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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): July 20, 2005
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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))
Item 2.02 Results of Operations and Financial Condition
On July 20, 2005, Scholastic Corporation issued the press release attached
hereto as Exhibit 99.1 announcing its results of operations for its quarter and
year ended May 31, 2005.
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 July 20, 2005, 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: July 20, 2005 SCHOLASTIC CORPORATION
(Registrant)
/s/ Mary A. Winston
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Name: Mary A. Winston
Title: Executive Vice President and Chief
Financial Officer
EXHIBIT INDEX
Number Exhibit
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99.1 Press release of Scholastic Corporation, dated July 20, 2005
Exhibit 99.1
Scholastic Announces Fiscal 2005 Results and Fiscal 2006 Outlook;
Achieves Fiscal 2005 EPS, Margin and Cash Flow Goals;
Strong Start to Fiscal 2006 with Harry Potter & the Half-Blood Prince
NEW YORK--(BUSINESS WIRE)--July 20, 2005--Scholastic Corporation
(NASDAQ:SCHL) today announced its results for the fiscal 2005 fourth
quarter and full year, and its outlook for fiscal 2006.
For the quarter ended May 31, 2005, net income increased to $42.8
million or $1.04 per diluted share, compared to net income of $22.5
million or $0.56 per diluted share in the prior year period. Revenues
in the fourth quarter were $592.1 million versus $587.4 million in the
prior year period. For the fiscal year, revenues were $2,079.9 million
and net income increased to $64.3 million or $1.58 per diluted share,
including the previously announced charge of $0.06 per diluted share
for severance expenses. In the prior year, the Company had revenues of
$2,233.8 million and generated net income of $57.8 million or $1.44
per diluted share, which included items described in the notes to the
income statement attached to this release that resulted in a net
expense of $0.33 per diluted share.
The Company generated Free Cash Flow (as defined) of $87.7 million
in fiscal 2005.
"We achieved our goals for profits and improved margins in fiscal
2005, while exceeding our target for Free Cash Flow. Impressive gains
in Educational Publishing, improved results in International, a
strengthening of our children's book businesses and disciplined
financial management all contributed to these results," commented
Richard Robinson, Chairman, CEO and President of Scholastic. "We're
confident that the significant progress made in fiscal 2005, coupled
with a strengthened management team, creates a solid foundation to
expand margins and grow revenues in fiscal 2006 and beyond."
Mr. Robinson added, "Fiscal 2006 is off to a tremendous start with
last weekend's phenomenally successful release of Harry Potter & the
Half-Blood Prince. After selling a record breaking 6.9 million copies
in the U.S. in the first 24 hours, our retailers continue to report
very strong sales during the first week. We are extremely proud of
Scholastic's role in helping make J.K. Rowling's brilliant book the
largest book release in history."
Fourth Quarter and Fiscal Year Results
The Company performed a comprehensive review of its lease
accounting practices. As a result of this review, the Company
determined that certain leases previously accounted for as operating
leases should have been accounted for as capital leases in accordance
with Statement of Financial Accounting Standards No.13, "Accounting
for Leases," and that the accounting for certain other operating
leases did not consider future payment escalation clauses in
determining lease expense. Although the Company does not consider the
impact of correcting the previously issued financial statements to be
material to any one year, the cumulative effect, if recorded in the
current year, would be material to that year, and therefore the
Company believes that a restatement of prior year financial statements
is appropriate. As a result, the Company will restate its interim and
prior year annual financial statements in its annual report on Form
10-K for the fiscal year ended May 31, 2005, which is scheduled to be
filed no later than August 15, 2005. The required adjustments
decreased net income by $0.3 million in fiscal 2005 and $0.6 million
in fiscal 2004. In addition, at May 31, 2005, the Company will reflect
an increase of $61.1 million in Net property, plant and equipment, an
increase in Capitalized lease obligations of $74.4 million, an
increase in Deferred tax of $6.4 million and a reduction in Retained
earnings of $10.9 million. Net cash provided by operating activities
and free cash flow will increase by $10.5 million in fiscal 2005 and
by $9.0 million in fiscal 2004. All prior year numbers have been
restated for these adjustments, which will have no effect on the
Company's historical or future cash balances or the timing of payments
under the Company's leases.
