 million , or 100.0%, to$0.2 million for the three months endedNovember 30, 2021 , when compared to$0.1 million for the same quarterly period a year ago associated with the borrowings against our line of credit and the addition of the advancing term loans in the current fiscal year, not utilized in the same quarterly period a year ago. Income taxes decreased$0.5 million , or 33.3%, to$1.0 million for the three months endedNovember 30, 2021 , from$1.5 million for the same quarterly period a year ago, resulting from a decrease in gross sales. Our effective tax rate increased to 26.5% for the quarter endedNovember 30, 2021 , from 26.1% for the quarter endedNovember 30, 2020 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
Non-Segment Operating Results for the Nine Months Ended
Total operating expenses decreased$0.8 million , or 5.4%, to$14.0 million for the nine months endedNovember 30, 2021 , from$14.8 million for the same quarterly period a year ago. Warehouse labor decreased$1.0 million and freight handling decreased$0.8 million for the nine months endedNovember 30, 2021 , both associated with reduced sales. These changes were offset by an increase in warehouse rental expenses of$0.3 million , an increase in depreciation expense of$0.3 million , an increase in property insurance of$0.1 million associated with increased inventory levels, along with a$0.1 million increase in other various expenses.
Interest expense increased
Income taxes decreased$0.9 million , or 23.7%, to$2.9 million for the nine months endedNovember 30, 2021 , from$3.8 million for the same period a year ago, resulting from a decrease in gross sales. Our effective tax rate increased to 26.9% for the nine months endedNovember 30, 2021 , from 26.5% for the nine months endedNovember 30, 2020 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
UBAM Operating Results for the Three and Nine Months Ended
The following table summarizes the operating results of the UBAM segment:
Three Months Ended Nine Months Ended
November 30, November 30,
2021 2020 2021 2020
Gross sales $ 50,232,200 $ 77,674,100 $ 132,557,400 $ 190,488,500
Less discounts and allowances (12,891,300 ) (21,244,700 ) (35,767,700 ) (51,379,800 )
Transportation revenue 4,056,900 7,740,300 11,743,100 18,898,800
Net revenues 41,397,800 64,169,700 108,532,800 158,007,500
Cost of goods sold 11,961,700 18,230,200 30,848,200 45,048,500 Gross margin 29,436,100 45,939,500
77,684,600 112,959,000
Operating expenses Operating and selling 6,069,000 10,055,900 15,628,600 24,619,800 Sales commissions 14,351,100 22,865,000 37,147,000 56,674,800 General and administrative 1,480,000 2,197,000 3,932,600 5,353,100 Total operating expenses 21,900,100 35,117,900
56,708,200 86,647,700
Operating income$ 7,536,000 $ 10,821,600
Average number of active consultants 41,500 57,200 47,300 45,200
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UBAM Operating Results for the Three Months Ended
UBAM net revenues decreased$22.8 million , or 35.5%, to$41.4 million during the three months endedNovember 30, 2021 , when compared to$64.2 million during the same period a year ago. The average number of active consultants in the third quarter of fiscal 2022 was 41,500, a decrease of 15,700, or 27.4%, from 57,200 consultants selling in the third quarter of fiscal 2021. During the first and second quarter of fiscal 2021, our active consultants grew significantly due to pandemic-related events such as seeking replacement income from the loss of full-time employment, an increase in the need for work-from-home opportunities and an increased demand for educational products in the home. Our consultant numbers declined this year due to consultants returning to full-time employment, as well as families experiencing children returning to the classroom, therefore requiring less learning from home materials than they had in the prior year. While the decrease in sales and consultants has occurred in fiscal 2022, our UBAM division's active consultants and sales continue to exceed pre-pandemic levels. Gross margin decreased$16.5 million , or 35.9%, to$29.4 million during the three months endedNovember 30, 2021 , when compared to$45.9 million during the same period a year ago, primarily associated with the decrease in net revenues. Gross margin as a percentage of net revenues decreased 0.5%, to 71.1% for the three-month period endedNovember 30, 2021 , when compared to 71.6% the same period a year ago. The decrease in gross margin as a percentage of net revenues resulted from a change in order mix partially offset by reduced cost of goods sold. Throughout the quarter endedNovember 30, 2021 sales