WRC Media Inc.
[WRC LOGO] 512 Seventh Avenue
22nd Floor
New York, NY 10018
TO: Richard Nota
WRC Media Inc.
212-768-1150
Fax 212-768-1887
RNOTA@WRCMEDIA.COM
------------------
www.wrcmedia.com
For Immediate Release
WRC MEDIA INC., A LEADING SUPPLEMENTARY EDUCATION PUBLISHER,
REPORTS FOURTH QUARTER RESULTS FOR 2002
New York, NY, March 24, 2003 - WRC Media reports fourth quarter results for the
period ended December 31, 2002.
WRC Media's consolidated EBITDA (excluding unrestricted subsidiaries - see
footnote 1) for the fourth quarter ended December 31, 2002 was $17.3 million,
$2.6 million or 13.1% lower than the same period last year, on revenue of $62.8
million, which was $7.6 million or 10.8% lower than in 2001. For the full year
ended December 31, 2002 WRC Media consolidated EBITDA (excluding unrestricted
subsidiaries- see footnote 1) was $53.0 million which was lower than the prior
year by $3.2 million or 5.8%. This was primarily driven by lower sales of
CompassLearning's software caused in part by delays in federal education funding
reaching school administrators, which was partially offset by lower operating
costs and expenses resulting from the Company's restructuring plan implemented
in 2002. WRC Media's consolidated revenue for the year ended December 31, 2002
decreased 9.3%, to $210.0 million from $231.5 million in 2001.
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Martin E. Kenney, Jr. Chief Executive Officer, commented, "In the fourth
quarter, WRC's revenue was lower as a result of a continuing difficult education
funding environment. K-12 funding continues to be impacted by growing state
budget deficits (according to the National Governors Association, states face a
possible collective budget shortfall of $40 billion by the end of the fiscal
year - see footnote 2). Although the federal money for education has increased
over the previous year, especially for education technology initiatives, this
greater federal funding was not enough to offset reduced state education
funding. All of our sales and marketing efforts continue to be 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. 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. Our new Literacy for Success product is an intermediate
reading solution and will be an extension of our K-3 reading solution and
incorporate content from AGS, CompassLearning and Weekly Reader (Content
includes AGS' GRADE, Compass Learning's C-PAS, CompassLearning Reading,
CompassLearning Language Arts and Weekly Reader.com). The market for reading
improvement is extensive and will benefit from the new education act. At
CompassLearning, the Company's pipeline is robust. However, the uncertainty of
the economy and its continuing impact on state funding continues to be a
concern. It is our strategy to capitalize on this changing marketplace and buyer
uncertainty by providing a product and service solution, both web and server
delivered - that is scalable to the customer's needs - and able to capture all
levels of available funding. Our strategic initiatives include accessing new
sales channels and non-traditional funding sources such as not-for-profit
foundations with a comprehensive state wide model proposal - for electronic and
print delivery - both to prepare students for "high stakes" tests and insure
corrective instruction for all early readers." Kenney continued, "Our outlook
indicates the operating environment will continue to be challenging at least
through the first-half of 2003. As a result, we have taken appropriate steps to
protect our bottom-line by implementing a restructuring plan in the fourth
quarter which included a workforce reduction and consolidation of facilities.
While these steps negatively impacted our fourth quarter EBITDA performance by
approximately $1.4 million, the restructuring and realignment measures will
enhance the competitive position of the Company and protect future
profitability. The 2002 restructuring initiative is expected to generate at
least $9.0 million in ongoing savings for the Company. We believe that once
market conditions improve, our quality brands - Weekly Reader, the World
Almanac, AGS, and Gareth Stevens children's books, which are recognized among
the richest source of learning materials and reference data in the world - will
continue to lead in the marketplace. We are cautiously optimistic that school
administrators will increase their spending of federal dollars which must be
utilized by the end of the current school year. Once school spending does
increase, we believe that our extensive pipeline of new products will result in
improvement to our top-line performance. Regardless of the top line, we will
continue to manage to our bottom line targets as we have done successfully in
the past, through a continued focus on controlling our operating costs. In the
long run, the new guidelines for education funding which emphasize reading, test
prep and assessment, as well as the requirement that supplemental materials be
scientifically research-based continue to bode well for WRC Media."
