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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
____________________
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 16, 2005
____________________
SCHOLASTIC CORPORATION
(Exact Name of Registrant as Specified in Charter)
____________________
DELAWARE 000-19860 13-3385513
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) 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)
____________________
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 16, 2005, Scholastic Corporation issued the press release attached
hereto as Exhibit 99.1 announcing its results of operations for its quarter
ended November 30, 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 December 16, 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: December 16, 2005 SCHOLASTIC CORPORATION
(Registrant)
/s/ Mary A. Winston
-------------------
Name: Mary A. Winston
Title: Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Number Exhibit
- ------ -------
99.1 Press release of Scholastic Corporation, dated December 16, 2005
Exhibit 99.1
Scholastic Announces Fiscal 2006 Second Quarter Results
NEW YORK--(BUSINESS WIRE)--Dec. 16, 2005--Scholastic Corporation
(NASDAQ:SCHL) today announced its fiscal 2006 second quarter results.
For the quarter ended November 30, 2005, the Company reported
revenues of $696.7 million, up 2% from $683.3 million in the prior
year period. Net income was $66.9 million, down 8% from $72.5 million,
and earnings per diluted share were $1.59 versus $1.80 a year ago.
Higher revenue in the second quarter was driven by growth in the
Educational Publishing and Media, Licensing and Advertising segments,
as well as favorable foreign exchange effects. Lower profits in the
quarter reflected a decline in International results and modestly
lower profits in Children's Book Publishing and Distribution, partly
offset by lower overhead costs.
Free cash flow in the second quarter was $286.2 million compared
to $70.7 million in the prior year period, driven by strong cash
receipts and working capital management. For the first half of the
year, free cash flow was $107.9 million, compared to cash use of $37.5
million in the same period last year. These improvements were
principally due to the impact of this year's higher Harry Potter
sales.
"The impact of hurricanes on the Company, challenges in School
Book Clubs and Continuities, and investments to restructure our
business in the United Kingdom were all factors contributing to lower
profits in the second quarter," commented Richard Robinson, Chairman,
CEO and President of Scholastic. "Our business also showed many
strengths, especially in School Book Fairs, Trade and educational
technology sales. Significant free cash flow in the quarter also
strengthened our balance sheet."
Mr. Robinson added, "Responding to the challenges we faced in the
second quarter, Scholastic's management team is now implementing plans
to improve performance in the second half of the year, particularly in
the important fourth quarter. We are accelerating the U.K. turn-around
efforts, streamlining Club promotions, booking new fairs, introducing
new Continuity programs, trimming marketing costs and reducing
overhead. Notwithstanding the challenges, we believe we will attain
our financial goals for the year, based on these actions and strong
first quarter performance. We expect to achieve revenues for the year
of $2.3 to $2.4 billion, free cash flow of $85 to $95 million and
earnings at the bottom end of the previously announced range of $2.30
to $2.50 per diluted share."
Second Quarter Results
Children's Book Publishing and Distribution. Segment revenues in
the second quarter of fiscal 2006 were $424.2 million, down slightly
from $425.0 million in the prior year period. Trade revenue rose 11%,
driven by strong sales of Harry Potter backlist titles. School Book
Fair revenue rose 7% on higher revenue per fair. School Book Club
revenue was down 3% from fewer orders, partially offset by higher
revenue per order. Continuities revenue decreased 19%, as a result of
the Company's continued strategy of focusing on its most productive
customers. Profit in the segment declined 3% to $88.6 million from
$90.9 million, reflecting the negative impact across the Company of
hurricane-related school disruptions and higher fuel prices, as well
as lower revenue and profit in the Clubs and Continuities businesses.
Educational Publishing. Segment revenue rose 5% to $99.2 million
compared to $94.5 million in the prior year period, driven by a more
than 25% increase in revenues from educational technology sales,
partially offset by a decline in classroom magazine revenue from last
year's election-related increases. Profit in the segment rose slightly
to $21.6 million from $21.5 million a year ago, with higher technology
sales more than offsetting lower library and classroom magazine
results.
International. Revenue in the segment rose 4% to $121.4 million
from $116.2 million in the prior year period, primarily reflecting
foreign exchange benefits of $4.2 million. Profit in the segment
declined $6.4 million to $12.8 million from $19.2 million, due in part
to lower results in the United Kingdom.
Media, Licensing and Advertising. Revenue in the segment was up 9%
to $51.9 million from $47.6 million in the prior year period,
primarily due to growth in Back to Basics Toys(R). Sales of
Scholastic-produced titles such as I Spy(TM) and Math Missions(TM) for
Leapfrog's Leapster and Where the Wild Things Are for Fisher-Price's
Read with Me DVD learning products were also strong. Profit in the
quarter fell slightly to $7.7 million from $8.5 million in the prior
period.
