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):
December 21, 2001
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 (IRS Employer Identification
incorporation) 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
Item 2. Disposition of Assets
On December 21, 2001, Franklin Covey Co. (the "Company") sold Premier
Agendas, Inc., a wholly owned subsidiary located in Bellingham, Washington, and
Premier School Agendas Ltd., a wholly owned subsidiary organized in Ontario,
Canada, (collectively, "Premier") to School Specialty, Inc., a Wisconsin based
corporation. Premier provided productivity and leadership solutions to the
educational industry. The sales price was $152.5 million in cash plus the
retention of approximately $13.0 million of Premier's working capital.
Approximately $8.0 million of this amount will be received in the form of a
promissory note from the purchaser, due and payable in June 2002. The Company
will recognize a significant gain from the sale of Premier during its second
quarter of fiscal 2002. Under the terms of its existing credit facilities, the
Company used approximately $92.3 million of the proceeds to pay its term loan
and revolving credit line in full. In connection with this prepayment, the
Company was also required to settle to settle an outstanding interest rate swap
agreement it had entered into with respect to a portion of these debt
facilities.
The Company also agreed to not compete with School Specialty in marketing
and selling student planners directly to schools and school districts subsequent
to the closing.
Item 7. Financial Statements and Exhibits
(b) Unaudited Condensed Pro Forma Financial Statements
The intent of the unaudited pro forma condensed financial statements is to
present the Company's financial position and results of operations on a stand
alone basis as of and for the fiscal year ended August 31, 2001, reflecting the
consummation of the sale of Premier and the retirement of the Company's existing
credit facilities (collectively, the "Transactions"). The unaudited pro forma
condensed financial statements are based upon the historical financial
statements of the Company and its subsidiaries, and should be read in
conjunction with the Company's most recent Form 10-K filing with the Securities
and Exchange Commission.
The unaudited pro forma condensed balance sheet as of August 31, 2001
assumes that the Transactions were completed as of that date and reflects the
pro forma adjustments to give effect to the Transactions. The unaudited pro
forma condensed statement of operations for the fiscal year ended August 31,
2001 assumes that the Transactions were effective September 1, 2000 (the first
day of the most recently completed fiscal year) and reflects the pro forma
adjustments to give effect to the Transactions. In the opinion of management of
the Company, all adjustments necessary to present fairly such unaudited pro
forma condensed financial statements have been made based on the proposed terms
and structure of the Transactions.
The unaudited pro forma condensed financial statements are for illustrative
purposes only. Such information does not purport to be indicative of actual
results which would have occurred had the Transactions been effected on the
dates indicated, nor is it indicative of actual or future operating results or
financial position that may occur upon the closing of the Transactions.
FRANKLIN COVEY CO.
Unaudited Pro Forma Condensed Balance Sheet
As of August 31, 2001
(in thousands)
Franklin Premier Pro Forma
Covey Agendas Adjustments
(Note 1) (Note 2) (Note 3) Pro Forma
-------- -------- -------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 14,864 $ 5,252 $ 54,661 (a) $ 64,273
Accounts receivable, net 78,827 51,462 - 27,365
Inventories 45,173 2,904 - 42,269
Other assets 26,813 1,625 12,900 (b) 38,088
--------- --------- -------- ---------
Total current assets 165,677 61,243 67,561 171,995
Property and equipment, net 104,876 6,814 - 98,062
Goodwill and other intangibles, net 225,805 45,224 - 180,581
Other assets 38,711 - (1,678) (c) 37,033
--------- --------- -------- ---------
$ 535,069 $ 113,281 $ 65,883 $ 487,671
========= ========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 9,750 $ 9,750 $ - $ -
Accounts payable 26,671 7,107 - 19,564
Accrued liabilities 50,979 7,646 26,308 (d) 69,641
Current portion of long-term debt and capital
lease obligations 13,674 1,720 (8,211) (e) 3,743
--------- --------- -------- ---------
Total current liabilities 101,074 26,223 18,097 92,948
Line of credit 35,576 - (35,576) (f) -
Long-term debt and capital lease obligations,
less current portion 49,940 412 (48,000) (g) 1,528
Other liabilities 38,597 3,521 (4,184) (h) 30,892
--------- --------- -------- ---------
Total liabilities 225,187 30,156 (69,663) 125,368
--------- --------- -------- ---------
Shareholders' equity:
Preferred stock 82,995 - - 82,995
Common stock 1,353 - - 1,353
Additional paid-in capital 223,898 55,521 55,521 (i) 223,898
Retained earnings 167,475 28,799 75,425 (j) 214,101
Notes and interest receivable from sales of
common stock to related parties (35,977) - - (35,977)
Accumulated other comprehensive loss (5,467) (1,195) 4,600 (k) 328
Treasury stock at cost (124,395) - - (124,395)
--------- --------- -------- ---------
Total shareholders' equity 309,882 83,125 135,546 362,303
--------- --------- -------- ---------
$ 535,069 $ 113,281 $ 65,883 $ 487,671
========= ========= ======== =========
FRANKLIN COVEY CO.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended August 31, 2001
(in thousands, except per share data)
Franklin Premier Pro Forma
Covey Agendas Adjustments
(Note 1) (Note 2) (Note 4) Pro Forma
-------- -------- -------- ---------
Sales $ 525,333 $ 84,987 $ - $ 440,346
Cost of sales 226,760 33,159 - 193,601
-------- -------- -------- --------
Gross margin 298,573 51,828 - 246,745
Selling, general and administrative 259,987 34,015 - 225,972
Depreciation and amortization 45,879 5,688 - 40,191
-------- -------- -------- --------
Loss from operations (7,293) 12,125 - (19,418)
Equity in earnings of unconsolidated subsidiary 2,088 - - 2,088
Interest income 3,467 288 - 3,179
Interest expense (9,078) (747) 7,659 (a) (672)
-------- -------- -------- --------
Loss before provision for income taxes (10,816) 11,666 7,659 (14,823)
Provision for income taxes 267 3,363 184 (b) (2,912)
-------- -------- -------- --------
Net loss (11,083) 8,303 7,475 (11,911)
Preferred stock dividends 8,153 - - 8,153
-------- -------- -------- --------
Net loss attributable to common shareholders $ (19,236) $ 8,303 $ 7,475 $ (20,064)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.95) $ (0.99)
======== ======== ======== ========
Basic and diluted weighted average number of
common and common equivalent shares 20,199 20,199
======== ========
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
Note 1: Franklin Covey's Consolidated Historical Financial Information
The amounts included in this column of the pro forma condensed balance
sheet as of August 31, 2001 and the statement of operations for the fiscal year
ended August 31, 2001 were derived from the historical consolidated financial
statements of the Company and its subsidiaries, including Premier.