2
2002 Restructuring Plan
The 2002 Plan of Restructuring included integration and cost reduction
initiatives comprised of closures of facilities and a reduction in work force.
Pursuant to the 2002 Plan of Restructuring, headcount was selectively eliminated
throughout the company. Severance and other benefit costs of approximately $3.2
million relate to the reduction of these employees from the workforce. Most of
the workforce reductions represented administrative and back office related
employees. Approximately $1.8 million in severance and other benefit costs
relating to the 2002 Plan of Restructuring were paid as of December 31, 2002.
The workforce reduction was substantially completed in mid-January 2003. For the
year ended December 31, 2002, approximately $5.4 million of the total net charge
of $8.6 million related to lease termination costs which consisted of the future
estimated lease payments, net of probable sublease income.
Of the restructuring and other non-recurring charges of $8.6 million, $6.7
million represented non-cash charges for the year ended December 31, 2002.
Approximately $1.9 million was paid in 2002 and the remaining $6.3 million is
expected to be spent as follows: 2003 - $2.9 million and 2004 and beyond - $3.4
million. The total cash outlay is expected to be funded from existing cash
balances and internally generated cash flows from operations. The actions to
implement the 2002 restructuring initiative are expected to generate at least
$9.0 million in ongoing savings for the Company, primarily from the reduction of
fixed costs. The Company expects to begin to fully realize these benefits in
2003, once the restructuring initiatives are completely implemented.
3
Net revenue for the fourth quarter of 2002 decreased $7.6 million, or 10.8%, to
$62.8 million from $70.3 million for the same period in 2001. At
CompassLearning, total revenue decreased $4.3 million, or 22.1%, to $15.4
million for the three months ended December 31, 2002 from $19.7 million for the
same period in 2001. CompassLearning derives most of its software sales through
federal Title 1 appropriations granted to schools. The Company should benefit
directly from the increased federal funding when the funds reach school
administrators. Fourth quarter sales at ChildU, WRC's unrestricted subsidiary
(see footnote 1 below), approximated $0.3 million which was $0.1 million or
25.0% lower than the same period in 2001 driven by lower sales of its online
curriculum products. At World Almanac Education Group, fourth quarter sales
decreased by $3.6 million, or 18.3% to $16.3 million from $19.9 million for the
same period in 2001. At AGS, sales increased $0.2 million, or 1.8%, to $11.7
million for the fourth quarter of 2002 from $11.5 million for the same period in
2001, primarily due to higher sales of assessment products. At Weekly Reader,
sales of $19.1 million for the fourth quarter of 2002 were $0.3 million or 1.8%
higher than the same period in 2001.
- ----------------------------------------------------------------------------
2002 Full Year Results
WRC Media consolidated EBITDA (excluding unrestricted subsidiaries- see footnote
1 below) for the year ended December 31, 2002 of $53.0 million was lower than
the prior year by $3.2 million or 5.8%. The lower profitability compared to
prior year was primarily driven by lower sales of CompassLearning's software
partially offset by lower operating costs and expenses resulting from the
Company's restructuring plan implemented in 2002.
WRC Media's consolidated revenue for the year ended December 31, 2002 decreased
9.3%, to $210.0 million from $231.5 million in 2001. This decrease was primarily
due to a decrease in sales at CompassLearning of $17.3 million, or 25.3%, to
$51.2 million for the year ended December 31, 2002 from $68.5 million in 2001
combined with a decrease in sales at Weekly Reader Corporation of $5.7 million,
or 3.5%, to $156.5 million for the year ended December 31, 2002 from $162.2
million in 2001. These sales decreases were partially offset by higher sales at
ChildU. ChildU net sales increased significantly by $1.5 million, or 187.5%, to
4
$2.3 million for the year ended December 31, 2002 from $0.8 million in 2001.
This increase in sales was driven by greater revenue from ChildU's on-line
software products which received greater market acceptance resulting in part
from the increase in the number of schools connected to the Internet in 2002
compared to the prior year. The decrease in sales at Weekly Reader Corporation
was due to (1) a decrease in sales at World Almanac of $4.0 million, or 6.9% to
$54.0 million for the year ended December 31, 2002 from $58.0 million for the
year ended December 31, 2001; (2) a decrease in sales at Weekly Reader, not
including World Almanac and American Guidance, of $2.7 million, or 5.7% for the
year ended December 31, 2002 to $44.6 million from $47.3 million for the year
ended December 31, 2001; and (3) an increase in sales at American Guidance
Service of $1.1 million, or 1.9%, to $57.9 for the year ended December 31, 2002
from $56.8 million for the year ended December 31, 2001.
