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News and Information Article
Company Updates on Sale of ProQuest Information and Learning, Expected Tax
Impacts, Restatement Process, Preliminary 2005 and 2006 Financial Results
and Information on Certain Other Liabilities
ANN ARBOR, Mich., Dec. 15 /-FirstCall/ -- ProQuest Company
(NYSE: PQE) (the Company), a publisher of information and education
solutions, is today providing a business update, following its separately
announced definitive agreement with Cambridge Information Group (CIG),
providing for the acquisition of the ProQuest Information and Learning
(PQIL) segment for approximately $222 million.
Alan Aldworth, ProQuest Companys chairman and chief executive officer,
said, "This pending transaction is consistent with the strategic intent we
announced in April. When complete, it will significantly improve ProQuest
Companys capital structure."
ProQuest Business Solutions Transaction
ProQuest previously reported that it closed on the sale of its ProQuest
Business Solutions segment (PQBS) to Snap-on Incorporated (NYSE: SNA) for
approximately $527 million, consisting of $508 million in cash received and
the assumption by Snap-On Incorporated of $19 million in debt in the form
of monetized future billings. Concurrent with the sale, the Company
incurred approximately $33 million of transaction costs and other required
payments including funding $8 million of working capital needed for its
remaining U.K. PQIL operations.
ProQuest used the remaining proceeds of approximately $475 million to
pay down a portion of its $532 million in outstanding debt. After
application of the available proceeds and payment of make-whole amounts due
to its lenders, the Companys remaining outstanding debt balance as of
December 1, 2006 was approximately $58 million, consisting of a mix of
senior notes and bank debt.
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, it is anticipated that the Company will
owe income taxes for 2006 of approximately $50 million due March 2007.
ProQuest Information and Learning Transaction
Final cash proceeds from the PQIL transaction are anticipated to be
approximately $195 million after purchase price adjustments for obligations
not assumed by CIG and for projected working capital adjustments.
Concurrent with the close of the transaction, the Company anticipates
it will incur approximately $45 million of transaction costs and other
required payments including approximately $23 million in U.K. pension plan
contributions.
After these transaction costs and other required payments, ProQuest
intends to use a portion of the remaining proceeds of approximately $150
million to pay down its entire outstanding senior note and bank debt
balances which it projects will be approximately $60 million, including
make-whole payments and fees. In addition, ProQuest will use a portion of
the remaining proceeds to make the approximately $50 million income tax
payment due in March 2007.
The PQIL transaction will generate a significant capital loss for tax
purposes which ProQuest intends to carry back against its 2006 taxable gain
on the sale of PQBS. Taking into account this capital loss and remaining
available tax credits, it is anticipated that the Company will receive a
tax refund of $35 million to $40 million in the first quarter of 2008.
Certain Other Liabilities
The Company is also providing additional information regarding certain
liabilities, including two retirement benefit plans and long-term leases on
two buildings in Ann Arbor, Michigan used for its corporate headquarters
and PQIL operations.
The Supplemental Retirement Plan (SRP) is a legacy unfunded defined
benefit type plan with no active employees as members. The SRP has a
projected liability based on actuarial assumptions under SFAS 87 and SFAS
158 of $22.5 million as of December 31, 2006.
The Retirement Benefit Plan is a closed, unfunded account balance type
plan for certain U.S. employees and represents an estimated liability of
approximately $10.2 million as of September 30, 2006. After a January 2007
scheduled distribution, the Company estimates this liability will be
reduced to approximately $6.3 million.
In November 2004, ProQuest Company entered into long-term leases on two
buildings at 777 and 789 Eisenhower Parkway, Ann Arbor, Michigan. The lease
terms commenced in April 2006, and cover approximately 183,000 square feet
of office and storage space. Under the terms of the definitive agreement
with CIG, the Company will assign or sublease all of its space in the
building at 777 Eisenhower to CIG. In addition, CIG has agreed to sublease
at cost from ProQuest for a period of two years approximately 85 percent of
its leased space in the 789 Eisenhower building. ProQuest anticipates that
the annual cost of space retained from year three through the remainder of
the lease term, which expires in 2021, will be approximately $4 million per
year. The Company currently expects that most or all of this space will be
surplus to its needs and that it will attempt to sublease the space.