Other Financial Results. Overhead decreased 15% to $15.4 million
from $18.2 million, reflecting lower salary-related expenses and
expenses related to Sarbanes-Oxley compliance. The Company's estimated
effective tax rate in the second quarter rose to 37.0% from 35.5% in
the prior year, primarily due to higher effective tax rates on foreign
earnings and a higher state tax provision.
First Half Results
Net income for the first half of fiscal 2006 was $45.7 million or
$1.10 per diluted share, up from $22.0 million or $0.55 per diluted
share in the first half of fiscal 2005, which included $3.6 million or
$0.06 per diluted share in severance charges related to a
reorganization of the Continuities business. Revenues in the period
rose 19% to $1,195.1 million from $1,007.0 million in the first half
of fiscal 2005. The year over year difference in revenue and
profitability primarily reflects higher Harry Potter revenues and
educational technology sales, partially offset by declines in Clubs
and International results.
Conference Call
The Company will hold a conference call to discuss its results at
8:00 am ET today, December 16, 2005. Scholastic's Chairman, President
and CEO, Richard Robinson, and Executive Vice President and CFO, Mary
Winston, will moderate the call.
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 888-338-6461 from within the U.S. or +1-973-935-8510
internationally.
Following the call, an audio replay of the call will be available
from approximately 10:00 am ET, December 16, 2005 through December 23,
2005 by dialing 877-519-4471 and entering participant code 6737108.
Slides from the conference call will also be posted in the Investor
Relations section of scholastic.com.
Investor Conference
The Company is currently scheduled to make a presentation to
investors at the Citigroup Salomon Smith Barney Entertainment, Media
and Telecom Conference on January 10, 2006 in Phoenix, Arizona. Mary
Winston, the Company's CFO, is expected to speak. Further details,
including information about a webcast, will be posted in the Investor
Relations section of 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, 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.
SCHOLASTIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in millions except per share data)
-----------------------------------------
THREE MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Revenues $696.7 $683.3 $13.4 2%
Operating costs and
expenses:
Cost of goods sold 298.3 301.1 2.8 1%
Selling, general and
administrative expenses 251.2 225.6 (25.6) (11%)
Selling, general and
administrative expenses
- Continuity charges (2) - - - -
Bad debt expense 15.1 19.6 4.5 23%
Depreciation and
amortization 16.8 15.1 (1.7) (11%)
--------------------- ---------
Total operating costs and
expenses 581.4 561.4 (20.0) (4%)
Operating income 115.3 121.9 (6.6) (5%)
Interest expense, net 9.1 9.5 0.4 4%
--------------------- ---------
Earnings before income taxes 106.2 112.4 (6.2) (6%)
Tax provision 39.3 39.9 0.6 2%
--------------------- ---------
Net income $66.9 $72.5 ($5.6) (8%)
===================== =========
Weighted average shares
outstanding:
Basic 41.3 39.7 1.6 4%
Diluted 42.0 40.4 1.6 4%
Net income per share:
Basic $1.62 $1.83 ($0.21) (11%)
Diluted $1.59 $1.80 ($0.21) (12%)
-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Revenues $1,195.1 $1,007.0 $188.1 19%
Operating costs and
expenses:
Cost of goods sold 591.3 477.5 (113.8) (24%)
Selling, general and
administrative expenses 453.6 406.8 (46.8) (12%)
Selling, general and
administrative expenses
- Continuity charges (2) 0.0 3.6 3.6 (a)
Bad debt expense 27.7 35.8 8.1 23%
Depreciation and
amortization 32.4 30.8 (1.6) (5%)
--------------------- ---------
Total operating costs and
expenses 1,105.0 954.5 (150.5) (16%)
Operating income 90.1 52.5 37.6 72%
Interest expense, net 17.6 18.3 0.7 4%
--------------------- ---------
Earnings before income taxes 72.5 34.2 38.3 (a)
Tax provision 26.8 12.2 (14.6) (a)
--------------------- ---------
Net income $45.7 $22.0 $23.7 (a)
===================== =========
Weighted average shares
outstanding:
Basic 40.8 39.7 1.1 3%
Diluted 41.6 40.2 1.4 3%
Net income per share:
Basic $1.12 $0.56 $0.56 (a)
Diluted $1.10 $0.55 $0.55 (a)
(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.
(2) In the six months ended November 30, 2004, the Company recorded
pre-tax charges of $3.6, or $0.06 per diluted share, primarily for
severance related to staff reductions implemented in the first
quarter of fiscal 2005 in connection with the prior year review by
the Company of its Continuity business.
(a) Percent change not meaningful.
