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Scholastic Reports Fiscal 2013 Results and Fiscal 2014 Outlook



        Scholastic Reports Fiscal 2013 Results and Fiscal 2014 Outlook

Fiscal 2013 Results at High End of Revised Guidance Range

Education Sales Accelerate in Fourth Quarter

PR Newswire

NEW YORK, July 18, 2013

NEW YORK, July 18, 2013 /PRNewswire/ -- Scholastic Corporation (NASDAQ: SCHL),
the global children's publishing, education and media company, today reported
results for fiscal 2013 ended May 31, 2013. The Company also outlined its
fiscal 2014 plan to improve profitability while continuing to invest in key
areas of long-term growth, including children's book distribution and
educational content and services, as well as to enhance operating efficiency
and maintain strong free cash flow.

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

Revenue for the fourth quarter was $506.9 million, compared to $676.6 million
a year ago.  The Company reported fourth quarter earnings per diluted share
from continuing operations of $0.76 versus $1.86 in the prior year period. 
Results for the fourth quarter of fiscal 2013 include one-time expenses of
$0.21 per diluted share related to cost reduction and restructuring programs.
Consolidated earnings per diluted share were $0.66 in the quarter, compared to
$1.76 a year ago. Fourth quarter results primarily reflected lower U.S. and
international sales of The Hunger Games trilogy, lower Book Clubs revenue per
order compared to the prior year period, and strength in the Company's
education businesses.  Education sales growth included slightly higher
Educational Technology sales as well as strong Supplemental Materials
Publishing results due to growing purchases of customized product packages by
school districts implementing the Common Core State Standards. 

In fiscal 2013, revenue was $1,792.4 million, compared to $2,139.1 million a
year ago, largely driven by lower U.S. and international sales of The Hunger
Games trilogy that were partially offset by stronger Education sales in the
second half of the year. For fiscal 2013, earnings per diluted share from
continuing operations excluding one-time items were $1.37 versus $3.68 in
fiscal 2012, exceeding the Company's revised guidance range of $1.10 to $1.30
per diluted share, excluding one-time items.  Including one-time expenses of
$0.27 and $0.29 per diluted share, respectively, related to cost reduction and
restructuring programs, earnings per diluted share from continuing operations
were $1.10 in fiscal 2013 versus $3.39 in fiscal 2012.  Consolidated earnings
per diluted share were $0.95 for the fiscal year, compared to $3.21 in the
prior year.  

Free cash flow for the fiscal year was $59.4 million, exceeding net income,
compared to $147.6 million in fiscal 2012, exceeding the Company's revised
guidance range of $45 to $55 million. At year end, cash and cash equivalents
exceeded the Company's total debt by $85.4 million, compared to $35.6 million
a year ago.

"Despite the decline in U.S. and international sales of The Hunger Games,
Scholastic achieved the high end of our revised guidance range for fiscal 2013
revenue and exceeded our revised earnings per diluted share and free cash flow
guidance due to strong sales of our education programs in the fourth quarter,"
said Richard Robinson, Chairman, President and Chief Executive Officer.  "We
are operating at a time of significant change in the book business and in
education, and we are well-positioned to capitalize on the opportunities
presented by evolving needs in the classroom and buying behavior in children's
books.  With fewer retail outlets for children's books, third-party industry
research indicates that parents are increasingly relying on our Book Fairs and
Book Clubs channels to find age-appropriate, quality print and ebooks for
their children.  Additionally, educators are looking to us for customized
print and digital curriculum packages and technology-based programs and
content that support their instructional needs as they implement the more
rigorous Common Core State Standards – and we are meeting that demand."

Mr. Robinson continued, "Our significant role in the reading and learning
lives of children both at school and at home continues to be a core strength
of the Company.  We expect to drive growth in fiscal 2014 by capitalizing on
further opportunities to deliver books to families that help link children's
independent reading to Common Core State Standards, and to provide teachers
and administrators with customized curriculum packages and professional
development solutions that now cover grades pre-K to 12.  Key to this growth
is the introduction of our five major new education technology products,
especially to the numerous school districts which have enthusiastically
embraced READ 180^® for more than a decade.  At the same time, we are aligning
resources in both our education and children's book businesses to serve
customers in a unified way.  As a result, we are well-positioned to continue
to be the trusted, proven provider that can best meet the evolving needs of
parents, teachers and children." 

