UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported):
April
10, 2008
FRANKLIN
COVEY CO.
(Exact
name of registrant as specified in its charter)
Commission
File No. 1-11107
|
Utah
|
87-0401551
|
|
|
(State
or other jurisdiction of incorporation)
|
(IRS
Employer Identification Number)
|
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (801) 817-1776
Former
name or former address, if changed since last report: Not Applicable
______________________
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))
[
] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))
Item
2.02 Results of Operations and Financial Condition
On April
10, 2008, Franklin Covey Co. (the Company) announced its financial results for
the fiscal quarter and two quarters ended March 1, 2008. A copy of
the earnings release is being furnished as exhibit 99.1 to this current report
on Form 8-K.
Certain
information in this Report (including the exhibit) is furnished pursuant to Item
2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise
subject to the liabilities of that section, nor shall it be deemed incorporated
by reference in any filing made by the Company under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such a filing.
Item
9.01 Financial Statements and Exhibits
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(d)
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Exhibits
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99.1 Earnings release dated January 10,
2008
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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FRANKLIN
COVEY CO.
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||||
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Date:
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April 10, 2008
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By:
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/s/ Stephen D.
Young
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Stephen D.
Young
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||||
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Chief Financial
Officer
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||||
Exhibit
99.1
News
Bulletin
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2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
www.franklincovey.com
|
FRANKLINCOVEY
ANNOUNCES
SECOND
QUARTER OPERATING RESULTS
Salt Lake City, Utah – April
10, 2008 – Franklin Covey Co. (NYSE: FC) today announced
financial results for its second quarter and first two quarters of fiscal
2008. For the quarter ended March 1, 2008, the Company reported
consolidated income from operations totaling $6.8 million compared to $9.5
million of operating income reported in the second quarter of fiscal
2007. Income from operations in the second quarter of fiscal 2007
included a $1.2 million gain from the sale of a manufacturing facility that did
not repeat in the March 1, 2008 financial results. Net income
available to common shareholders decreased to $3.1 million ($0.16 diluted
earnings per common share) for the quarter ended March 1, 2008, compared to $3.8
million ($0.19 diluted earnings per common share after preferred stock
dividends) for the quarter ended March 3, 2007.
For the
two quarters ended March 1, 2008, the Company reported income from operations
totaling $11.9 million compared to $13.1 million for the first two quarters of
the prior year. Without the benefit from a $1.2 million gain from the
sale of a manufacturing facility in fiscal 2007, the Company’s income from
operations was essentially flat compared to the prior year. Due to
the fiscal 2007 redemption of all remaining preferred stock, income available to
common shareholders increased to $5.1 million in fiscal 2008 ($0.26 diluted
earnings per common share) compared to $4.3 million ($0.21 diluted earnings per
common share after preferred stock dividends) in the prior year. The
following is a description of the significant factors that affected the
Company’s reported financial results for the quarter and two quarters ended
March 1, 2008.
Quarter Ended March 1,
2008
The
Company’s financial results for the quarter ended March 1, 2008 were primarily
attributable to the following factors: 1) Sales through the Company’s
Organizational Solutions Business Unit (OSBU) continued to improve and increased
$1.6 million compared to the prior year. However, increased OSBU
sales were offset by a $3.3 million decrease in Consumer Solutions Business Unit
(CSBU) sales, which resulted in a net decrease in consolidated sales compared to
the second quarter of fiscal 2007; 2) gross margin, which is gross profit stated
in terms of a percentage of sales, improved to 62.1 percent of sales compared to
61.4 percent in the prior year; 3) total operating expenses increased by $1.0
million, which was the result of increased selling, general, and administrative
expenses; 4) net interest expense increased by $0.4 million due to line of
credit borrowings resulting primarily from the redemption of all remaining
preferred stock in fiscal 2007; and 5) a $0.9 million decrease in preferred
dividends.
Further
details about these factors and other information regarding the Company’s
financial performance during the quarter ended March 1, 2008 are presented
below.
Sales –
Consolidated sales decreased to $75.1 million compared to $76.9 million
during the second quarter of fiscal 2007. Although sales through the
OSBU, which primarily consist of training and consulting services sales,
continue to strengthen and improved $1.6 million over the prior year, the
increase was insufficient to offset a $3.3 million decrease in CSBU sales, which
consist primarily of product sales.
