Scholastic Corp (SCHL) 2007 Q4 法說會逐字稿

Good morning.

My name is Alta and I will be your conference operator today.

At this time, I would like to welcome everyone to the Scholastic Q4 and full year 2007 earnings conference call.

(OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor over to your host, Mr.

Jeff Mathews, Head of Investor Relations.

Sir, you may begin.

Thank you.

Good morning.

Before we begin, I'd like to point out that the slides to this presentation are available for simultaneous viewing by going to our website scholastic.com, clicking on investor relations, and following the links on that page.

I'd also like to note that this presentation contains certain forward looking statements which are subject to various risk and uncertainties, including the conditions of the Children's Book and Educational materials market, and acceptance of the Company's products in those markets.

And other risks and factors identified from time-to-time in the Company's filings for the Securities and Exchange Commission.

Actual results could differ materially from those currently anticipated.

Now, I'd like to introduce Dick Robinson, the Chairman, CEO and President, of Scholastic to begin our presentation.

Thank you, Jeff, and welcome everyone to Scholastic's year end earnings call and presentation for fiscal 2007.

I'm joined by Maureen O'Connell, Scholastic's Chief Administrator, Officer and CFO, who will speak after me.

And of course, at the end of our presentation, we'll both be available for questions as will members of our Executive team.

Before we begin the presentation, I want to say how proud I am of our whole organization, which has mobilized to publish, produce, distribute and market Harry Potter and the Deathly Hallows, the final book in the greatest book series of all time.

The good feeling that author Jo Rowling has created about her character Harry and his amazing story has swept the world in the past few weeks.

Because of the love people have for this great story, the publicity has been amazingly positive and hopeful, reflecting the joy that Jo has brought to so many.

The full strength of our Company has been brought to bear on the publishing of this final book, including getting spoilers down from websites, ensuring flawless delivery, preserving the integrity of the books' ending for millions of readers.

This book reflects the power of a great story to engage millions of people in reading a printed book in a world where electronic communication is so prevalent.

Scholastic is about helping young people read and learn.

And we're deeply proud to bring the U.S.

public the amazing creativity of J.K.

Rowling for which you need only wait till tomorrow night at 12:01.

Now let's turn to our presentation of fiscal 2007 year end.

In fiscal 2007, Scholastic showed significant progress across the Company with the exception of the Continuities business where losses reduced earnings by more than $0.40 compared to our original plan for a modest profit.

Without this impact, earnings and free cash flow last year would have significantly exceeded the prior year's and we would have reached the upper end of our original plan.

As Maureen will touch on later for Continuities, we have done a complete analysis and are implementing a detailed plan that we expect to reduce losses by approximately $20 million this year, achieving profitability next year.

We will closely monitor our progress and if we do not achieve our targets during the year, we will exit the business.

As I said, fiscal 2007 was a strong year in almost all areas of the Company.

Profits and margins rose solidly in our Clubs, Education, International and Media businesses.

We laid the ground work for the biggest book release in history, we achieved our cost reduction goals causing Corporate overhead to fall.

Free cash flow was strong and exceeded net income for the fourth consecutive year and a day after the year ended we announced a $200 million share repurchase to return capital to our shareholders.

Beginning with results in Children's Books, we made progress toward goals of improved profitability in Clubs, Fairs and Trade.

Results were down because of lower Harry Potter sales compared to fiscal 2006 when we released the sixth book in the series and due to Continuity losses.

School Book Clubs ended the year with much higher profits after we successfully streamlined our Club brand.

These actions simplified the experience for our teacher sponsors and improved marketing and fulfillment efficiencies.

After several years of managing the transition from a revenue to a profit focus, School Book Clubs are now stronger than ever.

School Book Fairs also showed solid growth through improved merchandising and customer experience.

We rolled out major enhancements to the online Chairperson's Toolkit and increased the number of credit card processing and point of sales units in the field.

Both of these have been popular with customers leading to increases in revenue per fair.

In trade, as we have said, we're about to launch the biggest event in publishing history with the first printing of 12 million copies breaking the record previously set by Harry Potter and the Half-Blood Prince.

With the release barely 36 hours away, we continue working closely with book sellers to ensure they have stock to meet the incredible demand, especially during the initial weeks.

