EXHIBIT 99.1
CONTACTS:
Media: Judy Corman (212) 343-6833
Investors: Ray Marchuk (212) 343-4710
SCHOLASTIC ANNOUNCES FISCAL 2004 RESULTS AND
FISCAL 2005 OUTLOOK
NEW YORK, JULY 21, 2004 - Scholastic Corporation (NASDAQ: SCHL) today announced
its results for the Fiscal 2004 fourth quarter and full year, and its outlook
for Fiscal 2005.
Revenue for the fourth quarter ended May 31, 2004 increased 5% to $587.4
million, compared to $557.4 million in the year ago period, with net income of
$22.5 million, or $0.56 per diluted share, compared to $28.7 million, or $0.72
per diluted share, in the year-ago period. Revenue for the year ended May 31,
2004 increased 14% to $2,233.8 million, compared to $1,958.3 million in Fiscal
2003, with net income of $58.4 million, or $1.46 per diluted share, compared to
$58.6 million, or $1.46 per diluted share, last year.
Results for the Fiscal 2004 fourth quarter and year included the net negative
impact of $0.28 per diluted share in the quarter and of $0.33 per diluted share
in the year from previously announced items. These items consisted of charges of
$0.41 per diluted share related to the Continuities business and a gain of $0.13
per diluted share related to the termination of a sublease in New York City,
both recorded in the fourth quarter, and special severance charges of $0.05 per
diluted share recorded in prior quarters.
The Company generated free cash flow of $74.0 million in Fiscal 2004, including
$10.0 million received in connection with the termination of the sublease.
"Our core businesses performed well in the fourth quarter, enabling us to meet
our revised expectations for both the quarter and full year, and exceed our cash
flow target," said Richard Robinson, Chairman, President and CEO. "Book Clubs,
Book Fairs, the Educational and International segments, as well as our frontlist
Trade business, all generated solid increases in revenues during the quarter. In
addition, we took decisive steps during the quarter to make our Continuities
business a stronger, more profitable operation going forward."
FOURTH QUARTER AND FISCAL YEAR SEGMENT RESULTS
CHILDREN'S BOOK PUBLISHING & DISTRIBUTION - Fourth quarter segment revenue
increased 2% to $348.5 million, with operating profit of $25.8 million compared
to $47.8 million in the year ago quarter. Segment revenue for the year increased
14% to $1,358.6 million, with operating profit of $114.8 million, compared to
$134.4 million last year. Fiscal 2004 segment profit reflects growth in Book
Clubs and Trade, more than offset by a decline in Continuities, which included
$22.7 million in previously announced charges.
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Clubs had a record year, with revenue up 12% in the quarter and 15% for the year
on increased orders, helped in part by the July 2003 acquisition of selected
assets of Troll Holdings, Inc. Fair revenue grew by 5% in the quarter and for
the year, primarily due to revenue per fair increases. Fiscal 2004 Trade revenue
was up 54% due to higher Harry Potter sales, driven by the record first quarter
release of HARRY POTTER AND THE ORDER OF THE PHOENIX. Fourth quarter Trade
revenue reflected strong frontlist sales, including new titles based on the
SHREK II and SPIDER-MAN II movies, Scholastic's GERONIMO STILTON series, and the
best-selling mystery novel CHASING VERMEER, largely offsetting a decline in
backlist sales. Continuities revenue declined 11% in the quarter and 5% for the
year.
EDUCATIONAL PUBLISHING - Fourth quarter segment revenue increased 11% over the
prior year period to $106.6 million and operating profit increased 9% to $21.2
million. For the year, segment revenue increased 13% over the prior year to
$369.1 million and operating profit increased 27% to $53.2 million. Revenue
growth was led by Curriculum Publishing, which was up 27% in the quarter and 15%
for the year, driven by a nearly 50% increase in sales of READ 180(R) for the
year. In addition, Teaching Resources revenue grew 6% in the quarter and 31% for
the year, primarily due to continued strong sales of children's book collections
to public school systems.
INTERNATIONAL - Fourth quarter segment revenue increased 15% to $102.2 million,
with operating profit of $5.5 million compared to $7.4 million in the year ago
quarter. The lower Fiscal 2004 fourth quarter margin principally reflected a
change in product mix. For the year, segment revenue increased 16% over the
prior year period to $369.7 million and operating profit increased 26% to $24.3
million. Revenue and profits in the year benefited from growth in Export, due in
large part to a sale to Department of Defense schools, and growth in the
Company's Canadian operations. Foreign exchange translations added approximately
$9 million and $36 million to Fiscal 2004 fourth quarter and full year revenue,
respectively.