Children's Book Publishing and Distribution. Segment revenues in
the quarter were $333.4 million compared to $348.5 million in the
prior year period, with declines in Continuities resulting from the
Company's strategy to focus on its most productive customers
offsetting stronger revenues in Fairs and Trade. School Book Club
revenues were down slightly in the quarter. Segment operating profits
in the fourth quarter increased from the prior year period to $51.9
million, primarily reflecting the year ago impact of
Continuities-related charges.
For the fiscal year, segment revenues were $1,152.5 million
compared to $1,358.6 million in the prior year and operating profits
declined 11% to $93.5 million. Anticipated declines in revenues from
Harry Potter(R) (compared to the prior year which included the release
of Harry Potter and the Order of the Phoenix) and lower revenues from
Continuity programs were partially offset by growth in non-Harry
Potter trade sales, including best-sellers like Dragon Rider, Charlie
Bone and The Land of Elyon, and growth in School Book Fair revenues.
Decreased segment profits reflected lower Harry Potter sales in fiscal
2005, partially offset by the impact of Continuities-related charges
in fiscal 2004.
Educational Publishing. In the fourth quarter, segment revenues
increased 5% to $112.5 million and operating profits rose 38% to $29.8
million, relative to the prior year period. Higher revenues and
profits primarily reflected strong sales of educational technology,
indicating Scholastic's success as a provider of solutions that help
schools raise reading achievement. In fiscal 2005, segment revenues
increased 10% to $404.6 million and operating profits rose 40% to
$78.5 million compared to the year ago period. This growth was
primarily due to a 40% increase in educational technology revenues,
including READ 180(R), the leading intervention program for struggling
readers, and Scholastic RED(R), an innovative online and in-person
professional development program.
International. International revenues in the quarter rose 7% (2%
in local currencies) to $109.7 million, compared to the prior year
period. Operating profits in the segment were $11.1 million in the
fourth quarter, a $5.7 million increase from the prior year period.
For the fiscal year, segment revenues rose 5% (but were level in local
currencies) to $389.7 million and operating profits rose 29% to $30.3
million. For the quarter and the year, improved results primarily
reflected better performance in the Company's Australian subsidiary
and in export.
Media, Licensing and Advertising. Segment revenues rose 21% to
$36.5 million in the fourth quarter, compared to the prior year
period, primarily due to higher production and licensing revenues from
Maya & Miguel(TM). For the fiscal year, segment revenues were $133.1
million, down slightly from the prior year. Operating profits of $11.0
million for the year were also approximately even with the prior year.
Maya & Miguel, the Company's new media and publishing franchise,
continues to attract strong ratings on PBS among school-aged children,
and has spawned books published and distributed through the Company's
channels and over 30 product licensees.
Other Financial Results. Operating margins in the year improved to
6.5% of revenues from 5.4% in the year ago period, reflecting higher
margins in all operating segments. Free Cash Flow was $87.7 million
compared to $83.0 in the prior year period, and debt net of cash and
cash equivalents at the end of the year fell by $108.0 million from a
year ago to $390.8 million. Interest expense declined by $4.5 million
to $35.2 million.
Fiscal 2006 Outlook
The Company expects total revenues of approximately $2.3 - $2.4
billion and earnings of $2.30 - $2.50 per diluted share based on the
following outlook:
1. Revenue and profit growth in Children's Book Publishing and
Distribution, reflecting significant sales of Harry Potter and the
Half-Blood Prince primarily in the first quarter, as well as modest
growth throughout the rest of the segment.
2. Growth across Educational Publishing, led by educational
technology, which should continue to benefit margins.
3. Continued improvements in International and Media, Licensing
and Advertising.
4. A focus on margin improvements and operating efficiencies, with
continued attention to Free Cash Flow, which is targeted at $85 - $95
million.
Upcoming Conference Call
Scholastic will hold a conference call tomorrow (July 21, 2005) at
8:00 a.m. EST. To listen by telephone, dial 888-338-6461 or
973-935-8510. To listen and view accompanying slides on the Internet,
go to the Investor Relations section of www.scholastic.com, and follow
links there. 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 877-519-4471; PIN number 5760041.