Meanwhile, nonHarry Potter trade sales were strong last year, led by new Klutz titles, including Paper Fashions as well as New York Times best sellers, including the Invention of Hugo Cabret by Brian Selznick, and the latest Captain Underpants by Dav Pilkey.

In Educational publishing, profit rose as we continue to build the premier educational technology and reading intervention business in the U.S.

Technology sales increased over 14%, reaching almost $160 million last year.

Our flagship program READ 180 led this growth and was up 23% in the fourth quarter and 15% for the year on new sales and conversions of customers to the enterprise edition.

READ 180 tech support and service revenues also grew as we continue to build recurring revenue sources for this product.

Scholastic Reading inventory, a research based computer adaptive reading assessment for grades K-12, and Read About a reading motivation program from grades 3-6 that combines adaptive technology with engaging content, also contributed to robust growth.

Overall growth in technology sales more than offset the impact of education profits of soft school spending for library materials and paperback books.

In International revenue, profit and margins rose reflecting improvement across each of our business locations.

In the UK, we saw the benefits of our investments in a strong new trade organization, while Canada and Australia achieved strong results in core businesses.

In Asia, results improved even as we continue to invest in rapid growth.

In Media, Licensing, and Advertising, strong software sales both the license Leapster products sold in retail channels and of technology products sold through Clubs and Fairs improved profits for the year.

Though we report the Club and Fair software sales in this segment, they are a clear indicator of the healthy growth opportunities in our school-based channels.

Higher consumer magazine advertising sales also contributed to profits in the Media segment.

Finally, we met our goals for overhead cost reduction last year, which resulted in the net decline in Corporate overhead and contributed to higher segment operating margins.

In fiscal 2008, we expect robust growth and profits in children's books driven by Harry Potter and the Deathly Hallows, as well as further operational progress in Clubs, Fairs and Trade following last year gains.

From a long term perspective, Saturday's launch is also momentous because it completes the seven book series, which has already become a classic.

With each new release, Harry Potter has consistently proved his ability to draw new readers.

Thus this launch is yet another step toward our long term goal of building a broad and lasting community of readers for Harry Potter so that the series remains a favorite for new generations of readers.

We are pursuing the same strategy across our publishing as seen with Scholastic best sellers like [Cranier the Funkies in card series] and will continue in fiscal 2008 with new series such as M.

Martens Main Street and Meg Cabots new wonderful character, Allie Finkles.

In our Book Distribution channels, we're focusing on leveraging our scale on the internet to achieve greater efficiencies and long term growth.

In school Book Clubs we're investing in the new Club ordering online system upgrading our ability to promote online to teachers and parents.

This investment will create additional selling opportunities through closer relationships with teachers and parents.

In school Book Fairs we are standardizing best practices to improve efficiencies across our large network of warehouses.

And we are replacing smaller, less efficient Fairs with higher revenue events.

We'll leverage the online Chairperson's Toolkit and better point of sale information to improve merchandising in our Fairs thus sustaining revenue per Fair growth.

Our plan for Continuities, which should significantly reduce the earnings drag of this business in the short term and position it for long term profits, will be discussed by Maureen in a moment.

If we don't achieve our targets during this year, we will exit the business.

And Scholastic's other businesses, we have significant opportunities to grow margins and revenues too.

Education technology is a key growth area for Scholastic.

To capitalize on this opportunity and our position as an industry leader, we have separated our education segment into Educational technology on the one hand and supplemental publishing on the other.

Our current school sales force will focus exclusively on top down solution selling of Educational technology and core curriculum products, which are proven to increase student achievement in which require extensive service, technical support, professional development and implementation skills as well as focus product development.

I've asked the uniquely talented Margery Mayer to lead this group which had about 160 million in revenue last year and is significantly profitable.

Her drive and strong leadership as an educational innovator is reflected in a stellar line up of products for fiscal 2008 and expanded pre-pub investments for products to benefit fiscal 2009 and beyond.

She will drive this area of the Company which has the greatest growth and greatest value creation opportunity for the Company.

I have just returned from the summer sales meeting for this new tech and curriculum group and experienced the tremendous excitement of this team, which recognizes that they have an opportunity to accelerate growth in an area of education, which represents the future.

