Scholastic Reports Second Quarter Results for Fiscal 2009
Earnings from continuing operations in the second quarter were
The Company reported consolidated earnings in the second quarter of
"Scholastic's customers responded to strong products, marketing and
customer service, sustaining second quarter children's books and
educational technology sales at approximately last year's levels.
Looking forward, our healthy balance sheet and progress reducing costs
will enable us to leverage this broader, more engaged customer base for
profitable growth in the long term," commented
The Company outlined three areas of strength in the second quarter:
-- Strong balance sheet and free cash flow.At quarter end the Company's balance sheet had modest levels of debt, with committed access to over
$280 millionin additional liquidity and no refinancing needs until June 2012. Scholastic also generated approximately $48 millionin free cash flow during the quarter, indicating solid profitability and careful working capital management and investment. -- Sustained revenues.Scholastic's core children's books and educational technology businesses essentially sustained sales levels in the second quarter. Increasing order volumes and participation in School Book Clubs and Fairs indicated higher customer engagement with these businesses' unique value propositions. Continued innovation in Trade Publishing, including the new multiplatform adventure series The 39 Clues(TM), drove strong frontlist sales. Even in the face of tighter budgets, school districts also continued seeking Scholastic's proven solutions, including the market-leading READ 180(R), to raise student achievement. -- Significant progress reducing costs.Scholastic achieved the top end of its current cost savings goal, eliminating $35 millionin annualized expenses, including $25 millionin salary expense. In addition to these savings, the Company announced that it has reduced its spending plan for the second half of fiscal 2009 by a further $20 millionby eliminating management bonuses and reducing all categories of discretionary spending. It also continues taking steps to make core businesses more efficient, further reduce staffing and exit unprofitable markets.
Mr. Robinson concluded, "We have revised our outlook for fiscal 2009 to reflect the current market environment, year-to-date results and these additional spending cuts. We remain confident that our strong products and direct channels will continue to grow in the long term, while we improve profitability and maintain a solid financial foundation."
Based on its year-to-date results and current outlook, Scholastic now
expects fiscal 2009 earnings per diluted share from continuing
Second Quarter Results
Children's Book Publishing and Distribution. Segment revenue in
the quarter declined 1% to
Educational Publishing. Segment revenue in the quarter was
International. Segment revenue in the quarter was
Media, Licensing and Advertising. Segment revenue in the quarter
Other Financial Results. Corporate overhead in the quarter was
Free cash flow (as defined) in the quarter was
Total debt was
As previously announced the Company's Board of Directors declared a
quarterly cash dividend of
For the first half of fiscal 2009, revenue from continuing operations
Earnings from continuing operations in the first half were
Including continuing and discontinued operations, the Company reported a
consolidated loss in the first half of
In the first half of fiscal 2009 the Company acquired 808,875 shares of
its common stock for
The Company will hold a conference call to discuss its results at
The conference call and accompanying slides will be webcast and accessible through the Investor Relations section of Scholastic's website, scholastic.com. Participation by telephone will be available by dialing (888) 868-9079 from within the U.S. or +1 (973) 935-8510 internationally. Following the call, slides from the conference call will also be posted in the Investor Relations section of scholastic.com.
Scholastic Corporation (NASDAQ: SCHL) is the world's largest publisher and distributor of children's books and a leader in educational technology and children's media. Scholastic creates quality educational and entertaining materials and products for use in school and at home, including children's books, magazines, technology-based products, teacher materials, television programming, film, videos and toys. The Company distributes its products and services through a variety of channels, including proprietary school-based book clubs and school-based book fairs, retail stores, schools, libraries, television networks and the Company's Internet Site, www.scholastic.com.