1
Increased
OSBU sales during the quarter continued the favorable trend of improving
training sales that began in prior fiscal years and was driven by strong
international sales performance during the quarter. Domestic sales
performance at the Company’s regional and vertical sales offices continued to be
strong during the quarter, but was offset by decreased sales performance group
revenues and lower book royalties, which resulted in a $0.2 million net decline
in total domestic sales. The domestic sales performance during the
quarter was also reflective of the successful launch of the Company’s new
leadership offering during the second quarter of fiscal 2007, which had a
significant impact on domestic training and consulting sales during that
period. International sales increased $1.7 million due to improved
sales performance at all of the Company’s directly owned foreign offices and
from foreign licensees as well as the translation of foreign sales amounts into
United States dollars. Due to foreign currencies strengthening
against the United States dollar during the quarter, the translation of foreign
sales had a $1.0 million favorable impact on reported international
sales. Partially offsetting the increase in total international sales
were the fiscal 2007 sales and conversions of the Company’s wholly owned
subsidiary in Brazil and training operations in Mexico to licensee
operations. The Company now receives royalties from these operations
consistent with other licensees, which resulted in a $1.0 million net
unfavorable impact on reported sales. Although the conversion of
these offices reduced the Company’s reported sales, the transition to licensees
increased operating income from Brazil and Mexico compared to the prior
year.
Sales
through our CSBU channels declined, reflecting a $1.6 million decrease in retail
store sales, a $1.0 million decrease in consumer direct sales, and a $0.7
million decrease in wholesale sales. Retail sales declined primarily
due to the effects of reduced traffic, a significant increase in the number of
wholesale outlets that sell the Company’s products and compete directly against
Company-owned retail stores, the elimination of low-margin technology sales, and
closed stores. Comparable store sales declined 6 percent compared to
the second quarter of fiscal 2007. Consumer direct sales declined
primarily due to decreased traffic through these channels, which includes
eCommerce and the Company’s call center. Sales through the Company’s
wholesale channel, which includes sales to office superstores and other retail
chains, decreased primarily due to the transition of a portion of our wholesale
business to a new distributor. The Company anticipates that wholesale
sales will strengthen during the last two quarters of fiscal 2008 as the
transition to the new distributor is completed. The Company also
believes that the product sales declines in the quarter ended March 1, 2008 were
worsened by deteriorating economic conditions in the United States, which
reduced consumer spending during the 2007 holiday season.
Gross Profit –
Due to decreased sales, the Company’s consolidated gross profit decreased
to $46.7 million compared to $47.2 million in the second quarter of the prior
year. The impact of decreased sales was partially offset by improved
margins, which resulted from increased training sales as a percent of total
sales, since training and consulting sales generally have higher overall gross
margins than product sales. Consolidated gross margin, which is gross
profit stated in terms of a percentage of sales, for the quarter ended March 1,
2008 was 62.1 percent compared to 61.4 percent during the prior
year.
Operating
Expenses – Consolidated selling, general, and administrative (SG&A)
expenses increased $1.0 million, or 3 percent, compared to the prior year
(excluding the gain on the sale of a manufacturing facility in the second
quarter of fiscal 2007). The increase in SG&A expenses was
primarily due to 1) increased compensation costs that were primarily generated
by additional OSBU sales personnel; 2) increased promotional costs resulting
from a change in the timing of catalog mailings and our overall catalog
strategy, which concentrated a greater amount of catalog costs in the second
quarter of fiscal 2008; 3) increased bad debt expense resulting primarily from
the prior year adjustment of our bad debt reserve, which produced a benefit in
fiscal 2007 that did not occur in fiscal 2008; and 4) increased legal fees
incurred primarily for ongoing litigation. These increased operating
costs were partially offset by the sale of the Company’s subsidiary in Brazil
and the training and consulting operations of our subsidiary in Mexico and by
reduced SG&A costs in various other areas of the Company’s
operations. The conversion of the Brazil and Mexico operations to
licensees reduced consolidated SG&A expenses by $0.8 million compared to the
prior year.
Depreciation
and amortization expense did not differ appreciably from prior year financial
results.
2
Interest Expense
– Net interest expense increased $0.4 million primarily due to line of
credit borrowings resulting from the redemption of all remaining shares of
preferred stock during the third quarter of fiscal 2007. The
Company’s line of credit borrowings declined to $4.3 million at March 1, 2008
compared to $16.0 million at August 31, 2007.
