WRC Media Inc.
[LOGO] 512 Seventh Avenue
23rd Floor
New York, NY 10018
CONTACT: Richard Nota
WRC Media Inc.
212-768-1150
Fax 212-768-1887
rnota@wrcmedia.com
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www.wrcmedia.com
For Immediate Release
WRC MEDIA INC., A LEADING SUPPLEMENTARY EDUCATION PUBLISHER,
REPORTS SECOND QUARTER RESULTS FOR 2002
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New York, NY, August 9, 2002 - WRC Media reports second quarter results.
WRC Media's consolidated EBITDA (excluding unrestricted subsidiaries - see
footnote 1) for the second quarter ended June 30, 2002 was $10.2 million, $2.4
million or 19.1% lower than the same period last year, on revenue of $43.9
million, which was $7.5 million or 14.5% lower than in 2001. Martin E. Kenney,
Chief Executive Officer, commented, "Our lower second quarter results are
primarily the result of significant state cutbacks in education funding, which
have had a negative impact on our educational software company, CompassLearning.
While CompassLearning has been the most affected by the extremely difficult
marketplace, I believe it will also ultimately be the biggest beneficiary from
the increased federal funding resulting from the "No Child Left Behind Act."
Most of this funding, however, will not be available until the latter half of
2002, with some purchasing decisions spilling over to 2003. Excluding
CompassLearning, revenues for the second quarter ended June 30, 2002 for Weekly
Reader Corporation's print publishing units - Weekly Reader, World Almanac and
American Guidance Service - were constant compared to the same period in 2001,
and EBITDA was $0.3 million or 4.4% greater in the second quarter versus last
year. All of our sales and marketing efforts are geared to immediately seize the
opportunities presented under the new guidelines of the Elementary and Secondary
Education Act as well as the provisions of the "No Child Left Behind Act,"
especially our divisions which emphasize reading, test prep and assessment. I
continue to believe our quality brands - names such as Weekly Reader's
publications and the World Almanac, which have been built over the last 100+
years, and have universal name recognition and strong customer loyalty, should
continue to be well received by the marketplace. We continue to make prudent
investments in new textbooks and test development at AGS; as well as in new
World Almanac and Weekly Reader library imprints. We have completed a product
redesign and re-launch of Weekly Reader as part of the 100th anniversary of this
brand, and we have launched new comprehensive software releases at
CompassLearning. Our current outlook is for an improving marketplace in the
second-half primarily related to the infusion of federal education funding which
should bode well for WRC Media in the long term."
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Net revenue for the six-months ended June 30, 2002 decreased $10.2 million, or
10.1%, to $90.7 million from $100.9 million for the same period in 2001. WRC
Media consolidated EBITDA (excluding unrestricted subsidiaries - see footnote 1)
for the six-months ending June 30, 2002 of $18.4 million fell short of the prior
year by $1.8 million or 9.1%. The lower profitability compared to the prior year
is driven by the lower revenue discussed above. The profitability shortfall was
partially mitigated by lower operating costs primarily the result of WRC's
ongoing reorganization, which began in early 2001.
Operating income increased $21.8 million, or 138.5%, to $6.1 million for the
six-months ended June 30, 2002, from an operating loss of $15.7 million for the
same period in 2001. This improvement in income from operations was primarily
driven by significantly lower amortization of goodwill and intangible assets for
the six-months ended June 30, 2002 compared to the same period in 2001
associated with the Company's adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets" on January 1, 2002.
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Net loss before cumulative effect of change in accounting principle decreased by
$17.4 million, or 51.6%, to $16.3 million compared to $33.7 million for the same
period last year, primarily as a result of a $24.4 million decrease in non-cash
amortization expenses for intangible assets partially offset by a $5.9 million
increase in provision for income taxes associated with the Company's adoption of
SFAS No. 142 "Goodwill and Other Intangible Assets." As a result of the
Company's adoption SFAS No. 142, a portion of the intangible assets and goodwill
recognized prior to December 31, 2001 is no longer being amortized effective
January 1, 2002. The Company completed the transitional goodwill impairment test
during the second quarter ended June 30, 2002, resulting in an impairment charge
of $72.0 million, which was recorded as a cumulative effect of an accounting
change as of January 1, 2002. The Company is required to perform impairment
tests each year, or between yearly tests in certain circumstances for goodwill
and indefinite lived intangibles. There can be no assurance that future
impairment tests will not result in a charge to earnings. The Company also
recorded a non-cash deferred income tax expense of approximately $5.0 million on
January 1, 2002 and $1.0 million during the six months ended June 30, 2002, both
of which would not have been required prior to the adoption of SFAS 142. The
non-cash charge of $5.0 million on January 1, 2002 was recorded to increase the
valuation allowance related to the Company's net operating losses. As a result
of the adoption of SFAS 142, amortization will not occur during the carryforward
period of the operating losses. In addition, since amortization of
tax-deductible goodwill and trademarks ceased on January 1, 2002, the Company
will have deferred tax liabilities that will arise each quarter because the
taxable temporary differences related to the amortization of these assets will
not reverse prior to the expiration period of the Company's deductible temporary
differences unless the related assets are sold or an impairment of the assets is
recorded. Accordingly, the Company recorded $1.0 million to increase the
valuation allowance for the six months ended June 30, 2002. The Company expects
that it will record an additional $1.0 million to increase the valuation
allowance during the remaining six months of 2002.
