Product Sales -Product sales, which primarily consist of planners, binders, software, and handheld electronic planning devices, which are primarily sold through our Consumer and Small Business Unit (CSBU) channels, declined $1.8 million, or three percent, compared to the quarter ended February 28, 2004. The decline in product sales was primarily due to sales performance in our retail store channel, which declined $4.6 million, or 14 percent, compared to the prior year. The following is a description of significant sales fluctuations in our CSBU channels:
| · | Retail Sales - The decline in retail sales was primarily due to the impact of fewer stores, which totaled $3.0 million, and reduced technology and specialty product sales, which totaled $2.2 million. Declining technology and specialty product sales were partially offset by increased “core” product sales. Overall product sales trends were reflected by a five percent decline in comparable store (stores which were open during the comparable periods) sales. During fiscal 2004, we closed 18 retail store locations and we have closed 14 additional stores during the second quarter of fiscal 2005. At February 26, 2005, we were operating 121 retail stores compared to 144 stores at February 28, 2004. |
| · | Consumer Direct - Sales through our consumer direct channels (catalog and eCommerce) were generally consistent with the prior year and improved primarily due to increased “core” product sales compared to the prior year. |
| · | Wholesale Sales -Sales through our wholesale channel, which includes sales to office superstores and other retail chains, increased primarily due to the timing of product sales to these entities. |
Training and Consulting Services Sales -We offer a variety of training solutions, training related products, and consulting services focused on productivity, leadership, strategy execution, sales force performance, and effective communications training programs that are provided both domestically and internationally through the Organizational Solutions Business Unit (OSBU). Our overall training and related service sales increased by $5.6 million, or 26 percent, compared to the same period of the prior year. The improvement in training sales was reflected in increased domestic training program sales, which are delivered through our Organizational Sales Group (OSG), as well as through our international operations. OSG sales performance improved in nearly all of our domestic sales regions and was primarily attributable to increased sales of “Helping Clients Succeed,” “The 4 Disciplines of Leadership,” andThe 7 Habits of Highly Effective People training courses. We currently expect our domestic training and services sales to continue to strengthen as our seminar booking pace continues to exceed prior year levels. International sales improved primarily due to increased sales in Japan, increased licensee royalty revenues, and the translation of foreign sales amounts as foreign currencies strengthened against the United States dollar. The favorable impact of currency translation on reported international revenues totaled $0.4 million for the quarter ended February 26, 2005.
Gross Margin
Gross margin consists of net sales less the cost of goods sold or services provided. Our overall gross margin for the quarter improved to 60.7 percent of sales, compared to 56.7 percent in the comparable quarter of fiscal 2004. This overall gross margin improvement is consistent with gross margin performance during our first quarter of fiscal 2005 and was primarily due to increased training and consulting sales as a percent of total sales, favorable product mix changes, and improved margins on our training and consulting service sales. Training and consulting service sales, which typically have higher gross margins than our product sales, increased to 33 percent of total sales during the quarter ended February 26, 2005 compared to 28 percent in the prior year. Our gross margin on product sales improved to 55.2 percent compared to 52.8 percent in fiscal 2004 and was primarily due to a favorable shift in our product mix as sales of higher-margin paper products and binders increased as a percent of total sales, while sales of lower-margin technology and specialty products continue to decline. Additionally, the overall margin on paper and binder sales has improved through focused cost reduction efforts and improved inventory management.
Training and related consulting services gross margin, as a percent of sales of these services, improved to 71.8 percent compared to 66.9 percent in the corresponding quarter of fiscal 2004. The improvement in our training and consulting services gross margin was primarily due to a shift in training sales mix toward higher-margincourses, reduced costs for training materials, such as participant manuals and related items, and overall lower costs associated with training sales.
Operating Expenses
Selling, General and Administrative -Our selling, general, and administrative expenses decreased $0.6 million, or two percent, compared to the corresponding quarter of the prior year. Total SG&A expenses as a percent of sales decreased to 47.0 percent compared to 50.0 percent in fiscal 2004. We continue to implement cost-cutting strategies that have been successful in reducing our operating costs, including retail store closures, headcount reductions, consolidation of corporate office space, and other measures designed to focus our resources on critical activities and projects. However, during the quarter ended February 26, 2005 our cost reduction efforts were partially offset by expenses related to changes in the CEO’s compensation, additional costs associated with the preferred stock recapitalization, and increased commission expenses related to increased training sales. We also recognized $0.4 million of expense related to the closure of retail store locations during the quarter. In addition, we will record $1.2 million of expense related to the severance agreement with a former executive officer during the quarter ended May 28, 2005.
We regularly assess the operating performance of our retail stores, including previous operating performance trends and projected future profitability. During this assessment process, judgments are made as to whether under-performing or unprofitable stores should be closed. As a result of this evaluation process, we closed 14 stores during the quarter ended February 26, 2005, have closed 7 more stores subsequent to February 26, 2005, and currently plan to close 8 additional retail locations during the remainder fiscal 2005. The number of retail stores that we plan to close may increase if further analysis indicates that the Company’s operating results may be improved through additional closures, due to the higher costs associated with operating our retail store channel. Retail locations that are currently scheduled to be closed primarily consist of under performing stores or stores in markets where we have multiple retail locations. In addition, nearly all of the planned retail store closures are in locations where the underlying leases expire during fiscal 2005. The costs associated with closing retail stores are typically comprised of charges related to vacating the premises, which may include a provision for the remaining term on the lease, and severance and other personnel costs. These store closure costs totaled $0.4 million in the quarter ended February 26, 2005 and were included as a component of SG&A expenses. Based upon our continuing analyses of retail store performance, we may close additional retail stores and will continue to incur costs associated with closing these stores in future periods.
