ANN ARBOR, Mich., March 7 /PRNewswire-FirstCall/ -- ProQuest Company
(NYSE: PQE, "the company"), a publisher of education materials and provider
of education solutions in the K-12 market, is today providing a business
update on its ProQuest Education business and corporate transition.
Cash Position
As of March 1, 2007, the company had approximately $149 million in
cash.
ProQuest previously reported that it closed on the sale of its ProQuest
Business Solutions segment ("PQBS") to Snap-on Incorporated (NYSE:SNA) on
November 28, 2006 and the sale of its ProQuest Information and Learning
segment ("PQIL") to Cambridge Information Group on February 9, 2007, and
used a portion of the proceeds to repay all of its then-outstanding senior
notes and bank revolver debt totaling approximately $535 million. In
addition, ProQuest used a portion of the proceeds from the sales to, among
other things, pay certain pension obligations, severance costs, investment
banking fees, legal fees and accounting fees, and fund working capital
obligations related to the transactions.
Taking into account the capital gain on the sale of PQBS and the
utilization of existing capital loss carry forwards, basis in the assets
sold, and available tax credits, the company anticipates it will pay
federal and state income taxes of approximately $60 to 65 million in March
2007. The sale of PQIL will generate in 2007 a significant capital loss for
tax purposes which ProQuest intends to carry back against its 2006 taxable
gain from the sale of PQBS. Taking into account this capital loss and
remaining available tax credits, it is anticipated that the company will
receive income tax refunds of $40 to $45 million by the first quarter of
2008.
The company anticipates it will have a remaining cash balance of $95 to
$100 million in early 2008, after projected tax refunds associated with the
capital loss on the sale of PQIL, tax payments, severance payments,
corporate expenses, transition costs, restatement costs, operating cash
flow from its Education businesses, interest income, and working capital
adjustments to the purchase price for each of the sales of PQBS and PQIL.
Certain Other Liabilities
The company previously disclosed liabilities associated with legacy
retirement plans and long term leases on two buildings in Ann Arbor,
Michigan. The company anticipates the buildings will be surplus to its
needs after the company completes its restatement, files its 2006 10-Qs and
10-K, and transitions its remaining corporate functions to Dallas. The
company currently estimates the net present value of these legacy
retirement plans and long-term building lease obligations to be
approximately $40 million. The company is not obligated to settle these
legacy obligations in 2007, but should it decide to settle and pay some or
all of them, any amounts paid for that purpose would reduce the $95 to $100
million in cash the company projects it will have on hand in early 2008
after receipt of its tax refund associated with the capital loss on the
sale of PQIL.
Litigation and SEC Investigation
The company has been named in a class action lawsuit originally filed
in February 2006 by certain shareholders as a result of the accounting
irregularities that led to its restatement. An amended complaint was filed
on January 24, 2007 and a motion to dismiss is to be filed on March 15,
2007. The company and certain current and former directors and officers
have also been named as defendants in derivative litigation and an
ERISA-based lawsuit. A shareholder has also brought an action against the
company in Delaware, requesting access to certain books and records.
In May 2006, the SEC informed the company that it had opened a formal
investigation into the accounting irregularities announced by the company
in April. The investigation is ongoing and the company continues to
cooperate with the SEC in its investigation.
Corporate Transition
As a result of selling two of its three operating segments in 2006 and
2007, ProQuest intends to transition all of its corporate functions to its
ProQuest Education ("PQED") offices in Dallas, Texas by year end 2007.
During the course of 2007, the company intends to maintain a reduced staff
at the company's Ann Arbor office to fulfill the company's obligations
under transition services agreements and to complete the transfer of the
remaining corporate functions to Dallas. The company intends to maintain
sufficient accounting and finance staff in its Ann Arbor office to complete
the restatement of previously filed financial statements and file the
company's 2006 10-Qs and 10-K before transitioning these functions to
Dallas. The company anticipates these efforts will continue at least
through year end 2007.
