Scholastic Reports Fiscal 2013 Second Quarter Results

            Scholastic Reports Fiscal 2013 Second Quarter Results

PR Newswire

NEW YORK, Dec. 20, 2012

NEW YORK, Dec. 20, 2012 /PRNewswire/ --Scholastic Corporation (NASDAQ: SCHL),
the global children's publishing, education and media company, today reported
results for the fiscal 2013 second quarter ended November 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20100914/SIRLOGO )

Revenue for the second quarter was $616.2 million, compared to $685.3 million
a year ago. Earnings per diluted share from continuing operations were $1.89,
compared to $2.62 in the prior year period, which included one-time expenses
of $0.21 per diluted share related to cost reduction actions. As indicated in
the Company's November 20, 2012 revised outlook announcement, the results in
the current period primarily reflect lower sales of higher margin educational
technology products, lower than anticipated sales of The Hunger Games trilogy
and lower revenue in School Book Clubs compared to last year, as well as
increased investment in ecommerce and ebook initiatives. Consolidated
earnings per diluted share were $1.89 in the quarter compared to $2.60 a year
ago.

During the second quarter, the Company generated free cash flow (as defined)
of $60.4 million, compared to $129.6 million in the prior year period. At
quarter end, cash and cash equivalents exceeded the Company's total debt by
$103.7 million, compared to net debt (as defined) of $44.4 million a year ago.

"Our second quarter performance is in line with the revised fiscal year 2013
outlook, which reflects deferred decision-making affecting sales of our
higher-margin educational technology products as school districts focused
their spending on professional development training for the new Common Core
State Standards, as well as lower than anticipated sales in the Children's
Book Publishing and Distribution segment. However, we were encouraged by the
positive uplift in sales in November in our Educational Technology and Trade
businesses, as well as good results in School Book Fairs for the quarter,
notwithstanding the fairs in the northeast that had to be abbreviated or
delayed following Superstorm Sandy. Further, we are pleased with teachers'
and parents' enthusiasm for Storia^® and the pace of Storia ereader app
downloads over the quarter," commented Richard Robinson, Chairman, President
and Chief Executive Officer. "We are on track for our MATH 180™ and iREAD™
launches in fiscal 2014 and the introduction of System 44^® Next Generation
later this fiscal year and remain confident that the alignment of our
educational products and services with the new Common Core State Standards
will benefit educators, students and our business over the long-term."

Mr. Robinson continued, "We are implementing cost savings initiatives and
expect these actions to result in savings in the range of $20 million to $30
million in the remainder of this fiscal year. With our cost savings actions,
strong cash position and recently amended long-term credit agreement, we have
ample flexibility to continue our investments in technology-based learning
products, ebooks and ecommerce, as well as the continued expansion of
publishing and product development in southeast Asia, to fuel long-term
profitable growth."

Scholastic affirmed the revised outlook for fiscal 2013 that it announced on
November 20, 2012. The Company expects total revenue of approximately $1.8
billion to $1.9 billion and earnings per diluted share from continuing
operations in the range of $1.40 to $1.60, before the impact of one-time items
associated with cost reduction programs and non-cash, non-operating items. In
line with the revised outlook, the Company expects free cash flow in the range
of $100 million to $120 million.

Second Quarter Results

Children's Book Publishing and Distribution. Segment revenue in the quarter
was $350.1 million, compared to $393.0 million in the prior year period. In
Trade, a strong frontlist and backlist performed well, with series including
the new multi-platform Infinity Ring, The Raven Boys by Maggie Stiefvater, and
the latest Captain Underpants title from Dav Pilkey, partially offsetting the
decline in sales of The Hunger Games trilogy. In School Book Fairs, revenue
increased slightly, reflecting overall increased fair count relative to the
prior year period. In School Book Clubs, revenue declined approximately 21%
compared to the prior year period, primarily due to lower revenue per order
and school closings after Superstorm Sandy. Following the September launch of
Storia in the Fairs and Clubs channels, the level of Storia e-reading app
downloads is on track with expectations. Overall segment operating income was
$68.9 million, compared to $108.7 million in the prior year period, as a
result of the lower revenue and higher spending on ecommerce and ebooks
initiatives, including the Storia introduction.