Depreciation and Amortization -Depreciation expense decreased $0.9 million, or 28 percent, compared to the second quarter of fiscal 2004 primarily due to the full depreciation or disposal of certain property and equipment balances and the effects of significantly reduced capital expenditures during preceding fiscal years. Based upon these events and current capital spending trends, we expect that depreciation expense will continue to decline compared to prior periods during the remainder of fiscal 2005.
Amortization expense on definite-lived intangible assets totaled $1.0 million for the quarters ended February 26, 2005 and February 28, 2004. We expect intangible asset amortization expense to total $4.2 million during fiscal 2005.
Income Taxes
The provision for income taxes increased to $1.0 million compared to $0.8 million in the prior year. The increase was primarily due to fluctuations in our income tax expense in foreign tax jurisdictions. As of February 26, 2005, given our history of significant operating losses, we had provided a valuation allowance against substantially all of our domestic deferred income tax assets.
Two Quarters Ended February 26, 2005 Compared to the Two Quarters Ended February 28, 2004
Sales
Product sales, which primarily consist of planners, binders, software, and handheld electronic planning devices, which are primarily sold through our CSBU channels, declined $9.6 million, or nine percent, compared to the prior year. The decline in product sales was primarily due to decreased sales in our retail and wholesale delivery channels. The majority of the decline in product sales occurred during our first quarter as overall product sales declined only $1.8 million during our second quarter, when compared to the prior year. The following is a description of sales fluctuations in our CSBU channels for the two quarters ended February 26, 2005:
| · | Retail Sales - The decline in retail sales was primarily due to reduced technology and specialty product sales, which totaled $5.4 million, and the impact of fewer stores, which totaled $5.0 million. Declining technology and specialty product sales were partially offset by increased “core” product sales, which totaled $1.0 million. Overall product sales trends were reflected by an eight percent decline in year-to-date comparable store sales. |
| · | Consumer Direct - Sales through our consumer direct channels (catalog and eCommerce) were generally consistent with the prior year and the slight decline was primarily due to decreased technology and specialty product sales compared to the prior year. |
| · | Wholesale Sales -Sales through our wholesale channel, which includes sales to office superstores and other retail chains, decreased primarily due to the timing of product sales to these entities. In the previous fiscal year, we recognized significant wholesale sales as we opened new wholesale channels and sold product to fill these new venues. We expect wholesale sales will improve during the remainder of fiscal 2005 and that total wholesale sales will be consistent with fiscal 2004 sales performance. |
| · | Other CSBU Sales - Other CSBU sales primarily consist of external printing and publishing sales and building lease revenues. We have leased a substantial portion of our corporate campus in Salt Lake City, Utah and have recognized $0.4 million of lease revenue during fiscal 2005, which has been classified as other CSBU sales. During fiscal 2005, we have also made an effort to increase external printing sales in order to increase the utilization of our printing and publishing assets, which has improved printing and publishing sales compared to the prior year. |
Product sales were also favorably affected by increased international catalog sales and increased retail sales in Japan, which totaled $1.6 million compared to the prior year. Although sales from these channels are recorded in the international segment of OSBU, sales from these OSBU channels are classified as product sales, in our condensed consolidated statements of operations.
We offer a variety of training solutions, training related products, and consulting services focused on productivity, leadership, strategy execution, sales force performance, and effective communications training programs that are provided both domestically and internationally through the OSBU. Our overall training and related consulting services sales increased by $7.4 million, or 17 percent, compared to the same period of fiscal 2004. The improvement in training sales was reflected in increased domestic program sales, which are delivered through the OSG, as well as through our international operations. OSG sales performance has improved in nearly all of our domestic sales regions and in our sales performance group. We currently expect our domestic training and consulting services sales to continue to strengthen in fiscal 2005. International sales improved primarily due to increased sales in Japan and Mexico, increased licensee royalty revenues, and the translation of foreign sales amounts as foreign currencies strengthened against the United States dollar. These increases were partially offset by decreased sales performance in Canada and Brazil.
Gross Margin
Our overall gross margin for the two quarters ended February 26, 2005 improved to 60.2 percent of sales, compared to 56.7 percent in the comparable period of fiscal 2004. The improvement in our overall gross margin was primarily due to increased training and consulting sales as a percent of total sales, favorable product mix changes, and improved margins on our training and consulting service sales. Training and consulting service sales, which typically have higher gross margins than the majority of our product sales, increased to 35 percent of total sales during the two quarters ended February 26, 2005 compared to 29 percent in the prior year. Our gross margin on product sales improved to 54.8 percent compared to 52.6 percent in fiscal 2004 and was primarily due to a favorable shift in our product mix as sales of higher-margin paper products and binders increased as a percent of total sales, while sales of lower-margin technology and specialty products continue to decline. Additionally, the overall margin on paper and binder sales has improved through focused cost reduction efforts, and improved inventory management.
Training and related consulting services gross margin, as a percent of sales of these services, improved to 70.3 percent compared to 66.6 percent in the corresponding period of fiscal 2004. The improvement in our training and services gross margin was primarily due to a shift in training sales mix toward higher-margin7 Habits courses, reduced costs for training materials, such as participant manuals and related items, and overall lower costs associated with training sales.