MEDIA, LICENSING & ADVERTISING - Fourth quarter segment revenue declined 4% to
$30.1 million and operating results improved $2.3 million, to a profit of $1.0
million, from a year-ago loss of $1.3 million. For the year, segment revenue
increased 10% to $136.4 million and operating results improved $0.4 million, to
a loss of $2.5 million, from a year-ago loss of $2.9 million. The Fiscal 2004
revenue increase reflected the Scholastic Entertainment production, CLIFFORD'S
REALLY BIG MOVIE(TM), as well as approximately $17 million generated by Back to
Basics Toys(R), a direct-to-home catalog business acquired in August 2003.
FISCAL 2005 OUTLOOK
In Fiscal 2005, Scholastic expects to achieve EPS of $1.50 to $1.70 based on the
following:
1. Revenue and margin growth in Book Clubs, Book Fairs and non-Harry
Potter front list Trade, which will feature expanded mass market and
new paperback titles.
2. A reorganized and more profitable Continuities business, as the
Company strengthens its relationships with its most productive
customers through product and service improvements.
3. Further profitable growth in Educational Publishing, through the
ongoing strength of the Company's educational technology products and
paperback collections.
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4. Continued growth in International operations, particularly in Export,
Asia, the United Kingdom and Canada.
5. Operating improvements and increased efficiencies, with continued
focus on free cash flow, targeted at $40-$50 million.
ANNUAL INVESTOR PRESENTATION
The Company will discuss this news release at its Annual Investor Presentation
tomorrow (July 22, 2004) at 8:00 a.m. Eastern. To listen and ask questions, dial
888-338-6461 or 973-935-8510 (meeting leader "Richard Robinson"). To view
accompanying slides, go to the Investor Relations section of Scholastic.com at
www.scholastic.com/go/homepage/company/investors.htm. Following the
presentation, the slides will be available on the Investor Relations section of
Scholastic.com and an audio replay will be available starting 10 a.m. at
877-519-4471, PIN number 4898238.
ABOUT SCHOLASTIC
Scholastic is the world's largest publisher and distributor of children's books.
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.
Page 3 of 3
SCHOLASTIC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 31, 2004 AND 2003 (1) (2)
(Dollars in millions except per share data)
------------------------------------ ---------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
------------------------------------ ---------------------------------------
05/31/04 05/31/03 VARIANCE 05/31/04 05/31/03 VARIANCE
-------- -------- -------------- -------- -------- ---------------
Revenues $587.4 $557.4 $30.0 5% $2,233.8 $1,958.3 $275.5 14%
Operating costs and expenses:
Cost of goods sold 263.4 241.8 21.6 9% 1,080.0 882.1 197.9 22%
Cost of goods sold -- Continuity charges 6.8 -- 6.8 * 6.8 -- 6.8 *
Selling, general and administrative expenses 230.3 219.3 11.0 5% 869.7 826.3 43.4 5%
Selling, general and administrative
expenses -- Continuity charges 15.2 -- 15.2 * 15.2 -- 15.2 *
Bad debt expense 22.2 18.7 3.5 19% 88.3 72.3 16.0 22%
Bad debt expense -- Continuity charges 2.0 -- 2.0 * 2.0 -- 2.0 *
Depreciation and amortization 13.7 13.2 0.5 4% 53.5 46.1 7.4 16%
Special severance charges 0.1 10.9 (10.8) * 3.3 10.9 (7.6) -70%
Litigation charge -- -- -- * -- 1.9 (1.9) *
---------- -------- ----- -------- -------- ------
Total operating costs and expenses 553.7 503.9 49.8 10% 2,118.8 1,839.6 279.2 15%
Operating income 33.7 53.5 (19.8) -37% 115.0 118.7 (3.7) -3%
Other income 8.0 -- 8.0 * 8.0 2.9 5.1 176%
Interest expense, net 7.3 8.2 (0.9) -11% 32.5 31.5 1.0 3%
---------- -------- ----- -------- -------- ------
Earnings before income taxes 34.4 45.3 (10.9) -24% 90.5 90.1 0.4 0%
Tax provision 11.9 16.6 (4.7) -28% 32.1 31.5 0.6 2%
---------- -------- ----- -------- -------- ------
Net income $22.5 $28.7 ($6.2) -22% $58.4 $58.6 ($0.2) 0%
========== ======== ===== ======== ======== ======
Weighted average shares outstanding:
Basic 39.5 39.2 39.4 39.1
Diluted 40.1 39.7 40.1 40.1
Net income per share:
Basic $0.57 $0.73 ($0.16) -22% $1.48 $1.50 ($0.02) -1%
Diluted $0.56 $0.72 ($0.16) -22% $1.46 $1.46 $0.00 0%
(1) Results for the three and twelve months ended May 31, 2004 include pre-tax
charges of $25.4, or $0.41 per diluted share, related to the Continuity
business (including charges of $6.8 in Cost of goods sold, $15.2 in
Selling, general and administrative expenses, and $2.0 in Bad debt expense)
and a pre-tax gain of $8.0, or $0.13 per diluted share, resulting from the
early termination of a sublease in New York City. Results for the twelve
months ended May 31, 2004 also included pre-tax Special severance charges
totaling $3.3, or $0.05 per diluted share, related to staff reductions
announced in May 2003 but implemented in Fiscal 2004.
