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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 15, 2004
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SCHOLASTIC CORPORATION
(Exact Name of Registrant as Specified in Charter)
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DELAWARE 000-19860 13-3385513
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
557 BROADWAY, NEW YORK, 10012
NEW YORK (Zip Code)
(Address of Principal Executive Offices)
(212) 343-6100
(Registrant's telephone number, including area code)
(Former Name or Former address, if Changed Since Last Report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02 Results of Operations and Financial Condition
On December 15, 2004, Scholastic Corporation issued the press release attached
hereto as Exhibit 99.1 announcing its results of operations for its quarter
ended November 30, 2004.
The information in this Current Report on Form 8-K, including Exhibits, is being
furnished to the Securities and Exchange Commission (the "SEC") and shall not be
deemed to be incorporated by reference into any of Scholastic's filings with the
SEC under the Securities Act of 1933.
Item 9.01 Financial Statements and Exhibits
(a) Not applicable
(b) Not applicable
(c) The following exhibit is filed as part of this report:
Press release of Scholastic Corporation, dated December 15, 2004, is
filed as Exhibit 99.1.
SIGNATURES
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 hereunto duly authorized.
Date: December 15, 2004 SCHOLASTIC CORPORATION
(Registrant)
By: /s/ Mary A. Winston
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Name:
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
Number Exhibit
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99.1 Press release of Scholastic Corporation, dated
December 15, 2004
Exhibit 99.1
Scholastic Announces Fiscal 2005 Second Quarter Results;
Higher Profits, led by Education Growth and Improved Margins
NEW YORK--(BUSINESS WIRE)--Dec. 15, 2004--Scholastic Corporation
(NASDAQ: SCHL) today announced its fiscal 2005 second quarter results.
For the quarter ended November 30, 2004, the Company reported net
income of $72.7 million or $1.80 per diluted share, a 9% increase from
$66.7 million or $1.67 per diluted share in the prior year period.
Revenues in the quarter were $683.3 million, down 2% from $699.0
million a year ago.
Richard Robinson, Chairman, CEO and President of Scholastic,
commented: "Results in the second quarter demonstrate our progress in
increasing profitability through cost control and margin improvement.
Higher-margin sales, lower bad debt and lower selling, general and
administrative expenses drove increased profits and operating margins,
especially in Education, Book Clubs, Continuities and Trade. We
achieved this despite slightly lower revenues, which primarily
resulted from anticipated declines in Continuities and Harry Potter
sales. In addition, free cash flow remained on plan."
The Company expects to earn between $1.50 and $1.70 per diluted
share, excluding severance charges, on revenues of approximately $2.1
billion, and to generate free cash flow of $40 to $50 million in
fiscal 2005.
Second Quarter Results
Children's Book Publishing and Distribution. Profits in the
segment rose 2% to $95.7 million in the second quarter of fiscal 2005,
while revenues decreased 6% to $425.0 million, compared to the prior
year period. School Book Club profits rose on a 3% revenue decline,
which reflected the late Labor Day and fewer school days in the
quarter. As expected, Continuities profits rose while revenues
decreased $21.2 million, with margins increasing due to higher
pay-rates and the Company's focus on more productive customers. School
Book Fair revenue grew 4%, primarily from higher revenue per fair,
while profits declined modestly. Trade profits rose on a $4.1 million
decrease in revenues, as strong sales of non-Harry Potter titles
partly offset an expected decrease in Harry Potter revenues.
Educational Publishing. Profits in the segment rose 55% to $20.6
million, and revenues increased 8% to $94.5 million, compared to the
prior year period. Both revenues and profits benefited from strong
sales of educational technology including Read 180(R), election-year
growth in classroom magazines and a continued turn-around in Library
Publishing. Profits in Paperbacks and Teaching Resources also
improved.
International. Profits in the segment declined $2.1 million to
$19.2 million, reflecting lower export profits, which a year ago
benefited from a major sale to the Department of Defense Schools. This
was partly offset by improved profits in Australia, the United Kingdom
and Asia. Revenues increased $1.4 million to $116.2 million, with
lower export sales being offset by approximately $7 million in foreign
exchange benefits.
Media, Licensing and Advertising. Profits in the segment rose
modestly to $3.2 million, and revenues rose 3% to $47.6 million,
relative to the prior year period. Strong results in consumer
magazines and the Back to Basics Toys(R) catalog business offset lower
software revenues and product licensing fees in the quarter. Also,
Scholastic's new media, publishing and licensing property Maya &
Miguel(TM) debuted in over 95% of U.S. television households and is
already a top performer in PBS's programming for six to eight
year-olds.
Other Financial Results. Operating margins in the quarter improved
to 17.6% versus 16.2% a year ago. Free cash flow in the quarter was
$68.5 million, or 95% of net income. In the prior year period, free
cash flow exceeded net income due to the temporary working capital
benefit associated with the publication of Harry Potter and the Order
of the Phoenix. Interest expense declined $1.5 million to $7.7
million, with net debt at the end of the quarter of $535.6 million, or
$34.0 million lower than a year ago.
