[LOGO] WRC Media, Inc.
512 Seventh Avenue
23rd Floor
New York, NY 10018
CONTACT: Richard Nota
WRC Media Inc.
212-768-2268
For Immediate Release
WRC MEDIA INC., A LEADING SUPPLEMENTARY EDUCATION PUBLISHER,
REPORTS SECOND QUARTER RESULTS
July 31, 2001 - WRC Media announced results for the second quarter ended June
30, 2001.
Consolidated EBITDA (before unrestricted subsidiaries - see footnote 1) for the
second quarter was $12.7 million, $1.7 million or 15.3% greater than last year
on revenues of $51.3 million, which was $0.9 million or 1.8% greater than the
same period in 2000.
Martin E. Kenney, Chief Executive Officer, commented, "I am particularly pleased
with the continued improved performance at CompassLearning(TM), where new
software sales- the key indicator of overall CompassLearning(TM) performance -
were up approximately 15% for the second quarter versus the prior year's
quarter, and up 23% for the first half of 2001. This factor, combined with an
overall sales increase in the core business during the second quarter of
approximately 5% at our other operating units, and the continued benefits
resulting from the company-wide organizational changes we have implemented,
resulted in an overall 15.3% increase in EBITDA from $11.0 million for the
second quarter of 2000 to $12.7 million in 2001. As a percentage of sales,
EBITDA (before unrestricted subsidiaries) improved to 24.7%, versus 21.8% in the
prior year." Kenney continued, "We remain confident regarding our prospects for
the remainder of 2001. The marketplace - especially in the library sector -
appears to be improving somewhat as we enter the second half of 2001. Our
CompassLearning(TM) pipeline remains strong, up significantly over 2000, and we
1
have made significant investments in revenue opportunities at all of our units
which should pay off in the second half of this year."
In addition, Mr. Kenney said, "We closed two previously announced acquisitions
in May of 2001 - Lindy Enterprises and ChildU, Inc. as well as completed a
strategic investment in ThinkBox Inc. We believe these acquisitions position WRC
at the forefront of Internet delivered curriculum and assessment providers, and
provide additional opportunities to extend our existing product offerings. Most
importantly, these acquisitions better position WRC Media in the marketplace,
thereby adding significant growth prospects and value enhancement
opportunities."
WRC Media consolidated revenues (including unrestricted subsidiaries) for the
second quarter of 2001 increased $1.0 million, or 2.0%, to $51.4 million from
$50.4 million for the same period in 2000. This increase was primarily the
result of a $0.8 million or 7.2% increase at WRC Media's World Almanac operating
unit combined with a $0.4 million or 10.2% increase at Weekly Reader, and was
partially offset by an anticipated decrease in de-emphasized business lines
primarily planned attrition of low margin hardware sales at CompassLearning(TM).
Net revenue for the second quarter of 2001 - excluding non-core business lines
of hardware and Funk & Wagnalls Yearbooks (see footnote 1 below), increased $2.4
million, or 5.0%, to $50.4 million from $48.0 million for the same period in
2000.
($000) Variance to
Q2 2000
Q2 Q2 -------------------
Net Revenue 2001 2000 $ %
- ---------------------------------- ------ ------ ----- -----
Weekly Reader 4,476 4,063 413 10.2%
AGS 13,876 13,684 192 1.4%
World Almanac 12,357 11,523 834 7.2%
Compass 20,620 21,127 (507) (2.4%)
ChildU (see footnote 2) 74 -- 74 100.0%
------ ------ ------ -----
WRC Media - Consolidated 51,403 50,397 1,006 2.0%
====== ====== ====== =====
Non-core revenues 1,005 2,386 (1,381) (57.9%)
------ ------ ------ -----
WRC Media - Core business 50,398 48,011 2,387 5.0%
====== ====== ====== =====
1 World Almanac is no longer soliciting new subscribers for its Yearbooks
since the print edition of the Funk & Wagnalls Encyclopedia was
discontinued. Accordingly, Funk & Wagnalls sales of Yearbooks are
naturally declining year-over-year, as it is entirely dependent upon
sales orders from existing customers via renewals.
2 Represents revenues for the period from inception (May 9, 2001) through
June 30, 2001.
