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):
July
10, 2008
FRANKLIN
COVEY CO.
(Exact
name of registrant as specified in its charter)
Commission
File No. 1-11107
|
Utah
(State
or other jurisdiction of incorporation)
|
87-0401551
(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))
[x] 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 July
10, 2008, Franklin Covey Co. (the Company) announced its financial results for
the fiscal quarter and three quarters ended May 31, 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
8.01 Other Events
On July
7, 2008, the Company announced that it will host a discussion for shareholders
and the financial community to review its financial results for the fiscal
quarter and three quarters ended May 31, 2008, the recent sale of the CSBU
assets, and to the extent applicable, the proposed self tender
offer. The discussion is scheduled to be held on Friday, July 11,
2008 at 11:00 a.m. Eastern Daylight time (9:00 a.m. Mountain Daylight
time).
Interested
persons can participate by calling 1-888-396-2356, access code: 88095150 and by
logging on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=102601&eventID=1895357.
Tender
Offer Statement
This
communication is for informational purposes only and is not an offer to buy, or
the solicitation of an offer to sell, any shares. The full details of any tender
offer, including complete instructions on how to tender shares, will be included
in the offer to purchase, the letter of transmittal and related materials, which
would be mailed to shareholders promptly following commencement of the offer.
Shareholders should read carefully the offer to purchase, the letter of
transmittal and other related materials when they are available because they
will contain important information. Shareholders may obtain free copies, when
available, of the offer to purchase and other related materials that will be
filed by Franklin Covey Co. with the Securities and Exchange Commission at the
Commission’s website at www.sec.gov. When available,
shareholders also may obtain a copy of these documents, free of charge, from the
Company’s information agent to be appointed in connection with the
offer.
Item
9.01 Financial Statements and Exhibits
|
(d)
|
Exhibits
|
|
99.1
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Earnings release dated July 10, 2008
|
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.
|
FRANKLIN
COVEY CO.
|
||||
|
Date:
|
July 10, 2008
|
By:
|
/s/ Stephen D. Young | |
|
Stephen D. Young
Chief Financial Officer
|
||||
Exhibit 99.1
News
Bulletin
2200 West Parkway
Boulevard
Salt Lake City,
Utah 84119-2331
www.franklincovey.com
FRANKLINCOVEY
ANNOUNCES
THIRD
QUARTER OPERATING RESULTS
Salt Lake City, Utah – July
10, 2008 – Franklin Covey Co. (NYSE: FC) today announced
financial results for its third quarter and first three quarters of fiscal
2008. The Company’s third fiscal quarter, which includes the months
of March, April, and May, has historically reflected stronger training and
consulting sales, but seasonally weaker product sales when compared to the first
two quarters of the Company’s fiscal year. For the quarter ended May
31, 2008, the Company reported a consolidated loss from operations totaling $0.9
million compared to $2.4 million of operating income reported in the third
quarter of fiscal 2007. Net income available to common shareholders
also decreased to a $1.5 million loss ($0.09 loss per common share) for the
quarter ended May 31, 2008, compared to $0.5 million of net income ($0.03
diluted earnings per common share after preferred stock dividends) for the
quarter ended June 2, 2007.
For the
three quarters ended May 31, 2008, the Company reported income from operations
totaling $11.0 million compared to $15.5 million for the first three quarters of
the prior year. The results of the prior year included a $1.2 million
gain from the sale of a manufacturing facility. Without the benefit
of this gain, the Company’s income from operations would have totaled $14.3
million for the first three quarters of fiscal 2007. Net income
available to common shareholders decreased to $3.6 million ($0.18 diluted
earnings per common share) compared to $4.8 million ($0.24 diluted earnings per
common share after preferred stock dividends). The following is a
description of the significant factors that affected the Company’s reported
financial results for the quarter and three quarters ended May 31,
2008.