Fiscal 2014 Outlook
In fiscal 2014, Scholastic expects to improve profitability, enhance operating
efficiency and maintain strong free cash flow.  Scholastic's revenue and
profit growth will be driven primarily by the Company's education businesses
as a result of the introduction of new Educational Technology products,
including System 44^® Next Generation, MATH 180^TM, ^ iRead^TM, Common Core
Code X^TM and READ 180 ^ for iPad^®, coupled with growing demand for our
customized programs. These customized programs, tailored for the K-8 English
Language Arts block, include print and digital resources for instructional
reading and writing, along with Classroom Magazines and other product and
professional development offerings to meet districts' specific needs.

In Scholastic's children's book businesses, we are aligning resources to serve
customers in a unified way and introducing grade-specific marketing in School
Book Clubs.  Children's book revenue is expected to decrease slightly compared
to fiscal 2013, as lower year over year sales of The Hunger Games trilogy are
expected to be partially offset by increased revenue per fair in our School
Book Fairs and new titles released through our Trade business.  The Company
expects Book Clubs revenue to be flat compared to fiscal 2013.  As planned,
fiscal 2014 investments in Storia^®, the Company's ereading platform and
delivery system, will decrease.  Platform development for Storia is
substantially complete and future investments will focus on content delivery
and enhancements, including features designed to make the application more
useful in the classroom.

The Company is continuing to implement programs to enhance operating
efficiency and to align its cost base with its revenue growth expectations. 

As a result of the above factors, the Company expects total revenue in fiscal
2014 of approximately $1.8 billion, and earnings per diluted share from
continuing operations in the range of $1.40 to $1.80, before the impact of
one-time items.

Fiscal 2014 free cash flow is expected to be approximately $60 to $80 million.
This outlook includes capital expenditures of $55 to $65 million, compared to
$56.0 million in fiscal 2013, and prepublication and production spending of
approximately $65 to $75 million, compared to $73.7 million in fiscal 2013.

Fourth Quarter Results and Fiscal 2013 Results

Children's Book Publishing and Distribution.  Segment revenue in the fourth
quarter was $241.1 million, down 36% from $379.4 million in the prior year
period.  Operating income was $19.9 million, compared to $82.1 million in the
prior period. For fiscal 2013, segment revenue was $846.9 million, down 24%
from $1,111.3 million in fiscal 2012.  Operating income decreased to $24.5
million from $152.2 million in the prior year.  Segment results for both the
quarter and fiscal year primarily reflect decreased sales of Scholastic's
high-margin The Hunger Games trilogy, which remained on The New York Times
bestseller list, compared to the trilogy's strong results in fiscal 2012, and
lower revenue per order in School Book Clubs, partially offset by increased
revenue per fair in School Book Fairs.  Investments in and revenue from Storia
were on plan for the year.

Educational Technology and Services.  Segment revenue in the fourth quarter
was $53.7 million, up 2% from $52.7 million in the prior period due to the
launch of System 44 Next Generation.  Segment operating income was $2.9
million, compared to $1.7 million in the fourth quarter of fiscal 2012.  For
the fiscal year, segment revenue was $227.7 million, compared to $254.7
million a year ago. Segment operating income was $29.5 million in fiscal 2013,
compared to $49.2 million in the prior year.  Fiscal year results were driven
by lower purchases of high margin curriculum educational technology products
in the beginning of the year, partially offset by increased demand for the
Company's professional development and consulting businesses associated with
training for Common Core State Standards.  In addition, the prior year
benefited from higher revenues related to the READ 180 Next Generation launch
and a significant sale of adoption product in Texas.  

Classroom and Supplemental Materials Publishing.  Segment revenue in the
fourth quarter was $83.7 million, an increase of 28% versus the prior period
of $65.6 million, due to increased sales of guided reading programs, classroom
books and summer reading bundles.  Segment operating income for the quarter
was $25.0 million, compared to $9.3 million in the fourth quarter of fiscal
2012.  For the fiscal year, segment revenue was $218.0 million, compared to
$208.2 million a year ago, due to increased classroom book sales as well as
strong revenues from classroom magazines and other non-fiction content aligned
to Common Core State Standards.  Segment operating income improved
significantly to $29.6 million in fiscal 2013, up from $18.3 million in the
prior period.