First Half Results
Net income for the first half of fiscal 2005 was $22.4 million, or
$0.56 per diluted share, compared to $41.9 million, or $1.05 per
diluted share, in the prior year period. Revenues in the first half of
the fiscal year were $1,007.0 million versus $1,174.4 million a year
ago. The year-over-year difference in results primarily reflects
expected declines in Harry Potter and Continuities sales, partially
offset by strong growth in Education and non-Harry Potter trade. Free
cash flow (use) in the period was ($42.1) million, compared to $2.1
million in the prior year period, principally because of the impact on
earnings and working capital of last year's sales of Harry Potter.
Upcoming Conference Call
Scholastic will hold a conference call tomorrow (December 16,
2004) at 8:00 AM Eastern. To listen and ask questions, dial
888-338-6461 or 973-935-8510 (meeting leader is "Richard Robinson").
To view accompanying slides, go to the Investor Relations section of
www.scholastic.com. Following the call, the slides will be available
in the Investor Relations section of www.scholastic.com and an audio
replay will be available at 877-519-4461 PIN number 5496044.
Investor Conference
The Company is currently scheduled to make a presentation to
investors at the Salomon Smith Barney Entertainment, Media and Telecom
Conference on January 10, 2005 in Phoenix, Arizona. Mary Winston, the
Company's CFO, is expected to speak. Further details will be posted in
the Investor Relations section of www.scholastic.com when available.
About Scholastic
Scholastic Corporation (NASDAQ: SCHL) is the world's largest
publisher and distributor of children's books and a leader in
educational technology. 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, school-based
book fairs, and school-based and direct-to-home continuity programs;
retail stores, schools, libraries and television networks; and the
Company's Internet site, www.scholastic.com.
Forward-Looking Statements
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 Securities and Exchange
Commission. Actual results could differ materially from those
currently anticipated.
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SCHOLASTIC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2004 AND 2003
(Amounts in millions except per share data)
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THREE MONTHS ENDED
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11/30/04 11/30/03 VARIANCE
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Revenues $683.3 $699.0 ($15.7) -2%
Operating costs and expenses:
Cost of goods sold 301.1 305.5 (4.4) -1%
Selling, general and administrative
expenses 229.6 237.2 (7.6) -3%
Selling, general and administrative
expenses - Continuity charges (1) 0.0 0.0 0.0 (*)
Bad debt expense 19.6 28.4 (8.8)-31%
Depreciation and amortization 12.6 13.3 (0.7) -5%
Special severance charges (2) 0.0 1.2 (1.2) (*)
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Total operating costs and expenses 562.9 585.6 (22.7) -4%
Operating income 120.4 113.4 7.0 6%
Interest expense, net 7.7 9.2 (1.5)-16%
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Earnings before income taxes 112.7 104.2 8.5 8%
Tax provision 40.0 37.5 2.5 7%
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Net income $72.7 $66.7 $6.0 9%
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Weighted average shares outstanding:
Basic 39.7 39.3 0.40 1%
Diluted 40.4 40.0 0.40 1%
Net income per share:
Basic $1.83 $1.70 $0.13 8%
Diluted $1.80 $1.67 $0.13 8%
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SIX MONTHS ENDED
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11/30/04 11/30/03 VARIANCE
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Revenues $1,007.0 $1,174.4 ($167.4)-14%
Operating costs and expenses:
Cost of goods sold 477.5 586.9 (109.4)-19%
Selling, general and administrative
expenses 414.7 425.3 (10.6) -2%
Selling, general and administrative
expenses - Continuity charges (1) 3.6 0.0 3.6 (*)
Bad debt expense 35.8 49.1 (13.3)-27%
Depreciation and amortization 26.0 26.3 (0.3) -1%
Special severance charges (2) 0.0 3.2 3.2 (*)
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Total operating costs and expenses 957.6 1,090.8 (133.2)-12%
Operating income 49.4 83.6 (34.2)-41%
Interest expense, net 14.7 18.1 (3.4)-19%
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Earnings before income taxes 34.7 65.5 (30.8)-47%
Tax provision 12.3 23.6 (11.3)-48%
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Net income $22.4 $41.9 ($19.5)-47%
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Weighted average shares outstanding:
Basic 39.7 39.3 0.40 1%
Diluted 40.2 39.9 0.30 1%
Net income per share:
Basic $0.56 $1.07 ($0.51)-48%
Diluted $0.56 $1.05 ($0.49)-47%
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(1) Results for the six months ended November 30, 2004 include a pre-
tax charge of $3.6, or $0.06 per diluted share after-tax, for
severance related to staff reductions implemented in the first
quarter of fiscal 2005 related to the previously announced
reorganization of the Continuity business.
(2) Results for the three and six months ended November 30, 2003
include pre-tax charges of $1.2, or $0.02 per diluted share
after-tax, and $3.2, or $0.05 per diluted share after-tax,
respectively, for staff reductions in those periods related to a
workforce reduction announced in May 2003.