Educational Technology and Services. Segment revenue in the quarter was $52.2
million, compared to $65.4 million in the prior year period, primarily due to
decreased sales of educational technology products in the current quarter as a
result of lower spending by school districts, and a significant sale of
adoption product in Texas in the prior year period. Sales of educational
technology products were bolstered by an increase in product purchases in
November, which were in line with the previous November. Segment operating
income was $5.3 million, compared to $14.6 million in the prior year period,
reflecting the decrease in sales of the Company's higher margin educational
technology products for the quarter.

Classroom and Supplemental Materials Publishing. Segment revenue in the
quarter was $53.2 million, compared to $58.7 million in the prior year period,
when results benefited from significant nonrecurring contracts with Reading Is
Fundamental. Strong sales of classroom magazines have been driven by schools'
growing need for non-fiction content in order to meet Common Core State
Standards. Segment operating income was $7.4 million versus $10.3 million in
the prior year period.

International. Segment revenue in the quarter was $143.7 million, compared to
$144.1 million in the prior year period, primarily reflecting lower sales in
Canada that were partially offset by strong performance in Australia and the
UK and a favorable foreign exchange impact of $1.8 million. Segment
operating income was $24.7 million, compared to $26.6 million in the prior
year period.

Media, Licensing and Advertising. Segment revenue in the quarter was $17.0
million, compared to $24.1 million in the prior year period, as a result of
higher consumer magazine sales in the previous quarter and lower console sales
in the current quarter. Segment operating income decreased to $1.4 million,
compared to $2.5 million in the prior period, largely as a result of lower
sales.

Other Financial Results. Corporate overhead in the second quarter was $6.8
million, compared to $22.7 million in the prior year period, which included a
non-cash loss on sublease arrangements of $6.2 million ($0.12 per diluted
share), in addition to one-time expenses related to a voluntary retirement
program of $4.7 million ($0.09 per diluted share). Excluding these items,
which were both related to cost savings initiatives, corporate overhead in the
previous year period was $11.8 million. To date during fiscal 2013, the
Company has spent approximately $1.5 million on opportunistic share
repurchases and has approximately $30 million remaining under its previously
authorized limits for open market share repurchases.

Year-to-Date Results

For the first half of fiscal 2013, revenue was $909.8 million, compared to
$1,003.3 million in the prior year period. Earnings per diluted share from
continuing operations in the first half of the fiscal year were $0.92,
compared to $1.83 a year ago, including one-time, partly non-cash charges of
$0.25 in the previous period. Lower results were attributable to strong sales
of The Hunger Games trilogy and high margin educational technology products in
the previous year period. The Company reported consolidated earnings per
diluted share in the first half of fiscal 2013 of $0.91, compared to $1.75 a
year ago. On a year-to-date basis, the Company generated free cash flow of
$64.4 million, compared to $61.6 million in the previous year.

Conference Call

The Company will hold a conference call to discuss its results at 8:30 am ET
today, December 20, 2012. Scholastic's Chairman, President and CEO, Richard
Robinson, and Executive Vice President, CAO and CFO, Maureen O'Connell, will
moderate the call.

The conference call and accompanying slides will be webcast and accessible
through the Investor Relations section of Scholastic's website,
scholastic.com. Participation by telephone will be available by dialing (877)
654-5161 from within the U.S. or +1 (678) 894-3064 internationally. Shortly
following the call, an archived webcast and accompanying slides from the
conference call will also be posted at investor.scholastic.com. An audio-only
replay of the call will be available by dialing (800) 585-8367 from within the
U.S. or +1 (404) 537-3406 internationally, and entering access code 78748193.
The recording will be available through Friday, December 28, 2012.

About Scholastic

Scholastic Corporation (NASDAQ: SCHL) is the world's largest publisher and
distributor of children's books and a leader in educational technology and
related services and children's media. Scholastic creates quality books and
ebooks, print and technology-based learning materials and programs, magazines,
multi-media and other products that help children learn both at school and at
home. The Company distributes its products and services worldwide through a
variety of channels, including school-based book clubs and book fairs, retail
stores, schools, libraries, on-air, and online at 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.



SCHOLASTIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in millions except per share data)
                               THREE MONTHS ENDED        SIX MONTHS ENDED
                               11/30/12   11/30/11      11/30/12  11/30/11
 Revenues                      $616.2    $685.3          $909.8    $1,003.3
 Operating costs and expenses:
       Cost of goods sold      263.4     285.7           414.5     446.1
       Selling, general and
       administrative expenses 231.2     234.6           404.6     408.9
       (1)
       Bad debt expense        4.0       3.3             4.5       4.7
       Depreciation and        16.7      15.5            32.8      30.6
       amortization
       Loss on leases (2)      -         6.2             -         6.2
 Total operating costs and     515.3     545.3           856.4     896.5
 expenses
 Operating income (loss)       100.9     140.0           53.4      106.8
 Interest expense, net         3.7       3.9             7.4       7.8
 Earnings (loss) from
 continuing operations before  97.2      136.1           46.0      99.0
 income taxes
 Provision (benefit) for       35.3      52.8            16.1      40.8
 income taxes
 Earnings (loss) from          61.9      83.3            29.9      58.2
 continuing operations
 Earnings (loss) from
 discontinued operations, net  (0.1)     (0.5)           (0.2)     (2.5)
 of tax (3)
 Net income (loss)             $61.8     $82.8           $29.7     $55.7
 Basic and diluted earnings
 (loss) per Share of Class A
 and Common Stock: (4)
 Basic:
       Earnings (loss) from    1.93      2.66            0.94      1.86
       continuing operations
       Earnings (loss) from
       discontinued            (0.00)    (0.02)          (0.01)    (0.08)
       operations, net of tax
       Net income (loss)       1.93      2.64            0.93      1.78
 Diluted:
       Earnings (loss) from    1.89      2.62            0.92      1.83
       continuing operations
       Earnings (loss) from
       discontinued            (0.00)    (0.02)          (0.01)    (0.08)
       operations, net of tax
       Net income (loss)       1.89      2.60            0.91      1.75
 Basic weighted average shares 31.9      31.2            31.7      31.1
 outstanding
 Diluted weighted average      32.7      31.7            32.4      31.6
 shares outstanding
       For the three and six months ended November 30, 2011, the Company
 (1)   recorded a pretax severance charge of $4.7 and $6.8, respectively,
       for a voluntary retirement program.
 (2)   For the three and six months ended November 30, 2011, the Company
       recognized a non-cash loss on sublease arrangements of $6.2.
       The Company closed or sold several operations prior to fiscal 2013,
       and presently holds for sale one facility. All of these businesses
 (3)   are classified as discontinued operations in the

       Company's financial statements.
       Earnings (loss) per share are calculated on non-rounded net income
 (4)   (loss) and shares outstanding. Recalculating earnings per share
       based on numbers rounded to millions may not yield the results as
       presented.