For the year ended December 31, 2002, income from operations increased $32.7
million, or 252.5%, to income from operations of $19.8 million from a loss from
operations of $12.9 million in 2001. This increase was primarily due to lower
amortization of goodwill and intangible assets of $44.9 million partially offset
by $14.8 million lower gross profit driven by the lower sales discussed above.
The significant decrease in amortization of goodwill and intangible assets was
primarily due to a decrease in amortization of goodwill and intangibles with
indefinite lives as a result of the Company's adoption of SFAS No. 142 in 2002,
which requires that goodwill and intangible assets that have indefinite useful
lives will not be amortized but rather be tested at least annually for
impairment. 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. In December 2002, the Company completed its first
annual re-assessment of its goodwill and intangible assets with indefinite lives
and noted no further impairment. This review was performed using estimates of
future cash flows. Management believes that the estimates of future cash flows
and fair value are reasonable; however, future changes in estimates of such cash
flows and fair value could affect the evaluations.
5
Net loss increased by $46.9 million, or 96.8% for the year ended December 31,
2002 to $95.4 million from $48.5 million in 2001 primarily due to $37.7 million
of net non-cash charges resulting for the Company's adoption of SFAS No. 142
described above (comprised of the $72.0 million non-cash impairment charge
recorded as a cumulative effect of an accounting change, $10.7 million of
non-cash tax provision partially offset by $45.0 million lower amortization of
goodwill).
As of December 31, 2002, WRC Media Inc.'s cash balance was $9.1 million (which
included $1.1 million of cash restricted to fund WRC Media's unrestricted
subsidiary) and consolidated debt was $273.9 million. During the year ended
December 31, 2002, WRC Media Inc. made scheduled principal payments of $6.2
million on its senior credit facilities and as of December 31, 2002, there were
no outstanding advances under our revolving credit facility. Capital
expenditures (including prepublication costs) for the year ended December 31,
2002 were $11.1 million.
- --------------------------------------------------------------------------------
Footnote 1: EBITDA is defined as income (loss) before interest expense, taxes,
depreciation and amortization excluding WRC Media's unrestricted
subsidiaries. EBITDA in a non-GAAP measure and is included in our
discussion because we believe this information may be considered
by investors as an additional basis on which to evaluate WRC
Media's ability to pay interest, re-pay debt and make capital
expenditures. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA in this press release is
not necessarily comparable to similarly titled measures of other
companies. EBITDA does not represent or should not be considered
more meaningful than, or an alternative to, measures of operating
performance determined in accordance with generally accepted
accounting principles. 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).
Footnote2: Source: Reuters, November 25, 2002
- --------------------------------------------------------------------------------
* * * * * * *
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. operates in one industry segment, educational
publishing organized in 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.
6
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.
The Q4 investor call is scheduled for Wednesday, March 26, 2003; the following
is the dial-in information for the call:
Date: Wednesday, March 26, 2003
Time: 11:00 am (Eastern Standard Time)
Call-in: Domestic: (888) 273-9887
International: (612) 332-0345
Chairperson: Martin Kenney
Call name: WRC Media Conference
Additional links:
WWW.WRCMEDIA.COM
WWW.AGSNET.COM
WWW.COMPASSLEARNING.COM
WWW.WEEKLYREADER.COM
WWW.WORLDALMANAC.COM
WWW.WORLDALMANACFORKIDS.COM
WWW.FACTS.COM
WWW.WAE.CC
WWW.CHILDU.COM
WWW.GARETHSTEVENS.COM
WWW.THINKBOX.COM
WWW.LLS-ONLINE.COM
7
WRC Media Inc.