(*) Percent change not meaningful.
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FORWARD LOOKING STATEMENTS
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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
Securities and Exchange Commission. Actual results could differ
materially from those currently anticipated.
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SCHOLASTIC CORPORATION
RESULTS OF OPERATIONS - SEGMENTS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2004 AND 2003 (1)(2)
(Amounts in millions)
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THREE MONTHS ENDED
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11/30/04 11/30/03 VARIANCE
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Children's Book Publishing &
Distribution
Revenue $425.0 $450.7 ($25.7) -6%
Operating profit 95.7 93.7 2.0 2%
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Operating margin 22.5% 20.8%
Educational Publishing
Revenue 94.5 87.3 7.2 8%
Operating profit 20.6 13.3 7.3 55%
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Operating margin 21.8% 15.2%
International
Revenue 116.2 114.6 1.6 1%
Operating profit 19.2 21.3 (2.1)-10%
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Operating margin 16.5% 18.6%
Media, Licensing and Advertising
Revenue 47.6 46.4 1.2 3%
Operating profit 3.2 3.0 0.2 7%
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Operating margin 6.7% 6.5%
Overhead expense 18.3 17.9 0.4 2%
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Operating income $120.4 $113.4 $7.0 6%
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SIX MONTHS ENDED
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11/30/04 11/30/03 VARIANCE
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Children's Book Publishing &
Distribution
Revenue $546.8 $738.6 ($191.8)-26%
Operating profit 30.7 77.1 (46.4)-60%
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Operating margin 5.6% 10.4%
Educational Publishing
Revenue 212.7 193.1 19.6 10%
Operating profit 42.8 28.8 14.0 49%
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Operating margin 20.1% 14.9%
International
Revenue 188.0 179.9 8.1 5%
Operating profit 16.2 17.4 (1.2) -7%
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Operating margin 8.6% 9.7%
Media, Licensing and Advertising
Revenue 59.5 62.8 (3.3) -5%
Operating profit (3.5) (1.9) (1.6)-84%
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Operating margin -5.9% -3.0%
Overhead expense 36.8 37.8 (1.0) -3%
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Operating income $49.4 $83.6 ($34.2)-41%
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(1) Results for the six months ended November 30, 2004 include a pre-
tax charge of $3.6, or $0.06 per diluted share after-tax, in the
Children's Book Publishing and Distribution segment for severance
related to staff reductions implemented in the first quarter of
fiscal 2005 related to the previously announced reorganization of
the Continuity business.
(2) Results for the three and six months ended November 30, 2003
include pre-tax Special severance charges of $1.2 and $3.2,
respectively, for staff reductions implemented in the applicable
periods, related to a workforce reduction announced in May 2003,
but implemented in Fiscal 2004, allocated as follows: $0.6 and
$1.5 to Children's Book Publishing and Distribution, $0.3 and $0.8
to Educational Publishing, $0.1 and $0.1 to Media, Licensing and
Advertising, $0.2 and $0.3 to International and $0.0 and $0.5 to
Overhead Expense.
(*) Percent change not meaningful.
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SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(Amounts in millions)
SELECTED BALANCE SHEET ITEMS
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UNAUDITED
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11/30/04 11/30/03 CHANGE
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Cash and cash equivalents $27.1 $70.3 ($43.2)-61%
Accounts receivable, net 321.0 322.0 (1.0) (*)
Inventories 472.7 459.0 13.7 3%
Total debt (lines of credit, short-
term debt and long-term debt) 562.7 639.9 (77.2)-12%
Total stockholders' equity 892.2 821.4 70.8 9%
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SELECTED CASH FLOW ITEMS
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THREE MONTHS ENDED
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11/30/04 11/30/03 CHANGE
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Net cash provided by operating
activities $106.0 $148.7 ($42.7)-29%
Additions to property, plant and
equipment 11.7 11.3 0.4 4%
Pre-publication and production
costs 18.9 18.6 0.3 2%
Royalty advances 6.9 5.3 1.6 30%
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Free cash flow (cash use) (1) $68.5 $113.5 ($45.0)-40%
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SIX MONTHS ENDED
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11/30/04 11/30/03 CHANGE
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Net cash provided by operating
activities $27.2 $68.9 ($41.7)-61%
Additions to property, plant and
equipment 21.5 19.6 1.9 10%
Pre-publication and production costs 33.8 35.8 (2.0) -6%
Royalty advances 14.0 11.4 2.6 23%
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Free cash flow (cash use) (1) ($42.1) $2.1 ($44.2) (*)
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(1) Free cash flow is defined by the Company as net cash provided by
operating activities, less spending on property, plant and
equipment; pre-publication and production costs; and royalty
advances. The Company believes this measure, which is a 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 as a
further indicator of operating performance and for planning
investing activities.
(*) Percent change not meaningful.
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CONTACT: Scholastic Corporation
Media:
Kyle Good, 212-343-4563
Investors:
Ray Marchuk, 212-343-6741