Note 2: Premier's Historical Financial Information
The amounts included in this column of the pro forma condensed balance
sheet as of August 31, 2001 and the statement of operations for the fiscal year
ended August 31, 2001 were derived from the historical financial statements of
Premier, which include Premier Agendas, Inc. (a Washington corporation) and
Premier School Agendas Ltd. (an Ontario corporation). Premier's historical
financial statements exclude certain amounts related to the leadership training
business which will be retained by the Company, in accordance with the terms of
the purchase agreement. The amounts in this column are being eliminated from the
Franklin Covey consolidated data to give effect to the sale of Premier.
Note 3: Unaudited Pro Forma Condensed Balance Sheet - Pro Forma Adjustments
The following reflects the pro forma adjustments included in the unaudited
pro forma condensed balance sheet for the Company as of August 31, 2001, to give
effect to the Transactions (dollars in thousands):
(a) Adjustments to cash and cash equivalents as follows:
Proceeds from sale of Premier $152,500
Payment of fees associated with sale of Premier (900)
Pay off of the Company's credit facilities (91,787)
Retire interest rate swap agreement (4,600)
Payment of accrued interest related to the Company's
credit facilities (552)
---------
$ 54,661
=========
(b) Adjustment to other current assets related to retaining a
portion of Premier's working capital $ 12,900
=========
(c) Adjustment to other long-term assets related to the write-off
of deferred loan costs $ (1,678)
=========
(d) Adjustments to accrued liabilities as follows:
Income taxes payable related to the gain on the sale of Premier $ 26,860
Payment of accrued interest on the Company's credit facilities (552)
---------
$ 26,308
=========
(e) Adjustment to current portion of long-term debt and capital lease
obligations related to paying off the Company's credit facilities $ (8,211)
=========
(f) Adjustment to line of credit related to paying off the Company's
credit facilities $ (35,576)
=========
(g) Adjustment to long-term debt and capital lease obligations related
to paying off the Company's credit facilities $ (48,000)
=========
(h) Adjustments to other long-term liabilities as follows:
Retire interest rate swap agreement $ (4,600)
Deferred tax liability for the gain on the sale of Premier 416
---------
$ (4,184)
=========
(i) Elimination of Premier's additional paid-in capital $ 55,521
=========
(j) Adjustments to retained earnings as follows:
Gain on the sale of Premier before taxes $ 80,180
Income taxes related to gain on the sale of Premier (27,276)
Retained earnings of Premier 28,799
Retire interest rate swap agreement (4,600)
Write-off of deferred loan costs (1,678)
---------
$ 75,425
=========
(k) Adjustment to accumulated comprehensive loss to retire interest
rate swap agreement $ 4,600
=========
Note 4: Unaudited Pro Forma Statement of Operations for the Year Ended
August 31, 2001 - Pro Forma Adjustments
The following reflects the pro forma adjustments included in the unaudited
pro forma condensed statement of operations for the Company for the year ended
August 31, 2001, which give effect to the Transactions:
(a) Adjustment reflects reduction of interest expense related to the Company
paying off approximately $92.3 million of debt associated with its credit
facilities in connection with the Transactions.
(b) Adjustment reflects the amount necessary to appropriately state the
Company's income tax provision as a result of the Transactions, which
reduced interest expense and non-deductible goodwill amortization.
Item 7. Financial Statements and Exhibits (continued)
(c) Exhibits:
10.1 Purchase Agreement By and Among Franklin Covey Co., Franklin Covey
Canada Ltd., School Specialty, Inc., and 3956831 Canada Inc., dated
November 13, 2001 (filed as exhibit 10.15 to the Company's report on
Form 10-K for the fiscal year ended August 31, 2001 and incorporated
herein by reference).
10.2 Amendment to Purchase Agreement By and Among Franklin Covey Co.,
Franklin Covey Canada Ltd., School Specialty, Inc., and 3956831 Canada
Inc., dated December 2001 (filed herewith).
99.1 Press release of Franklin Covey Co. issued December 21, 2001: Franklin
Covey Announces Close of Premier Sale and Extends Tender Offer (filed
herewith).
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 thereunto duly authorized.
FRANKLIN COVEY CO.
Date: January 7, 2002 By: /s/ Stephen D. Young
--------------------- ---------------------------------
Stephen D. Young
Senior Vice-President, Controller
EXHIBIT INDEX
10.2 Amendment to Purchase Agreement By and Among Franklin Covey Co.,
Franklin Covey Canada Ltd., School Specialty, Inc., and 3956831 Canada
Inc., dated December 2001.
99.1 Press release of Franklin Covey Co. issued December 21, 2001: Franklin
Covey Announces Close of Premier Sale and Extends Tender Offer.