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Scholastic Profit Dips on Severance Costs

The Associated Press

Scholastic also lowered its fiscal 2009 adjusted earnings forecast due to further spending cuts, market conditions and year-to-date results.

Shares shed $2.14, or 13%, to $14.39 in afternoon trading. The stock has fallen 61% since peaking at a 42-week high of $37.57 in February, with shares falling off dramatically since the company's first-quarter financial report in September.

For the period ended Nov. 30, net income dropped to $43.1 million, or $1.15 per share, from $75.6 million, or $1.93 per share, in the prior-year period. Earnings from continuing operations fell to $58.4 million, or $1.55 per share, including a one-time charge of 17 cents per share for severance payments and other cost-cutting measures.

Revenue slipped 4% to $661.6 million from $687.6 million a year ago.

The "Harry Potter" books publisher said it eliminated $35 million in annual expenses, which included $25 million in salaries. The company previously announced that it planned to generate annual savings of approximately $25 million to $35 million through voluntary retirement packages offered to workers over 50 years old with 10 years of service, a hiring freeze and lower paper, printing, postage and other costs.

Other actions include renegotiating some vendor contracts, seeking out new contracts and suspending annual salary raises. The company said it is still looking at making more staff reductions and exiting unprofitable markets.

Scholastic plans to trim $20 million from its spending plan for the second half of fiscal 2009 by cutting management bonuses and paring down all discretionary spending.

The company reported its loss from discontinued operations grew to $15.3 million, or 40 cents per share, from $6.7 million, or 17 cents per share, in the previous year. Discontinued operations included charges related to Scholastic's exit from Argentinian operations, a Puerto Rican sales group and a trade magazine.

Increased royalty reserves and allowances for doubtful trade publishing accounts hurt operating income by $6.3 million, Scholastic added.

Sales dropped in its trade publishing unit due to fewer Harry Potter shipments, but results for the children's book publishing and distribution division benefited from strong sales of "The 39 Clues," ''The Hunger Games," ''The Invention of Hugo Cabret" and "Too Many Toys."

Educational publishing revenue fell mostly on the earlier timing of classroom library sales when compared with the previous six months.

The company reduced its total debt to $389 million from $414.1 million.