Quarter Ended May 31,
2008
The
Company’s financial results for the quarter ended May 31, 2008 were primarily
attributable to the following factors: 1) consolidated sales declined $5.4
million, which was the result of a $5.7 million decrease in product sales, which
are primarily sold through the Company’s Consumer Solutions Business Unit
(CSBU), that was partially offset by a slight increase in training and
consulting services sales, which are primarily sold through the Organizational
Solutions Business Unit (OSBU); 2) gross margin, which is gross profit stated in
terms of a percentage of sales, decreased slightly to 60.5 percent of sales
compared to 61.4 percent in the prior year; 3) total operating expenses
decreased by $0.6 million, which was the result of a $1.1 million decrease in
selling, general, and administrative expenses that was partially offset by
increased depreciation expense; 4) net interest expense decreased by $0.1
million due to reduced line of credit borrowings and lower interest rates; and
5) a $0.3 million decrease in preferred dividends due to the redemption of all
outstanding preferred stock during the third quarter of fiscal
2007.
Further
details about these factors and other information regarding the Company’s
financial performance during the quarter ended May 31, 2008 are presented
below.
Sales –
Consolidated sales decreased to $59.1 million compared to $64.5 million
during the third quarter of fiscal 2007. The decline was primarily
due to decreased product sales, which were partially offset by increased
training and consulting service sales. Training and consulting
service sales, which are primarily sold through OSBU channels, increased by $0.2
million compared to the prior year. The
Company’s
training and consulting service sales were significantly impacted by the sales
and transitions of the offices in Brazil and Mexico to licensees, which
decreased sales by $1.3 million compared to the prior year. Following
the sale of these operations during fiscal 2007, the Company now receives
royalty revenue from their operations based upon gross
sales. However, the impact of decreased sales was offset by
improvments in operating income from these entities during the
quarter. On a comparable basis, which excludes the impact of Brazil
and Mexico direct office sales in fiscal 2007, the Company’s consolidated
training and consulting sales increased by 5 percent when compared to fiscal
2007. Domestic OSBU sales were flat when compared to the prior year
as increased sales from 5 of 7 direct sales offices and certain specialized
events were offset by decreased sales in 2 direct offices, the sales performance
group, public programs, and media channels. The relatively flat
domestic OSBU sales performance during the quarter was reflective of the
non-repeating successful launch of the Company’s new leadership offering during
the second quarter of fiscal 2007, which also had a favorable initial impact on
domestic training and consulting sales during the third quarter of fiscal
2007. International sales decreased $0.3 million compared to the same
quarter of fiscal 2007, primarily as a result of the elimination of sales from
the Company’s wholly owned offices in Brazil and Mexico. Sales
increased 11 percent over the prior year at the Company’s directly owned
international offices and from foreign licensee royalty revenues. The
translation of foreign sales to United States dollars resulted in a $1.1 million
favorable impact to consolidated sales as foreign currencies strengthened
against the United States dollar during the quarter ended May 31,
2008.
The
Company’s CSBU sales were impacted by a $2.1 million decrease in retail store
sales, a $1.9 million decrease in wholesale sales, and a $0.9 million decrease
in consumer direct sales. Retail sales declined, reflecting reduced
traffic, which was partially due to 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. As a result of these factors, comparable store sales
declined 10 percent compared to the third 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 the Company’s wholesale business to a new
distributor.
Gross Profit –
Due to decreased sales, the Company’s consolidated gross profit decreased
to $35.8 million compared to $39.6 million in the third quarter of the prior
year. Consolidated gross margin, which is gross profit stated in
terms of a percentage of sales, decreased slightly to 60.5 percent of sales for
the quarter ended May 31, 2008, compared to 61.4 percent during fiscal
2007. The decline in gross margin was primarily due to increased
amortization of capitalized development costs and increased sales of low-margin
specialized seminar events.