through book fairs, booths and home parties increased over the third quarter last year when these sales types were challenged. These sales types have higher sales discounts and pay less sales commissions to our consultants, resulting in similar operating income. Reduced cost of goods sold resulted from larger volume discounts and vendor rebates associated with increased purchasing volumes over pre-COVID-19 levels. UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consists of freight expenses and materials and supplies. Sales commissions include amounts paid to consultants for new sales and promotions. These operating expenses are directly tied to the sales volumes of the UBAM segment. General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the UBAM segment. Total operating expenses decreased$13.2 million , or 37.6%, to$21.9 million during the three-month period endedNovember 30, 2021 , when compared to$35.1 million reported in the same quarter a year ago. Operating and selling expenses decreased$4.0 million , or 39.6%, to$6.1 million during the three-month period endedNovember 30, 2021 , when compared to$10.1 million reported in the same quarter a year ago, primarily due to a$3.4 million decrease in postage and freight and a$0.6 million decrease in accruals for the Company's annual incentive trip and other consultant rewards associated with the decrease in net sales. Sales commissions decreased$8.5 million , or 37.1%, to$14.4 million during the three-month period endedNovember 30, 2021 , when compared to$22.9 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased$0.7 million , or 31.8%, to$1.5 million during the three months endedNovember 30, 2021 , when compared to$2.2 million during the same period a year ago, due primarily to$0.6 million of reduced bank fees from less credit card transactions during the quarter endedNovember 30, 2021 . Operating income of the UBAM segment decreased$3.3 million , or 30.6% to$7.5 million during the three months endedNovember 30, 2021 , when compared to$10.8 million reported in the same quarter a year ago, primarily due to the change in net revenues. Operating income of the UBAM division as a percentage of net revenues for the three months endedNovember 30, 2021 increased to 18.2%, compared to 16.9% for the three months endedNovember 30, 2020 , a change of$0.6 million . This operating improvement resulted primarily from$0.2 million of reduced outbound shipping peak surcharges, a$0.2 million decrease in accruals for the Company's annual incentive trip and other consultant rewards and a$0.2 million decrease in consultant promotion bonuses paid.
UBAM Operating Results for the Nine Months Ended
UBAM net revenues decreased$49.5 million , or 31.3%, to$108.5 million during the nine-month period endedNovember 30, 2021 , compared to$158.0 million from the same period a year ago. The average number of active consultants in the nine-month period endedNovember 30, 2021 was 47,300, an increase of 2,100, or 4.6%, from 45,200 selling in same period a year ago. During fiscal 2021, our active consultants grew from 29,600 at the beginning of the year to 57,600 at the end of the fiscal year. This active consultant growth resulted from pandemic-related events such as seeking replacement income from loss of full-time employment, an increase in the need for work-from-home opportunities and an increased demand for educational products in the home. During fiscal 2022 our active consultant count has declined due to consultants returning to full-time work, as well as families experiencing children returning to the classroom, therefore requiring less learning from home materials than they had in the prior year. While a decrease in sales and consultants has occurred in fiscal 2022, our UBAM division's active consultants and sales continue to exceed pre-pandemic levels. Gross margin decreased$35.3 million , or 31.2%, to$77.7 million during the nine-month period endedNovember 30, 2021 , when compared to$113.0 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues remained consistent at 71.6% for the nine-month period endedNovember 30, 2021 , when compared to 71.5% for the same period a year ago. 16