Accounting Restatement Update
ProQuests ongoing accounting review will result in the restatement of
previously reported earnings for fiscal years 2001 through 2004 and for the
first three quarters of 2005 when it files its 2005 Annual Report on Form
10-K with the Securities and Exchange Commission ("SEC"). Adjustments prior
to that period will be incorporated into retained earnings at the beginning
of the year 2001.
The Company has refined its estimates of the restatements impact on
certain line items in its financial statements, as set forth below.
Preliminary Restatement Impacts for the Period 2001 to 3Q2005
($ in millions)
Total ProQuest Company 2001 2002 2003 2004 1Q-3Q 2005
Previously reported
earnings before
interest and taxes $63.8 $85.3 $89.2 $96.2 $81.5
Preliminary restated
earnings before
interest and taxes $40-$45 $65-$70 $60-$65 $30-$35 $25-$30
The majority of adjustments the Company has identified to date relate
to PQIL and the accounting irregularities initially identified and
disclosed by ProQuest on April 28, 2006. These accounting irregularities
were the subject of a previously disclosed investigation by the Audit
Committee of the Board of Directors, conducted with the assistance of
independent outside experts including Skadden, Arps, Slate, Meagher & Flom
LLP and Chicago Partners LLC. However, as a result of the Companys
continuing accounting review and KPMG LLPs (KPMGs) ongoing audit work,
the Company has identified additional accounting issues with previously
reported results for PQIL and also its ProQuest Education and ProQuest
Business Solutions segments which have led to an expansion of the scope of
its accounting review.
The Company now anticipates it will restate unaudited interim results
for its ProQuest Education segment primarily to reflect changes in revenue
recognition at Voyager Expanded Learning (Voyager) during the first three
quarters of 2005. ProQuest Education results were previously reported in
PQIL segment results.
The Company has completed its review of PQBS results and will restate
results for the 2001 to 2005 periods primarily related to how it accounted
for its equity in earnings of an affiliate and the timing of revenue and
expense recognition related to a contract with an OEM.
Prior to finalizing its restatement adjustments, ProQuest intends to
conduct impairment testing of certain assets in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS
142, Goodwill and Other Intangible Assets. Managements estimated ranges of
possible restatement amounts do not include adjustments for potential
impairment of assets, if any.
The Company has completed a significant amount of work on its
restatement. However, several items remain open and will require additional
work before the Company can complete its review and finalize the results.
In addition, KPMGs ongoing audit of prior periods is not complete and
there can be no assurance that additional issues will not be identified. As
a result, the Company now expects that it will not file its restated
consolidated financial statements, in the form of the 2005 Annual Report on
Form 10-K, until the first quarter of 2007.
Unaudited Full Year 2005 Financial Results by Business Segment
The following financial results for ProQuest Information and Learning
and ProQuest Education are ProQuest Company figures and have not been
reviewed or audited by the Companys independent registered public
accounting firm. All comparisons are based upon preliminary restated
amounts and as such, are subject to change.
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 Companys 2005 10-K.
ProQuest Education
ProQuest Company acquired Voyager Expanded Learning (Voyager) on
January 31, 2005, and ExploreLearning on February 25, 2005. For the year
ended December 31, 2005, the results include 11 months of Voyager and other
K-12 curriculum businesses. For this period, the Education segment is
expected to have revenue of $91.2 million, of which Voyager accounted for
$86.0 million. The reduction from the Companys previous estimate of $98.2
million is the result of adjustments primarily related to the timing of
revenue recognition in its Voyager business.
For the year ended December 31, 2005, the ProQuest Education segment is
expected to report EBIT of $15.1 million, of which Voyager accounted for
all $15.1 million, and EBITDA of $27.9 million, of which Voyager accounted
for $26.3 million.
Capital expenditures for the Education segment were approximately $9
million in 2005.
ProQuest Business Solutions
ProQuest Business Solutions (PQBS) generated $182.9 million of revenue
in fiscal year 2005. PQBS EBIT for the same period was $50.0 million and
EBITDA was $56.0 million. Capital expenditures were approximately $3.0
million in 2005.
ProQuest Information and Learning
ProQuest is continuing the accounting review of its ProQuest
Information and Learning segment.