Operating
Expenses – Consolidated selling, general, and administrative (SG&A)
expenses decreased $1.1 million, or 3 percent, compared to the prior
year. The decrease in SG&A expenses was primarily due to 1) the
sales and conversions of the Brazil and Mexico sales offices to licensees, which
reduced SG&A expenses by $1.0 million; 2) a $0.7 million decrease in
share-based compensation expense that was primarily due to the determination
that no shares will be awarded under the fiscal 2007 long-term incentive plan
and the corresponding reversal of accumulated share-based compensation expense
related to that plan; and 3) decreased rent and utility expenses totaling $0.7
million that were primarily attributable to a $0.4 million lease buyout received
from a tenant, the receipt of a $0.2 million contingent refund of telephone
expenses from a vendor based on usage through a contracted period, and an
overall reduction in rent, utilities, and related expenses resulting from the
closure of retail stores. These decreases in operating costs were
partially offset by a $0.6 million increase in retail store closure costs, a
$0.3 million increase in public programs promotional spending, and smaller
increases in various other areas of the Company’s operations.
Consolidated
depreciation expense increased $0.4 million, primarily due to the acceleration
of depreciation on a software module resulting from a revision in the estimated
useful life of the software. Amortization expense on definite-lived
intangible assets did not differ appreciably from prior year financial
results.
Three Quarters Ended May 31,
2008
Sales –
The Company’s consolidated sales decreased to $207.8 million compared to
$216.9 million during the first three quarters of fiscal
2007. Although sales through the OSBU have increased $1.9 million
over the prior year, the increase was not enough to offset an $11.0 million
decrease in CSBU sales. Domestic OSBU sales performance was flat
compared to the prior year, primarily due to lower sales from public programs,
the sales performance group, and book and audio divisions. Decreased
sales from these groups were partially offset by increased sales from the
combined geographical and vertical market sales offices and by increased sales
from specialized seminar events. International sales continued to
strengthen and increased $1.9 million compared to the prior
year. Combined sales from the Company’s remaining directly owned
foreign offices, as well as from licensee royalty revenues, increased $6.0
million, or 17 percent, compared to the prior year. Partially
offsetting these increases was the elimination of sales from the Company’s
wholly owned subsidiary in Brazil and training operations located in
Mexico. The conversion of these operations to licensees had a $3.6
million unfavorable impact on international sales but improved the Company’s
income from these operations compared to the prior year. The
translation of foreign sales to United States dollars had a $3.0 million
favorable impact on the Company’s consolidated sales as foreign currencies
strengthened against the United States dollar during the three quarters ended
May 31, 2008.
Sales
through the CSBU channels declined $11.0 million primarily due to a $4.7 million
decrease in retail store sales, a $3.3 million decrease in consumer direct
sales, and a $2.8 million decrease in wholesale sales. Retail sales
declined, reflecting reduced traffic, which was partially due to 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 5 percent decline in comparable store sales compared to
the first three quarters of fiscal 2007. Consumer direct sales
declined primarily due to decreased traffic through these channels and sales
through the Company’s wholesale channel decreased primarily due to the
transition of a portion of the wholesale business to a new
distributor. The Company believes that the product sales declines
during fiscal 2008 were exacerbated by deteriorating economic conditions in the
United States, which generally reduced consumer spending during the 2007 holiday
season.
Gross Profit
– The Company’s consolidated gross profit decreased to $128.4 million
compared to $133.2 million in fiscal 2007. The decrease in gross
profit was primarily attributable to declining product sales in fiscal 2008
compared to the prior year. The Company’s consolidated gross margin
improved slightly to 61.8 percent of sales compared to 61.4 percent in the first
three 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 product
sales, as a percent of total sales. Training and consulting service
sales increased to 49 percent of total sales for the three quarters ended May
31, 2008 compared to 45 percent in the prior year.
Operating
Expenses – The Company’s operating expenses decreased $1.6 million
(excluding the gain on the sale of a manufacturing facility in the second
quarter of fiscal 2007) compared to the first three quarters of fiscal 2007
primarily due to decreased SG&A expenses. The $2.2 million
decrease in SG&A expenses was primarily due to 1) the fiscal 2007 sale of
the Company’s subsidiary in Brazil and the training and consulting operations in
Mexico, which reduced SG&A expenses by $2.9 million; 2) a $1.8 million
decrease in share-based compensation primarily due to the determination that no
shares will be awarded under the fiscal 2006 or fiscal 2007 long-term incentive
plans and the corresponding reversal of share-based compensation expense from
those plans; and 3) a $0.5 million decrease in audit and related consulting
costs primarily resulting from improved processes and procedures combined with
revised internal control testing standards. These decreases were
partially offset by 1) a $1.3 million increase in OSBU promotional costs; 2) a
$0.6 million increase in retail store closure costs that were primarily incurred
in connection with the buyout of two leases; and 3) smaller increases in
SG&A spending in various other areas of the Company’s
operations.