After the transfer of all corporate functions to Dallas is complete and
excluding the effects of the legacy pension, building and severance
obligations, the company expects ProQuest Education to incur ongoing
incremental expense of $4 to $5 million per year which is not currently
reflected in the results of ProQuest Education. These costs are associated
with assuming all corporate functions required by a stand-alone publicly
traded company including the costs of an external auditor, Sarbanes-Oxley
compliance, tax compliance, listing fees, franchise fees, SEC
filing-related expenses, and board costs including corporate general
liability and D&O insurance which are currently not reflected in PQED
results.
Unaudited Full Year 2005 Financial Results for ProQuest Education and
Corporate
The following financial results for ProQuest Education and corporate
are ProQuest Company figures and have not been reviewed or audited by the
company's independent registered public accounting firm. All of the
financial results contained in this section are unaudited, preliminary and
are subject to change, including potential impairment charges, prior to the
filing of the company's 2005 10-K.
ProQuest Education
ProQuest Education comprises three product lines; Voyager Expanded
Learning ("Voyager") which was acquired on January 31, 2005,
ExploreLearning which was acquired on February 25, 2005 and LearningPage
which was acquired in 2004. For the year ended December 31, 2005, including
11 months of Voyager, 10 months of ExploreLearning and 12 months of
LearningPage, ProQuest Education is expected to report revenue of $91
million.
For the year ended December 31, 2005, ProQuest Education is expected to
report EBIT of $7.4 million and EBITDA of $27.7 million.
EBIT for 2005 is lower than the company previously projected as a
result of a change in the amortization of curriculum development costs
acquired with Voyager. As a result of its accounting review, the company
intends to amortize certain portions of the curriculum development costs
acquired with Voyager using the sum-of-the-years method rather than
straight-line over 10 years. The effect of this change is to increase
amortization of these curriculum development costs in early years and
decrease amortization costs in later years as compared to the straight-line
method.
Capital expenditures for the Education segment were approximately $9
million in 2005. Capital expenditures include both the purchase of fixed
assets and the capitalization of certain curriculum expenses.
On a proforma basis, as if ProQuest had acquired Voyager Expanded
Learning on January 2, 2005, the first day of ProQuest Company's 2005
fiscal year, the ProQuest Education segment generated revenue of $101
million, EBIT of $10.3 million, and EBITDA of $32.3 million. A
reconciliation of preliminary and unaudited GAAP revenue, EBIT and EBITDA
to proforma results as if Voyager Expanded Learning was acquired on January
2, 2005 is attached.
Corporate Expense
ProQuest corporate expense before interest and taxes for fiscal year
2005 is expected to be $15.7 million.
Unaudited Full Year 2006 Financial Results for ProQuest Education and
Corporate
The following financial results for ProQuest Education are ProQuest
Company figures and have not been reviewed or audited by the company's
independent registered public accounting firm. All of the financial results
contained in this section are unaudited, preliminary and are subject to
change, including the effect of potential impairment charges during the
restatement period, prior to the filing of the company's 2005 and 2006
10-Ks.
ProQuest Education
ProQuest Education preliminary results were $117.3 million in revenue,
$12 million in EBIT, and $34.5 million in EBITDA. Capital expenditures were
$5.8 million.
EBIT for 2006 is lower than the company previously projected as a
result of a change in the amortization of curriculum development costs
acquired with Voyager.
Corporate
Preliminary corporate expense before interest and taxes was $40.8
million for 2006. Included in this amount is option and restricted stock
expense of approximately $4.6 million in accordance with the adoption of
SFAS 123R, Share-Based Payment, as well as restatement costs of $19.4
million associated with accounting, legal, and other costs for the
restatement.
2007 Guidance for ProQuest Education and Corporate
ProQuest is providing 2007 guidance for ProQuest Education and
Corporate as follows:
ProQuest Education
The company expects 2007 revenue for the ProQuest Education segment of
$116 to $124 million, EBIT of $10 to $13 million, and EBITDA of $32 to $35
million. Capital expenditures are expected to total $10 to $12 million.
This guidance for ProQuest Education does not include the ongoing
incremental cost of assuming corporate functions as a stand-alone publicly
traded company, which the company expects to be $4 to $5 million starting
in 2008.