Operating Expenses
Selling, General and Administrative -OurSG&A expenses decreased $5.0 million, or six percent, compared to the prior year. Total SG&A expenses as a percent of sales decreased to 49.1 percent compared to 51.7 percent in the first two quarters of fiscal 2004. Declining SG&A expenses were the direct result of initiatives specifically designed to reduce our overall operating costs and is consistent with operating expense trends during the previous two fiscal years. Our cost-reduction efforts have included retail store closures, headcount reductions, consolidation of corporate office space, and other measures designed to focus our resources on critical activities and projects. These efforts were partially offset by SG&A expenses in our quarter ended February 26, 2005 resulting from expenses related to changes in the CEO’s compensation, additional costs associated with the preferred stock recapitalization, and increased commission expenses related to increased training sales. The primary effects of our cost-cutting initiatives were reflected in associate expense reductions totaling $2.2 million, reduced rent and utilities expenses of $1.5 million, reduced computer and office supply charges totaling $0.7 million, and reductions in other SG&A expenses, such as outsourcing and development costs, that totaled $0.3 million compared to the prior year. In addition, we will record $1.2 million of expense related to the severance agreement with a former executive officer during the quarter ended May 28, 2005.
We regularly assess the operating performance of our retail stores, including previous operating performance trends and projected future profitability. During this assessment process, judgments are made as to whether under-performing or unprofitable stores should be closed. As a result of this evaluation process, we closed 14 stores during the two quarters ended February 26, 2005, have closed 7 more stores subsequent to February 26, 2005, and currently plan to close 8 additional retail locations during the remainder fiscal 2005. The costs associated with closing retail stores are typically comprised of charges related to vacating the premises, which may include a provision for the remaining term on the lease, and severance and other personnel costs. These store closure costs totaled $0.6 million for the two quarters ended February 26, 2005 and were included as a component of SG&A expenses. Based upon our continuing analyses of retail store performance, we may close additional retail stores and will continue to incur costs associated with closing these stores in future periods.
Restructuring Cost Reversal -During fiscal 1999, our Board of Directors approved a plan to restructure our operations, which included an initiative to formally exit leased office space located in Provo, Utah. We recorded a $16.3 million restructuring charge during fiscal 1999 to record the expected costs of this restructuring plan, which was substantially completed during fiscal 2000. Subsequent to fiscal 2000, the remaining accrued restructuring costs were primarily comprised of the estimated remaining costs necessary to exit the leased office space. During the quarter ended November 27, 2004, we exercised an option, available under our master lease agreement, to purchase, and simultaneously sell, the office facility to the current tenant, an unrelated party. The negotiated purchase price with the landlord, a partnership in which the majority of the interests were owned by a Vice-Chairman of the Board of Directors and certain other employees and former employees of the Company, was $14.0 million and the tenant agreed to purchase the property for $12.5 million. These prices were within the range of estimated fair values of the buildings as determined by an independent appraisal obtained by the Company. We paid the difference between the sale and purchase prices, plus other closing costs, which were included as a component of the restructuring plan accrual. After accounting for the sale transaction, the remaining fiscal 1999 restructuring costs, which totaled $0.3 million, were credited to operating expenses in the Company’s condensed consolidated statement of operations.
Depreciation and Amortization -Depreciation expense decreased $2.3 million, or 34 percent, compared to fiscal 2004 primarily due to the full depreciation or disposal of certain property and equipment balances and the effects of significantly reduced capital expenditures during preceding fiscal years. Based upon these events and current capital spending trends, we expect that depreciation expense will continue to decline compared to prior periods during the remainder of fiscal 2005.
Amortization expense on definite-lived intangible assets totaled $2.1 million for the two quarters ended February 26, 2005 and February 28, 2004. We currently expect intangible asset amortization expense to total $4.2 million in fiscal 2005.
Income Taxes
The provision for income taxes was $1.8 million for each of the two quarters ended February 26, 2005 and February 28, 2004. Our income tax provision during these periods was primarily due to taxable income in certain foreign tax jurisdictions for which we were unable to offset the tax liabilities in these jurisdictions with our domestic operating loss. At February 26, 2005, given our history of significant operating losses, we had provided a valuation allowance against substantially all of our domestic deferred income tax assets.
Historically, our primary sources of capital have been net cash provided by operating activities, line-of-credit financing, long-term borrowings, asset sales, and the issuance of preferred and common stock. We currently rely primarily upon cash flows from operating activities and cash on hand to maintain adequate liquidity and working capital levels. Following the completion of our seasonally strong second fiscal quarter, at February 26, 2005 we had $47.3 million of cash, cash equivalents, and short-term investments compared to $41.9 million at August 31, 2004. Our net working capital (current assets less current liabilities) was $43.9 million at February 26, 2005 compared to $33.8 million at August 31, 2004. The following discussion is a description of the primary factors affecting our cash flows and their effects upon our liquidity and capital resources during the two quarters ended February 26, 2005.
Cash Flows From Operating Activities
During the two quarters ended February 26, 2005, our net cash provided by operating activities increased to $11.0 million compared to $3.3 million for the same period of the prior year. Our primary source of cash from operating activities was the sale of goods and services to our customers in the normal course of business. As previously mentioned, our second fiscal quarter has historically realized seasonally strong sales as many of our clients renew their planners on a calendar basis and purchase gift items during the holiday season. Our primary uses of cash for operating activities are payments to suppliers for materials used in products sold, payments for direct costs necessary to conduct training programs, and payments for selling, general, and administrative expenses. During the two quarters ended February 26, 2005, one of our significant uses of cash for operating activities consisted of payments made to vendors and suppliers related to inventory purchases for our seasonally busy months of November, December, and January, which was reflected by a significant reduction in our accounts payable balance. Our overall cash flows from operating activities improved due to increased sales, improved margins on sales, and lower operating costs than in the previous year.
Our third fiscal quarter, which consists of March, April, and May has historically had reduced sales and correspondingly decreased cash provided by operating activities, compared to our first and second quarters of our fiscal year. We believe that efforts to optimize working capital balances combined with existing and planned cost-cutting initiatives, and sales stabilization efforts, including sales of new products and services, will improve our cash flows from operating activities in future periods. However, the success of these efforts is dependent upon numerous factors, many of which are not within our control.
