EXHIBIT 99.1 – Press release
August 5, 2010 @ 6:45AM
Peoples Educational Holdings, Inc. Reports Fiscal Fourth Quarter and Year End Results
Saddle Brook, New Jersey, August 5, 2010 – Peoples Educational Holdings, Inc. (NASDAQ: PEDH), a leading provider of supplemental educational material for the K-12 school market, today announced its financial results for the fourth quarter and year ended May 31, 2010.
Brian T. Beckwith, President and CEO, commented, “Although we are currently operating in a very challenging economic environment, I am pleased that despite a decline in revenue, we were able to improve our net income by $1.4 million on a year-over-year basis. In addition, our free cash flow increased significantly over the prior year as we continue to aggressively control costs.”
Fourth Quarter and Full Year Results
Revenue for the fourth quarter was $7.4 million, flat with the prior year. Revenue from the Test Preparation, Assessment and Instruction product group was $4.7 million for the quarter, a decline of 10% from the prior year. College Preparation revenue for the quarter was $2.0 million, an increase of 17% from the prior year. Literacy revenue for the quarter was $0.7 million, an increase of 62% from the prior year. The Literacy product group was launched in the fourth quarter of the prior fiscal year. Net loss for the quarter was $0.1 million, an improvement of $1.2 million from the prior year. Prior year net loss included $0.7 million income tax expense related to the establishment of a deferred tax valuation allowance. Non-GAAP net loss, which excludes non-recurring costs, including the deferred tax valuation allowance expense, and adjusts for the difference between prepublication expenditures and amortization for the quarter was $0.7 million, $0.3 million higher than the prior year due to the timing of prepublication expenditures (see Exhibit 1).
Revenue for the twelve months ended May 31, 2010 was $34.9 million, a decrease of 5% from the prior year. Test Preparation, Assessment and Instruction product group revenue was $20.2 million for the year, a decline of 10%. College Preparation revenue was $12.1 million for the year, a decrease of 14%. Revenue generated by our Literacy product group, which was launched in the fourth quarter of the last fiscal year was $2.6 million, an increase of $2.1 million. Net income for the year was $0.3 million or $0.06 per share, compared to a loss of $1.1 million or $0.25 per share in the prior year. Included in the prior year loss was a $0.7 million income tax expense related to the establishment of a deferred tax valuation allowance. Non-GAAP net income was $0.5 million or $0.12 per share, compared to $0.7 million or $0.15 per share in fiscal 2009 (see Exhibit 1).
Financial Highlights for the Year Ended May 31, 2010
| · | Net income for the year was $0.3 million or $0.06 per share compared to a loss of $1.1 million or $0.25 per share in the prior year. |
| · | Free cash flow, which is cash provided by operating activities reduced by expenditures for publication cost, equipment and intangibles, (see Exhibit 2) improved $1.0 million on a year-over-year basis from $2.2 million to $3.2 million. |
| · | Gross profit as a percentage of revenue increased from 37.8% to 41.7% due to revenue mix and a decline in prepublication cost amortization. |
| · | General and administrative expenses of $4.5 million represent a decline of 2% from the prior year. |
| · | Bank debt at May 31, 2010 was $10.6 million, a decrease of $3.1 million from the same period in the prior year. |
| · | Interest expense decreased from $0.7 million to $0.3 million primarily due to lower average outstanding debt on a year-over-year basis, lower interest rates and $153,000 of income from the fair value adjustment of our swap agreement. |
| · | We expanded our literacy product offering by adding two new series, a graphic poetry series and a graphic novels series. |
Business Outlook
Looking ahead to fiscal year ending May 31, 2011, comments Mr. Beckwith “we expect to resume revenue growth while focusing on continued improvements in profitability. We are projecting revenue to be between $35 million and $37 million, and net income to be $0.5 million to $0.8 million or $0.11 to $0.18 per basic share. We expect Non-GAAP net income to be between $0.9 million and $1.2 million or $0.20 to $0.27 per basic share. In addition, we expect positive free cash flow to range between $2.5 million to $3.5 million.”
