PEOPLES EDUCATIONAL HOLDINGS, INC. 
By Revenue for the quarter ended
Revenue for the six months ended
Financial Highlights for the Six Months Ending
-- Free Cash Flow (See Exhibit 2) improved $1.8 million on a year-over-year
basis from $3.8 million to $5.6 million.
-- Net Income for the period was $1.1 million, an increase of $362,000 and
48.9% from the prior year.
-- Non-GAAP Net Income (See Exhibit 1) improved $0.3 million on a
year-over-year basis from $1.2 million to $1.5 million in the current
year.
-- Focused Instruction revenue for the period increased 7.5% on a
year-over-year basis.
-- Electronic revenue increased 6.9% on a year-over-year basis.
-- Direct Costs efficiencies realized in the prior year are being
maintained. Direct Costs in total have increased from 46.3% of revenue
in the prior year to 47.4%; however this increase is due to revenue mix.
Product costs, as a percentage of revenue within our Testing, Assessment
and Instruction, and College Preparation product groups are consistent
with the prior year.
-- Selling and Marketing costs as a percentage of revenue decreased from
24.0% in the prior year to 19.8%.
Business Outlook
"In an effort to further reduce costs, in early December, we terminated thirteen non-product development employees, the majority of which were administrative in nature. In addition, during the same time period, we were able to eliminate twelve positions within the product development group as we continue our efforts to streamline our processes and increase the use of outsourcing. The changes made will allow us to increase productivity and react on a timelier basis to the needs of our customers."
"Additionally, our liquidity continues to be strong. At
"Based on our six month results and overall market conditions we are revising our guidance. We now expect revenue to be between
Use of Non-GAAP Financial Measures
Some of the measures in this press release are non-GAAP financial measures within the meaning of SEC Regulation G. Peoples Educational Holdings, Inc. believes presenting non-GAAP net income and non-GAAP earnings per share and free cash flow are useful to investors because it describes the operating performance of the Company and helps investors gauge the Company's ability to generate cash flow excluding non-recurring charges and fluctuations between new product development amortization and new product development expenditures. Company management uses these non-GAAP measures as important indicators of the Company's past performance and to plan and forecast performance in future periods. The non-GAAP financial information Peoples Educational Holdings presents, may not be comparable to similarly titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.
About Peoples Educational Holdings, Inc.
Peoples Educational Holdings, Inc. is a publisher and marketer of print and electronic educational materials for the K-12 school market. The Company focuses its efforts in two market areas:
Test Preparation, Assessment, and Instruction
Test Preparation and Assessment: The Company creates and sells state customized, print and electronic, test preparation and assessment materials that help teachers prepare students for success in school and for required state proficiency tests.
Instruction: The Company produces and sells proprietary state customized print worktexts, and print and web-based delivered assessments. These products provide students with in-depth instruction and practice in reading, language arts, and mathematics. In addition, the Company's backlist remedial and multicultural products are included in this group.
College Preparation
The Company distributes instructional materials that meet the academic standards high schools require for honors, college preparation, and Advanced Placement courses. The Company is the exclusive high school distributor for two major college publishers, and also creates proprietary supplemental materials for this market.
The Company's proprietary products are supplemental in nature. They are predominately soft-cover, high gross profit margin titles that can be sold efficiently through the Company's direct sales force, as well as through catalogs, direct mail, telemarketing, and independent commission sales representatives. Distributed products are both basal and supplemental in nature.
Forward-Looking Statements
This press release contains forward-looking statements regarding the Company and its markets as defined in section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve a number of risks and uncertainties, including (1) demand from major customers, (2) effects of competition, (3) changes in product or customer mix or revenues and in the level of operating expenses, (4) rapidly changing technologies and the Company's ability to respond thereto, (5) the impact of competitive products and pricing, (6) local and state levels of educational spending, (7) ability to retain qualified personnel, (8) ability to retain its distribution agreements in the College Preparation market, (9) the sufficiency of the Company's copyright protection, and (10) ability to continue to rely on the services of a third party warehouse, and other factors as discussed in the Company's filings with the SEC. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made by the Company in this press release and the reports the Company files with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business and results of operations.
