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August 17 – August 24, 2006 Edition
Reports 06 Second
Quarter Results BOSTON/8/10/2006Houghton Mifflin Company, together with its parent, HM Publishing Corp. (the Company), reported consolidated results for the second quarter ending June 30.
“The market for instructional materials has declined slightly in the first six months of the year, which typically represent only about one-third of annual revenues, said Tony Lucki, chairman, president and chief executive officer of the Comp-any. New programs such as science and social studies have expanded our addressable market, and we are pleased with our performance in several key adoptions in those disciplines. For the second half of the year, we maintain our previously-stated outlook and will remain focused on the strong growth in adoption opportunities expected in 2007 through 2009.”
For the three months ended June 30, 2006, the Company reported net sales from continuing operations of $319.4 million, compared to net sales of $324.9 million for the three months ended June 30, 2005.
The Trade and Reference Publishing segment’s net sales were $28.6 million in the second quarter of 2006, a slight increase from $28.4 million reported for the second quarter of 2005. Significant sales in the quarter included the Philip Roth novel, Everyman, and Curious George titles, in connection with the film release earlier this year.
Net sales from the K12 Publishing segment were $253.5 million in the second quarter of 2006, compared to $261.1 million in the second quarter of 2005. Lower sales of secondary math, due to fewer adoption opportunities this year; the timing of sales of secondary social studies products, due to ordering delays in California; and an anticipated decline in state contract revenue in the Assessment Division more than offset strong sales of elementary reading and secondary language arts.
The College Publishing segment reported net sales of $37.2 million for the second quarter of 2006, an increase of 5.1% from $35.4 million reported for the same period in 2005. The increase was due to higher sales of backlist titles, primarily algebra and Spanish. Several major copyright 2006 titles also performed well, including the eighth edition of Larson’s Calculus and the eleventh edition of Ellis’ Becoming a Master Student.
The Company reported operating income from continuing operations of $3.0 million, a decrease of $19.5 million from $22.5 million reported in the second quarter of 2005. The decrease primarily resulted from a $19.6 million increase in selling and administrative expenses, which included a compensatory bonus of $21.7 million awarded to certain members of management, previously disclosed and made in connection with Houghton Mifflin, LLC and Houghton Mifflin Finance, Inc.’s offering of Floating Rate Senior PIK Notes. Selling and administrative expenses excluding this bonus declined from the year-ago period, due to lower administrative and fulfillment costs.
The net loss from continuing operations was $33.3 million for the second quarter of 2006, compared to $7.3 million in the year-ago quarter, and was impacted by the compensatory bonus and a provision for income taxes. The Company reported a provision for income taxes of $2.6 million in the second quarter of 2006, compared to an income tax benefit of $3.7 million reported in the second quarter of 2005. The change in income taxes is due to an increase in the valuation allowance.
For the six months ended June 30, 2006, the Company reported net sales from continuing operations of $453.8 million, a decrease of $3.5 million, or 0.8%, from net sales of $457.3 million reported for the six months ended June 30, 2005.
The Trade and Reference Publishing segments net sales for the first six months of 2006 were $53.5 million, a decrease of $1.9 million from $55.4 million reported for the first six months of 2005, primarily due to higher sales in the 2005 period from adult 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 various Curious George titles, particularly surrounding the film release in February.
Net sales from the K12 Publishing segment declined by $7.2 million, or 2.1%, to $339.3 million from $346.5 million in the 2005 period. Lower sales of secondary math, due to fewer adoption opportunities, the timing of sales of secondary social studies products, due to a delay in California orders, and an anticipated decline in state contract revenues in the Assessment Division, more than offset strong sales of elementary reading and science and secondary language arts.
The College Publishing segment reported net sales for the six months ended June 30, 2006 of $60.9 million, an increase of $5.5 million, or 9.9%, from $55.4 million reported for the same period in 2005. The increase was primarily due to higher sales of both frontlist titles, including history and calculus, and backlist titles, including math and English.
Operating loss from continuing operations for the first six months of 2006 increased $4.4 million to $100.7 million, primarily due to the compensatory bonus payment, partially offset by lower amortization. Pre-publication and publishing rights amortization in the first six months of 2006 decreased $13.1 million from the year-ago period, primarily due to lower publishing rights amortization.
The Company today also re-affirmed its previously-stated outlook for 2006. The Company expects to report a modest improvement in net sales from continuing operations with growth in the low single-digit percent range, and a modest improvement in EBITDA, driven by higher revenues. Capital expenditures in 2006 are expected to be in line with the 2005 spending level of approximately $170 million.
The investments we made in new basal programs have expanded our addressable market, so we believe that we are still on track to achieve modest net sales growth this year, despite a weaker adoption calendar. More importantly, we believe that these investments have positioned us to benefit from the strong upcoming growth in adoption opportunities beginning in 2007. We are particularly excited that our core disciplines, such as reading and math, in which we have been an industry leader, will be fueling much of this adoption growth,” concluded Mr. Lucki.
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