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Scholastic Reports Fiscal 2013 Third Quarter Results



             Scholastic Reports Fiscal 2013 Third Quarter Results

PR Newswire

NEW YORK, March 21, 2013

NEW YORK, March 21, 2013 /PRNewswire/ -- Scholastic Corporation (NASDAQ:
SCHL), the global children's publishing, education and media company, today
reported results for the fiscal 2013 third quarter ended February 28, 2013. 

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

Revenue for the third quarter was $380.5 million, compared to $467.0 million a
year ago.  The third quarter revenue decline primarily reflected significantly
lower sales of The Hunger Games trilogy versus our expectations and versus the
prior year, when the Company benefited from extraordinarily strong book
revenues in advance of the March 2012 film release.  Book Club sales also
declined in the quarter compared to the prior year period. 

The Company reported a loss per share from continuing operations of $0.63
versus a loss of $0.32 in the prior year period, which include one-time
expenses of $0.06 and $0.05 per share, respectively. The consolidated loss per
share was $0.63 in the quarter, compared to a loss of $0.33 a year ago. The
decline in net income was largely the result of lower revenues, especially
from lower Hunger Games sales, as well as the Company's planned increase in
investments in digital initiatives, partially offset by cost-cutting measures
implemented during the quarter.  The third quarter is a seasonally lower
revenue quarter for Scholastic and typically generates a net loss.

During the third quarter, free cash use (as defined) was $52.0 million,
compared to free cash use of $1.5 million in the prior year period.  At
quarter end, cash and cash equivalents exceeded the Company's total debt by
$41.9 million, compared to net debt (as defined) of $53.5 million a year ago.

"We knew that fiscal 2013 would be challenging, given the tough comparisons
for The Hunger Games trilogy, our significant investments in digital
initiatives, and the timing of our major new Educational Technology product
launches later this calendar year.  However, third quarter sales of The Hunger
Games trilogy were significantly lower than our expectations, particularly in
the U.S., Canada and Australia.  Further, delays in customer purchases of our
educational products have continued, as school districts focus on professional
development and training in the context of the Common Core State Standards,
and invest in iPads and other digital devices for the classroom," commented
Richard Robinson, Chairman, President and Chief Executive Officer.

Mr. Robinson continued, "During the quarter, we saw a growing interest in
Storia^® and increased revenues from our Common Core focused professional
development and consulting services. We accelerated our digital investments in
advance of our summer 2013 Educational Technology product introductions, which
include the long-anticipated Math 180^TM, a new K-2 reading program called
iRead^TM, System 44^® Next Generation, an iPad version of Read 180^® and a new
Common Core Language Arts program for middle school entitled Code X^TM.
 Scholastic continues to lead in the development of quality technology-based
programs that empower teachers to accelerate student achievement while keeping
the joy in learning. We expect our digital initiatives and the major expansion
of our Educational Technology programs to generate strong profit growth next
year and beyond."

As a result of the foregoing factors, Scholastic is revising its outlook for
the fiscal year ending May 31, 2013.  The Company now expects total revenue of
$1.75 billion to $1.8 billion for fiscal 2013, compared to its previous
outlook of $1.8 billion to $1.9 billion; and earnings per diluted share from
continuing operations in the range of $1.10 to $1.30, before the impact of
one-time items associated with cost reduction programs and non-cash,
non-operating items, compared to its previous outlook of $1.40 to $1.60,
before the impact of such one-time items. 

The Company now expects free cash flow in the range of $45 million to $55
million, compared to its previous outlook for free cash flow in the range of
$100 million to $120 million.  The Company is revising its free cash flow
outlook based on lower net income, the aforementioned delays in purchases of
educational products in this fiscal year, the impact of the one-time payments
of approximately $15 million associated with state sales tax liabilities
accrued in fiscal 2012, and a higher level of pre-publication expenses due to
accelerated investments in new educational products. 

Third Quarter Results

Children's Book Publishing and Distribution.  Segment revenue in the quarter
was $189.4 million, compared to $268.8 million in the prior year period,
largely driven by the substantial year-over-year decline in sales of The
Hunger Games trilogy.  The Company continues to maintain a strong frontlist
and backlist, however, including strong performers such as the Company's
Captain Underpants titles, New York Times Bestseller Tea Time with
Sophia-Grace and Rosie and the latest titles in the multi-platform series The
39 Clues and Infinity Ring.  In School Book Fairs, revenue increased slightly,
reflecting a continued increase in overall fair count relative to the prior
year period.  In School Book Clubs, revenue declined by approximately 21%
compared to the prior year period, primarily due to lower revenue per order. 
Overall segment operating loss was $10.1 million, compared to income of $12.2
million in the prior year period, as a result of the lower Hunger Games
revenue and continued investment in ecommerce and ebooks initiatives.

Educational Technology and Services.  Segment revenue in the quarter was $41.8
million, compared to $40.0 million in the prior year period, primarily due to
increased sales of professional development services and consulting in advance
of the Common Core implementation.  Segment operating loss was $3.5 million,
compared to a loss of $5.9 million in the prior year period.