Cash Flows From Investing Activities and Capital Expenditures
Net cash used for investing activities totaled $2.8 million for the two quarters ended February 26, 2005. Our primary uses of cash for investing activities were the purchase of short-term investments totaling $1.7 million and the purchase of property and equipment, which consisted primarily of computer hardware, software, and leasehold improvements in retail stores.
During the quarter ended February 26, 2005, we entered into a preliminary agreement to sell and leaseback our corporate headquarters facility, located in Salt Lake City, Utah. In connection with the sale, we will enter into a 20-year master lease agreement with the purchaser, a non-related private investment group. Under the preliminary terms of the agreement, we will have six five-year options to renew the master lease agreement and we could therefore maintain our operations at the current location for the next 50 years. We currently expect that our net proceeds from the sale, after transaction costs, will be approximately $32 million. A corresponding financing obligation will be recognized in our consolidated financial statements for the sale price of the headquarters facility. The completion of the sale is subject to customary conditions, including a due diligence review, survey, and other related closing conditions.
Cash Flows From Financing Activities
Net cash used for financing activities during the quarter ended February 26, 2005 totaled $4.4 million. Our primary use of cash for financing activities was the payment of accrued Series A preferred stock dividends, which totaled $4.4 million during fiscal 2005.
Contractual Obligations
The Company has not structured any special purpose or variable interest entities, or participated in any commodity trading activities, which would expose us to potential undisclosed liabilities or create adverse consequences to our liquidity. Required contractual payments primarily consist of payments to EDS for outsourcing services related to information systems, warehousing and distribution, and call center operations; minimum rent payments for retail store and sales office space; cash payments for Series A preferred stock dividends; monitoring fees paid to a Series A preferred stock investor; and mortgage payments on certain buildings and property. There have been no significant changes to our expected required contractual obligations from those disclosed at August 31, 2004. However, if the Company completes the expected sale of its corporate headquarters facility, it would incur a substantial ongoing lease obligation.
Other Items
Management Common Stock Loan Program -The Company is the creditor for a loan program that provided the capital to allow certain management personnel the opportunity to purchase shares of our common stock. In May 2004, our Board of Directors approved modifications to the terms of the management stock loans. While these changes had significant implications for most management stock loan program participants, the Company did not formally amend or modify the stock loan program notes. Rather, the Company is foregoing certain of its rights under the terms of the loans in order to potentially improve the participant’s ability to pay, and the Company’s ability to collect, the outstanding balances of the loans. Based upon guidance found in EITF Issue 00-23,Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44, and EITF Issue 95-16,Accounting for Stock Compensation Agreements with Employer Loan Features under APB Opinion No. 25, we determined that the management common stock loans should be accounted for as non-recourse stock compensation instruments due to the modifications approved in May 2004 and their effects to the Company and the loan participants. While this accounting treatment does not alter the legal rights associated with the loans to the employees, the modifications to the terms of the loans were deemed significant enough to adopt the non-recourse accounting model as described in EITF 00-23. As a result of this accounting treatment, the remaining carrying value of the notes and interest receivable related to financing common stock purchases by related parties, which totaled $7.6 million prior to the loan term modifications, was reduced to zero with a corresponding reduction in additional paid-in capital.
We currently account for the management common stock loans as variable stock option arrangements. Compensation expense will be recognized when the fair value of the common stock held by the loan participants exceeds the contractual principal and accrued interest on the loans (approximately $47.5 million at February 26, 2005) or the Company takes action on the loans that in effect constitutes a repricing of an option. This accounting treatment also precludes the Company from reversing the amounts expensed as additions to the loan loss reserve, totaling $29.7 million, which were recognized in prior periods. As a result of these loan program modifications, the Company hopes to increase the total value received from loan participants; however, the inability of the Company to collect all, or a portion, of these receivables could have an adverse impact upon its financial position and future cash flows compared to full collection of the loans. Subsequent to February 26, 2005, the Company collected $0.8 million, which represented payment in full, from an officer and members of the Board of Directors that were required to repay their loans on March 30, 2005. The Board of Directors approved loan modifications for a former executive officer and a former director substantially similar to loan modifications previously granted to other loan participants in the management stock loan program described above.
Availability of Future Capital Resources -Goingforward, we will continue to incur costs necessary for the operation of the business. We anticipate using cash on hand, cash provided by operating activities, on the condition that we can continue to generate positive cash flows from operations, and other financing alternatives, if necessary, for these expenditures. We anticipate that our existing capital resources will be adequate to enable us to maintain our operations for at least the upcoming twelve months. Our ability to maintain adequate capital for future operations is dependent upon a number of factors, including sales trends, our ability to contain costs, levels of capital expenditures, collection of accounts receivable, and other factors. Some of the factors that influence our operations are not within our control, such as economic conditions and the introduction of new technology and products by our competitors. We will continue to monitor our liquidity position and may pursue additional financing alternatives, if required, to maintain sufficient resources for future operating and capital requirements. However, there can be no assurance such financing alternatives will be available to us on acceptable terms.
Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The significant accounting polices that we used to prepare our consolidated financial statements are outlined in Note 1 to the consolidated financial statements, which are presented in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended August 31, 2004. Some of those accounting policies require us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. Management regularly evaluates its estimates and assumptions and bases those estimates and assumptions on historical experience, factors that are believed to be reasonable under the circumstances, and requirements under accounting principles generally accepted in the United States of America. Actual results may differ from these estimates under different assumptions or conditions, including changes in economic conditions and other circumstances that are not in our control, but which may have an impact on these estimates and our actual financial results.