Use of Non-GAAP Financial Measures
Some of the measures in this press release are Non-GAAP financial measures within the meaning of SEC Regulation G. Peoples Educational Holdings, Inc. believes presenting Non-GAAP net income and Non-GAAP earnings per share and Free Cash Flow are useful to investors because it describes the operating performance of the Company and helps investors gauge the Company’s ability to generate cash flow excluding non-recurring charges and fluctuations between new product development amortization and new product development expenditures. Company management uses these Non-GAAP measures as important indicators of the Company’s past performance and to plan and forecast performance in future periods. The Non-GAAP financial information Peoples Educational Holdings presents, may not be comparable to similarly titled financial measures used by other companies, and investors should not consider Non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.
About Peoples Educational Holdings, Inc.
Peoples Educational Holdings, Inc. is a publisher and marketer of print and electronic educational materials for the K-12 school market. We focus our efforts in three market areas:
| · | Test Preparation, Assessment, and Instruction |
Test Preparation and Assessment: We create and sell state customized, print and digital, test preparation and assessment materials that help teachers prepare students for success in school and for required state proficiency tests.
Instruction: We produce and sell proprietary state customized print worktexts, and print and web-based delivered assessments. These products provide students with in-depth instruction and practice in reading, language arts, and mathematics. In addition, our backlist remedial and multicultural products are included in this group.
We distribute for three publishers, on an exclusive basis in the United States, supplemental literacy materials for grades K-8. These materials include an extensive selection of leveled reading materials, high interest engaging resources for striving readers, series that integrate reading, science and social studies, and selections and strategies for students who are in the process of learning English.
We distribute instructional materials that meet the academic standards high schools require for honors, college preparation, and Advanced Placement courses. We are the exclusive high school distributor for two major college publishers, and we also publish proprietary supplemental materials for this market.
Forward-Looking Statements
This press release contains forward-looking statements regarding the Company and its markets as defined in section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve a number of risks and uncertainties, including (1) demand from major customers, (2) effects of competition, (3) changes in product or customer mix or revenues and in the level of operating expenses, (4) rapidly changing technologies and the Company's ability to respond thereto, (5) the impact of competitive products and pricing, (6) local and state levels of educational spending, (7) ability to retain qualified personnel, (8) ability to retain its distribution agreements in the College Preparation market, (9) the sufficiency of the Company’s copyright protection, and (10) ability to continue to rely on the services of a third party warehouse, and other factors as discussed in the Company’s filings with the SEC. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made by the Company in this press release and the reports the Company files with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business and results of operations.
Contacts:
Peoples Education, Inc., Saddle Brook, NJ 07663
Investor Contact: James Kautz
Phone: 888-654-5318
Press Contact: Victoria Kiely
Phone: 201-712-0090 ext. 215
investorrelations@peoplesed.com
| PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY | | | | |
| CONSOLIDATED BALANCE SHEETS (AUDITED) | | | | |
| (In Thousands-Except Share Data) | | | | |
| | | May 31, 2010 | | | May 31, 2009 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash and Cash Equivalents | | $ | 110 | | | $ | 42 | |