2
At American Guidance Service, Inc., (AGS(R)) sales increased $0.2 million, or
1.4%, to $13.9 million for the second quarter of 2001 from $13.7 million for the
same period in 2000, primarily due to higher sales of curriculum products
related to new revisions of textbooks and one-month of sales attributable to the
recently completed Lindy acquisition. At Weekly Reader, sales of $4.5 million
for the second quarter of 2001 were $0.4 million or 10.2% greater than the same
period in 2000. This was primarily attributable to $0.4 million in higher
licensing revenue which represented a six fold increase in licensing revenue
compared to the same period a year ago. At World Almanac Education Group, second
quarter sales increased by $0.8 million, or 7.2%, to $12.4 million from $11.5
million for the same period in 2000, primarily as a result of continued strength
of World Almanac's Facts On File News Services (FOFN) division. At FOFN, the
second quarter of 2001 revenue of $2.2 million was $0.6 million or 36.7% greater
than the second quarter of 2000 driven by significant growth at the division's
FACTS.com Internet news service. For the second quarter of 2001, revenue from
World Almanac's FACTS.com website - the web authority of fully integrated,
highly respected research and reference materials - grew an impressive 69.8%
compared to the same period in 2000, offsetting slowness in sales of children's
library books at World Almanac's Gareth Stevens division caused by a slowing
economy and softness in the library marketplace. This 2001 growth follows 2000
results in which FACTS.com revenues increased from $390 thousand in 1999 to $1.6
million in 2000 - or 311%.
At CompassLearning(TM), total revenue decreased $0.5 million, or 2.4%, to $20.6
million for the second quarter of 2001 from $21.1 million for the same period in
2000, as a direct result of the planned attrition of low margin, non-core
hardware sales, which was offset by higher margin software sales. Core revenue
for the second quarter of 2001, excluding the planned attrition of hardware
sales, increased $1.0 million, or 5.2%, to $19.9 million from $18.9 million for
the same period in 2000. New software sales for the second quarter of 2001
increased significantly by $1.8 million or 14.9% to $13.7 million from $11.9
million for the same period in 2000.
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Analysis of Revenue for the three months (in 000's)
ending June 30, --------------------------------------
Variance
------------------
2001 2000 $ %
----------------- ------------------
Software $13,734 $11,948 $ 1,786 14.9%
Professional Development 2,350 2,753 (403) (14.6%)
Technical Support 3,807 4,212 (405) (9.6%)
Hardware 729 2,214 (1,485) (67.1%)
----------------- ------------------
Total Revenue, net 20,620 21,127 (507) (2.4%)
Less: Non-core Hardware revenue 729 2,214 (1,485) (67.1%)
----------------- ------------------
Core revenue $19,891 $18,913 $ 978 5.2%
================= ==================
CompassLearning(TM) gross profit increased $1.1 million, or 8.1%, for the second
quarter of 2001 compared to the same period in 2000, primarily due to the
increased revenues from high margin software. CompassLearning(TM)'s gross profit
margin improved to 75.7% for the second quarter - from 68.3% for the same period
in 2000. CompassLearning(TM)'s EBITDA for the second quarter increased $1.4
million, or 30.8% to $6.0 million, compared to $4.6 million of EBITDA for the
same period last year.
WRC Media Inc.'s consolidated EBITDA (including unrestricted subsidiaries- see
footnote 1) increased by $0.9 million, or 8.5%, to $11.9 million for the second
quarter of 2001 from $11.0 million for the same period in 2000. This increase is
primarily attributable to $2.0 million of greater gross profit for the second
quarter of this year compared to the same period in 2000, partially offset by
$0.7 million of unrestricted subsidiary operating losses. CompassLearning(TM)
contributed $1.2 million of the $2.0 million higher gross profit in the quarter
resulting from higher software sales. Operating income before amortization
expense increased $1.5 million, or 15.3% to $11.3 million for the second quarter
of 2001 from $9.8 million for the same period in 2000.
Net revenue for the six months ended June 30, 2001 - excluding de-emphasized
non-core business lines, increased $3.8 million, or 4.1%, to $97.5 million from
$93.7 million for the same period in 2000. Each of the WRC Media operating units
posted first half core revenue gains compared to prior year. See charts below:
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Variance to
($000) 2000
Net revenue for the six months -------------------
ending June 30, 2001 2000 $ %
- -------------------------------- -------- -------- -------- -----
Weekly Reader $ 14,897 $ 14,522 $ 375 2.6%
AGS 25,995 25,624 371 1.4%
World Almanac 25,399 24,831 568 2.3%
Compass 34,529 35,654 (1,125) (3.2%)
ChildU 74 -- 74 --
-------- -------- -------- -----
WRC Media - Consolidated 100,894 100,631 263 0.3%
Non-core revenues 3,389 6,922 (3,533) (51.0%)
-------- -------- -------- -----
WRC Media - Core business $ 97,505 $ 93,709 $ 3,796 4.1
======== ======== ======== =====
CompassLearning(TM)- Update:
The biggest gain in core revenue took place at WRC's CompassLearning(TM) unit.