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Total operating expenses decreased$29.9 million , or 34.5%, to$56.7 million during the nine-month period endedNovember 30, 2021 , from$86.6 million for the same period a year ago. Operating and selling expenses decreased$9.0 million , or 36.6%, to$15.6 million during the nine-month period endedNovember 30, 2021 , when compared to$24.6 million reported in the same period a year ago, primarily due to a$8.1 million decrease in shipping costs associated with the decrease in volume of orders shipped and a$0.9 million decrease in accruals for the Company's annual incentive trip and other consultant rewards associated with the decrease in UBAM sales. Sales commissions decreased$19.6 million , or 34.6%, to$37.1 million during the nine-month period endedNovember 30, 2021 , when compared to$56.7 million reported in the same period a year ago, primarily due to the decrease in net revenues. General and administrative expenses decreased$1.5 million , or 27.8%, to$3.9 million , from$5.4 million recognized during the same period last year, due primarily to a$1.2 million decrease in credit card transaction fees associated with decreased sales volumes and a$0.3 million decrease in other various expenses. Operating income of the UBAM segment decreased$5.3 million , or 20.2%, to$21.0 million during the nine months endedNovember 30, 2021 , when compared to$26.3 million reported in the same period last year. Operating income of the UBAM division as a percentage of net revenues for the nine months endedNovember 30, 2021 was 19.3%, compared to 16.7% for the nine months endedNovember 30, 2020 , a change of 2.6%. Operating income as a percentage of net revenues increased from the prior year primarily due to$0.9 million of reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes,$0.9 million of increased transportation revenue due to the increase of our minimum shipping charge implemented in the third quarter of fiscal 2021,$0.9 million of reduced freight handling costs primarily from reduced peak surcharges in the current fiscal year due to lower shipping volumes,$0.7 million improvement from the change in order type mix, a$0.5 million decrease in accrual expenses for the Company's annual incentive trip and other consultant rewards resulting from less award earners and$0.2 million of other various cost reductions, offset by$1.2 million of reduced transportation revenue associated with free shipping days offered in the current fiscal year, not offered in the previous fiscal year.
Publishing Operating Results for the Three and Nine Months Ended
The following table summarizes the operating results of the Publishing segment:
Three Months Ended Nine Months Ended
November 30, November 30,
2021 2020 2021 2020
Gross sales $ 7,800,600 $ 5,463,400 $ 22,054,100 $ 13,228,700
Less discounts and allowances (4,087,300 ) (2,886,400 ) (11,678,500 ) (7,010,600 )
Transportation revenue 1,200 3,600 6,200 66,500
Net revenues 3,714,500 2,580,600 10,381,800 6,284,600
Cost of goods sold 1,935,600 1,367,600 5,577,800 3,254,300 Gross margin 1,778,900 1,213,000
4,804,000 3,030,300
Total operating expenses 592,800 440,000
1,773,500 1,171,900
Operating income$ 1,186,100 $ 773,000 $ 3,030,500 $ 1,858,400
Publishing Operating Results for the Three Months Ended
Our Publishing division's net revenues increased$1.1 million , or 42.3%, to$3.7 million during the three-month period endedNovember 30, 2021 , from$2.6 million reported in the same period a year ago. Many Publishing customers closed their stores during the first and second quarters of fiscal 2021 due to the COVID-19 pandemic and did not reopen until the third or fourth quarter of fiscal 2021. As such, much of the sales increase resulted from the return of customer activity to pre-pandemic levels. In addition, sales in the current year third fiscal quarter were boosted by the addition of new customers added during the quarter. Gross margin increased$0.6 million , or 50.0%, to$1.8 million during the three-month period endedNovember 30, 2021 , from$1.2 million reported in the same quarter a year ago, primarily due to the increase in net revenues. Gross margin as a percentage of net revenues increased to 47.9% during the three-month period endedNovember 30, 2021 , from 47.0% reported in the same quarter a year ago. Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to customers as well as changes in the mix of products sold betweenKane Miller andUsborne . 17
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Total operating expenses of the Publishing segment increased$0.2 million , or 50.0%, to$0.6 million , from$0.4 million , during the three-month periods endedNovember 30, 2021 and 2020, resulting from a$0.1 million increase in postage and freight from an increase in sales volumes and a$0.1 million increase in sales commissions from an increase in sales volumes. Operating income of the Publishing segment increased$0.4 million , or 50.0%, to$1.2 million from$0.8 million for the three-month periods endedNovember 30, 2021 and 2020, primarily driven by the increase in gross margin.
