Due to significantly higher sales and operating efficiencies, the seasonal net loss from operations declined 13.2% to $16.0 million, or $.56 per share, from $18.5 million, or $.64 per share, in the fourth quarter of last year.
For the full year, net sales rose to a record $920.1 million, a 6.8% increase over the $861.7 million reported for 1998. Each of the Company’s divisions reported higher net sales for the year, reflecting the strength of the Company’s products and services as well as the December 1998 addition of the elementary school science program, DiscoveryWorks, and the May 1999 purchase of Sunburst Communications. Although the Company continued to invest heavily in development of new products and services, the net sales increase, benefits from investments made in business systems and processes, and lower net interest expense raised 1999 net income from operations 20.1% to $48.9 million, or $1.67 per share, from $40.8 million, or $1.40 per share, in 1998.
Nader F. Darehshori, Chairman, President, and Chief Executive Officer, said, Our 1999 results give us confidence that we will achieve our goals in 2000 and beyond, because they demonstrate that we continue to develop products and services that meet customer needs, sell those products effectively, and operate our business to deliver increasing profit to the bottom line.
Mr. Darehshori continued, Our products have been adopted at the state level in every market in which we submitted them. Our salespeople are working enthusiastically to maximize those opportunities. We are optimistic about our prospects and firmly believe that we will achieve our goals for 2000: $1 billion in revenue, an operating margin of 17%, and repayment of $200 million of debt before major acquisitions.
The K-12 Publishing segment’s net sales rose 17.9% in the fourth quarter, to $85.2 million from $72.3 million in the fourth quarter of 1998. The School Division had a very strong quarter, reporting significantly higher sales. Math Steps, the division’s new mathematics program, emerged as the market leader in the California interim adoption, winning sales in many major districts. Great Source also reported strong sales in California, and Sunburst Technology’s (formerly Houghton Mifflin Interactive) net sales rose sharply, reflecting the May acquisition of Sunburst Communications.
College Publishing net sales for the fourth quarter were $48.4 million, a 9.7% increase over the previous year’s $44.2 million, due to strong sales of new titles. Net sales for the Other segment decreased 1.9%, to $23.6 million from $24.0 million in the fourth quarter of last year, when Houghton Mifflin Interactive was included in the segment’s results.
The lower fourth-quarter seasonal net loss from operations reflected operating leverage from higher net sales, as well as the benefits of improved business systems and processes. Although product development costs rose due to efforts to complete programs for upcoming sales opportunities, cost of sales declined as a percent of net sales due to a favorable product mix. Selling and administrative expenses also were lower as a percent of net sales. Selling costs rose due to higher product sampling for increased sales opportunities in 2000, but distribution savings from investments in warehouse automation systems offset the increase.
The reduced net loss also reflected lower net interest expense, $6.0 million versus $6.6 million in the fourth quarter of 1998, due to repayment of debt.
Textbook purchasing patterns are seasonal: the majority of educational publishing sales occurs in the second and third quarters of the year. Therefore, textbook publishers tend to incur operating losses in the first and fourth quarters of the year.
For the full year 1999, K-12 Publishing net sales rose 7.4% to $657.3 million from $611.8 million, with all divisions in the segment reporting higher net sales than in 1998. Although sales opportunities were limited in elementary and secondary school reading and language arts, the Company’s strongest markets and the markets to which its customers direct the most funding, new product lines such as reading intervention and Math Steps contributed to net sales gains, as did the acquisitions of DiscoveryWorks and Sunburst. Great Source reported net sales growth in excess of 20%, reflecting increasing market share of its Write Source product line and new products in mathematics and social studies.
College Publishing segment net sales for 1999 were $172.2 million compared to $160.7 million last year, a gain of 7.2%. New products sold very well, and sales to the high school advanced placement market continued to rise. Net sales for the Other segment rose 1.5%, to $90.6 million from $89.2 million in 1998. The Trade & Reference Division was the major contributor to this gain.
Operating income for 1999 increased 9.7%, to $112.0 million from $102.0 million in 1998. The resulting operating margin was 12.2% compared to 11.8% in 1998. The improved results were due to higher net sales, product mix, and operating efficiencies. This improvement was offset in part by increased product development and selling costs related to sales opportunities in 2000 and beyond and additional goodwill amortization resulting from the acquisitions of Computer Adaptive Technologies, DiscoveryWorks, and Sunburst.
Lower interest expense, $29.8 million versus $34.0 million in 1998, also contributed to the increase in net income from operations in 1999.
In 1999, the Company repurchased 452,281 shares of common stock for $17.9 million. The majority of the shares were purchased in the fourth quarter of the year.
The Company’s 1999 earnings before interest, taxes, depreciation, and amortization (EBITDA), rose 4.2%, to $206.1 million from $197.7 million in 1998. Cash earnings, defined as net income from operations plus goodwill amortization, net of taxes, were $67.9 million, or $2.32 per share, compared to $57.9 million, or $1.99 per share, an increase of 17.3%.