Consolidated
depreciation expense increased to $4.0 million compared to $3.5 million for the
first three quarters of fiscal 2007. The increase in depreciation
expense in fiscal 2008 was primarily due to
the
acceleration of depreciation on a payroll software module that had a revision to
its estimated useful life, and an impairment charge for software that did not
function as anticipated and was written off. Total amortization
expense was consistent with prior year financial results and did not differ
appreciably.
Interest Expense
– Net interest expense increased $0.8 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.
Income Taxes –
The Company’s income tax provision for the three quarters ended May 31,
2008 totaled $5.1 million compared to $6.9 million for the same period of fiscal
2007. The decrease in the Company’s income tax provision was
primarily due to reduced pre-tax income compared to the prior
year. The effective tax rate for the three quarters ended May 31,
2008 of approximately 58 percent was higher than statutory combined rates
primarily due to the accrual of taxable interest income on the management stock
loan program and withholding taxes on royalty income from foreign
licensees.
Other
Matters
Completion
of the Sale of Consumer Solutions Business Unit Assets
On July
7, 2008, the Company announced that it completed its previously announced sale
of substantially all of the assets of its CSBU to Franklin Covey Products,
LLC. Franklin Covey Products, LLC, which is controlled by Peterson
Partners, a private equity firm, purchased the CSBU assets for $32.0 million in
cash subject to adjustments for net working capital. The Company
invested approximately $1.8 million to purchase a 19.5 percent voting interest
in the new company and made a $1.0 million preferred capital contribution with a
10 percent priority return. The Company also has the opportunity to
earn contingent license fees if Franklin Covey Products, LLC achieves certain
performance objectives.
Investor
Webinar
On July
7, 2008, the Company also announced that it will host a discussion for
shareholders and the financial community to review its financial results for the
fiscal quarter and three quarters ended May 31, 2008, the recent sale of the
CSBU assets, and to the extent applicable, the proposed self tender
offer. The discussion is scheduled to be held on Friday, July 11,
2008 at 11:00 a.m. Eastern Daylight time (9:00 a.m. Mountain Daylight
time).
Interested
persons can participate by calling 1-888-396-2356, access code: 88095150 and by
logging on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=102601&eventID=1895357.
Tender
Offer Statement
This
communication is for informational purposes only and is not an offer to buy, or
the solicitation of an offer to sell, any shares. The full details of any tender
offer, including complete instructions on how to tender shares, will be included
in the offer to purchase, the letter of transmittal and related materials, which
will be mailed to shareholders promptly following commencement of the offer.
Shareholders should read carefully the offer to purchase, the letter of
transmittal and other related materials when they are available because they
will contain important information. Shareholders may obtain free copies, when
available, of the offer to purchase and other related materials that will be
filed by Franklin Covey Co. with the Securities and Exchange Commission at the
Commission’s website
at www.sec.gov.
When available, shareholders also may obtain a copy of these documents, free of
charge, from the Company’s information agent to be appointed in connection with
the offer.
About
FranklinCovey
FranklinCovey
(NYSE: FC) is the global consulting and training leader in the areas of strategy
execution, customer loyalty, leadership, and individual
effectiveness. 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.