Publishing Operating Results for the Nine Months Ended
Our Publishing division's net revenues increased$4.1 million , or 65.1%, to$10.4 million during the nine-month period endedNovember 30, 2021 , from$6.3 million reported in the same period a year ago. The increase in sales primarily resulted from temporary store closures in fiscal year 2021 due to the COVID-19 pandemic. Many Publishing customers closed during the first and second quarters of fiscal year 2021, following the guidance from their local authorities to slow the spread of the pandemic, and began reopening at varying times in the latter half of fiscal year 2021. In addition, Publishing's sales during the first nine months increased beyond pre-pandemic levels from the addition of new customers, as well as increased sales volumes with existing customers due to increased demand for our products. Gross margin increased$1.8 million , or 60.0%, to$4.8 million during the nine-month period endedNovember 30, 2021 , from$3.0 million reported in the same period a year ago, primarily due to the increase in net revenues. Gross margin as a percentage of net revenues decreased to 46.3%, during the nine-month period endedNovember 30, 2021 , from 48.2% reported in the same period a year ago. The decrease in gross margin percentage results primarily from a change in our customer mix, as customers receive varying discounts due to sales volumes and contract terms, as well as changes in the mix of products sold betweenKane Miller andUsborne . Total operating expenses of the Publishing segment increased$0.6 million , or 50.0%, to$1.8 million during the nine-month period endedNovember 30, 2021 , from$1.2 million reported in the same period a year ago, resulting from a$0.3 million increase in postage and freight from an increase in sales volumes and a$0.3 million increase in sales commissions from an increase in sales volumes. Operating income of the Publishing segment increased$1.1 million , or 57.9%, to$3.0 million during the nine-month period endedNovember 30, 2021 when compared to$1.9 million reported in the same period a year ago, due primarily to the increase in gross margin.
Liquidity and Capital Resources
EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. We also use available cash to pay down outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.
During the first nine months of fiscal year 2022, we experienced cash outflows
from operations of
?net earnings of$7,982,900 Adjusted for:
?depreciation expense of
?share-based compensation expense of
?provision for inventory valuation allowance of
?provision for doubtful accounts of
Offset by:
?deferred income taxes of
Positively impacted by:
?increase in accounts payable of
?increase in income taxes payable of
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?increase in inventories, net of
?increase in accounts receivable of
?decrease in deferred revenues of
?decrease in accrued salaries and commissions, and other liabilities of
?increase in prepaid expenses and other assets of
Cash used in investing activities was$3,387,100 for capital expenditures, which were comprised of$2,901,600 in equipment purchased to increase our daily shipping capacity,$392,800 in software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders and$92,700 in other building and equipment improvements. Cash provided by financing activities was$9,858,700 , which was comprised of proceeds from term debt of$15,244,700 and net cash received in treasury stock transactions of$154,400 , offset by payments of$2,563,400 for dividends, repayment of borrowings on the line of credit of$2,225,900 , and payments on term debt of$751,100 . During fiscal year 2022, we continue to expect the cash generated from our operations and cash available through our line of credit with our Bank will provide us the liquidity we need to support ongoing operations. Cash generated from operations will be used to increase inventory by expanding our product offerings, to liquidate existing debt, and any excess cash is expected to be distributed to our shareholders. OnFebruary 15, 2021 , the Company executed the Amended and Restated Loan Agreement withMidFirst Bank which replaced the prior loan agreement and includes multiple loans. Term Loan #1 Tranche A ("Term Loan #1"), originally totaling$13.4 million , was part of the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23%, with principal and interest payable monthly and a stated maturity date ofDecember 1, 2025 . Term Loan #1 is secured by the primary office, warehouse and land. Term Loan #1 was amended onApril 1, 2021 by executing the First Amendment to the Loan Agreement which reduced the fixed interest rate to 3.12% and removed the prepayment premium from the Loan Agreement. The outstanding borrowings on Term Loan #1 were$10.5 million and$11.0 million as ofNovember 30, 2021 andFebruary 28, 2021 , respectively. In addition, the Amended and Restated Loan Agreement provides a$6.0 million Advancing Term Loan #1 to be used to finance planned equipment purchases. The Advancing Term Loan #1 required interest-only payments throughJuly 15, 2021 , at which time it was converted to a 60-month amortizing term loan maturingJuly 15, 2026 . The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company's Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. Our borrowings outstanding under the Advancing Term Loan #1 atNovember 30, 2021 were$5.0 million . The Amended and Restated Loan Agreement also provides a$20.0 