Contacts:
Peoples Education, Inc., Saddle Brook, NJ
Investor Contact: Michael L. DeMarco
Press Contact: Michael L. DeMarco
Phone: 201-712-0090
investorrelations@peoplesed.com
Brian T. Beckwith, President & CEO
Michael L. DeMarco, Executive Vice President, CFO
(201) 712-0090
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED UNAUDITED
(In Thousands-Except Share Data) November 30, May 31, November 30,
2008 2008 2007
ASSETS
------
Current Assets
--------------
Cash and Cash Equivalents $36 $53 $172
Accounts Receivable Net of Allowances
For Doubtful Accounts and Returns 2,816 3,664 2,726
Inventory 4,009 4,394 4,769
Prepaid Expenses and Other 401 404 443
Prepaid Marketing Expenses 1,096 829 753
Deferred Income Taxes 661 1,024 1,119
--- ----- -----
Total Current Assets 9,019 10,368 9,982
Equipment - At Cost, Less Accumulated
Depreciation of $2,142, $1,994 and
$1,843, respectively 511 566 634
--- --- ---
Other Assets
------------
Deferred Prepublication Costs, Net 14,588 15,200 16,555
Deferred Income Taxes 1,250 1,536 534
Trademarks, Net 192 191 170
Prepaid Expenses and Other 272 263 324
Prepaid Marketing Expenses 247 495 765
--- --- ---
Total Other Assets 16,549 17,685 18,348
------ ------ ------
Total Assets $26,079 $28,619 $28,964
------------ ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
-------------------
Current Maturities of Long Term
Obligations $2,044 $2,042 $1,570
Accounts Payable 6,980 4,906 6,406
Accrued Compensation 155 247 178
Other Accrued Expenses 276 347 401
Deferred Revenue 486 475 656
--- --- ---
Total Current Liabilities 9,941 8,017 9,211
Long Term Obligations, Less Current
Maturities 8,458 14,046 11,715
Total Liabilities 18,399 22,063 20,926
----------------- ------ ------ ------
Commitments and Contingencies
-----------------------------
Stockholders' Equity
--------------------
Preferred Stock, authorized 1,500,000
shares; none issued Common Stock, $0.02
par value; authorized 8,500,000 shares;
issued: 4,470,734 shares for all
periods 89 89 89
Additional Paid In Capital 8,034 8,013 7,980
Retained Earnings (Accumulated Deficit) (379) (1,482) 33
Treasury Stock - 16,232 shares for all
periods, at cost (64) (64) (64)
--- --- ---
Total Stockholders' Equity 7,680 6,556 8,038
-------------------------- ----- ----- -----
Total Liabilities and Stockholders'
Equity $26,079 $28,619 $28,964
----------------------------------- ======= ======= =======
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data) Three Months Six Months
Ended Ended
November 30, November 30,
2008 2007 2008 2007
---- ---- ---- ----
Revenue, Net 8,279 8,502 24,276 25,369
Cost of Revenue
Direct Costs 3,102 3,036 11,509 11,739
Prepublication Cost Amortization 1,694 1,692 3,352 3,395
----- ----- ----- -----
Total 4,796 4,728 14,861 15,134
Gross Profit 3,483 3,774 9,415 10,235
Selling, General and Administrative
Expenses 3,629 4,226 7,219 8,355
----- ----- ----- -----
Income (Loss) from Operations (146) (452) 2,196 1,880
Other Expenses, Net 9 12 17 24
Interest Expense 208 354 437 742
--- --- --- ---
Net Income (Loss) Before Income Taxes (363) (818) 1,742 1,114
Income Tax Expense (Benefit) (143) (396) 639 373
---- ---- ----- ---
Net Income (Loss) (220) (422) 1,103 741