CompassLearning(TM) core revenues were $2.2 million or 7.2% greater than prior
year primarily attributable to $3.9 million or 23.0% of new software revenue.
See CompassLearning(TM) update below for further analysis. Professional
development revenues (which typically lag the sale of new software) for the six
months ending June 30, 2001 were down 11.3% compared to the prior year.
Professional development revenues are expected to show gains in the second half
of 2001 related to the first half software revenue gains.
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(in 000's)
Analysis of Revenue for the six months --------------------------------------
ending June 30, Variance
------------------
2001 2000 $ %
----------------- ------------------
Software $20,706 $16,835 $ 3,871 23.0%
Professional Development 4,834 5,448 (614) (11.3%)
Technical Support (b) 7,412 8,467 (1,055) (12.5%)
Hardware (a) 1,577 4,904 (3,327) (67.8%)
----------------- ------------------
Total Revenue, net 34,529 35,654 (1,125) (3.2%
Less: Non-core Hardware revenue 1,577 4,904 (3,327) (67.8%)
----------------- ------------------
Core Revenue $32,952 $30,750 $ 2,202 7.2%
================= ==================
(a) CompassLearning(TM)'s hardware business revenues are generally derived
from reselling hardware to customers who request that
CompassLearning(TM) provide a package of software and hardware. In
prior years, CompassLearning(TM) offered hardware to customers as a
wholesaler of private label and other products. However, because of the
less profitable nature of the business compared to
CompassLearning(TM)'s other businesses and to reduce the need for
inventory and the risk of technological change rendering inventory
obsolete, CompassLearning(TM) began discontinuing its wholesale
hardware business in the mid 1990's. Currently, CompassLearning(TM) has
arrangements with Apple, IBM, Compaq, Gateway, and Dell computers in
order to accommodate requests by customers for complete hardware and
software solutions.
(b) CompassLearning(TM)'s service revenues, particularly those attributable
to renewals of existing services contracts, have been decreasing
recently as a result of:
o The improved quality of our software products, which
require less technical support;
o More customers supplying their own training and
support services through in-house expertise; and
o The allocation by customers of a greater amount of
limited resources to upgrade their hardware and
software systems for Year 2000 compliance.
WRC Media consolidated EBITDA (before unrestricted subsidiaries- see footnote 1)
for the six months ending June 30, 2001 of $20.2 million was significantly ahead
of prior year by $2.7 million or 15.6% and total consolidated EBITDA for the six
months ending June 30, 2001 of $19.5 million was also significantly ahead of
prior year by $2.0 million or 11.4%. The improved profitability compared to
prior year was primarily driven by increased sales of CompassLearning(TM)'s
software and ongoing rationalization of the business. New software revenue for
the six months ending June 30, 2001 was $20.7 million, $3.9 million or 23.0%
higher compared to prior year.
Operating income before amortization expense of $18.3 million increased $2.7
million or 17.0% for the six months ending June 30, 2001 compared to the same
period in 2000.
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Net loss increased by $2.9 million, or 9.3%, to $33.8 million compared to $30.9
million last year, primarily as a result of a $5.7 million increase in non-cash
depreciation and amortization expenses for intangible assets and $0.7 million of
unrestricted subsidiary operating losses, partially offset by the $3.9 million
higher gross profit.
As of June 30, 2001, WRC Media Inc.'s cash balance was $8.2 million (which
included $5.9 million of cash restricted to fund WRC Media's unrestricted
subsidiary and its investment in ThinkBox Inc.) and consolidated debt was $299.0
million. During the three months ended June 30, 2001, WRC Media Inc. made
scheduled principal payments of $1.1 million on its senior credit facilities and
as of June 30, 2001, the Company had $17.0 million outstanding under its
revolving credit facility. Capital expenditures (including prepublication costs)
for the six-months ended June 30, 2001 were $5.7 million.