Two Quarters Ended March 1,
2008
Sales –
The Company’s consolidated sales decreased to $148.7 million compared to
$152.4 million during the first two quarters of fiscal 2007. Although
sales through the OSBU have continued to improve during fiscal 2008 and have
increased $2.2 million over the prior year, the increase was not enough to
offset a $5.9 million decrease in CSBU sales. Domestic OSBU sales
performance was flat compared to the prior year and was primarily the result of
increased sales from the Company’s regional and vertical sales offices which
were offset by decreased sales performance group revenues. The
domestic sales performance compared to the prior year was also affected by the
successful launch of the Company’s new leadership offering during the second
quarter of fiscal 2007, which had a favorable impact on domestic training and
consulting sales during that period. International sales increased
$2.1 million due to improved sales performance at our directly owned foreign
offices and from foreign licensees as well as the translation of foreign sales
amounts into United States dollars. Due to foreign currencies
strengthening against the United States dollar during the quarter, the
translation of foreign sales had a $1.9 million favorable impact on reported
international sales. Partially offsetting the increase in total
international sales was the fiscal 2007 sales and conversions of the Company’s
wholly owned subsidiary in Brazil and training operations in Mexico to licensee
operations. The Company now receives royalties from these operations
consistent with other licensees, which resulted in a $2.3 million net difference
in reported sales compared to reported royalties. Excluding the
impact of the conversion of the Brazil and Mexico offices, comparable sales from
our wholly owned subsidiaries and licensees increased 17 percent compared to the
prior year.
Sales
through the Company’s CSBU channels declined $5.9 million primarily due to a
$2.6 million decrease in retail store sales, a $2.4 million decrease in consumer
direct sales, and a $1.0 million decrease in wholesale sales. Retail
sales declined as a result of the effects of reduced traffic, a significant
increase in the number of wholesale outlets that sell the Company’s products and
compete directly against Company-owned retail stores, the elimination of
low-margin technology sales, and closed stores. These factors
combined to produce a 7 percent decline in comparable store sales compared to
the first two quarters of fiscal 2007. Consumer direct sales declined
primarily due to decreased traffic through these channels, which includes
eCommerce and the Company’s call center. Sales through the Company’s
wholesale channel decreased primarily due to the transition of a portion of our
wholesale business to a new distributor. The Company also believes
that the product sales declines during fiscal 2008 were worsened by
deteriorating economic conditions in the United States, which reduced consumer
spending during the 2007 holiday season.
Gross Profit
– The Company’s consolidated gross profit decreased to $92.6 million
compared to $93.6 million in fiscal 2007. The decrease was primarily
attributable to declining product sales during fiscal 2008 compared to the prior
year. Our consolidated gross margin improved to 62.3 percent of sales
compared to 61.4 percent in the first two quarters of fiscal
2007. The slight increase in gross margin percentage was primarily
attributable to the continuing shift toward increased training and consulting
sales, which generally have higher margins than our product
sales. Training and consulting service sales increased to 46 percent
of total sales for the two quarters ended March 1, 2008 compared to 43 percent
in the prior year.
Operating
Expenses – The Company’s operating expenses decreased $0.9 million
compared to the first two quarters of fiscal 2007 primarily due to decreased
SG&A expenses (excluding the gain on the sale of a manufacturing facility in
the second quarter of fiscal 2007). The decrease in SG&A expenses
was primarily due to 1) the fiscal 2007 sales of our subsidiary in Brazil and
the training and consulting operations of our subsidiary in Mexico; 2) decreased
share-based compensation expense primarily resulting from the determination that
no shares will be awarded under a long-term incentive plan grant from fiscal
2006 and the corresponding reversal of share-based compensation expense; and 3)
decreased audit and related consulting costs primarily resulting from improved
processes and procedures combined with revised internal
3
control
testing standards. These decreases were partially offset by increased
compensation expenses for additional OSBU sales personnel, increased legal
expenses for ongoing litigation, and increases in various other areas of the
Company’s operations.
Depreciation
and amortization expense were consistent with prior year financial results and
did not differ appreciably.
Interest Expense
– Net interest expense increased $0.9 million primarily due to line of
credit borrowings resulting from the redemption of all remaining shares of
preferred stock during the third quarter of fiscal 2007.