International.  Segment revenue in the fourth quarter was $112.8 million, down
26% versus the prior period of $152.2 million.  Operating income for the
quarter was $10.3 million versus $26.8 million in the fourth quarter of fiscal
2012.  For the fiscal year, segment revenue was $441.1 million, compared to
$489.6 million in the prior year.   Foreign exchange had a negative impact on
revenue of $3.9 million in the year.  Segment operating income in fiscal 2013
was $39.8 million, compared to $57.6 million in fiscal 2012 as a result of
decreased revenue. Segment results for both the quarter and fiscal year were
primarily related to lower revenues in Canada and Australia as a result of
lower The Hunger Games sales.

Media, Licensing and Advertising.  Segment revenue in the fourth quarter was
$15.6 million, down 42% versus the prior period of $26.7 million.  Operating
income was $4.7 million for the quarter, as compared to a loss of $1.4 million
in the fourth quarter of fiscal 2012.  For the fiscal year, segment revenue
was $58.7 million, compared to $75.3 million in the prior year.  Operating
income for the segment in fiscal 2013 was $4.7 million, compared to loss of
$4.9 million a year ago.  Segment results for both the quarter and fiscal year
primarily reflect a planned decrease in low margin console sales.

Other Financial Results.  Corporate Overhead expense was $60.2 million in
fiscal 2013, compared to $87.1 million in the prior year, reflecting lower
employee-related and incentive compensation expenses in the current period. 

Conference Call
The Company will hold a conference call to discuss its results at 8:30 am ET
today, July 18, 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 95969942. 
The recording will be available through Friday, August 2, 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         TWELVE MONTHS ENDED
                            05/31/13   05/31/12        05/31/13   05/31/12
 Revenues                   $506.9     $676.6          $1,792.4   $2,139.1
 Operating costs and
 expenses:
       Cost of goods sold   226.8      322.6           829.6      984.6
       Selling, general and
       administrative       219.6      236.1           821.5      881.1
       expenses (1)
       Bad debt expense     3.0        4.5             6.9        12.3
       Depreciation and     17.2       22.2            66.5       68.8
       amortization
       Loss on leases and
       asset impairments    -          -               -          7.0
       (2)
 Total operating costs and  466.6      585.4           1,724.5    1,953.8
 expenses
 Operating income (loss)    40.3       91.2            67.9       185.3
 Other income (expense)     (0.0)      (0.1)           (0.0)      (0.1)
 Interest expense, net      3.0        3.9             14.5       15.5
 Earnings (loss) from
 continuing operations      37.3       87.2            53.4       169.7
 before income taxes
 Provision (benefit) for    12.5       26.9            17.6       61.6
 income taxes
 Earnings (loss) from       24.8       60.3            35.8       108.1
 continuing operations
 Earnings (loss) from
 discontinued operations,   (3.3)      (3.3)           (4.7)      (5.7)
 net of tax (3)
 Net income (loss)          $21.5      $57.0           $31.1      $102.4
 Basic and diluted earnings
 (loss) per Share of Class
 A and Common Stock: (4)
 Basic:
       Earnings (loss) from
       continuing           0.78       1.91            1.12       3.45
       operations
       Earnings (loss) from
       discontinued         (0.11)     (0.11)          (0.15)     (0.18)
       operations, net of
       tax
       Net income (loss)    0.67       1.80            0.97       3.27
 Diluted:
       Earnings (loss) from
       continuing           0.76       1.86            1.10       3.39
       operations
       Earnings (loss) from
       discontinued         (0.10)     (0.10)          (0.15)     (0.18)
       operations, net of
       tax
       Net income (loss)    0.66       1.76            0.95       3.21
 Basic weighted average     31.8       31.5            31.8       31.2
 shares outstanding
 Diluted weighted average   32.3       32.2            32.4       31.7
 shares outstanding
       For the three and twelve months ended May 31, 2013, the Company
       recorded a pretax severance charge of $6.6 and $9.6, respectively,
 (1)   related to the Company's cost savings initiatives and a pretax charge
       of $4.0 related to asset impairments. For the twelve months ended May
       31, 2012, the Company recorded a pretax severance charge of $9.3 for a
       voluntary retirement program.
       During the twelve months ended May 31, 2012, the Company recorded
 (2)   certain asset impairments, primarily in the Children's Book Publishing
       and Distribution segment, of $0.8 as well as a non-cash loss on
       sublease arrangements of $6.2.
       In the fourth quarter of fiscal 2013, the Company sold a facility that
       was previously classified as held for sale. Also in the fourth quarter
       of fiscal 2013 the Company discontinued its Click Club business, which
 (3)   was included in the Children's Book Publishing and Distribution
       segment, and discontinued a subscription-based business which was
       previously reported in the Media, Licensing and Advertising segment.
       During the first quarter of fiscal 2012, the Company ceased operations
       in its direct-to-home catalog business specializing in toys.
       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                TWELVE MONTHS ENDED
                05/31/13 05/31/12  Change         05/31/13 05/31/12  Change
 Children's
 Book
 Publishing and
 Distribution
    Revenue
    Book Clubs  $43.3    $59.9     ($16.6) (28%)  $206.0   $263.5    ($57.5)  (22%)
    Trade       32.6     155.5     (122.9) (79%)  182.7    395.7     (213.0)  (54%)
    Book Fairs  165.2    164.0     1.2     1%     458.2    452.1     6.1      1%
    Total       241.1    379.4     (138.3) (36%)  846.9    1,111.3   (264.4)  (24%)
    revenue
    Operating
    income      19.9     82.1      (62.2)  (76%)  24.5     152.2     (127.7)  (84%)
    (loss)
    Operating   8.3%     21.6%                    2.9%     13.7%
    margin
 Educational
 Technology and
 Services
    Revenue     53.7     52.7      1.0     2%     227.7    254.7     (27.0)   (11%)
    Operating
    income      2.9      1.7       1.2     71%    29.5     49.2      (19.7)   (40%)
    (loss)
    Operating   5.4%     3.2%                     13.0%    19.3%
    margin
 Classroom and
 Supplemental
 Materials
 Publishing
    Revenue     83.7     65.6      18.1    28%    218.0    208.2     9.8      5%
    Operating
    income      25.0     9.3       15.7    169%   29.6     18.3      11.3     62%
    (loss)
    Operating   29.9%    14.2%                    13.6%    8.8%
    margin
 International 
    Revenue     112.8    152.2     (39.4)  (26%)  441.1    489.6     (48.5)   (10%)
    Operating
    income      10.3     26.8      (16.5)  (62%)  39.8     57.6      (17.8)   (31%)
    (loss)
    Operating   9.1%     17.6%                    9.0%     11.8%
    margin
 Media,
 Licensing and
 Advertising 
    Revenue     15.6     26.7      (11.1)  (42%)  58.7     75.3      (16.6)   (22%)
    Operating
    income      4.7      (1.4)     6.1       *    4.7      (4.9)     9.6      196%
    (loss)
    Operating   30.1%    *                        8.0%     *  
    margin
 Overhead       22.5     27.3      4.8     18%    60.2     87.1      26.9     31%
 expense 
 Operating
 income (loss)
 from           $40.3    $91.2     ($50.9) (56%)  $67.9    $185.3    ($117.4) (63%)
 continuing
 operations
 *  Percent not meaningful.