Acquisitions
In the second quarter of 2001 WRC Media completed the acquisition of two
companies - Lindy Enterprises and ChildU, Inc. and made a strategic investment
in ThinkBox Inc.:
- AGS(R), currently the fastest growing and highest margin
business unit of WRC Media, will:
i. accelerate top-line growth of Lindy Enterprises
through a national marketing campaign and product
innovation, and
ii. obtain a development capability for electronically
delivered product
- CompassLearning(TM), in combination with ChildU(TM) and
ThinkBox(TM) will:
i. offer a comprehensive product suite of both LAN-based
and Internet-delivered software,
ii. provide CompassLearning(TM) with a multi-price point
entry to create new selling opportunities, and
iii. obtain a new on-line development capability to
expedite the completion of all web-enabled products.
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================================================================================
Footnote 1: Given the projected near-term financial performance of ChildU(TM)
and ThinkBox(TM), WRC Media designated ChildU(TM) and ThinkBox(TM).
"Unrestricted Subsidiaries" under its Credit Agreement so as to: (i)
exclude them from all the negative covenants in the Credit
Agreement, including the financial covenants, and from agreed upon
affirmative covenants, representations and warranties and events of
default; and (ii) Permit additional investments in ChildU(TM) and
ThinkBox(TM) by WRC Media and its subsidiaries in excess of the
acquisition funding requirements to fund operations, if necessary.
As a result of the above-mentioned designation, ChildU(TM) and
ThinkBox(TM) financial performance will not be reflected in any
covenant calculations. Accordingly, Consolidated EBITDA (before
unrestricted subsidiaries) is defined as WRC Media consolidated
EBITDA excluding the EBITDA loss contributed by its unrestricted
subsidiaries- ChildU(TM) and its investment in ThinkBox(TM).
* * * * * * *
WRC Media Inc., a leading publishing and media company, creates and distributes
innovative supplementary educational materials for the school, library, and home
markets. WRC Media's product suite includes some of the best-known brands in
education, recognized for their consistent high quality and proven
effectiveness. WRC Media Inc. has two principal operating units:
The Assessment, Curriculum and Electronic Group is comprised of American
Guidance Service, Inc. (AGS(R)), CompassLearning, Inc. and ChildU, Inc.
AGS(R) is a leader in producing highly reliable and valid behavior,
ability, achievement, and speech-language assessments for all ages. The
company also publishes a variety of high-interest, low-reading-level
textbooks for middle and high school students, as well as
curriculum-based assessment software and test preparation programs.
CompassLearning(TM) is the leader in research-driven, standards-based
digital-learning solutions that provide choices to help teachers manage
student performance, personalize learning, and connect communities of
learners. With over 7,000 hours of curriculum and instruction, more
than 20,000 schools use CompassLearning(TM) solutions.
ChildU(TM) is a leading developer and provider of Internet-delivered
curriculum and management tools. The Learning Odyssey(TM), the primary
product line, provides highly engaging and standards-based student
activities that make extending the school to the home an anytime,
anyplace learning reality.
The Reference and Periodicals Group is comprised of World Almanac Education
Group, Weekly Reader Corporation and Lifetime Learning Systems.
World Almanac Education Group, Inc. publishes the World Almanac(R), The
World Almanac for Kids, Facts On File(R) news periodicals and Internet
services, Gareth Stevens books, and the Funk & Wagnalls(R)
encyclopedia. The company distributes high quality books to schools and
libraries.
Weekly Reader Corporation publishes Weekly Reader(R) periodicals
serving over 7 million school children. It also publishes other branded
periodicals and instructional materials, including Teen Newsweek(TM),
published for middle and high school students.
Lifetime Learning Systems(R) is the recognized leader in developing
customized educational programs. Lifetime's programs are customized for
sponsors, including corporations, nonprofit associations and government
agencies that have the need to cost effectively convey important public
relations and marketing messages to targeted audiences.
Information in this press release contains forward-looking statements, including
statements regarding our expectations, beliefs, intentions or strategies that
involve a number of risks, uncertainties, and assumptions. Should any of the
risks or uncertainties develop into actual events, or our assumptions prove to
be inaccurate, actual outcomes and results could differ materially from what is
expressed in such forward-looking statements and these developments or
inaccuracies could materially and adversely affect our business, financial
condition and results of operations. Risks and uncertainties relating to WRC
Media's and its subsidiaries' businesses are set forth in the documents and
reports filed from time to time with the Securities and Exchange Commission.
8
WRC Media Inc.