Classroom and Supplemental Materials Publishing.  Segment revenue in the
quarter was $43.2 million, compared to $38.2 million in the prior year period.
Strong sales of classroom magazines were driven by schools' need for
non-fiction content aligned to Common Core State Standards.  Segment operating
loss was $0.2 million versus a loss of $3.4 million in the prior year period.

International.  Segment revenue in the quarter was $94.4 million, compared to
$105.6 million in the prior year period, primarily reflecting lower sales of
The Hunger Games trilogy in Canada and Australia, partially offset by strong
performance in Asia.  Segment operating income was $2.0 million, compared to
$4.3 million in the prior year period, due to lower sales of The Hunger Games
trilogy.

Media, Licensing and Advertising.  Segment revenue in the quarter was $11.7
million, compared to $14.4 million in the prior year period, as a result of
lower production revenues, principally Word Girl^TM.  Segment operating loss
increased to $2.3 million, compared to a loss of $1.2 million in the prior
period, largely as a result of the lower revenue.

Other Financial Results.  Corporate overhead in the third quarter was $13.6
million, compared to $17.9 million in the prior year period, primarily related
to lower employee-related expenses.  To date during fiscal 2013, the Company
has spent approximately $5.8 million on opportunistic share repurchases and
has approximately $25.6 million remaining under its previously authorized
limits for open market share repurchases.

Year-to-Date Results                                                          

For the first nine months of fiscal 2013, revenue was $1,290.3 million,
compared to $1,470.3 million in the prior year period.  Earnings per diluted
share from continuing operations in the same period was $0.30, compared to
$1.52 a year ago, including one-time, partly non-cash charges of $0.06 and
$0.29, respectively.  The consolidated diluted earnings per share was $0.29 in
the period, compared to diluted earnings per share of $1.43 a year ago.  For
comparison purposes, in the fiscal 2012 nine month period, the Company had
strong sales of The Hunger Games trilogy and high margin educational
technology products.  On a year-to-date basis, the Company has generated free
cash flow of $12.4 million, compared to $60.1 million in the previous year. 

Conference Call

The Company will hold a conference call to discuss its results at 8:30 am ET
today, March 21, 2013. 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 (855) 859-2056 from within the
U.S. or +1 (404) 537-3406 internationally, and entering access code 21821224. 
The recording will be available through Friday, March 29, 2013.