This news release contains certain forward-looking statements. Such
forward-looking statements are subject to various risks and
uncertainties, including the conditions of the children's book and
educational materials markets and acceptance of the Company's products
within those markets, and other risks and factors identified from time
to time in the Company's filings with the
SCHOLASTIC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in millions except per share data) THREE MONTHS ENDED SIX MONTHS ENDED 11/30/2008 11/30/2007 11/30/2008 11/30/2007 (1) (1) (1) (1) Revenues (2) $ 661.6 $ 687.6 $ 944.4 $ 1,216.6 Operating costs and expenses: Cost of goods 284.4 291.4 432.7 589.5 sold Selling, general and 246.4 238.3 427.3 435.6 administrative expenses Bad debt 7.4 3.5 8.7 5.3 expense Depreciation and 15.6 15.5 31.8 31.2 amortization Total operating 553.8 548.7 900.5 1,061.6 costs and expenses Operating income 107.8 138.9 43.9 155.0 Interest expense, 7.0 9.7 12.9 18.4 net Earnings from continuing 100.8 129.2 31.0 136.6 operations before income taxes Provision for 42.4 46.9 16.3 50.3 income taxes Earnings from continuing 58.4 82.3 14.7 86.3 operations Loss from discontinued (15.3 ) (6.7 ) (20.7 ) (13.5 ) operations, net of tax (3) Net income (loss) $ 43.1 $ 75.6 ($6.0 ) $ 72.8 Basic and diluted earnings (loss) per Share of Class A and Common Stock: Basic: Earnings from continuing 1.55 2.13 0.39 2.21 operations Loss from discontinued (0.40 ) (0.17 ) (0.55 ) (0.35 ) operations, net of tax Net income 1.15 1.96 (0.16 ) 1.86 (loss) Diluted: Earnings from continuing 1.55 2.10 0.39 2.17 operations Loss from discontinued (0.40 ) (0.17 ) (0.55 ) (0.34 ) operations, net of tax Net income 1.15 1.93 (0.16 ) 1.83 (loss) Basic weighted average shares 37.6 38.5 37.7 39.1 outstanding Diluted weighted average shares 37.7 39.1 37.9 39.7 outstanding As previously announced, the Company sold its U.S. direct-to-home continuities business in
August 2008and intends to shut down its Canadian and U.K. direct-to-home continuities businesses, has shut down its school-based continuities business effective May 31, 2008and intends to sell its Maumelle (1) facility. In addition, the Company shut down its operations in Argentina, door-to-door sales operation in its Puerto Ricobusiness and its Coach magazinebusiness effective November 30, 2008. The results of operations associated with these businesses are presented as discontinued operations for accounting purposes in the fiscal 2009 and prior year periods. Revenue related to discontinued operations is not reported in the Company's revenue from continuing operations. Discontinued operations revenues were $10.5(2) and $58.6for the three months ended November 30, 2008and November 30, 2007, respectively and $47.2and $116.5for the six months ended November 30, 2008and November 30, 2007, respectively. In the three months ended November 30, 2008, the Company recorded a non-cash write down of certain assets, net of tax, of $8.4or $0.22per diluted share, primarily related to the Company's Puerto Ricodoor-to-door sales operations and Argentinabusinesses. Operating losses, net of tax, associated with the Argentinabusiness were $1.0and $0.1, with the door-to-door Puerto Ricobusiness of $2.1and $0.3and with the Coach magazineof $0.6and $0.0for the three months ended November 30, 2008and November 30, 2007, respectively. Operating losses, net of tax, for the Company's U.S., Canadaand U.K. (3) direct-to-home businesses as well as the school continuities business and the Maumelle facility were $3.2and $6.3for the three months ended November 30, 2008and November 30, 2007, respectively. Operating losses, net of tax, associated with the Argentinabusiness were $1.1and $0.1and with the door-to-door Puerto Ricobusiness of $2.7and $0.6for the six months ended November 30, 2008and November 30, 2007, respectively. Operating losses, net of tax, for the Company's U.S., Canadaand U.K. direct-to-home businesses as well as the school continuities business and the Maumelle facility were $8.2and $12.8for the six months ended November 30, 2008and November 30, 2007, respectively.