million revolving loan ("line of credit") throughAugust 15, 2022 with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company's Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. OnJuly 16, 2021 , the Company executed the Second Amendment to the Loan Agreement which increased the Maximum Revolving Principal Amount from$15.0 million to$20.0 million . OnAugust 31, 2021 , the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Our borrowings outstanding on our line of credit atNovember 30, 2021 andFebruary 28, 2021 were$3.0 million and$5.2 million , respectively. Available credit under the revolving line of credit was approximately$17.0 million and$9.6 million atNovember 30, 2021 andFebruary 28, 2021 , respectively. OnNovember 19, 2021 , the Company executed the Fourth Amendment to the Loan Agreement which established Advancing Term Loan #2 in the principal amount of$10.0 million , amended the definition of LIBO Rate and LIBOR Margin and added Benchmark Replacement Provisions. The Advancing Term Loan #2 is a 120-month amortizing loan maturingNovember 19, 2031 and accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company's Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. Our borrowings outstanding under the Advancing Term Loan #2 atNovember 30, 2021 were$10.0 million . The Amended and Restated Loan Agreement also contains a provision for our use of the Bank's letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. As ofNovember 30, 2021 , we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, place limitations on additional debt with other banks, limit the amounts of dividends declared and limits the number of shares that can be repurchased using funding from the line of credit. 19
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The following table reflects aggregate future maturities of long-term debt during the next five fiscal years and thereafter as follows:
Years endingFebruary 28 (29), 2022$ 622,700 2023 2,541,800 2024 2,587,900 2025 2,634,700 2026 10,499,200 Thereafter 6,641,600 Total$ 25,527,900 Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, allowance for uncollectible accounts receivable, allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions. Revenue Recognition Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB shipping point. UBAM's sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail stores of our Publishing division. Those damages occur in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of$0.2 million as ofNovember 30, 2021 andFebruary 28, 2021 .
Allowance for Doubtful Accounts
We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns (collectively "allowance for doubtful accounts"). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers' financial conditions and current economic trends. Management has estimated and included an allowance for doubtful accounts of$0.3 million atNovember 30, 2021 , and$0.3 million atFebruary 28, 2021 . Inventory Our inventory contains over 2,000 titles, each with different sell through rates depending upon the nature and popularity of the title. We maintain very few titles that are topical in nature. As such, the majority of the titles we sell remain current in content for several years. Most of our products are printed inChina ,Europe ,Singapore ,India ,Malaysia andDubai resulting in a four- to six-month lead-time to have a title printed and delivered to us. 20
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Certain inventory is maintained in a noncurrent classification. Management continually estimates and calculates the amount of noncurrent inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to minimum order requirements of our suppliers. Noncurrent inventory was estimated by management using the current year turnover ratio by title. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were$2.2 million and$0.9 million atNovember 30, 2021 andFebruary 28, 2021 , respectively. Noncurrent inventory valuation allowances were$0.3 million and$0.2 million atNovember 30, 2021 andFebruary 28, 2021 , respectively. Our principal supplier, based inEngland , generally requires a minimum re-order of 6,500 or more of a title in order to get a solo print run. Smaller orders would require a shared print run with the supplier's other customers, which can result in lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis. These factors and historical analysis have led our management to determine that 2½ years represents a reasonable estimate of the normal operating cycle for our products. Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 6.5% of our active consultants have maintained consignment inventory at the end of the third quarter of fiscal 2022. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with consultants was$1.6 million and$1.1 million atNovember 30, 2021 andFebruary 28, 2021 , respectively. Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management's identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of$0.9 million and$0.7 million atNovember 30, 2021 andFebruary 28, 2021 , respectively. Share-Based Compensation We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares. The restricted share awards under the 2019 Long-Term Incentive Plan ("2019 LTI Plan") and 2022 Long-Term Incentive Plan ("2022 LTI Plan") contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.
During the first nine months of fiscal year 2022, the Company recognized
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