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 STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in millions except per share data)
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THREE MONTHS ENDED
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05/31/05 05/31/04 VARIANCE
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Revenues $592.1 $587.4 $4.7 1%
Operating costs and expenses:
Cost of goods sold 259.1 263.4 4.3 2%
Cost of goods sold - Continuity charges
(1) - 6.8 6.8 (a)
Selling, general and administrative
expenses 230.1 226.5 (3.6) -2%
Selling, general and administrative
expenses - Continuity charges (1) 0.2 15.2 15.0 (a)
Bad debt expenses 11.5 22.2 10.7 48%
Bad debt expenses - Continuity charges
(1) - 2.0 2.0 (a)
Depreciation and amortization 16.7 15.9 (0.8) -5%
Special severance charges (2) - 0.1 - (a)
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Total operating costs and expenses 517.6 552.1 34.5 6%
Operating income 74.5 35.3 39.2 (a)
Other income (3) - 8.0 8.0 (a)
Interest expense, net 8.1 9.0 0.9 10%
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Earnings before income taxes 66.4 34.3 32.1 94%
Tax provision 23.6 11.8 (11.8) (a)
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Net income $42.8 $22.5 $20.3 90%
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Weighted average shares outstanding:
Basic 40.5 39.5 1.00 3%
Diluted 41.7 40.1 1.60 4%
Net income per share:
Basic $1.07 $0.57 $0.50 -88%
Diluted $1.04 $0.56 $0.48 -86%
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TWELVE MONTHS ENDED
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05/31/05 05/31/04 VARIANCE
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Revenues $2,079.9 $2,233.8 ($153.9) -7%
Operating costs and expenses:
Cost of goods sold 970.5 1,080.0 109.5 10%
Cost of goods sold - Continuity
charges (1) - 6.8 6.8 (a)
Selling, general and administrative
expenses 845.3 854.9 9.6 1%
Selling, general and administrative
expenses - Continuity charges (1) 3.8 15.2 (3.6)-75%
Bad debt expenses 62.2 88.3 26.1 30%
Bad debt expenses - Continuity
charges (1) - 2.0 2.0 (a)
Depreciation and amortization 63.2 62.1 (1.1) -2%
Special severance charges (2) - 3.3 3.2 (a)
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Total operating costs and expenses 1,945.0 2,112.6 167.6 8%
Operating income 134.9 121.2 13.7 11%
Other income (3) - 8.0 8.0 (a)
Interest expense, net 35.2 39.7 4.5 11%
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Earnings before income taxes 99.7 89.5 10.2 11%
Tax provision 35.4 31.7 (3.7)-12%
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Net income $64.3 $57.8 $6.5 11%
================== ========
Weighted average shares outstanding:
Basic 40.0 39.4 0.60 2%
Diluted 40.8 40.1 0.70 2%
Net income per share:
Basic $1.61 $1.47 $0.14 10%
Diluted $1.58 $1.44 $0.14 10%
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(1) In fiscal 2005, the Company recorded pre-tax charges of $3.8, or
$0.06 per diluted share, primarily for severance in connection
with the review of its continuity business, which have been
recorded as a component of Selling, general and administrative
expenses. In fiscal 2004, the Company recorded pre-tax charges of
$25.4, or $0.41 per diluted share, in connection with the review
of its continuity business. These charges have been recorded
primarily as components of Cost of goods sold; Selling, general
and administrative expenses; and Bad debt expense.
(2) In fiscal 2004, the Company recorded pre-tax Special severance
charges of $3.3, or $0.05 per diluted share, relating to a
reduction in its work force announced in May 2003.
(3) In fiscal 2004, the Company recorded a pre-tax net gain of $8.0,
or $0.13 per diluted share, in connection with the early
termination of a sublease by one of its tenants.