SCHOLASTIC CORPORATION
RESULTS OF OPERATIONS - SEGMENTS
(UNAUDITED)
(Amounts in millions)
-----------------------------------------
THREE MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Children's Book Publishing &
Distribution
Revenue $424.2 $425.0 ($0.8) 0%
Operating profit (2)(3) 88.6 90.9 (2.3) (3%)
---------------------
Operating margin (3) 20.9% 21.4%
Educational Publishing
Revenue 99.2 94.5 4.7 5%
Operating profit 21.6 21.5 0.1 0%
---------------------
Operating margin 21.8% 22.8%
International
Revenue 121.4 116.2 5.2 4%
Operating profit 12.8 19.2 (6.4) (33%)
---------------------
Operating margin 10.5% 16.5%
Media, Licensing and
Advertising
Revenue 51.9 47.6 4.3 9%
Operating profit (3) 7.7 8.5 (0.8) (9%)
---------------------
Operating margin (3) 14.8% 17.9%
Overhead expense 15.4 18.2 2.8 15%
--------------------- ---------
Operating profit $115.3 $121.9 ($6.6) (5%)
===================== =========
-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Children's Book Publishing
& Distribution
Revenue $699.5 $546.8 $152.7 28%
Operating profit (2)(3) 68.9 26.9 42.0 (a)
---------------------
Operating margin (3) 9.8% 4.9%
Educational Publishing
Revenue 227.5 212.7 14.8 7%
Operating profit 49.1 43.8 5.3 12%
---------------------
Operating margin 21.6% 20.6%
International
Revenue 198.1 188.0 10.1 5%
Operating profit 7.3 16.2 (8.9) (55%)
---------------------
Operating margin 3.7% 8.6%
Media, Licensing and
Advertising
Revenue 70.0 59.5 10.5 18%
Operating profit (3) 2.0 2.3 (0.3) (13%)
---------------------
Operating margin (3) 2.9% 3.9%
Overhead expense 37.2 36.7 (0.5) (1%)
--------------------- ---------
Operating profit $90.1 $52.5 $37.6 72%
===================== =========
(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.
(2) Results for the six months ended November 30, 2004 include pre-
tax charges of $3.6, or $0.06 per diluted share, recorded in the
Children's Book Publishing and Distribution segment ("CBP&D"),
primarily for severance related to staff reductions implemented
in the first quarter of fiscal 2005 in connection with the prior
year review by the Company of its Continuity business.
(3) In the fourth quarter of fiscal 2005, the Company reviewed the
estimated Cost of goods sold related to Media, Licensing and
Advertising segment ("MLA") products sold through CBP&D. The
Company determined that the actual costs were lower and the
gross margins higher on these products than previously
allocated. Prior period inter-segment allocations were adjusted
accordingly, resulting in higher gross margin in MLA with
offsetting decreases in CBP&D.
(a) Percent change not meaningful.
SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(UNAUDITED)
(Amounts in millions)
SELECTED BALANCE SHEET ITEMS
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Cash and cash equivalents $249.3 $27.1 $222.2 (a)
Accounts receivable, net 308.3 321.0 (12.7) (4%)
Inventories 472.3 472.7 (0.4) 0%
Lines of credit and
short-term debt 41.4 34.2 (7.2) (21%)
Long-term debt 473.5 528.5 55.0 10%
Net debt (2) 265.6 535.6 270.0 50%
Capital lease obligations 74.9 75.0 0.1 0%
Total stockholders' equity 1,008.0 881.2 126.8 14%
SELECTED CASH FLOW ITEMS
-----------------------------------------
THREE MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Net cash provided by
operating activities $324.7 $108.2 $216.5 (a)
Additions to property,
plant and equipment 15.3 11.7 (3.6) (31%)
Pre-publication and
production costs 15.6 18.9 3.3 17%
Royalty advances 7.6 6.9 (0.7) (10%)
--------------------- ---------
Free cash flow (use) (3) $286.2 $70.7 $215.5 (a)
===================== =========
-----------------------------------------
SIX MONTHS ENDED
-----------------------------------------
Favorable/
11/30/05 11/30/04 (Unfavorable)
--------------------- ------------------
Restated (1)
Net cash provided by
operating activities $185.9 $31.7 $154.2 (a)
Additions to property,
plant and equipment 30.7 21.4 (9.3) (43%)
Pre-publication and
production costs 32.5 33.8 1.3 4%
Royalty advances 14.8 14.0 (0.8) (6%)
--------------------- ---------
Free cash flow (use) (3) $107.9 ($37.5) $145.4 (a)
===================== =========
(1) In the fourth quarter of fiscal 2005, the Company revised its
accounting for certain leasing transactions and restated its
previously issued annual and interim consolidated financial
statements.
(2) 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 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.
(3) 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.
(a) Percent change not meaningful.
CONTACT: Scholastic Corporation
Media: Kyle Good, 212-343-4563
Investors: Jeffrey Mathews, 212-343-6741