For the three months ended June 30, 2001 and 2000
($ in thousands)
Actual Increase/(Decrease)
-------------------- ----------------------
6/30/2001 6/30/2000 $ %
--------- --------- -------- --------
Revenues
Weekly Reader $ 4,476 $ 4,063 $ 413 10.2%
American Guidance Service 13,876 13,684 192 1.4%
World Almanac Education 12,357 11,523 834 7.2%
Compass Learning 20,620 21,127 (507) (2.4%)
ChildU (see footnote 1) 74 -- 74 0.0%
-------- -------- -------- -------
Total Revenue $ 51,403 $ 50,397 $ 1,006 2.0%
Costs and Expenses:
Operating costs and expenses 39,220 39,888 $ (668) (1.7%)
Depreciation 824 661 163 24.7%
-------- -------- -------- ----
Operating Income before amortization expense $ 11,359 $ 9,848 $ 1,511 15.3%
Amortization of goodwill and other intangibles 17,229 20,025 (2,796) (14.0%)
-------- -------- -------- -------
Operating Loss after amortization expense $ (5,870) $(10,177) $ 4,307 42.3%
Interest expense 8,542 8,797 (255) (2.9%)
Other, (income)/expense, net 367 (3) 370 12333.3%
Income taxes 46 301 (255) (84.7%)
-------- -------- -------- -------
Net Loss $(14,825) $(19,272) $ 4,447 23.1%
======== ======== ======== =======
EBITDA
Net Loss $(14,825) $(19,272) $ 4,447 23.1%
Depreciation and amortization of intangibles 18,053 20,686 (2,633) (12.7%)
Amortization of deferred financing costs 316 285 31 10.9%
Income taxes 46 301 (255) (84.7%)
Interest expense 8,326 8,553 (227) (2.7%)
Non-cash, non-recurring charges -- 425 425 100.0%
-------- -------- -------- -------
EBITDA $ 11,916 $ 10,978 $ 938 8.5%
Add: ChildU EBITDA loss 613 -- 613 0.0%
Add: Thinkbox EBITDA loss 129 -- 129 0.0%
-------- -------- -------- -------
EBITDA excluding ChildU and Thinkbox $ 12,658 $ 10,978 $ 1,680 15.3%
======== ======== ======== =======
Footnote 1: ChildU revenues represent activity for the period from
inception (May 9, 2001) through June 30, 2001.
9
WRC Media Inc.
For the six months ended June 30, 2001 and 2000
($ in thousands)
Actual Increase/(Decrease)
6/30/2001 6/30/2000 $ %
--------- --------- --------- -------
Revenues
Weekly Reader $ 14,897 $ 14,522 $ 375 2.6%
American Guidance Service 25,995 25,624 371 1.4%
World Almanac Education 25,399 24,831 568 2.3%
Compass Learning 34,529 35,654 (1,125) (3.2%)
ChildU (see footnote 1) 74 -- 74 0.0%
--------- --------- --------- -------
Total Revenue $ 100,894 $ 100,631 $ 263 0.3%
Costs and Expenses:
Operating costs and expenses 80,945 83,664 $ (2,719) (3.3%)
Depreciation 1,606 1,294 312 24.1%
--------- --------- --------- -------
Operating Income before amortization expense $ 18,343 $ 15,673 $ 2,670 17.0%
Amortization of goodwill and other intangibles 34,083 28,681 5,402 18.8%
--------- --------- --------- -------
Operating Loss after amortization expense $ (15,740) $ (13,008) $ (2,732) (21.0%)
Interest expense 17,153 17,151 2 --
Other, (income)/expense, net 605 (14) 619 4421.4%
Income taxes 280 751 471 (62.7%)
--------- --------- --------- -------
Net Loss $ (33,778) $ (30,896) $ (2,882) (9.3%)
========= ========= ========= =======
EBITDA
Net Loss $ (33,778) $ (30,896) $ (2,882) (9.3%)
Depreciation and amortization of intangibles 35,689 29,975 5,714 19.1%
Amortization of deferred financing costs 603 458 145 31.7%
Income taxes 280 751 (471) (62.7%)
Interest expense 16,684 16,779 (95) (0.6%)
Non-cash, non-recurring charges -- 425 (425) --
--------- --------- --------- -------
EBITDA $ 19,478 $ 17,492 $ 1,986 11.4%
Add: ChildU EBITDA loss 613 -- 613 --
Add: Thinkbox EBITDA loss 129 -- 129 --
--------- --------- --------- -------
EBITDA excluding ChildU and Thinkbox $ 20,220 $ 17,492 $ 2,728 15.6%
========= ========= ========= =======
Footnote 1: ChildU revenues represent activity for the period from
inception (May 9, 2001) through June 30, 2001.
10