| Accounts Receivable Net of Allowances for | | | | | | | | |
| Doubtful Accounts and Returns | | | 2,990 | | | | 2,842 | |
| Inventory | | | 3,591 | | | | 4,219 | |
| Prepaid Expenses and Other | | | 264 | | | | 323 | |
| Prepaid Marketing Expenses | | | 642 | | | | 862 | |
| Deferred Income Taxes | | | 833 | | | | 1,092 | |
| Total Current Assets | | | 8,430 | | | | 9,380 | |
| Equipment - At Cost, Less Accumulated Depreciation | | | | | | | | |
| of $2,444 and $2,241, respectively | | | 249 | | | | 387 | |
| Other Assets | | | | | | | | |
| Deferred Prepublication Costs, Net | | | 12,864 | | | | 13,466 | |
| Deferred Income Taxes | | | 477 | | | | 1,006 | |
| Trademarks, Net | | | 189 | | | | 170 | |
| Prepaid Expenses and Other | | | 167 | | | | 273 | |
| Total Other Assets | | | 13,697 | | | | 14,915 | |
| Total Assets | | $ | 22,376 | | | $ | 24,682 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Current Maturities of Long Term Obligations | | $ | 2,000 | | | $ | 2,034 | |
| Accounts Payable | | | 4,904 | | | | 3,998 | |
| Accrued Compensation | | | 153 | | | | 170 | |
| Other Accrued Expenses | | | 527 | | | | 855 | |
| Deferred Revenue | | | 404 | | | | 278 | |
| Total Current Liabilities | | | 7,988 | | | | 7,335 | |
| Long Term Obligations, Less Current Maturities | | | 8,584 | | | | 11,854 | |
| Total Liabilities | | | 16,572 | | | | 19,189 | |
| Commitments and Contingencies | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Preferred Stock, authorized 1,500,000 shares; none issued | | | - | | | | - | |
| Common Stock, $0.02 par value; authorized 8,500,000 shares; | | | | | | | | |
| issued, 4,478,434 as of May 31, 2010 and May 31, 2009 | | | 90 | | | | 90 | |
| Additional Paid In Capital | | | 8,120 | | | | 8,060 | |
| Accumulated Deficit | | | (2,342 | ) | | | (2,593 | ) |
| Treasury Stock, 16,232 shares for both periods, at cost | | | (64 | ) | | | (64 | ) |
| Total Stockholders' Equity | | | 5,804 | | | | 5,493 | |
| Total Liabilities and Stockholders' Equity | | $ | 22,376 | | | $ | 24,682 | |
| PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY | | | | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | |
| (In Thousands- Except Share Data) | | | | | |
| | | Three Months Ended | | | Twelve Months Ended | |
| | | May 31, | | | May 31, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | (Unaudited) | | | (Unaudited) | | | (Audited) | | | (Audited) | |
| | | | | | | | | | | | | |
| Revenue, Net | | $ | 7,411 | | | $ | 7,386 | | | $ | 34,915 | | | $ | 36,867 | |
| | | | | | | | | | | | | | | | | |
| Cost of Revenue | | | | | | | | | | | | | | | | |
| Direct Costs | | | 3,031 | | | | 3,136 | | | | 14,981 | | | | 16,378 | |
| Prepublication Cost Amortization | | | 1,292 | | | | 1,516 | | | | 5,384 | | | | 6,556 | |
| Total | | | 4,323 | | | | 4,652 | | | | 20,365 | | | | 22,934 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | | 3,270 | | | | 3,454 | | | | 13,819 | | | | 13,818 | |
| | | | | | | | | | | | | | | | | |
| Income (Loss) from Operations | | | (182 | ) | | | (720 | ) | | | 731 | | | | 115 | |
| | | | | | | | | | | | | | | | | |
| Other Expenses, Net | | | 13 | | | | 96 | | | | 37 | | | | 115 | |
| Interest Expense | | | 71 | | | | 113 | | | | 277 | | | | 677 | |
| Total | | | 84 | | | | 209 | | | | 314 | | | | 792 | |
| | | | | | | | | | | | | | | | | |
| Income (Loss) Before Income Taxes | | | (266 | ) | | | (929 | ) | | | 417 | | | | (677 | ) |
| | | | | | | | | | | | | | | | | |
| Income Tax Expense (Benefit) | | | (160 | ) | | | 341 | | | | 166 | | | | 434 | |
| | | | | | | | | | | | | | | | | |
| Net Income (Loss) | | $ | (106 | ) | | $ | (1,270 | ) | | $ | 251 | | | $ | (1,111 | ) |
| | | | | | | | | | | | | | | | | |
| Net Income (Loss) per Common Share | | | | | | | | | | | | | | | | |
| Basic and Diluted | | $ | (0.02 | ) | | $ | (0.28 | ) | | $ | 0.06 | | | $ | (0.25 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted-average Number of Common Shares Outstanding | | | | | | | | | | | | | | | | |
| Basic | | | 4,462 | | | | 4,462 | | | | 4,462 | | | | 4,457 | |