Corporate
For the full year 2007, the company expects corporate expense before
interest and taxes to be between $30 and $32 million, including restatement
costs of approximately $12 million, equity compensation expense of
approximately $1.5 million in accordance with SFAS 123R, Share-Based
Payment, severance costs of $4 million, pension and retirement plan related
costs of $2 million, and building costs associated with its share of Ann
Arbor real estate of $2 million. Interest income is anticipated to be
between $3 and $4 million pre-tax.
Proforma Comparison of 2005 Preliminary Actuals, 2006 Preliminary
Actuals and 2007 Guidance for ProQuest Education Revenue
On a proforma basis, presented to exclude certain revenue-related
effects of purchase accounting for the January 31, 2005 acquisition of
Voyager and to adjust for a change in business practices regarding customer
shipping terms implemented in 2006, ProQuest Education generated
preliminary revenue of $110.3 million in 2005, $113.1 million in 2006 and
projects revenue of $116 to $124 million in 2007. This represents projected
revenue growth between 2006 and 2007 of 3% to 10% on a proforma basis.
The company recorded the acquired assets and liabilities of Voyager at
fair value in accordance with GAAP purchase accounting when it acquired
Voyager on January 31, 2005. As a result, certain deferred revenue
liabilities on the balance sheet as of the acquisition date were marked
down to fair value. The deferred revenue liability primarily relates to
sales of recurring training which is recorded in future periods after the
acquisition at full value when new training is sold. Proforma revenue is
presented as if the deferred revenue liability had not been reduced to fair
value for purchase accounting upon the acquisition of Voyager.
In 2006, Voyager changed business practices to allow it to recognize
revenue when product is shipped (FOB origin) where appropriate
documentation exists. Under GAAP, in prior periods, business practices did
not allow the company to recognize revenue when product was shipped but
instead it was recognized when product was received by the customer (FOB
destination). The proforma revenue reported above adjusts revenue as if
this business practice was in place prior to 2005 and therefore treats
revenue more consistently for 2005, 2006, and 2007. A reconciliation of
preliminary and unaudited GAAP revenue to proforma results as if Voyager
Expanded Learning was acquired on January 2, 2005, as if the reduction of
deferred revenue liabilities for purchase accounting was not made, and as
if consistent business practices related to shipping terms were in place is
attached.
SEC Filing Timeline and New York Stock Exchange Status
The company received an extension for continued listing and trading on
the New York Stock Exchange (NYSE) through April 2, 2007. The NYSE has
indicated it will move forward with the initiation of suspension procedures
in the event that ProQuest Company has not filed its Annual Report on Form
10-K for 2005 by April 2, 2007. While the company believes that it may have
sufficient time to file its 10-K before April 2, 2007, there is a risk that
it will not file before the NYSE-imposed deadline and may as a result be
delisted.
The company also announced that it will not file its Form 10-K for the
fiscal year ended December 30, 2006 within the prescribed time period. The
company intends to file its 2006 10-K at the earliest practicable date.
Until the company is current with its SEC filings, the company will not be
in compliance with NYSE listing standards.
Basis of Presentation
The unaudited preliminary financial results in this press release are
presented in accordance with generally accepted accounting principles
(GAAP), but are subject to change until the company finalizes its
accounting review and restatement adjustments. Earnings from continuing
operations before interest and income taxes (EBIT), which excludes
interest, income taxes and discontinued operations, is a key metric used by
ProQuest Company to assess the performance of its business segments. EBIT
provides useful information about how ProQuest Company's management
assesses the company's ability to fund working capital items and capital
expenditures and, in prior periods, service and comply with the terms of
its debt agreements. The company's ability to fund working capital items,
fund capital expenditures and service debt in the future, however, may be
affected by other operating or legal requirements.
About ProQuest Company
ProQuest Company (NYSE: PQE) is based in Ann Arbor, Michigan, and is a
publisher of education materials and provider of education solutions
serving the K-12 market. Through its Education product lines, which include
Voyager Expanded Learning, ExploreLearning and LearningPage, the company is
a leading provider of K-12 curriculum products, in-school core reading
programs, reading and math intervention programs, and professional
development programs for school districts throughout the United States.