(a) 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, which are subject to various
risks and uncertainties including the conditions of the children's
book and instructional 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
(UNAUDITED)
(Amounts in millions)
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THREE MONTHS ENDED
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5/31/2005 (1) 5/31/2004 (2) VARIANCE
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Children's Book Publishing &
Distribution
Revenue $333.4 $348.5 ($15.1) -4%
Operating profit 51.9 22.1 29.8 135%
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Operating margin 15.6% 6.3%
Educational Publishing
Revenue 112.5 106.7 5.8 5%
Operating profit 29.8 21.6 8.2 38%
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Operating margin 26.5% 20.2%
International
Revenue 109.7 102.1 7.6 7%
Operating profit 11.1 5.4 5.7 106%
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Operating margin 10.1% 5.3%
Media, Licensing and
Advertising
Revenue 36.5 30.1 6.4 21%
Operating profit 4.3 5.7 (1.4)-25%
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Operating margin 11.8% 18.9%
Overhead expense 22.6 19.5 (3.1)-16%
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Operating income $74.5 $35.3 $39.2 111%
=========================== =======
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TWELVE MONTHS ENDED
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5/31/2005 (1) 5/31/2004 (2) VARIANCE
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Children's Book Publishing &
Distribution
Revenue $1,152.5 $1,358.6 ($206.1)-15%
Operating profit 93.5 104.6 (11.1)-11%
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Operating margin 8.1% 7.7%
Educational Publishing
Revenue 404.6 369.1 35.5 10%
Operating profit 78.5 56.1 22.4 40%
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Operating margin 19.4% 15.2%
International
Revenue 389.7 369.7 20.0 5%
Operating profit 30.3 23.5 6.8 29%
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Operating margin 7.8% 6.4%
Media, Licensing and
Advertising
Revenue 133.1 136.4 (3.3) (a)
Operating profit 11.0 10.9 0.1 (a)
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Operating margin 8.3% 8.0%
Overhead expense 78.4 73.9 (4.5) -6%
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Operating income $134.9 $121.2 $13.7 11%
=========================== ========
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(1) Results for the three and twelve months ended May 31, 2005 include
pre-tax charges of $0.2 and $3.8, or $0.00 and $0.06 per diluted
share, recorded in the Children's Book Publishing and Distribution
segment, primarily 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 twelve months ended May 31, 2004 include
pre-tax charges related to the Continuity business, of which $22.7
is reflected in Children's Book Publishing and Distribution and
$2.7 in International. Results for the twelve months ended May 31,
2004 include pre-tax Special severance charges of $3.3, or $0.05
per diluted share, related to staff reductions announced in May
2003 but implemented in Fiscal 2004, allocated as follows: $1.5 to
Children's Book Publishing and Distribution, $0.8 to Educational
Publishing, $0.1 to Media, Licensing and Advertising, $0.3 to
International and $0.6 to Overhead Expense.
(a) Percent change not meaningful.
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SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(UNAUDITED)
(Amounts in millions)
SELECTED BALANCE SHEET ITEMS
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05/31/05 05/31/04 CHANGE
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Cash and cash equivalents $110.6 $17.8 $92.8 (a)
Accounts receivable, net 269.6 265.7 3.9 1%
Inventories 404.9 402.6 2.3 1%
Total debt (lines of credit, short-term
debt and long-term debt) 501.4 516.6 15.2 3%
Capital lease obligation 74.4 74.0 (0.4)-1%
Total stockholders' equity 937.0 845.3 91.7 11%
SELECTED CASH FLOW ITEMS
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THREE MONTHS ENDED
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05/31/05 05/31/04 CHANGE
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Net cash provided by operating
activities $131.6 $96.2 $35.4 37%
Additions to property, plant and
equipment 18.4 16.9 (1.5) -9%
Pre-publication and production costs 22.3 17.3 (5.0)-29%
Royalty advances 6.2 7.7 1.5 19%
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Free cash flow (1) $84.7 $54.3 $30.4 56%
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TWELVE MONTHS ENDED
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05/31/05 05/31/04 CHANGE
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Net cash provided by operating
activities $244.4 $221.3 $23.1 10%
Additions to property, plant and
equipment 49.8 43.4 (6.4)-15%
Pre-publication and production costs 76.0 68.8 (7.2)-10%
Royalty advances 30.9 26.1 (4.8)-18%
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Free cash flow (1) (2) $87.7 $83.0 $4.7 6%
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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.
(2) Free cash flow for the year ended May 31, 2004 includes $10.0
received in connection with the early termination of a sublease in
New York City.
(a) Percent change not meaningful.
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CONTACT: Scholastic Corporation
Investors:
David Nelson, 212-343-6741
OR
Media:
Kyle Good, 212-343-4563