About
FranklinCovey
FranklinCovey
is a global leader in effectiveness training, productivity tools, and assessment
services for organizations and individuals. FranklinCovey helps companies
succeed by unleashing the power of their workforce to focus and execute on top
business priorities. Clients include 90 percent of the Fortune 100,
more than 75 percent of the Fortune 500, thousands of small and mid-sized
businesses, as well as numerous government entities and educational
institutions. Organizations and individuals access FranklinCovey products and
services through corporate training, licensed client facilitators, one-on-one
coaching, public workshops, catalogs, more than 75 retail stores, and www.franklincovey.com.
FranklinCovey has nearly 1,500 associates providing professional services and
products in 39 offices and in 95 countries.
|
Investor
Contact:
FranklinCovey
Steve
Young
801-817-1776
Steve.Young@franklincovey.com
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Media
Contact:
FranklinCovey
Debra
Lund
801-817-6440
Debra.Lund@franklincovey.com
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4
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FRANKLIN COVEY CO.
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CONDENSED CONSOLIDATED INCOME
STATEMENTS
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||||||||||||||||
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(
in thousands, except per share amounts )
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||||||||||||||||
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Quarter
Ended
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Two
Quarters Ended
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|||||||||||||||
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March
1,
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March
3,
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March
1,
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March
3,
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|||||||||||||
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2008
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2007
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2008
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2007
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|||||||||||||
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(unaudited)
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(unaudited) |
(unaudited)
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(unaudited) | |||||||||||||
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Net
sales
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$ | 75,127 | $ | 76,876 | $ | 148,702 | $ | 152,405 | ||||||||
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Cost
of sales
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28,439 | 29,687 | 56,068 | 58,819 | ||||||||||||
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Gross
profit
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46,688 | 47,189 | 92,634 | 93,586 | ||||||||||||
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Selling,
general, and administrative
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37,652 | 36,666 | 76,424 | 77,514 | ||||||||||||
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Gain
on sale of manufacturing facility
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- | (1,227 | ) | - | (1,227 | ) | ||||||||||
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Depreciation
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1,350 | 1,366 | 2,547 | 2,403 | ||||||||||||
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Amortization
|
901 | 900 | 1,800 | 1,802 | ||||||||||||
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Income
from operations
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6,785 | 9,484 | 11,863 | 13,094 | ||||||||||||
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Interest
expense, net
|
(746 | ) | (318 | ) | (1,648 | ) | (779 | ) | ||||||||
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Income
before income taxes
|
6,039 | 9,166 | 10,215 | 12,315 | ||||||||||||
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Income
tax provision
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2,957 | 4,452 | 5,074 | 6,186 | ||||||||||||
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Net
income
|
3,082 | 4,714 | 5,141 | 6,129 | ||||||||||||
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Preferred
stock dividends
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- | (934 | ) | - | (1,867 | ) | ||||||||||
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Net
income available to common shareholders
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$ | 3,082 | $ | 3,780 | $ | 5,141 | $ | 4,262 | ||||||||
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Net
income per share available to common shareholders
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||||||||||||||||
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Basic
|
$ | 0.16 | $ | 0.19 | $ | 0.26 | $ | 0.22 | ||||||||
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Diluted
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$ | 0.16 | $ | 0.19 | $ | 0.26 | $ | 0.21 | ||||||||
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Weighted
average common shares - Diluted
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||||||||||||||||
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Basic
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19,510 | 19,589 | 19,495 | 19,750 | ||||||||||||
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Diluted
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19,804 | 19,870 | 19,782 | 20,031 | ||||||||||||
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Sales
Detail:
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||||||||||||||||
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Retail
Stores
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$ | 17,628 | $ | 19,265 | $ | 30,762 | $ | 33,392 | ||||||||
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Catalog
/ e-commerce
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13,574 | 14,574 | 28,386 | 30,784 | ||||||||||||
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Wholesale
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2,921 | 3,581 | 7,181 | 8,158 | ||||||||||||
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CSBU
International
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2,902 | 2,643 | 5,574 | 5,029 | ||||||||||||
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Other
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1,276 | 1,565 | 2,441 | 2,837 | ||||||||||||
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Total
Consumer Solutions Business Unit
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38,301 | 41,628 | 74,344 | 80,200 | ||||||||||||
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Domestic
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21,662 | 21,819 | 43,325 | 43,288 | ||||||||||||
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International
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15,164 | 13,429 | 31,033 | 28,917 | ||||||||||||
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Total
Organizational Solutions Business Unit
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36,826 | 35,248 | 74,358 | 72,205 | ||||||||||||
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Total
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$ | 75,127 | $ | 76,876 | $ | 148,702 | $ | 152,405 | ||||||||
5