Forward-Looking Statements
Some of the statements contained herein constitute forward-looking
statements. These statements relate to future events, the results of our
pending restatement process, or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may
cause our or our markets' actual results, levels of activity, performance
or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by such
forward-looking statements. These risks and other factors you should
specifically consider include, but are not limited to the company's ability
to successfully conclude the review and restatement of its financial
results, the discovery of additional restatement items, litigation, loss of
key personnel, success of ongoing product development, maintaining
acceptable margins, ability to control costs, changes in customer demands
or industry standards, the ability to successfully attract and retain
customers, the ability to sell additional products to existing customers
and win new business from new customers, the ability to maintain a broad
customer base to avoid dependence on any one single customer, K-12
enrollment and demographic trends, the level of educational and education
technology funding, the impact of federal, state and local regulatory
requirements on ProQuest's business, the risk of delisting by the NYSE, the
impact of competition and the uncertainty of economic conditions in
general, financial market performance, and other risks listed under "Risk
Factors" in our regular filings with the Securities and Exchange
Commission. In some cases, you can identify forward- looking statements by
terminology such as "may," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "continue," "projects,"
"intends," "prospects," "priorities," or the negative of such terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. The company undertakes no
obligation to update any of these statements.
PROQUEST COMPANY AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(In $ Millions)
Reconciliations of non-GAAP measures to preliminary, unaudited GAAP
measures:
These results are preliminary and subject to change based on results of
the ongoing restatement.
EBITDA & EBIT
Year Ended December 31, 2005
Education
EBITDA (1, 4) $27.7
Less: Depreciation & amortization (20.3)
EBIT (2, 4) $7.4
EBITDA & EBIT
Proforma Basis - Year Ended
December 31, 2005 (3)
Education
EBITDA (1) $32.3
Less: Depreciation & amortization (22.0)
EBIT (2) $10.3
EBITDA & EBIT
Year Ended December 30, 2006
Education
EBITDA (1) $34.5
Less: Depreciation & amortization (22.5)
EBIT (2) $12.0
EBITDA & EBIT
Year Ended December 29, 2007
Education
EBITDA (1) $32.0 - 35.0
Less: Depreciation & amortization 22.0 - 22.0
EBIT (2) $10.0 - 13.0
(1) EBITDA is earnings before interest, taxes, depreciation, and
amortization.
(2) EBIT is earnings before interest and taxes.
(3) Proforma Basis results are as if ProQuest had acquired Voyager on
January 2, 2005, the first day of ProQuest's 2005 fiscal year.
(4) Results include 11 months of Voyager, 10 months of
ExploreLearning, and 12 months of LearningPage.
Unaudited Proforma Results Assuming PQE Had Acquired Voyager on
January 2, 2005
PQE 2005 Voyager January 2005 *PQE Proforma 2005
Revenue $91.0 $10.0 $101.0
EBIT $7.4 $2.9 $10.3
EBITDA $27.7 $4.6 $32.3
*ExploreLearning results for January and February 2005, prior to the
acquisition of ExploreLearning by PQE, are immaterial.
Unaudited Proforma Revenue Presentation ProQuest Education 2005 and 2006
2005 2006
Preliminary GAAP Revenue $91.0 $117.3
Add Voyager January 2005 Revenue 10.0 -
Proforma Revenue with 12 months of Voyager $101.0 $117.3
Remove adjustment for deferred revenue
liability marked to fair value 7.0 0.7
Adjust for change in business practice
regarding shipping terms 2.3 (4.9)
Proforma Revenue * $110.3 $113.1
* Includes adjustments for 12 months of Voyager and to eliminate the
effect of purchase accounting on deferred revenue liabilities and for
consistent reporting of revenue recognition for F.O.B. origin for all
periods.
Contacts:
Jennifer Chelune
Investor Relations Manager
(734) 997-4910
jennifer.chelune@proquest.com
SOURCE ProQuest Company
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Related links:
http://www.proquestcompany.com
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CONTACT:
Jennifer Chelune , Investor Relations
Manager, +1-734-997-4910, or jennifer.chelune@proquest.com
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