Preliminary revenue for PQIL for 2005 is expected to be between $275
million and $280 million. On a pro forma basis, as if the October 2005
divestiture of the periodical microfilm business had occurred on January 2,
2005, PQILs 2005 revenue is expected to be between $245 million and $250
million.
The Company estimates that its PQIL segment will report an EBIT loss of
$20 million to $25 million for fiscal year 2005. The Company estimates that
EBITDA for the period was between $42 million and $47 million.
PQIL capital expenditures totaled approximately $70 million in 2005. In
addition, required cash rents and other lease related payments under
capitalized leases for 2005 totaled approximately $8.5 million.
Corporate and Net Interest Expense
ProQuest corporate expense for fiscal year 2005 is expected to be $15.4
million, which reflects a one-time benefit of $1.5 million related to the
discontinuance of the Companys post-retirement medical program. Net
interest expense for the period is expected to be $32.8 million.
2006 Update
ProQuest currently expects its financial results for the first three
quarters of 2006 to be within the following ranges, and is providing
guidance for the full year 2006 as follows:
ProQuest Education
The Company expects revenue for the ProQuest Education segment for the
nine months ended September 30, 2006 to be approximately $94 million, EBIT
to be approximately $18 million, and EBITDA to be approximately $30
million. Capital expenditures are expected to total approximately $4 to $5
million.
Of the ProQuest Education segment results, Voyager Expanded Learning is
expected to account for $87 million of its revenue, $18 million of its
EBIT, $29 million of its EBITDA, and $3.5 million of its capital
expenditures during the nine-month period.
ProQuest Educations revenue for the full year is expected to be below
the low end of the Companys previous guidance, which was a range of $120
million to $135 million. EBIT and EBITDA are also expected to be below the
Companys previous guidance, a range of $25 million to $35 million for EBIT
and $40 million to $50 million for EBITDA.
ProQuest Business Solutions
For the nine months ended September 30, 2006, the company anticipates
PQBS will report revenue of $138.4 million, EBIT of $40.5 million, and
EBITDA of $44.7 million. Capital expenditures are expected to be
approximately $6.2 million.
For the period January 1, 2006 through November 28, 2006 (the date of
the close of the PQBS sale), the company anticipates PQBS will report
revenue of $169 million, EBIT of $46.5 million, and EBITDA of $52 million.
Capital expenditures are expected to be approximately $8 million.
ProQuest Information and Learning
For the nine months ended September 30, 2006, the Company expects
revenue for its PQIL segment to be within a range of $195 million to $200
million. During the same period, ProQuest anticipates that this segment
generated EBIT of $0 million to $5 million and EBITDA of $45 million to $50
million. Capital expenditures are expected to total $35 million to $40
million for the nine months ended September 30, 2006. Required cash rents
and other lease related payments associated with capitalized leases totaled
$5 million for the nine months ended September 30, 2006.
For the full year 2006, the company expects PQIL revenue will be at the
upper end of the Companys previously disclosed guidance, which was $235
million to $260 million. For the full year 2006, the company currently
projects that PQIL will be slightly EBIT and cash flow positive.
Corporate and Net Interest Expense
The company anticipates corporate expense for the nine months ended
September 30, 2006 to be approximately $31.5 million. Included in this
amount is option and restricted stock expense of approximately $4.5 million
in accordance with the adoption of SFAS 123R, Share-Based Payment, as well
as one-time legal, accounting, and other costs associated with the
restatement which are estimated to be approximately $11.5 million. The
company anticipates interest expense for the nine months ended September
30, 2006 of approximately $34 million including nine months of imputed
interest associated with monetized future billings from PQBS.
For the full year, the Company expects corporate expense to be
approximately $44 to $45 million, including compensation expense of
approximately $5 million in accordance with SFAS 123R, Share-Based Payment,
and one-time legal, accounting and other costs associated with the
restatement of $20 million to $21 million. Interest expense is expected to
be approximately $46.5 million.
SEC Filing Timeline and New York Stock Exchange Status
As a result of the unanticipated delays in completing the restatement,
ProQuest now expects to file its 2005 10-K with the SEC during the first
quarter of 2007. The Company has received an extension for continued
listing and trading on the New York Stock Exchange (NYSE) through January
2, 2007 and has applied for an additional extension through April 2, 2007.