The following items require the most significant judgment and often involve complex estimates:
Revenue Recognition
We derive revenues primarily from the following sources:
| · | Products - We sell planners, binders, planner accessories, handheld electronic devices, and other technology related products that are primarily sold through our CSBU channels. |
| · | Training and Services - We provide training and consulting services to both organizations and individuals in strategic execution, leadership, productivity, goal alignment, sales force performance, and communication effectiveness skills. These training programs and services are primarily sold through our OSBU channels. |
The Company recognizes revenue when: 1) persuasive evidence of an agreement exists, 2) delivery of product has occurred or services have been rendered, 3) the price to the customer is fixed and determinable, and 4) collectibility is reasonably assured. For product sales, these conditions are generally met upon shipment of the product to the customer or by completion of the sale transaction in a retail store. For training and service sales, these conditions are generally met upon presentation of the training seminar or delivery of the consulting services.
Some of our training and consulting contracts contain multiple deliverable elements that include training along with other products and services. In accordance with EITF Issue No. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the sales contract meet the following criteria: 1) the delivered training or product has value to the client on a standalone basis; 2) there is objective and reliable evidence of the fair value of undelivered items; and 3) delivery of any undelivered item is probable. The overall contract consideration is allocated among the separate units of accounting based upon their fair values. If the fair value of all undelivered elements exits, but fair value does not exist for one or more delivered elements, the residual method is used. Under the residual method, the amount of consideration allocated to the delivered items equals the total contract consideration less the aggregate fair value of the undelivered items. Fair value of the undelivered items is based upon the normal pricing practices for the Company’s existing training programs, consulting services, and other products, which are generally the prices of the items when sold separately.
Revenue is recognized on software sales in accordance with Statement of Position (SOP) 97-2,Software Revenue Recognition as amended by SOP 98-09. SOP 97-2, as amended, generally requires revenue earned on software arrangements involving multiple elements such as software products and support to be allocated to each element based the relative fair value of the elements based on vendor specific objective evidence (VSOE). The majority of the Company’s software sales have multiple elements, including a license and post contract customer support (PCS). Currently the Company does not have VSOE for either the license or support elements of its software sales. Accordingly, revenue is deferred until the only undelivered element is PCS and the total arrangement fee is recognized ratably over the support period.
Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and product returns.
Accounts Receivable Valuation
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in the existing accounts receivable balance. We determine the allowance for doubtful accounts based upon historical write-off experience and current economic conditions and we review the adequacy of our allowance for doubtful accounts on a regular basis. Receivable balances past due over 90 days, which exceed a specified dollar amount, are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the probability for recovery is considered remote. We do not have any off-balance sheet credit exposure related to our customers.
Inventory Valuation
Inventories are stated at the lower of cost or market with cost determined using the first-in, first-out method. Our inventories are comprised primarily of dated calendar products and other non-dated products such as binders, handheld electronic devices, stationery, training products, and other accessories. Provision is made to reduce excess and obsolete inventories to their estimated net realizable value. In assessing the realization of inventories, we make judgments regarding future demand requirements and compare these assessments with current and committed inventory levels. Inventory requirements may change based on projected customer demand, technological and product life cycle changes, longer or shorter than expected usage periods, and other factors that could affect the valuation of our inventories.
Indefinite-Lived Intangible Assets
Intangible assets that are deemed to have an indefinite life are not amortized, but rather are tested for impairment on an annual basis, or more often if events or circumstances indicate that a potential impairment exists. The Covey trade name intangible asset has been deemed to have an indefinite life. This intangible asset is assigned to the Organizational Solutions Business Unit and is tested for impairment using the present value of estimated royalties on trade name related revenues, which consist primarily of training seminars, international licensee royalties, and related products. If forecasts and assumptions used to support the realizability of our indefinite-lived intangible asset change in the future, significant impairment charges could result that would adversely affect our results of operations and financial condition.
Impairment of Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We use an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the anticipated future cash flows of the assets, we recognize an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires us to use estimates of future cash flows. If forecasts and assumptions used to support the realizability of our long-lived tangible and definite-lived intangible assets change in the future, significant impairment charges could result that would adversely affect our results of operations and financial condition.
Income Taxes
The calculation of our income tax provision or benefit, as applicable, requires estimates of future taxable income or losses. During the course of the fiscal year, these estimates are compared to actual financial results and adjustments may be made to our tax provision or benefit to reflect these revised estimates.
Our history of significant operating losses precludes us from demonstrating that it is more likely than not that the related benefits from deferred income tax deductions and foreign tax carryforwards will be realized. Accordingly, we recorded valuation allowances on our deferred income tax assets. These valuation allowances are based on estimates of future taxable income or losses that may or may not be realized.
In December 2004, the Financial Accounting Standards Board (FASB) approved Statement No. 123R,Share-Based Payment. Statement 123R sets accounting requirements for “share-based” compensation to employees, including employee stock purchase plans, and requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation. The Company currently accounts for its stock-based compensation using the intrinsic method as defined in Accounting Principles Board (APB) Opinion No. 25 and accordingly, we have not recognized any expense for our stock option plans or employee stock purchase plan in our consolidated financial statements. Currently, we provide disclosures about the pro forma compensation expense from stock based awards, which is based upon a Black-Scholes option pricing model. Although Statement 123R does not express a preference for a type of valuation model, we intend to reexamine our valuation methodology and the corresponding support for the assumptions that underlie the valuation of stock-based awards prior to our adoption of Statement 123R. This statement is effective for interim or annual periods beginning after June 15, 2005, and will thus be effective for our first quarter of fiscal 2006. Upon adoption, we intend to use the modified prospective transition method. Under this method, awards that are granted, modified, or settled after the date of adoption will be measured and accounted for in accordance with Statement 123R. Unvested equity-classified awards that were granted prior to the effective date will continue to be accounted for in accordance with Statement 123, except that compensation expense amounts will be recognized in the income statement. We are currently in the process of further analyzing this new pronouncement and have not yet determined the impact on our financial statements.