(2) Results for the three and twelve months ended May 31, 2003 include a
pre-tax Special severance charge of $10.9, or $0.18 per diluted share,
related to a workforce reduction. Results for the twelve months ended May
31, 2003 also include pre-tax charge of $1.9, or $0.03 per diluted share,
to settle a securities lawsuit from 1997 and a pre-tax gain on sale of an
equity investment of $2.9, or $0.05 per diluted share.
* Percent change not meaningful.
- --------------------------------------------------------------------------------
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 instructional material
markets and acceptance of the Company's product 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
RESULTS OF OPERATIONS - SEGMENTS
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 31, 2004 AND 2003 (1) (2)
(Dollars in millions)
----------------------------------- ---------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
----------------------------------- ---------------------------------------
05/31/04 05/31/03 VARIANCE 05/31/04 05/31/03 VARIANCE
-------- ------ ------------ -------- -------- ---------------
Children's Book Publishing and Distribution
Revenue $348.5 $341.7 $6.8 2% $1,358.6 $1,189.9 $168.7 14%
------------------ --------------------
Operating profit 25.8 47.8 (22.0) -46% 114.8 134.4 (19.6) -15%
------------------ --------------------
Operating margin 7.4% 14.0% 8.4% 11.3%
Educational Publishing
Revenue 106.6 95.7 10.9 11% 369.1 325.9 43.2 13%
Operating profit 21.2 19.5 1.7 9% 53.2 41.9 11.3 27%
------------------ --------------------
Operating margin 19.9% 20.4% 14.4% 12.9%
International
Revenue 102.2 88.6 13.6 15% 369.7 319.0 50.7 16%
Operating profit 5.5 7.4 (1.9) -26% 24.3 19.4 4.9 26%
------------------ --------------------
Operating margin 5.4% 8.4% 6.6% 6.1%
Media, Licensing and Advertising
Revenue 30.1 31.4 (1.3) -4% 136.4 123.5 12.9 10%
Operating profit/(loss) 1.0 (1.3) 2.3 177% (2.5) (2.9) 0.4 14%
------------------ --------------------
Operating margin 3.2% -4.1% -1.8% -2.4%
Overhead Expense 19.8 19.9 (0.1) -1% 74.8 74.1 0.7 1%
------------------ --------------------
Operating income $33.7 $53.5 ($19.9) -37% $115.0 $118.7 ($3.7) -3%
================== ====== ==================== =====
(1) 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 & Distribution and $2.7 in International.
Results for the twelve months ended May 31, 2004 also include pre-tax
Special severance charges totaling $3.3, which were allocated back to
segments, relating to staff reductions announced in May 2003 but
implemented in Fiscal 2004.
(2) Results for the three and twelve months ended May 31, 2003 include a
pre-tax Special severance charge of $10.9, related to a workforce
reduction, which was allocated as follows: $2.0 in Children's Book
Publishing & Distribution, $2.0 in Educational Publishing, $4.0 in
International, $1.0 in Media, Licensing and Advertising, and $1.9 in
Overhead Expense. Overhead expense in the twelve months ended May 31, 2003
also included a pre-tax charge of $1.9 to settle a securities lawsuit from
1997.
SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(Amounts in millions)
SELECTED BALANCE SHEET ITEMS
-------------------------------------
-------------------------------------
05/31/04 05/31/03 CHANGE
------------------- --------------
Cash and cash equivalents $17.8 $58.6 ($40.8) -70%
Accounts receivable, net $265.7 $252.3 $13.4 5%
Inventories $402.6 $382.6 $20.0 5%
Total debt (lines of credit,
short-term debt and long-term debt) $516.6 $635.9 ($119.3) -19%
Total stockholders' equity $856.0 $772.6 $83.4 11%
-------------------------------------
SELECTED CASH FLOW ITEMS
-------------------------------------
FOR THE YEARS ENDED
-------------------------------------
05/31/04 05/31/03 CHANGE
------------------- --------------
Net cash provided by operating activities $212.3 $179.2 $33.1 18%
Additions to property, plant and equipment (43.4) (83.9) 40.5 48%
Prepublication and production expenditures (68.8) (71.2) 2.4 3%
Royalty advances (26.1) (30.3) 4.2 14%
------ ---
Free cash flow (cash use) (1) $74.0 ($6.2) $80.2 *
====== ====== ====== ===
-------------------------------------
(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. 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.
* Percent change not meaningful.