SCHOLASTIC CORPORATION
RESULTS OF CONTINUING OPERATIONS - SEGMENTS
(UNAUDITED)
(Amounts in millions)
                THREE MONTHS ENDED                SIX MONTHS ENDED
                11/30/12 11/30/11  Change         11/30/12 11/30/11  Change
 Children's
 Book
 Publishing and
 Distribution
    Revenue
    Book Clubs  $102.9   $129.8    ($26.9) (21%)  $110.4   $138.7    ($28.3) (20%)
    Trade       51.1     68.6      (17.5)  (26%)  104.2    128.2     (24.0)  (19%)
    Book Fairs  196.1    194.6     1.5     1%     206.6    203.6     3.0     1%
    Total       350.1    393.0     (42.9)  (11%)  421.2    470.5     (49.3)  (10%)
    revenue
    Operating
    income      68.9     108.7     (39.8)  (37%)  13.7     58.5      (44.8)  (77%)
    (loss)
    Operating   19.7%    27.7%                    3.3%     12.4%
    margin
 Educational
 Technology and
 Services
    Revenue     52.2     65.4      (13.2)  (20%)  132.2    162.0     (29.8)  (18%)
    Operating
    income      5.3      14.6      (9.3)   (64%)  30.1     53.4      (23.3)  (44%)
    (loss)
    Operating   10.2%    22.3%                    22.8%    33.0%
    margin
 Classroom and
 Supplemental
 Materials
 Publishing
    Revenue     53.2     58.7      (5.5)   (9%)   91.1     104.4     (13.3)  (13%)
    Operating
    income      7.4      10.3      (2.9)   (28%)  4.8      12.4      (7.6)   (61%)
    (loss)
    Operating   13.9%    17.5%                    5.3%     11.9%
    margin
 International
    Revenue     143.7    144.1     (0.4)   (0%)   233.9    231.8     2.1     1%
    Operating
    income      24.7     26.6      (1.9)   (7%)   27.5     26.5      1.0     4%
    (loss)
    Operating   17.2%    18.5%                    11.8%    11.4%
    margin
 Media,
 Licensing and
 Advertising
    Revenue     17.0     24.1      (7.1)   (29%)  31.4     34.6      (3.2)   (9%)
    Operating
    income      1.4      2.5       (1.1)   (44%)  1.4      (2.1)     3.5     167%
    (loss)
    Operating   8.2%     10.4%                    4.5%     -6.1%
    margin
 Overhead       6.8      22.7      15.9    70%    24.1     41.9      17.8    42%
 expense
 Operating
 income (loss)
 from           $100.9   $140.0    ($39.1) (28%)  $53.4    $106.8    ($53.4) (50%)
 continuing
 operations







SCHOLASTIC CORPORATION
SUPPLEMENTAL INFORMATION
(UNAUDITED)
(Amounts in millions)
SELECTED BALANCE SHEET ITEMS
                            11/30/12    11/30/11
 Continuing Operations
     Cash and cash          $257.3      $114.0
     equivalents
     Accounts receivable,   272.9       288.1
     net
     Inventories, net       356.4       376.2
     Accounts payable       208.1       146.0
     Accrued royalties      52.7        50.8
     Lines of credit,
     short-term debt and    0.7         5.7
     current portion of
     long-term debt
     Long-term debt,
     excluding current      152.9       152.7
     portion
     Total debt             153.6       158.4
     Total capital lease    57.6        56.1
     obligations
     Net debt (1)           (103.7)     44.4
 Discontinued Operations
     Total assets of
     discontinued           7.0         9.3
     operations
     Total liabilities of
     discontinued           1.9         0.7
     operations
 Total stockholders' equity 876.7       791.5
SELECTED CASH FLOW ITEMS
                            THREE MONTHS ENDED         SIX MONTHS ENDED
                            11/30/12    11/30/11       11/30/12  11/30/11
     Net cash provided by
     (used in) operating    $93.2       $157.1         $127.4    $107.8
     activities
     Less: Additions to
     property, plant and    15.9        13.6           30.4      20.8
     equipment
     
     Pre-publication and    16.9        13.9           32.6      25.4
     production costs
     Free cash flow (use)   $60.4       $129.6         $64.4     $61.6
     (2) (3)
     Net debt is defined by the Company as lines of credit and short-term
     debt plus long-term-debt, net of cash and cash equivalents. The
 (1) Company utilizes this non-GAAP financial measure, and believes it is
     useful to investors, as an indicator of the Company's effective
     leverage and financing needs.
     Free cash flow is defined by the Company as net cash provided by or
     used in operating activities (which includes royalty advances), reduced
     by spending on property, plant

     and equipment and pre-publication and production costs. The Company
 (2) believes that this 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 includes discontinued operations for the three and six
 (3) months ended November 30, 2012 and November 30, 2011.

     



SOURCE Scholastic Corporation

Website: http://www.investor.scholastic.com
Contact: Scholastic Corporation, Investors, Gil Dickoff, +1-212-343-6741,
investor_relations@scholastic.com or Media, Kyle Good, +1-212-343-4563,
kgood@scholastic.com
 
Press spacebar to pause and continue. Press esc to stop.