For the three months ended December 31, 2002 and 2001
($ in thousands)
Actual Increase/(Decrease)
------------------------------- -------------------------------
12/31/2002 12/31/2001 $ %
-------------- --------------- -------------- ---------------
Net Revenue $ 62,776 $ 70,338 $ (7,562) (10.8%)
Costs and Expenses:
Operating costs and expenses 47,514 51,733 (4,219) (8.2%)
Restructuring and non-recurring expenses 8,594 - 8,594 100.0%
Depreciation 757 808 (51) (6.3%)
Amortization of goodwill and other intangibles 4,663 12,496 (7,833) (62.7%)
-------------- --------------- -------------- ---------------
Total operating costs and expenses 61,528 65,037 (3,509) (5.4%)
Operating Income/(Loss) 1,248 5,301 (4,053) 76.5%
Interest expense 7,464 7,789 (325) (4.2%)
Other, net (income)/expense 1,132 667 465 69.7%
Income taxes 596 155 441 284.5%
-------------- --------------- -------------- ---------------
Net Income/(Loss) $ (7,944) $ (3,310) $ (4,634) (140.0%)
============== =============== ============== ===============
EBITDA
Net Loss $ (7,944) $ (3,310) $ (4,634) (140.0%)
Depreciation and amortization of intangibles** 5,672 13,304 (7,632) (57.4%)
Income taxes 596 155 441 284.5%
Interest expense 7,464 7,789 (325) (4.2%)
Non-cash non-recurring charges 10,213 - 10,213 100.0%
-------------- --------------- -------------- ---------------
EBITDA 16,001 17,938 (1,937) (10.8%)
Add: ChildU EBITDA loss 332 1,497 (1,165) (77.8%)
Add: Thinkbox EBITDA loss 964 464 500 107.8%
-------------- --------------- -------------- ---------------
EBITDA (excluding unrestricted subsidiaries) $ 17,297 $ 19,899 $ (2,602) (13.1%)
============== =============== ============== ===============
** 2002 amount includes amortization of capitalized software costs of $252
which are included in operating costs and expenses above for the three
months ended December 31, 2002.
WRC Media Inc.
For the years ended December 31, 2002 and 2001
($ in thousands)
Actual Increase/(Decrease)
------------------------------ -------------------------------
12/31/2002 12/31/2001 $ %
-------------- -------------- -------------- ---------------
Net Revenue $ 209,958 $ 231,469 $ (21,511) (9.3%)
Costs and Expenses:
Operating costs and expenses 159,766 177,430 (17,664) (10.0%)
Restructuring and non-recurring expenses 8,594 - 8,594 100.0%
Depreciation 3,041 3,227 (186) (5.8%)
Amortization of goodwill and other intangibles 18,812 63,757 (44,945) (70.5%)
-------------- -------------- -------------- ---------------
Total operating costs and expenses 190,213 244,414 (54,201) (22.2%)
Operating Income/(Loss) 19,745 (12,945) 32,690 252.5%
Interest expense 29,844 33,319 (3,475) (10.4%)
Other, net (income)/expense 2,343 1,583 760 48.0%
Income taxes 10,980 658 10,322 1568.7%
-------------- -------------- -------------- ---------------
Net Loss before cumulative effect of change
in accounting principle (23,422) (48,505) 25,083 51.7%
Cumulative effect of change in accounting principle (72,022) - (72,022) -
-------------- -------------- -------------- ---------------
Net loss $ (95,444) $ (48,505) $ (46,939) (96.8%)
============== ============== ============== ===============
EBITDA
Net Loss $ (95,444) $ (48,505) $ (46,939) (96.8%)
Depreciation and amortization of intangibles** 22,209 66,984 (44,775) (66.8%)
Income taxes 10,980 658 10,322 1568.7%
Interest expense 29,844 33,319 (3,475) (10.4%)
Cumulative effect of change in accounting principle 72,022 - 72,022 100.0%
Non-cash, non-recurring charges 8,594 - 8,594 100.0%
-------------- -------------- -------------- ---------------
EBITDA 48,205 52,456 (4,251) (8.1%)
Add: ChildU EBITDA loss 1,727 2,909 (1,182) (40.6%)
Add: Thinkbox EBITDA loss 3,064 875 2,189 250.2%
-------------- -------------- -------------- ---------------
EBITDA (excluding unrestricted subsidiaries) $ 52,996 $ 56,240 $ (3,244) (5.8%)
============== ============== ============== ===============
** 2002 Amount includes amortization of capitalized software costs of $356
which are included in operating costs and expenses above for the year ended
December 31, 2002.
9