EX-99.2 10 ex992_071108.htm EXHIBIT 99.2 7-11-08 PRO FORMA ex992_071108.htm
 
 
Exhibit 99.2
 
 
UNAUDITED PRO FORMA FINANCIAL DATA


On May 22, 2008, Franklin Covey Co. (the Company) announced that it would join with Peterson Partners to create a new limited liability company, Franklin Covey Products, LLC (Franklin Covey Products), to pursue the strategic objective of expanding the sales of Franklin Covey branded consumer products throughout the world.  In connection with the creation of Franklin Covey Products, on May 22, 2008, the Company entered into a definitive agreement to sell substantially all of the assets of its Consumer Solutions Business Unit (CSBU) to Franklin Covey Products (the Sale Agreement).  On July 7, 2008, the sale of the CSBU assets was closed (the Closing Date).  The sale price was $32.0 million in cash plus adjustments for working capital on the Closing Date.  In addition, certain costs incurred in the completion of the sale transaction will be reimbursed to the Company by Franklin Covey Products.

Pursuant to the terms of the Sale Agreement, the Company contributed (i) approximately $1.8 million on the Closing Date as consideration for a 19.5 percent voting interest in Franklin Covey Products, plus (ii) made a $1.0 million capital contribution with a 10 percent priority return that provides no additional ownership or voting rights.  The remaining interest in Franklin Covey Products is primarily held by Peterson Partners V, L.P., an affiliate of Peterson Partners, Inc., a Salt Lake City, Utah based investment firm that specializes in small- to mid-size companies.  Certain Franklin Covey Products management personnel were granted ownership shares that do not have voting rights, but may subsequently dilute the Company’s equity interest in Franklin Covey Products to approximately 15.6 percent if the ownership shares fully vest.  Due to the structure of the new entity and the remaining influence over the new entity, the Company believes that its investment in Franklin Covey Products will be accounted for using the equity method of accounting for an unconsolidated subsidiary.

The following unaudited pro forma consolidated balance sheets for Franklin Covey as of May 31, 2008 give effect to the sale of the CSBU assets as if the sale transaction occurred on May 31, 2008.  The following unaudited pro forma consolidated statements of income for the fiscal year ended August 31, 2007 and for the three quarters ended May 31, 2008 give effect to the sale of the CSBU assets as if the sale transaction occurred at the beginning of the period presented.

The pro forma information is not necessarily indicative of the financial position or results of operations of future periods or indicative of results that would have actually occurred had the transactions been completed as of the date thereof or as of the beginning of the periods presented therein.  The pro forma adjustments, as described in the accompanying notes to the pro forma consolidated balance sheet and statements of operations, are based upon available information and certain assumptions we believe are reasonable.  The pro forma financial information should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in our report on Form 10-K for the fiscal year ended August 31, 2007 and our quarterly report on Form 10-Q for the period ended May 31, 2008.


 
 
 

FRANKLIN COVEY CO.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MAY 31, 2008
(Dollars in Thousands)

   
Franklin
Covey Co.
    
Pro Forma Adjustments
      
Pro Forma
  
ASSETS
                    
Current assets:
                    
Cash and cash equivalents
   $ 4,815     $ 29,245  
(b)
   $ 34,060  
Accounts receivable, net
     24,597       -         24,597  
Inventories
     7,034       -         7,034  
Deferred income taxes
     3,697       -         3,697  
Prepaid expenses and other assets
     4,837       3,069  
(b)
     7,906  
Assets held for sale
     30,754       (30,754 )
(a)
     -  
Total current assets
     75,734       1,560         77,294  
                           
Property and equipment, net
     25,807       -         25,807  
Intangible assets, net
     73,223       -         73,223  
Deferred income taxes
     105       -         105  
Investment in unconsolidated subsidiary
     -       2,755  
(b)
     2,755  
Other assets
     16,934       (1,977 )
(b)
     14,957  
    $ 191,803     $ 2,338       $ 194,141  
                           
LIABILITIES AND SHAREHOLDERS’ EQUITY
                          
Current liabilities:
                          
Current portion of long-term debt and financing obligation
   $ 667     $ -       $ 667  
Line of credit
     8,223       -         8,223  
Accounts payable
     8,341       1,500  
(b)
     9,841  
Income taxes payable
     57       -         57  
Accrued liabilities
     21,145       -         21,145  
Liabilities held for sale
     10,415       (10,415 )
(a)
     -  
Total current liabilities
     48,848       (8,915 )       39,933  
                           
Long-term debt and financing obligation, less current portion
     32,504       -         32,504  
Deferred income tax liabilities
     4,455       4,242  
(c)
     8,697  
Other liabilities
     1,652       -         1,652  
Total liabilities
     87,459       (4,673 )       82,786  
                           
Shareholders’ equity:
                          
Common stock
     1,353       -         1,353  
Additional paid-in capital
     183,836       -         183,836  
Common stock warrants
     7,602       -         7,602  
Retained earnings
     23,119       6,362  
(c)
     29,481  
Accumulated other comprehensive income
     2,039       -         2,039  
Treasury stock at cost, 7,249 shares
     (112,956 )     -         (112,956 )
Other comprehensive loss held for sale
     (649 )     649  
(a)
     -  
Total shareholders’ equity
     104,344       7,011         111,355  
    $ 191,803     $ 2,338       $ 194,141  

                (a)  
Reflects the disposition of the Consumer Solutions Business Unit assets, liabilities, and other comprehensive loss, which is comprised of cumulative translation adjustments.