FranklinCovey (www.franklincovey.com)
has 46 direct and licensee offices providing professional services in 147
countries.
|
Investor
Contact:
FranklinCovey
Steve
Young
801-817-1776
Steve.Young@franklincovey.com
|
Media
Contact:
FranklinCovey
Debra
Lund
801-817-6440
Debra.Lund@franklincovey.com
|
|
FRANKLIN COVEY CO.
|
||||||||||||||||
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CONDENSED CONSOLIDATED INCOME
STATEMENTS
|
||||||||||||||||
|
(
in thousands, except per share amounts )
|
||||||||||||||||
|
Quarter
Ended
|
Three
Quarters Ended
|
|||||||||||||||
|
May
31,
|
June
2,
|
May
31,
|
June
2,
|
|||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
|
Net
sales
|
$ | 59,061 | $ | 64,509 | $ | 207,763 | $ | 216,914 | ||||||||
|
Cost
of sales
|
23,304 | 24,873 | 79,372 | 83,691 | ||||||||||||
|
Gross
profit
|
35,757 | 39,636 | 128,391 | 133,223 | ||||||||||||
|
Selling,
general, and administrative
|
34,210 | 35,287 | 110,634 | 112,803 | ||||||||||||
|
Gain
on sale of manufacturing facility
|
- | - | - | (1,227 | ) | |||||||||||
|
Depreciation
|
1,497 | 1,060 | 4,044 | 3,463 | ||||||||||||
|
Amortization
|
902 | 906 | 2,702 | 2,708 | ||||||||||||
|
Income
(loss) from operations
|
(852 | ) | 2,383 | 11,011 | 15,476 | |||||||||||
|
Interest
expense, net
|
(670 | ) | (743 | ) | (2,318 | ) | (1,521 | ) | ||||||||
|
Income
(loss) before income taxes
|
(1,522 | ) | 1,640 | 8,693 | 13,955 | |||||||||||
|
Income
tax benefit (provision)
|
11 | (753 | ) | (5,063 | ) | (6,939 | ) | |||||||||
|
Net
income (loss)
|
(1,511 | ) | 887 | 3,630 | 7,016 | |||||||||||
|
Preferred
stock dividends
|
- | (348 | ) | - | (2,215 | ) | ||||||||||
|
Net
income (loss) available to common shareholders
|
$ | (1,511 | ) | $ | 539 | $ | 3,630 | $ | 4,801 | |||||||
|
Net
income (loss) per share available to common shareholders:
|
||||||||||||||||
|
Basic
|
$ | (0.09 | ) | $ | 0.03 | $ | 0.19 | $ | 0.24 | |||||||
|
Diluted
|
$ | (0.09 | ) | $ | 0.03 | $ | 0.18 | $ | 0.24 | |||||||
|
Weighted
average common shares:
|
||||||||||||||||
|
Basic
|
16,132 | 19,412 | 19,542 | 19,637 | ||||||||||||
|
Diluted
|
16,132 | 19,738 | 19,815 | 19,933 | ||||||||||||
|
Sales
Detail by Category:
|
||||||||||||||||
|
Products
|
$ | 25,197 | $ | 30,857 | $ | 105,872 | $ | 118,248 | ||||||||
|
Training
and consulting services
|
33,864 | 33,652 | 101,891 | 98,666 | ||||||||||||
|
Total
|
$ | 59,061 | $ | 64,509 | $ | 207,763 | $ | 216,914 | ||||||||
|
Sales
Detail by Business Unit:
|
||||||||||||||||
|
Retail
Stores
|
$ | 7,896 | $ | 10,010 | $ | 38,659 | $ | 43,402 | ||||||||
|
Catalog
/ e-commerce
|
6,949 | 7,890 | 35,335 | 38,674 | ||||||||||||
|
Wholesale
|
5,046 | 6,901 | 12,227 | 15,059 | ||||||||||||
|
CSBU
International
|
1,119 | 1,125 | 6,692 | 6,153 | ||||||||||||
|
Other
|
1,280 | 1,523 | 3,721 | 4,360 | ||||||||||||
|
Total
Consumer Solutions Business Unit
|
22,290 | 27,449 | 96,634 | 107,648 | ||||||||||||
|
Domestic
|
23,111 | 23,143 | 66,436 | 66,432 | ||||||||||||
|
International
|
13,660 | 13,917 | 44,693 | 42,834 | ||||||||||||
|
Total
Organizational Solutions Business Unit
|
36,771 | 37,060 | 111,129 | 109,266 | ||||||||||||
|
Total
|
$ | 59,061 | $ | 64,509 | $ | 207,763 | $ | 216,914 | ||||||||