SCHOLASTIC CORPORATION RESULTS OF CONTINUING OPERATIONS - SEGMENTS (UNAUDITED) (Amounts in millions) THREE MONTHS ENDED SIX MONTHS ENDED 11/30/2008 11/30/2007 Change 11/30/2008 11/30/2007 Change (1) (1) (1) (1) Children's Book Publishing & Distribution Revenue Book $ 155.6 $ 155.3 $ 0.3 0 % $ 164.2 $ 165.2 ($1.0 ) (1 %) Clubs Trade 53.2 59.1 (5.9 ) (10 %) 93.6 336.0 (242.4 ) (72 %) Book 173.0 172.5 0.5 0 % 185.0 182.5 2.5 1 % Fairs Total 381.8 386.9 (5.1 ) (1 %) 442.8 683.7 (240.9 ) (35 %) revenue Operating 99.2 108.8 (9.6 ) (9 %) 43.3 121.4 (78.1 ) (64 %) income Operating 26.0 % 28.1 % 9.8 % 17.8 % margin Educational Publishing Revenue 92.2 99.6 (7.4 ) (7 %) 208.6 227.4 (18.8 ) (8 %) Operating 13.2 12.4 0.8 6 % 34.2 42.9 (8.7 ) (20 %) income Operating 14.3 % 12.4 % 16.4 % 18.9 % margin International Revenue 124.4 144.8 (20.4 ) (14 %) 210.6 233.1 (22.5 ) (10 %) Operating 14.0 25.1 (11.1 ) (44 %) 10.5 24.0 (13.5 ) (56 %) income Operating 11.3 % 17.3 % 5.0 % 10.3 % margin Media, Licensing and Advertising Revenue 63.2 56.3 6.9 12 % 82.4 72.4 10.0 14 % Operating 10.5 10.4 0.1 1 % 6.2 5.1 1.1 22 % income Operating 16.6 % 18.5 % 7.5 % 7.0 % margin Overhead 29.1 17.8 (11.3 ) (63 %) 50.3 38.4 (11.9 ) (31 %) expense Operating income from $ 107.8 $ 138.9 ($31.1 ) (22 %) $ 43.9 $ 155.0 ($111.1 ) (72 %) continuing operations Results for the three month periods ended
November 30, 2008and November 30, 2007reflect continuing operations and exclude discontinued operations. The Company's domestic direct-to-home and school-based continuities businesses were formerly included in the Children's Book Publishing and Distribution segment, the international (1) direct-to-home business, the Puerto Ricodoor-to-door sales operations and the Argentinabusiness were formerly included in the International segment and the discontinued magazine was formerly included in the Media, Licensing and Advertising segment. The Company's Maumelle facility, which is included in discontinued operations, was formerly included in Overhead. All corresponding prior year periods presented have been reclassified to reflect this presentation.
SCHOLASTIC CORPORATION SUPPLEMENTAL INFORMATION (UNAUDITED) (Amounts in millions) SELECTED BALANCE SHEET ITEMS 11/30/08 11/30/07 Continuing Operations Cash and cash equivalents $ 30.8 $ 183.3 Accounts receivable, net 269.9 282.4 Inventories, net 430.3 426.2 Accounts payable 121.0 135.5 Accrued royalties 35.8 138.6 Lines of credit, short-term debt and 70.2 83.3 current portion of long-term debt Long-term debt, excluding 318.8 330.8 current portion Total debt 389.0 414.1 Total capital lease 59.9 63.7 obligations Net debt (1) 358.2 230.8 Discontinued Operations Total assets of discontinued operations 31.6 238.8 (2) Total liabilities of 16.4 24.7 discontinued operations Total stockholders' equity 819.4 967.6 SELECTED CASH FLOW ITEMS THREE MONTHS ENDED SIX MONTHS ENDED 11/30/08 11/30/07 11/30/08 11/30/07 Net cash provided by (used in) operating $ 77.3 $ 327.0 ($63.3 ) $ 218.8 activities Less: Additions to property, plant and 13.5 12.7 23.4 22.6 equipment Pre-publication and 15.4 15.0 27.3 26.6 production costs Free cash flow (use) (3) $ 48.4 $ 299.3 ($114.0 ) $ 169.6 (4) Net debt is defined by the Company as lines of credit and short-term debt plus long-term-debt, net of cash and cash equivalents. The Company (1) utilizes this non-GAAP financial measure, and believes it is useful to investors, as an indicator of the Company's effective leverage and financing needs. The decline in Total assets of discontinued operations between the two (2) period-end dates shown reflects the write-down of certain assets associated with the discontinued operations totaling
$173.7. Free cash flow or use is defined by the Company as net cash provided by or used in operating activities (which includes royalty advances), reduced by spending on property, plant and equipment and pre-publication and (3) production costs. The Company believes that this non-GAAP financial measure is useful to investors as an indicator of cash flow available for debt repayment and other investing activities, such as acquisitions. The Company utilizes free cash flow or use as a further indicator of operating performance and for planning investing activities. Free cash flow includes use of cash by discontinued operations of $11.1(4) and cash flow provided by discontinued operations of $0.8for the six months ended November 30, 2008and November 30, 2007, respectively.
Source: Scholastic Corporation