In November 2004, the FASB approved Statement No. 151,Inventory Costs an Amendment of ARB No. 43, Chapter 4. Statement No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires that those items be recognized as a current period expense regardless of whether they meet the criteria of “so abnormal.” This statement is effective for interim or annual periods beginning after June 15, 2005 and will thus be effective for our first quarter of fiscal 2006. We are currently in the process of analyzing the accounting requirements under this new pronouncement and have not yet determined its impact on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary financial instrument risks to which the Company is exposed are fluctuations in foreign currency exchange rates and interest rates. To manage risks associated with foreign currency exchange and interest rates, we make limited use of derivative financial instruments. Derivatives are financial instruments that derive their value from one or more underlying financial instruments. As a matter of policy, our derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. In addition, we do not enter into derivative contracts for trading or speculative purposes, nor are we party to any leveraged derivative instrument. The notional amounts of derivatives do not represent actual amounts exchanged by the parties to the instrument, and, thus, are not a measure of exposure to us through our use of derivatives. Additionally, we enter into derivative agreements only with highly rated counterparties and we do not expect to incur any losses resulting from non-performance by other parties.
Foreign Currency Sensitivity
Due to the global nature of the Company’s operations, we are subject to risks associated with transactions that are denominated in currencies other than the United States dollar, which creates exposure to foreign currency exchange risk. The objective of our foreign currency risk management activities is to reduce foreign currency risk in the consolidated financial statements. In order to manage foreign currency risks, we make limited use of foreign currency forward contracts and other foreign currency related derivative instruments. Although we cannot eliminate all aspects of our foreign currency risk, we believe that our strategy, which includes the use of derivative instruments, can reduce the impacts of foreign currency related issues on our consolidated financial statements.
During the quarter and two quarters ended February 26, 2005, we utilized foreign currency forward contracts to manage the volatility of certain intercompany financing transactions and other transactions that are denominated in foreign currencies. Because these contracts do not meet specific hedge accounting requirements, gains and losses on these contracts, which expire on a quarterly basis, are recognized currently and are used to offset a portion of the gains or losses of the related accounts. The gains and losses on these contracts were recorded as a component of SG&A expense in the Company’s consolidated statements of operations and resulted in the following net losses for the periods indicated (in thousands):
As of February 26, 2005, the Company had settled its net investment hedge contracts and has no further exposure related to these contracts. However, the Company may utilize net investment hedge contracts in future periods as a component of its overall foreign currency risk strategy.
Interest Rate Sensitivity
The Company is exposed to fluctuations in U.S. interest rates primarily as a result of the cash and cash equivalents that we hold. Following payment and termination of our line of credit facility during fiscal 2002, our remaining debt balances consist primarily of long-term mortgages on certain of our buildings and property. As such, the Company does not have significant exposure or additional liability due to interest rate sensitivity and we were not party to any interest rate swap or other interest related derivative instrument during the quarter or two quarters ended February 26, 2005 or February 28, 2004.
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness and the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, it was determined that our internal controls over revenue recognition for certain complex, multiple-element contracts in our OSBU were improving, but still deficient.
This deficiency in our internal controls related to improper recognition of revenue from certain complex multiple element contracts and included ineffective controls to monitor compliance with existing policies and procedures and insufficient training of accounting personnel on complex accounting standards related to multiple element contracts in the OSBU. The improper revenue recognition was detected in the review process and correcting adjustments were recorded to properly state our revenues. We are in the process of improving our internal controls over financial reporting regarding these contracts in an effort to remediate this deficiency including implementing personnel changes, providing additional training on complex revenue recognition principles for our accounting staff, and establishing additional policies and procedures related to revenue recognition. Additional work is needed to fully remedy this deficiency and we intend to continue our efforts to improve and strengthen our control processes and procedures. The deficiency was disclosed to the Audit Committee and to our auditors.
Other than continued control improvements on the deficiency noted above, there has been no change in our internal control over financial reporting during the fiscal quarter ended February 26, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In addition, other than as described above, since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.
On March 2, 2005, the SEC extended the compliance dates for non-accelerated filers and foreign private issuers pursuant to Section 404 of the Sarbanes-Oxley Act. Under this extension, a company that is not required to file its annual and quarterly reports on an accelerated basis (non-accelerated filer), must begin to comply with the internal control over financial reporting requirements for its first fiscal year ending on or after July 15, 2006. This action constitutes a one-year extension from the previously established July 15, 2005 compliance date. We are currently in the process of documenting our internal control structure and we intend to use the additional time to improve the quality of our documentation and testing.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain written and oral statements made by the Company or our representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, Internet webcasts, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” or words or phrases of similar meaning. Forward-looking statements are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are disclosed from time to time in reports filed by us with the SEC, including reports on Forms 8-K, 10-Q, and 10-K. Such risks and uncertainties include, but are not limited to, the matters discussed under Business Environment and Risk in our annual report on Form 10-K for the fiscal year ended August 31, 2004. In addition, such risks and uncertainties may include unanticipated developments in any one or more of the following areas: continuing demand for our products and services, which depends to some extent on general economic conditions, so that we can avoid future declines in revenues; the ability of our products and services to successfully compete with alternative solutions and the products and services offered by others; unanticipated costs or capital expenditures; cost savings from the outsourcing of our information systems and controls, including without limitation, the systems related to demand and supply planning, inventory control, and order fulfillment; delays or unanticipated outcomes relating to the Company’s strategic plans; dependence on existing products or services; the rate and consumer acceptance of new product introductions; the number and nature of customers and their product orders, including changes in the timing or mix of product or training orders; pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.
The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors may emerge and it is not possible for our management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any single factor, or combination of factors, may cause actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.