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        NINE MONTHS ENDED
                             02/28/13   02/29/12       02/28/13  02/29/12
 Revenues                    $380.5     $467.0         $1,290.3  $1,470.3
 Operating costs and
 expenses:
       Cost of goods sold    191.1      219.6          605.6     665.7
       Selling, general and
       administrative        200.6      242.5          609.7     656.1
       expenses (1)
       Depreciation and      16.5       16.0           49.3      46.6
       amortization
       Loss on leases and    -          0.8            -         7.0
       asset impairments (2)
 Total operating costs and   408.2      478.9          1,264.6   1,375.4
 expenses
 Operating income (loss)     (27.7)     (11.9)         25.7      94.9
 Other income (expense)      -          -              -         -
 Interest expense, net       4.1        3.9            11.5      11.7
 Earnings (loss) from
 continuing operations       (31.8)     (15.8)         14.2      83.2
 before income taxes
 Provision (benefit) for     (11.7)     (5.9)          4.4       34.9
 income taxes 
 Earnings (loss) from        (20.1)     (9.9)          9.8       48.3
 continuing operations
 Earnings (loss) from
 discontinued operations,    (0.0)      (0.4)          (0.2)     (2.9)
 net of tax (3)
 Net income (loss)           ($20.1)    ($10.3)        $9.6      $45.4
 Basic and diluted earnings
 (loss) per Share of Class A
 and Common Stock: (4)
 Basic:
       Earnings (loss) from  (0.63)     (0.32)         0.31      1.54
       continuing operations
       Earnings (loss) from
       discontinued          (0.00)     (0.01)         (0.01)    (0.09)
       operations, net of
       tax
       Net income (loss)     (0.63)     (0.33)         0.30      1.45
 Diluted:
       Earnings (loss) from  (0.63)     (0.32)         0.30      1.52
       continuing operations
       Earnings (loss) from
       discontinued          (0.00)     (0.01)         (0.01)    (0.09)
       operations, net of
       tax
       Net income (loss)     (0.63)     (0.33)         0.29      1.43
 Basic weighted average      32.0       31.1           31.8      31.1
 shares outstanding
 Diluted weighted average    32.0       31.1           32.4      31.6
 shares outstanding
       For the three and nine months ended February 28, 2013, the Company
       recorded a pretax severance charge of $3.0, related to the Company's
 (1)   cost savings initiatives.  For the three and nine months ended
       February 29, 2012, the Company recorded a pretax severance charge of
       $2.5 and $9.3, respectively, for a voluntary retirement program.  
       During the quarter ended February 29, 2012, the Company recorded
       certain asset impairments, primarily in the Children's Book
 (2)   Publishing and Distribution segment of $0.8.   For the nine months
       ended February 29, 2012, the Company recognized a non-cash loss on
       sublease arrangements of $6.2.
       The Company closed or sold several operations prior to fiscal 2013,
 (3)   and presently holds for sale one facility.  All of these businesses
       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                NINE MONTHS ENDED
                02/28/13 02/29/12  Change         02/28/13 02/29/12  Change
 Children's
 Book
 Publishing and
 Distribution
     Revenue
        Book    $57.1    $72.3     ($15.2) (21%)  $167.5   $211.0    ($43.5) (21%)
     Clubs
        Trade   45.9     112.0     (66.1)  (59%)  150.1    240.2     (90.1)  (38%)
        Book    86.4     84.5      1.9     2%     293.0    288.1     4.9     2%
     Fairs
     Total      189.4    268.8     (79.4)  (30%)  610.6    739.3     (128.7) (17%)
     revenue
     Operating
     income     (10.1)   12.2      (22.3)    *    3.6      70.7      (67.1)  (95%)
     (loss)
     Operating  *        4.5%                     0.6%     9.6%
     margin
 Educational
 Technology and
 Services
     Revenue    41.8     40.0      1.8     5%     174.0    202.0     (28.0)  (14%)
     Operating
     income     (3.5)    (5.9)     2.4      *     26.6     47.5      (20.9)  (44%)
     (loss)
     Operating  *        *                        15.3%    23.5%
     margin
 Classroom and
 Supplemental
 Materials
 Publishing
     Revenue    43.2     38.2      5.0     13%    134.3    142.6     (8.3)   (6%)
     Operating
     income     (0.2)    (3.4)     3.2      *     4.6      9.0       (4.4)   (49%)
     (loss)
     Operating  *        *                        3.4%     6.3%
     margin
 International 
     Revenue    94.4     105.6     (11.2)  (11%)  328.3    337.4     (9.1)   (3%)
     Operating
     income     2.0      4.3       (2.3)   (53%)  29.5     30.8      (1.3)   (4%)
     (loss)
     Operating  2.1%     4.1%                     9.0%     9.1%
     margin
 Media,
 Licensing and
 Advertising 
     Revenue    11.7     14.4      (2.7)   (19%)  43.1     49.0      (5.9)   (12%)
     Operating
     income     (2.3)    (1.2)     (1.1)    *     (0.9)    (3.3)     2.4      * 
     (loss)
     Operating  *        *                        *        *  
     margin
 Overhead       13.6     17.9      4.3     24%    37.7     59.8      22.1    37%
 expense 
 Operating
 income (loss)
 from           ($27.7)  ($11.9)   ($15.8)  *     $25.7    $94.9     ($69.2) (73%)
 continuing
 operations
 *   Percent not meaningful.

 

 SCHOLASTIC CORPORATION 
 SUPPLEMENTAL INFORMATION 
 (UNAUDITED) 
 (Amounts in millions) 
 SELECTED BALANCE SHEET ITEMS 
                            02/28/13    02/29/12
 Continuing Operations
     Cash and cash          $196.7      $111.8
     equivalents
     Accounts receivable,   196.4       271.5
     net
     Inventories, net       352.5       397.2
     Accounts payable       157.9       160.1
     Accrued royalties      66.3        84.4
     Lines of credit,
     short-term debt and    1.8         12.6
     current portion of
     long-term debt
     Long-term debt,
     excluding current      153.0       152.7
     portion
     Total debt             154.8       165.3
     Total capital lease    57.6        57.2
     obligations
     Net debt (1)           (41.9)      53.5
 Discontinued Operations
     Total assets of
     discontinued           7.0         9.3
     operations
     Total liabilities of
     discontinued           1.6         1.2
     operations
 Total stockholders' equity 845.8       785.3
 SELECTED CASH FLOW ITEMS 
                            THREE MONTHS ENDED         NINE MONTHS ENDED
                            02/28/13    02/29/12       02/28/13  02/29/12
     Net cash provided by
     (used in) operating    ($20.2)     $25.0          $107.2    $132.8
     activities
     Less:    Additions to
     property, plant and    13.1        12.2           43.5      33.0
     equipment
                 
     Pre-publication and    18.7        14.3           51.3      39.7
     production costs
     Free cash flow (use)   ($52.0)     ($1.5)         $12.4     $60.1
     (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 believes that this non-GAAP financial
 (2) 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.
 (3) Free cash flow includes discontinued operations for the three and nine
     months ended February 28, 2013 and February 29, 2012.

SOURCE Scholastic Corporation

Website: http://www.investor.scholastic.com
Contact: Investors: Gil Dickoff, (212) 343-6741,
investor_relations@scholastic.com, or Media: Kyle Good, (212) 343-4563,
kgood@scholastic.com
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