 

 SCHOLASTIC CORPORATION 
 SUPPLEMENTAL INFORMATION 
 (UNAUDITED) 
 (Amounts in millions) 
 SELECTED BALANCE SHEET ITEMS 
                           05/31/13   05/31/12
 Continuing Operations
     Cash and cash         $87.4      $194.9
     equivalents
     Accounts receivable,  214.9      313.9
     net
     Inventories, net      278.1      295.3
     Accounts payable      156.2      119.6
     Accrued royalties     34.4       92.7
     Lines of credit,
     short-term debt and   2.0        6.5
     current portion of
     long-term debt
     Long-term debt,
     excluding current     0.0        152.8
     portion
     Total debt            2.0        159.3
     Total capital lease   57.7       57.4
     obligations
     Net debt (1)          (85.4)     (35.6)
 Discontinued Operations
     Total assets of
     discontinued          0.4        7.7
     operations
     Total liabilities of
     discontinued          1.3        2.1
     operations
 Total stockholders'       864.4      830.3
 equity
 SELECTED CASH FLOW ITEMS 
                           THREE MONTHS ENDED          TWELVE MONTHS ENDED
                           05/31/13   05/31/12         05/31/13   05/31/12
     Net cash provided by
     (used in) operating   $81.9      $127.4           $189.1     $260.2
     activities
     Less:    Additions to
     property, plant and   12.5       20.7             56.0       53.7
     equipment
                 
     Pre-publication and   22.4       19.2             73.7       58.9
     production costs
     Free cash flow (use)  $47.0      $87.5            $59.4      $147.6
     (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 Company
 (1) 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.
     Free cash flow includes discontinued operations for the three and twelve
 (3) months ended May 31, 2013 and May 31, 2012.

      

 

SOURCE Scholastic Corporation

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