EXHIBIT 99.1 -- Letter to Shareholders
PEOPLES EDUCATIONAL HOLDINGS, INC.
2004 ANNUAL REPORT TO SHAREHOLDERS
Dear Shareholders:
It is a pleasure to present the 2004 Annual Report to Shareholders of Peoples
Educational Holdings, Inc. ("PEH" or the "Company"). The Peoples Publishing
Group, Inc. ("PPG"), a wholly owned subsidiary of PEH, constitutes all the
operations of the Company, and the comments regarding the Company's financial
information are related to PPG's operations.
We continued our year-over-year revenue growth. Revenue in 2004 was 16.8% higher
than the prior year; that was on top of our 2003 revenue growth of 47.8%. Our
2004 revenue growth was led by a particularly strong performance in our
standards-based Test Preparation and Assessment line, which grew 26.5% over the
prior year. This business group, which publishes highly customized,
state-specific instruction and assessment products to help schools respond to
state and federal requirements from the No Child Left Behind Act, now operates
in 11 states. We entered one new state in 2004, and continue to roll out new
grade and subject categories into existing states. In addition, we began selling
our first electronic product. This is an Internet assessment engine called
Measuring Up e-Path(TM), which was launched into Texas. Measuring Up e-Path(TM),
developed in conjunction with the Cisco Learning Institute (which is one of the
largest e-learning enterprises in the world), gives schools and districts the
ability to develop customized, formative, classroom-level assessments, which
enable informed instruction relative to the state standards. The system delivers
a detailed Personal Prescriptive Path(TM) for the individual student, guiding
instruction into our own rapidly expanding instructional product lines, as well
as other educational products in use within the district. In other words, we
help the educators understand a child's strengths and weaknesses relative to the
state standards, and then prescribe materials to enable progress. The assessment
data can be aggregated, using No Child Left Behind-compliant reporting, at the
class, school, and district level, and can be used to drive not only student
learning, but teacher professional development as well.
In addition to our rapidly expanding line of student products, we are currently
launching a Professional Development group that will create and market a mix of
proprietary and distributed product into the teacher training market. The Highly
Qualified Teacher(TM), or HQT(TM), initiatives that are in various stages of
development within individual states are also mandated by No Child Left Behind.
We believe that these training initiatives will be an increasingly large factor
in school market spending over the next few years.
Our College Preparation product line, comprised primarily of distributed
product, also experienced good top line growth of 9.2% for 2004 compared to
2003. We are pleased with this growth, which took place in a generally soft
market for high school texts. Our performance in this market was driven by a
strong product line as well as our continuing efforts to improve our sales force
and selling strategies.
We have invested strongly in this line over the past year, both in sales
personnel and systems, as well as in the key editorial talent needed to drive a
new College Preparation proprietary publishing program that we've launched. We
believe that through proprietary product and a more diversified portfolio of
distributed clients, we can raise the growth rate and add significantly to the
value of this group. Our first proprietary products in this category were
released in July 2004 and we added four new College Preparation distribution
clients during 2004 as well.
Our final product line is Instruction, and historically it has been comprised of
supplemental print product in the multicultural and "at risk" student
categories, which were produced during the early years of the company's
existence. These legacy products, which are sold through a separate direct
response catalog, are being mined for their remaining profit contribution, but
are no longer being invested in through product development or revisions. They
represented only 2.5% of our sales in 2004. We have launched a group of new,
mainstream, standards-based supplemental products with a focus on current hot
topics in language arts and mathematics. These are the same areas that we touch
on with our Test Preparation and Assessment products, but teachers have asked us
for more in-depth instruction and practice in areas of particular difficulty. In
the fall of 2003, we put in place a highly experienced editorial team based in
Austin, Texas, and the first products in this category were released in the
fourth quarter of 2004. These products are standards-based and state-specific,
and they will be sold by the same sales force that sells our Test Preparation
and Assessment lines. We are encouraged by the early feedback from the market on
the initial products, and we are excited by the potential for this new product
line.
In summary, we have four main growth engines in different stages of development.
They are:
1. State-specific Test Preparation and Assessment--a proven business
model that we are continuing to roll out nationally;
2. Professional Development for teachers--a new yet promising
initiative;
3. College Preparation--an established distribution business that we
are enhancing with new proprietary product and additional
distribution clients;
4. Supplemental Instruction--a new initiative that we believe will
leverage the sales force and customer base of our rapidly
expanding state-specific publishing enterprise.
Our core competencies are the creation of compelling, high-quality product that
improves student performance, and the development of strong, exceptionally
well-trained selling organizations. These important skills have enabled our
historical success, and we believe that they will continue to be the key drivers
of our future success.
Sincerely,
Brian T. Beckwith James J. Peoples Diane M. Miller
President and CEO Chairman Executive Vice President