Houghton Mifflin Publishing Revenues Dip, But Profits Jump

November 16, 2006
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November 16 – November 23, 2006 Edition

Houghton Mifflin

Publishing Revenues

Dip, But Profits Jump

BOSTON, MA/11/9/06—Houghton Mifflin Company and its parent company HM Publishing Corporation, reported a dip of 1.4% in revenues for the third quarter of 2006 but net income jumped 45% to $176 million due to a number of cost reductions including lower selling and administrative expenses.

For the three months ended September 30, 2006, the Company reported net sales from continuing operations of $601.0 million, compared to net sales of $610.1 million for the three months ended September 30, 2005.

"Our results for the third quarter highlight our disciplined approach to managing our bottom line, and we are pleased to have delivered solid financial results despite limited revenue growth opportunities this year, resulting from a flat basal market. The 2005 results include several large wins that were not expected to repeat in 2006," said Tony Lucki, chairman, president and chief executive officer. "We remain focused on, and excited about, the significant adoption market growth expected to begin next year."

CEO Lucki also refuted recent speculation on the possible purchase of HM by Riverdeep, calling the rumor “speculative media reports.”

Net sales from the K–12 Publishing segment were $440.6 million in the third quarter of 2006, a decrease of $11.0 million, or 2.4%, from $451.6 million reported in the third quarter of 2005. Lower sales of elementary reading, primarily due to a large purchase in 2005 by Miami-Dade County Public Schools, lower sales of elementary and secondary math, due to limited adoption opportunities this year, lower sales of secondary world languages and language arts, and lower sales in the Assessment

Division more than offset higher sales of elementary science and spelling and secondary social studies and science.

The Trade and Reference Publishing segment’s net sales were $40.7 million in the third quarter of 2006, a slight increase from $40.2 million reported for the third quarter of 2005. Significant sales in the quarter included Curious George titles, in connection with the September debut of a children’s television program based on the character and the release of the film earlier this year.

The College Publishing segment reported net sales of $119.7 million for the third quarter of 2006, an increase of $1.4 million from $118.3 million reported for the same period in 2005. The increase was primarily due to higher sales of advanced placement materials in California.

The Company reported operating income from continuing operations of $239.0 million, an increase of $16.4 million, or 7.4%, from $222.6 million reported in the third quarter of 2005. The increase primarily resulted from a decrease in selling and administrative expenses and lower pre-publication and publishing rights amortization, due to a change in the useful life attributed to most pre-publication costs in the K–12 Publishing segment from three to five years, partially offset by the impact of a decline in net sales.

Net income from continuing operations was $176.0 million for the third quarter of 2006, an increase of $54.2 million, or 44.5%, from $121.8 million in the year-ago quarter. The increase was due to the higher operating income and a lower tax provision.

Nine months ended September 30, 2006

For the nine months ended September 30, 2006, the Company reported net sales from continuing operations of $1,054.7 million, a decrease of $12.7 million from net sales of $1,067.4 million reported for the nine months ended September 30, 2005.

Net sales from the K–12 Publishing segment were $779.9 million, a decrease of $18.2 million, or 2.3%, from $798.1 million reported in the 2005 period. Lower sales of elementary reading, lower sales of elementary and secondary math, due to limited adoption opportunities this year, lower sales of world languages, and lower sales in the Assessment Division more than offset higher sales of elementary and secondary science and secondary social studies.

The Trade and Reference Publishing segment’s net sales for the first nine months of 2006 were $94.1 million, a decrease of $1.5 million from $95.6 million reported for the first nine months of 2005. Strong sales of children’s titles, particularly Curious George, in connection with the release of both a major film and television program based on the character, were offset by lower sales in adult titles, due to strong sales in the year-ago period of hardcover titles, including Three Nights in August and Extremely Loud and Incredibly Close, as well as The Gourmet Cookbook. Significant sales in the 2006 period included Everyman by Philip Roth and Baking: From My Home to Yours by award-winning cookbook author Dorie Greenspan.

The College Publishing segment reported net sales for the nine months ended September 30, 2006, of $180.7 million, an increase of $7.0 million, or 4.0%, from $173.7 million reported for the same period in 2005. The increase was primarily due to higher sales of both frontlist titles, including history and math, and backlist titles, including math and English.

Operating income from continuing operations for the first nine months of 2006 increased $12.0 million, or 9.5%, to $138.3 million.

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