The market price of our common stock has been and may remain volatile. Factors such as quarter-to-quarter variations in revenues and earnings or losses or our failure to meet expectations could have a significant impact on the market price of our common stock. In addition, the price of our common stock can change for reasons unrelated to our performance. Due to our low market capitalization and share price, the price of our common stock may also be affected by conditions such as a lack of analyst coverage and fewer potential investors.
Forward-looking statements are based on management’s expectations as of the date made, and the Company does not undertake any responsibility to update any of these statements in the future. Actual future performance and results will differ and may differ materially from that contained in or suggested by forward-looking statements as a result of the factors set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in our filings with the SEC.
Item 1. Legal Proceedings:
During fiscal 2002, the Company received a subpoena from the Securities and Exchange Commission (SEC) seeking documents and information relating to the Company’s management stock loan program and previously announced, and withdrawn, tender offer. The Company has provided the documents and information requested by the SEC, including the testimonies of its Chief Executive Officer, Chief Financial Officer, and other key employees. The Company has cooperated, and will continue to fully cooperate, in providing requested information to the SEC. The SEC and the Company are currently engaged in discussions with respect to a potential resolution of this matter.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
The Company did not purchase any shares of its common stock during the quarter ended February 26, 2005.
In previous fiscal years, the Company’s Board of Directors had approved various plans for the purchase of up to 8,000,000 shares of our common stock. As of November 25, 2000, the Company had purchased 7,705,000 shares of common stock under these board-authorized purchase plans. On December 1, 2000, the Board of Directors approved an additional plan to acquire up to $8.0 million of our common stock. To date, we have purchased $7.1 million of our common stock under the terms of the December 2000 Board approved purchase plan. The maximum number of shares that may yet be purchased under the plans, which totaled approximately 654,000, was calculated for the December 2000 plan by dividing the remaining approved dollars by $2.55, which was the closing price of the Company’s common stock on February 25, 2005 (last trading day of fiscal quarter). These shares were added to the remaining shares from the Company’s other Board-approved plans to arrive at an approximate maximum number of shares that may be purchased as of February 26, 2005. No shares of the Company’s common stock were purchased during the fiscal quarter ended February 26, 2005 under terms of any Board authorized purchase plan.
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on March 4, 2005. The following represents a summary of each mater voted upon and the corresponding voting results for each item considered at the Annual Meeting. Further information regarding each item can be found in the Company’s definitive Proxy Statement dated January 26, 2005.
1. Election of Directors -Four directors were elected for three-year terms that expire at the Annual Meeting of Shareholders to be held following the end of fiscal 2007, or until their successors are elected and qualified. The number of shares voting in favor of each director was as follows:
| Clayton Christensen | | 23,622,084 |
| Robert H. Daines | | 22,423,788 |
| E.J. “Jake” Garn | | 22,078,996 |
| Donald J. McNamara | | 22,374,740 |
At the request of Mr. Smith, Hyrum W. Smith did not stand for re-election and his service on the Board of Directors was concluded as of March 4, 2005.
2.Adoption of the 2004 Employee Stock Purchase Plan- In March 1992, we adopted an Employee Stock Purchase Plan (ESPP), which was subsequently amended until its expiration date on August 31, 2004. The 2004 ESPP, like its predecessor plan, allows employees to purchase shares of the Company’s common stock at a price equal to 85 percent of the fair market value of those shares at the close of each fiscal quarter. The maximum number of shares that can be issued under the 2004 ESPP is 1.0 million shares. The number of shares that voted in favor of adopting the 2004 ESPP was 15,083,682, with 1,932,634 shares against, and 8,960 shares that abstained from voting.
3. 2004 Non-Employee Directors’ Stock Incentive Plan -The purpose of this plan is to allow non-employee members of the Board of Directors to participate in a stock incentive program, including restricted stock awards, stock options, and other forms of stock grants. On March 31 of each year, the Company will grant each eligible non-employee director restricted stock having a fair market value of $27,500 on the date of grant. The vesting period on these shares is a minimum of three years. The maximum number of shares that may be granted under this plan, which expires on March 31, 2015, is 300,000. The number of shares that voted in favor of the 2004 Non-Employee Directors’ Stock Incentive Plan was 13,390,517, with 3,623,091 shares voting against it, and 10,110 shares that abstained from voting.
4. Approve the Ratification of the Independent Auditors -The shareholders also ratified the appointment of KPMG LLP as independent auditors for the fiscal year ending August 31, 2005. The number of shares that voted in favor of KPMG was 25,279,346, with 443,071 shares against, and 3,086 shares that abstained from voting.