                (b)  
Reflects the consideration received from the sale of the Consumer Solutions Business Unit assets and the adjustment of assets and liabilities based upon the master asset purchase agreement.

                (c)  
Amount represents the preliminary gain (net of tax) and corresponding income taxes, as applicable, on the preliminary gain from the sale of Consumer Solutions Business Unit assets.  This amount is based upon May 31, 2008 working capital balances and will be revised based upon working capital balances on the sale closing date.

 
 
 

FRANKLIN COVEY CO.
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE FISCAL YEAR ENDED AUGUST 31, 2007
(Dollars in Thousands)

                     
   
Franklin
Covey Co.
    
Pro Forma Adjustments
      
Pro Forma
  
                     
Sales
   $ 284,125     $ (131,003 )
(a)
   $ 153,122  
Cost of sales
     109,748       (56,561 )
(a)
     53,187  
Gross profit
     174,377       (74,442 )       99,935  
                           
Selling, general, and administrative
     149,220       (61,913 )
(a)
     87,307  
Gain on sale of manufacturing facility
     (1,227 )     -         (1,227 )
Depreciation
     4,693       (1,446 )
(a)
     3,247  
Amortization
     3,607       -         3,607  
Income from operations
     18,084       (11,083 )       7,001  
                           
Equity in earnings of unconsolidated subsidiary
     -       2,161  
(b)
     2,161  
Interest income
     717       -         717  
Interest expense
     (3,136 )     -         (3,136 )
Income before provision for income taxes
     15,665       (8,922 )       6,743  
                           
Provision for income taxes
     (8,036 )     3,835  
(c)
     (4,201 )
                           
Net income
     7,629       (5,087 )       2,542  
Preferred stock dividends
     (2,215 )     -         (2,215 )
                           
Net income available to common shareholders
   $ 5,414     $ (5,087 )     $ 327  
                           
Diluted earnings per common share
   $ 0.27     $ 0.26       $ 0.02  
                           
 
                (a)  
Reflects disposition of Consumer Solutions Business Unit pursuant to the sale of CSBU assets.

                (b)  
Represents 19.5 percent of the earnings of the CSBU as the Company’s equity in Franklin Covey Products’ earnings.  This amount may be subsequently diluted to approximately 15.6 percent by the vesting of Class C ownership shares, which have no voting rights, to certain members of Franklin Covey Products management team.

                (c)  
Represents the tax effect of pro forma adjustments.

NOTE:  The above pro forma income statement does not reflect the expected gain on the sale of the CSBU assets or any reduction of interest from the use of the sale proceeds thereon.

 
 
 

FRANKLIN COVEY CO.
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE QUARTERS ENDED MAY 31, 2008
(Dollars in Thousands)

                     
   
Franklin
Covey Co.
    
Pro Forma Adjustments
      
Pro Forma
  
                     
Sales
   $ 207,763     $ (94,920 )
(a)
   $ 112,843  
Cost of sales
     79,372       (40,137 )
(a)
     39,235  
Gross profit
     128,391       (54,783 )       73,608  
                           
Selling, general, and administrative
     110,634       (47,193 )
(a)
     63,441  
Depreciation
     4,044       (1,163 )
(a)
     2,881  
Amortization
     2,702       -         2,702  
Income from operations
     11,011       (6,427 )       4,584  
                           
Equity in earnings of unconsolidated subsidiary
     -       1,253  
(b)
     1,253  
Interest income
     78       -         78  
Interest expense
     (2,396 )     -         (2,396 )
Income before provision for income taxes
     8,693       (5,174 )       3,519  
                           
Provision for income taxes
     (5,063 )     2,308  
(c)
     (2,755 )
                           
Net income
   $ 3,630     $ (2,866 )     $ 764  
                           
Diluted earnings per common share
   $ 0.18     $ 0.14       $ 0.04  
                           
 
                (a)  
Reflects disposition of Consumer Solutions Business Unit pursuant to the sale of CSBU assets.

                (b)  
Represents 19.5 percent of the earnings of the CSBU as the Company’s equity in Franklin Covey Products’ earnings.  This amount may be subsequently diluted to approximately 15.6 percent by the vesting of Class C ownership shares, which have no voting rights, to certain members of Franklin Covey Products management team.

                (c)  
Represents the tax effect of pro forma adjustments.

NOTE:  The above pro forma income statement does not reflect the expected gain on the sale of the CSBU assets or any reduction of interest from the use of the sale proceeds thereon.