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Franklin Covey Co. Reports Operating Results (10-Q)

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Apr 09, 2009
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Franklin Covey Co. (FC, Financial) filed Quarterly Report for the period ended 2009-02-28.

Franklin Covey Co. is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. They provide consulting services training and education programs educational materials publications assessment and measurement tools implementation processes application tools and products designed to empower individuals and organizations to become more effective. Franklin Covey Co. has a market cap of $81.5 million; its shares were traded at around $4.83 with and P/S ratio of 0.3.

Highlight of Business Operations:

For the quarter ended on February 28, 2009, we recognized a loss from operations of $3.4 million compared to $6.7 million of income from operations in the corresponding quarter of fiscal 2008. Including the impact of a $3.3 million benefit for income taxes, we recognized a net loss of $0.6 million in the second quarter of fiscal 2009 compared to net income (after income tax expense) of $3.0 million in the quarter ending March 1, 2008.

Gross profit consists of net sales less the cost of services provided or the cost of products sold. Our consolidated gross profit decreased to $18.7 million compared to $46.8 million in the corresponding quarter of fiscal 2008. The decrease in gross profit was primarily attributable to

Depreciation – Depreciation expense decreased $0.6 million compared to the prior year. The decrease was primarily due to the sale of the CSBU and an impairment charge totaling $0.3 million for software that did not function as anticipated and was written off during the quarter ended March 1, 2008. We did not have any property and equipment impairment charges during the quarter ended February 28, 2009. Based upon expected fixed asset activity in fiscal 2009, we expect depreciation expense to total approximately $4 million for the fiscal year ended August 31, 2009.

Amortization – Amortization expense from definite-lived intangible assets for the quarter ended February 28, 2009 remained consistent with the prior year at $0.9 million. We expect intangible asset amortization expense to remain consistent with prior year amounts throughout fiscal 2009 and believe that amortization expense will total $3.7 million for the current fiscal year.

Our income tax benefit for the quarter ended February 28, 2009 was $3.3 million compared to a $2.9 million provision for the same quarter of the prior year. The income tax benefit was primarily due to a pre-tax loss recognized for the quarter ended February 28, 2009. Our effective tax benefit rate for the quarter of approximately 84 percent was higher than statutory combined rates primarily due to foreign withholding taxes for which we cannot utilize a foreign tax credit, the accrual of taxable interest income on the management stock loan program, and actual and deemed dividends from foreign subsidiaries for which we also cannot utilize foreign tax credits.

Our consolidated gross profit decreased to $40.4 million compared to $92.8 million for the first two quarters of fiscal 2008. The decrease in gross profit was primarily attributable to decreased product sales resulting from the sale of CSBU. Our consolidated gross margin, which is gross profit stated in terms of a percentage of sales, was 62.1 percent of sales compared to 62.4 percent in fiscal 2008.

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