5. Preferred Stock Recapitalization -For certain components of the preferred stock recapitalization plan, the number of votes cast was required to be counted by 1) common stock shares, 2) Series A preferred stock shares (on an “as converted” basis), and 3) the combined number of common shares and Series A preferred shares. Other recapitalization proposals required vote counts by common stock and Series A preferred stock or by a combination of both classes of equity. As such, each of the following recapitalization proposals will include the required vote counts (as prescribed by the Company’s bylaws) necessary to approve the respective proposal. The components of the recapitalization plan were as follows:
| | a. | To approve the amendment and restatement of the Articles of Incorporation of the Company to modify the rights, preferences, and limitations of the Series A preferred stock and the Series B preferred stock. The votes for, against, and abstaining from this proposal were as follows: |
| TD: 'BORDER-BOTTOM: medium none' vAlign=bottom align=right width='11%'> 10,660 | DIV: 'DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt' align=center>Series A Preferred Stock Shares |
">| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | 8,617,174 | | | 6,662,707 | | | 15,279,881 | | | Against | | | 1,726,880 | | | 754 | | | 1,727,634 | | | Abstained | | | 10,810 | | | - | | | 10,810 | |
| | b. | To approve the issuance of warrants to all holders of Series A preferred stock to purchase shares of the Company’s common stock. The votes for, against, and abstaining from this proposal were as follows: |
| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | - | | | - | | | 15,231,645 | | | Against | | | - | | | - | | | 1,812,270 | | | Abstained | | | - | | | - | | | 10,660 | |
| | c. | To approve the amendment and restatement of the Articles of Incorporation of the Company to effect a one-to-four forward split of each outstanding share of Series A preferred stock. The votes for, against, and abstaining from this proposal were as follows: |
| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | - | | | 6,663,357 | | | 15,280,572 | | | Against | | | - | | | 104 | | | 1,733,443 | | | Abstained | | | - | | | - | | | 10,560 | |
| | d. | To approve the amendment and restatement of the Articles of Incorporation of the Company to increase the authorized shares of preferred stock from 4,000,000 to 14,000,000. The votes for, against, and abstaining from this proposal were as follows: |
| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | 8,541,984 | | | 6,663,382 | | | 15,205,366 | | | Against | | | 1,811,670 | | | 79 | | | 1,811,749 | | | Abstained | | | 7,460 | | | - | | | 7,460 | |
| | e. | To approve the amendment and restatement of the Articles of Incorporation of the Company to increase the number of shares of preferred stock designated as Series A preferred stock from 1,500,000 to 4,000,000 shares. The votes for, against, and abstaining from this proposal were as follows: |
| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | - | | | 6,663,382 | | | 15,280,527 | | | Against | | | - | | | 79 | | | 1,796,618 | | | Abstained | | | - | | | - | | | 7,460 | |
| | f. | To approve the amendment and restatement of the Articles of Incorporation of the Company to increase the number of shares of preferred stock designated as Series B preferred stock from 400,000 to 4,000,000 shares. The votes for, against, and abstaining from this proposal were as follows: |
| | | Common Stock Shares | | Series A Preferred Stock Shares | | Combined Common Stock and Series A Preferred Stock Shares | | | In favor | | | - | | | 6,662,732 | | | 15,222,695 | | | Against | | | - | | | 729 | | | 1,793,920 | | | Abstained | | | - | | | - | | | 7,960 | |
The ratification of the recapitalization plan required that all components be approved. Therefore, the recapitalization plan was formally approved by our shareholders.
6. Modification of Articles of Incorporation -This proposal sought to modify our Articles of Incorporation by eliminating or modifying certain miscellaneous provisions. The number of shares that voted in favor of this proposal was 15,193,105, with 1,695,908 shares voting against, and 7,960 shares that abstained from voting.
Item 5. Other Information
On April 8, 2005, Brian A. Krisak, a director of the Company since 1999, became a training consultant for the Company and resigned his position as director. Effective March 31, 2005, Stephen D. Young, the Chief Financial Officer of the Company, was appointed as Corporate Secretary of the Company to fill the vacancy left by the resignation of Val J. Christensen.
| | 4.1 | Articles of Restatement dated March 4, 2005 amending and restating the Company’s Articles of Incorporation (filed as Exhibit 99.6 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 31 | Certification of CEO and CFO under Section 302 of the Sarbanes-Oxley Act of 2002. | | | 32 | Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002. | | | 10.1 | Amended and Restated Option Agreement, dated December 8, 2004, by and between the Company and Robert A. Whitman (filed as Exhibit 99.1 in the Company’s Current Report on Form 8-K filed with the Commission on December 14, 2005 and incorporated herein by reference). | | | 10.2 | Agreement for the Issuance of Restricted Shares, dated as of December 8, 2004, by and between Robert A. Whitman (filed as Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the Commission on December 14, 2005 and incorporated herein by reference). | | | 10.3 | Letter Agreement regarding the cancellation of Robert A. Whitman’s Employment Agreement, dated December 8, 2004 (filed as Exhibit 99.3 in the Company’s Current Report on Form 8-K filed with the Commission on December 14, 2005 and incorporated herein by reference). | | | 10.4 | Restated Shareholders Agreement, dated as of March 8, 2005, between the Company and Knowledge Capital Investment Group (filed as Exhibit 99.1 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 10.5 | Restated Registration Rights Agreement, dated as of March 8, 2005, between the Company and Knowledge Capital Investment Group (filed as Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 10.6 | Restated Monitoring Agreement, dated as of March 8, 2005, between the Company and Hampstead Interests, LP (filed as Exhibit 99.3 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 10.7 | Warrant, dated March 8, 2005, to purchase 5,913,402 shares of Common Stock issued by the Company to Knowledge Capital Investment Group (filed as Exhibit 99.4 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 10.8 | Form of Warrant to purchase shares of Common Stock to be issued by the Company to holders of Series A Preferred Stock other than Knowledge Capital Investment Group (filed as Exhibit 99.5 in the Company’s Current Report on Form 8-K filed with the Commission on March 10, 2005 and incorporated herein by reference). | | | 10.9 | Franklin Covey Co. 2004 Non-Employee Directors’ Stock Incentive Plan (filed as Exhibit 99.1 in the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2005 and incorporated herein by reference). | | | 10.10 | Form of Option Agreement for the 2004 Non-Employee Directors Stock Incentive Plan (filed as Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2005 and incorporated herein by reference). | | | 10.11 | Form of Restricted Stock Agreement for the 2004 Non-Employee Directors Stock Incentive Plan (filed as Exhibit 99.3 in the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2005 and incorporated herein by reference). | | | 10.12 | Separation Agreement between the Company and Val J. Christensen, dated March 29, 2005 (filed as Exhibit 99.1 in the Company’s Current Report on Form 8-K filed with the Commission on April 4, 2005 and incorporated herein by reference). | | | 10.13 | Legal Services Agreement between the Company and Val J. Christensen, dated March 29, 2005 (filed as Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the Commission on April 4, 2005 and incorporated herein by reference). |
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. | 