The extension is to provide ProQuest Company with additional time to meet
the Annual Financial Statement Requirements of the NYSE, which the NYSE, in
its sole discretion, has the power to grant. The NYSE has indicated to the
Company 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. ProQuest has applied to the NYSE for a
further extension through April 2, 2007.
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 Companys management
assesses the Companys ability to fund working capital items and capital
expenditures as well as service and comply with the terms of its debt
agreements. The Companys 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 information and education solutions. We provide products and
services to our customers through two business segments: ProQuest Education
and ProQuest Information and Learning. Our Education segment, which
includes the Voyager Expanded Learning business, serves the K-12 market. It
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.
ProQuest Information and Learning serves the higher education and public
library markets, and is a world leader in collecting, organizing, and
publishing high-quality research resources for researchers, faculty, and
students in libraries and schools. It is widely known for its strengths in
business and economics; general reference; genealogy; humanities; social
sciences; and scientific, technical and medical (STM) content. Information
and Learning develops products comprising periodicals, newspapers,
dissertations, out-of-print books, and other scholarly information from
more than 9,000 publishers worldwide.
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 Companys ability
to successfully conclude the review and restatement of its financial
results, the discovery of additional restatement items, the ability to
renegotiate the terms of its revolving credit agreement and senior notes in
connection with defaults under such debt due to any potential restatement
if further defaults occur, ability to support its current debt level, the
Companys ability to refinance its outstanding debt and working capital
needs, changes in customer demands or industry standards, adverse economic
conditions, loss of key personnel, litigation, decreased library and
educational funding/budgets, the ability to consummate the ProQuest
Information and Learning segment transaction, including the risk that the
buyer might not obtain financing, demand for ProQuests products and
services, success of ongoing product development, maintaining acceptable
margins, ability to control costs, the impact of federal, state and local
regulatory requirements on ProQuests business including K-12 and higher
education, the impact of competition and the uncertainty of economic
conditions in general, the ability to successfully attract and retain
customers, sell additional products to existing customers, and win new
business due to changes in technology, 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 funding, the
level of education technology investments, the Companys ability to obtain
financing, global economic conditions, 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
Business Information and
Education Solutions Learning (1)
EBITDA (2) $27.9 $56.0 $42.0 - $47.0
Less: Depreciation &
amortization (12.8) (6.0) (67.0)
EBIT (3) $15.1 $50.0 $(25.0)-$(20.0)
Less: Net interest expense
Earnings from continuing
operations before
income taxes
Voyager
Expanded
Corp./Other Total Learning (4)
EBITDA (2) $(15.1) $110.8 - $115.8 $26.3
Less: Depreciation &
amortization (0.3) (86.1) (11.2)
EBIT (3) $(15.4) $24.7 - $29.7 $15.1
Less: Net interest expense (32.8)
Earnings from continuing
operations before
income taxes $(8.1)-$(3.1)
EBITDA & EBIT
Nine Months Ended September 30, 2006
Business Information and
Education Solutions Learning
EBITDA (2) $30.0 $44.7 $45.0 - $50.0
Less: Depreciation &
amortization (11.8) (4.2) (45.0)
EBIT (3) $18.2 $40.5 $0.0 - $5.0
Less: Net interest expense
Earnings from continuing
operations before
income taxes
Voyager
Expanded
Corp./Other Total Learning (4)
EBITDA (2) $(31.2) $88.5 - $93.5 $28.8
Less: Depreciation &
amortization (0.3) (61.3) (10.6)
EBIT (3) $(31.5) $27.2 - $32.2 $18.2
Less: Net interest expense (33.8)
Earnings from continuing
operations before
income taxes $(6.4)-$(1.4)
ProQuest Business Solutions through Sale of
Business 11/28/06
Business Solutions
EBITDA (2) $52.1
Less: Depreciation & amortization (5.6)
EBIT (3) $46.5
(1) PQIL EBIT and EBITDA includes a $6.4 million loss on the sale of
assets related to the October 2005 sale of the periodical microfilm
business.
(2) EBITDA is earnings before interest, taxes, depreciation, and
amortization.
(3) EBIT is earnings before interest and taxes.
(4) Voyager Expanded Learning portion of Education segment.
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