As of June 30, 2002, WRC Media Inc.'s cash balance was $4.8 million (which
included $1.3 million of cash restricted to fund WRC Media's unrestricted
subsidiary, ChildU, Inc.) and the face value of consolidated debt was $297.0
million. During the six-months ended June 30, 2002, WRC Media Inc. made
scheduled principal payments of $2.9 million on its senior credit facilities and
as of June 30, 2002, the Company had $15.0 million of availability under its
revolving credit facility. For the six-months ended June 30, 2002, WRC Media and
its subsidiaries' investing activities included: investment in software
development of approximately $2.3 million and capital expenditures of
approximately $0.8 million.
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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 AGS(R) and
CompassLearning, 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
innovative-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.
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 print and electronic education
materials 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(R),
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.
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Additional links:
www.wrcmedia.com
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www.agsnet.com
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www.compasslearning.com
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www.weeklyreader.com
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www.worldalmanac.com
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www.worldalmanacforkids.com
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www.wae.cc
www.childu.com
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www.garethstevens.com
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www.thinkbox.com
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www.lls-online.com
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WRC Media Inc.
For the three months ended June 30, 2002 and 2001
($ in thousands)
Actual Increase/(Decrease)
----------------------------------- ----------------------------------
6/30/02 6/30/01 $ %
---------------- ---------------- ---------------- ----------------
Net Revenue ......................................... $ 43,939 $ 51,403 $ (7,464) (14.5%)
Costs and Expenses:
Operating costs and expenses ................. 34,654 39,218 4,564 11.6%
Depreciation ................................. 809 824 15 1.8%
-------- -------- -------- --------
Operating Income before amortization expense ........ 8,476 11,361 (2,885) (25.4%)
Amortization of goodwill and other intangibles 4,827 17,230 12,403 72.0%
Operating Income/(Loss) ............................. 3,649 (5,869) 9,518 162.2%
Interest expense .................................... 7,473 8,642 1,169 13.5%
Other, net (income)/expense ......................... 941 267 (674) (252.4%)
Income taxes ........................................ 544 46 (498) (1082.6%)
-------- -------- -------- --------
Net Loss ............................................ $ (5,309) $(14,824) $ 9,515 64.2%
======== ======== ======== ========
EBITDA
Net Loss ..................................... $ (5,309) $(14,824) $ 9,515 64.2%
Depreciation and amortization of intangibles . 5,636 18,054 (12,418) (68.8%)
Income taxes ................................. 544 46 498 1082.6%
Interest expense ............................. 7,473 8,642 (1,169) (13.5%)
-------- -------- -------- --------
EBITDA .............................................. 8,344 11,918 (3,574) (30.0%)
Add: ChildU EBITDA loss ...................... 1,018 613 405 66.1%
Add: Thinkbox EBITDA loss .................... 884 129 755 585.3%
-------- -------- -------- --------
EBITDA (excluding unrestricted subsidiaries) ....... $ 10,246 $ 12,660 $ (2,414) (19.1%)
======== ======== ======== ========
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WRC Media Inc.
For the six months ended June 30, 2002 and 2001
($ in thousands)
Actual Increase/(Decrease)
----------------------------- ------------------------------------
6/30/02 6/30/01 $ %
---------------- ----------- ---------------- ------------------
Net Revenue ........................................ $ 90,726 $ 100,894 $ (10,168) (10.1%)
Costs and Expenses:
Operating costs and expenses ................. 73,414 80,944 7,530 9.3%
Depreciation ................................. 1,591 1,606 15 0.9%
--------- --------- --------- ---------
Operating Income before amortization expense ....... 15,721 18,344 (2,623) (14.3%)
Amortization of goodwill and other intangibles 9,654 34,083 24,429 71.7%
Operating Income/(Loss) ............................ 6,067 (15,739) 21,806 138.5%
Interest expense ................................... 14,804 17,287 2,483 14.4%
Other, net (income)/expense ........................ 1,419 471 (948) (201.3%)
Income taxes ....................................... 6,183 280 (5,903) (2108.2%)
--------- --------- --------- --------
Net Loss before cumulative effect of change
in accounting principle ........................ (16,339) (33,777) 17,438 51.6%
Cumulative effect of change in accounting principle (72,022) -- (72,022) --
--------- --------- --------- --------
Net loss ........................................... $ (88,361) $ (33,777) $ (54,584) (161.6%)
========= ========= ========= ========
EBITDA
Net Loss ..................................... $ (88,361) $ (33,777) $ (54,584) (161.6%)
Depreciation and amortization of intangibles . 11,245 35,689 (24,444) (68.5%)
Income taxes ................................. 6,183 280 5,903 2108.2%
Interest expense ............................. 14,804 17,287 (2,483) (14.4%)
Non-cash, non-recurring charges .............. 72,022 -- 72,022 --
Non-cash revenues included in Net Loss ....... -- -- -- --
--------- --------- --------- --------
EBITDA ............................................. 15,893 19,479 (3,586) (18.4%)
Add: ChildU EBITDA loss ...................... 1,347 613 734 119.7%
Add: Thinkbox EBITDA loss .................... 1,137 129 1,008 781.4%
--------- --------- --------- --------
EBITDA (excluding unrestricted subsidiaries) ...... $ 18,377 $ 20,221 $ (1,844) (9.1%)
========= ========= ========= ========
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