| Diluted | | | 4,462 | | | | 4,462 | | | | 4,465 | | | | 4,457 | |
| PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AUDITED) | |
| (In Thousands) | | | |
| | | Twelve Months Ended | |
| | | May 31, | |
| | | 2010 | | | 2009 | |
| Cash Flows From Operating Activities | | | | | | |
| Net Income (Loss) | | $ | 251 | | | $ | (1,111 | ) |
| Adjustments to Reconcile Net Income (Loss) to Net Cash | | | | | | | | |
| Provided by Operating Activities | | | | | | | | |
| Depreciation | | | 223 | | | | 284 | |
| Amortization of Prepublication Costs and Trademarks | | | 5,400 | | | | 6,591 | |
| Stock-Based Compensation | | | 60 | | | | 48 | |
| Market Value Adjustment of Interest Rate Swap | | | (153 | ) | | | 5 | |
| Deferred Income Taxes | | | 153 | | | | 462 | |
| Changes in Assets and Liabilities | | | | | | | | |
| Accounts Receivable | | | (148 | ) | | | 822 | |
| Inventory | | | 628 | | | | 175 | |
| Prepaid Expenses and Other | | | 165 | | | | 72 | |
| Prepaid Marketing Expenses | | | 220 | | | | 462 | |
| Accounts Payable and Accrued Expenses | | | 561 | | | | (477 | ) |
| Deferred Revenue | | | 126 | | | | (197 | ) |
| Income tax refund attributable to net operating loss carryback | | | 635 | | | | - | |
| Net Cash Provided By Operating Activities | | | 8,121 | | | | 7,136 | |
| | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | |
| Purchases of Equipment | | | (85 | ) | | | (106 | ) |
| Expenditures for Intangibles | | | (35 | ) | | | (15 | ) |
| Expenditures for Prepublication Costs | | | (4,782 | ) | | | (4,821 | ) |
| Net Cash Used In Investing Activities | | | (4,902 | ) | | | (4,942 | ) |
| | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | |
| Net Payments Under Line of Credit | | | (1,117 | ) | | | (163 | ) |
| Principal Payments On Long Term Debt | | | (2,034 | ) | | | (2,042 | ) |
| Net Cash Used In Financing Activities | | | (3,151 | ) | | | (2,205 | ) |
| | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | 68 | | | | (11 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents | | | | | | | | |
| Beginning of Year | | | 42 | | | | 53 | |
| End of Year | | $ | 110 | | | $ | 42 | |
| | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | |
| Cash Payments for: | | | | | | | | |
| Interest | | $ | 487 | | | $ | 692 | |
| Exhibit 1 | | | | | | | |
| | | | | | | | |
| Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) | | | | |
| | | | | | | | |
| (In Thousands - Except Share Data) | | | | | | | |
| | | Three Months Ended | | | 12 Months Ended | |
| | | 5/31/2010 | | | 5/31/2009 | | | 5/31/2010 | | | 5/31/2009 | |
| Net Income (Loss) | | $ | (106 | ) | | $ | (1,270 | ) | | $ | 251 | | | $ | (1,111 | ) |
| | | | | | | | | | | | | | | | | |
| Amortization of Prepublications Costs | | | 1,292 | | | | 1,516 | | | | 5,384 | | | | 6,556 | |
| Cash Expenditures for Prepublication Costs | | | (2,165 | ) | | | (1,155 | ) | | | (4,782 | ) | | | (4,821 | ) |
| Market Value Adjustment of Interest Rate Swap | | | (36 | ) | | | (31 | ) | | | (153 | ) | | | 5 | |
| Adjusted Income Tax Benefit | | | 336 | | | | (122 | ) | | | (166 | ) | | | (644 | ) |
| Subtotal | | $ | (679 | ) | | $ | (1,062 | ) | | $ | 534 | | | $ | (15 | ) |
| Deferred Tax Valuation Allowance | | | - | | | | 700 | | | | - | | | | 700 | |
| Non-GAAP Net Income (Loss) | | $ | (679 | ) | | $ | (362 | ) | | $ | 534 | | | $ | 685 | |
| | | | | | | | | | | | | | | | | |
| Basic Weighted Shares Outstanding | | | 4,462 | | | | 4,462 | | | | 4,462 | | | | 4,457 | |
| | | | | | | | | | | | | | | | | |
| Non-GAAP Earnings (Loss) Per Share | | $ | (0.15 | ) | | $ | (0.08 | ) | | $ | 0.12 | | | $ | 0.15 | |
| Exhibit 2 | | | | | | | |
| | | | | | | | |
| Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow | | | | |
| | | | | | | | |
| (In Thousands) | | | | | | | |
| | | 12 Months Ended | |
| | | 5/31/2010 | | | 5/31/2009 | |
| Net Cash Provided by Operating Activities | | $ | 8,121 | | | $ | 7,136 | |
| Cash Expenditures for Equipment and Intangibles | | | (120 | ) | | | (121 | ) |
| Cash Expenditures for Prepublication Costs | | | (4,782 | ) | | | (4,821 | ) |
| Free Cash Flow | | $ | 3,219 | | | $ | 2,194 | |