==== ==== ===== ===
Net Income (Loss) per Common Share:
Basic $(0.05) $(0.09) $0.25 $0.17
Diluted $(0.05) $(0.09) $0.25 $0.16
Weighted-average Number of Common
Shares Outstanding:
Basic 4,455 4,443 4,455 4,434
Diluted 4,455 4,443 4,455 4,491
===== ===== ===== =====
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands) Six Months Ended
November 30,
2008 2007
---- ----
Cash Flows From Operating Activities
Net Income $1,103 $741
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities
Depreciation 148 151
Amortization of Prepublication
Costs and Intangible Assets 3,357 3,412
Stock-Based Compensation 21 17
Market Value Adjustment of
Interest Rate Swap 25 136
Deferred Income Taxes 649 373
Changes in Assets and Liabilities
Accounts Receivable 848 1,235
Inventory 385 501
Prepaid Expenses and Other (6) (63)
Prepaid Marketing Expenses (19) 156
Accounts Payable and Accrued
Expenses 1,911 (329)
Deferred Revenue 11 329
-- ---
Net Cash Provided By
Operating Activities 8,433 6,659
----- -----
Cash Flows From Investing Activities
Purchases of Equipment (93) (88)
Expenditures for Intangibles (6) (46)
Expenditures for Prepublication
Costs (2,740) (2,770)
------ ------
Net Cash Used In Investing
Activities (2,839) (2,904)
------ ------
Cash Flows From Financing Activities
Net Payments Under Line of Credit (4,591) (3,669)
Proceeds From the Exercise of
Stock Options - 88
Principal Payments On Long-Term
Debt (1,020) (100)
------ ----
Net Cash Used In Financing
Activities (5,611) (3,681)
------ ------
Net Increase (Decrease) in
Cash and Cash Equivalents (17) 74
Cash and Cash Equivalents
Beginning of Period 53 98
-- --
End of Period $36 $172
=== ====
Supplemental Cash Flow Information
Cash Payments for:
Interest $410 $633
==== ====
Reconciliation of Net Income (Loss) to non-GAAP Adjusted Net Income (Loss)
Exhibit 1
--------------------------------------------------------------------------
(In Thousands - Except per Share Data)
Three Months Ended Six Months Ended
November 30, November 30,
2008 2007 2008 2007
---- ---- ---- ----
Net Income (Loss) $(220) $(422) $1,103 $741
Amortization of Prepublications
Costs 1,694 1,692 3,352 3,395
Cash Expenditures for
Prepublication Costs (1,425) (1,167) (2,740) (2,770)
Market Value Adjustment of
Interest Rate Swap 37 136 25 136
Adjusted Benefit (Expense)
for Income Taxes (122) (264) (255) (304)
---- ---- ---- ----
Non-GAAP Net Income (Loss) $(36) $(25) $1,485 $1,198
==== ==== ====== ======
Basic Weighted Shares
Outstanding 4,455 4,443 4,455 4,434
Non-GAAP Earnings (Loss) Per
Share $(0.01) $(0.01) $0.33 $0.27
Reconciliation of Net Cash Provided by Operating Activities to Free Cash
Flow Exhibit 2
------------------------------------------------------------------------
(In Thousands - Except per Share Data)
Three Months Ended Six Months Ended
November 30, November 30,
2008 2007 2008 2007
---- ---- ---- ----
Net Cash Provided by Operating
Activities $2,713 $1,692 $8,433 $6,659
Cash Expenditures for Equipment
and Trademarks (37) (71) (99) (134)
Cash Expenditures for
Prepublication Costs (1,425) (1,167) (2,740) (2,770)
------ ------ ------ ------
Free Cash Flow $1,251 $454 $5,594 $3,755
====== ==== ====== ======
SOURCE Peoples Educational Holdings, Inc.