The Supplemental business now called Scholastic Classroom and Library Publishing Group expands classroom magazines, classroom books, supplemental curriculum and our Scholastic library publishing business which includes Lectorum, the leader in Spanish books for schools and libraries.

This group under the direction of Greg Worrell will have its own sales force, selling a full range of classroom and library materials.

This new lineup in Education will provide both accelerated and focussed growth in educational technology and core curriculum and dedicated sales and management for the profitable Supplemental business.

In International this year, we will grow Clubs and Fairs in Asia and Latin America.

And we expect a significant export opportunity for Harry Potter in open market territories.

We also plan to expand our English language teaching business in China where we have over 1,000 young students, ages five to eight in three of our own schools, which of course use Scholastic ELT products.

We are also improving operating efficiencies in Clubs and Fairs in Canada, the UK and Australia.

The global movie release this fall of Philip Pullman's the Golden Compass will improve profits both for UK trade sales where we are the publisher and for Scholastic Media, which is producing the movie, which will be released by New Line.

This year Scholastic Media will also introduce Word Girl, a fun and educational original series and other programming on PBS as well QUBO our children's TV joint venture with NBC and other partners.

The internet continues to be a source of growth for Scholastic.

Last year online sales across the Company grew 24% to 370 million.

And we maintained our ranking as the third largest internet book seller.

In addition to our online efforts and Clubs and Fairs this year, we are beginning to sell the extensive -- sell advertising against this extensive teacher-parent and children's content currently available at scholastic.com.

Earlier this month after getting strong reviews from customers and test marketing, we rolled out a new web publishing platform that will enable the more flexible and powerful approach to online content Company wide.

Finally in 2008, we expect to achieve the full savings identified in our plan to reduce spending specific overhead areas by $40 million annually.

This will benefit margins and offset cost increases in other areas, including postage, shipping and paper, which will grow significantly next year.

Based on this plan to grow revenues and profits and improve margins, we are targeting solid earnings growth in fiscal 2008 and beyond.

As we drive this earnings growth, of course, we continue to be committed to maximizing free cash flow and shareholder value.

A more rigorous approach to capital allocation and working capital management has benefited free cash flow and allowed us to pay down debt.

We have further opportunities to improve cash flow generation, especially on the working capital side.

Last year we managed net inventories down by 9 million year-over-year, unlike prior year's increases.

And we will continue this focus in 2008.

Based on our strength in balance sheet and strong outlook in June, we began a $200 million accelerated share repurchase, providing earnings accretion, and returning capital to shareholders.

In fiscal 2008, we expect strong earnings growth driven by the record breaking launch of Harry Potter and the Deathly Hallows and continued progress in core Children's Book business, Educational technology, International internet expansion, including the sale of advertising, cost reductions, free cash flow, and working capital management.

We are very excited about this year and the opportunities we have to build long term value.

Maureen will now comment on last year and on this year's outlook and will provide some details of our plan for the Continuities business.

Thanks Dick, and good morning everyone.

Let me start with the Continuity business where I have been working with Seth Radwell and his team to address that business's losses.

Last quarter, after announcing we were beginning an in-depth analysis of our Continuity business, we took immediate actions to control promotion spending.

We also updated our shipping and credit policies.

As a result, cash flow was positive in the fourth quarter.

An encouraging sign despite the P&L loss.

However, our larger task has been to lay out a plan to make Continuities profitable long term and cut its losses substantially in fiscal 2008.

As Dick mentioned, if we cannot achieve this goal, we will take other actions.

Now, after extensively analyzing our current customer's behavior, we have a better understanding of why the growing number of customers acquired on the internet have not been responding well to follow-on promotions.

Our performance in traditional media channels, telemarketing and direct mail have deteriorated.

Internet customers do not respond to cross-promotion via traditional channel.

To correct this problem, we are transitioning Continuities to a web-centric marketing model.

The key elements of this plan are: First, to strengthen our web presence.

To not only acquire new customers, but to be able to upsell, cross-sell, and service them on an ongoing basis via the web.

Two, to transform inbound customer service into a sales channel to complement the web and refining our customer relationship management strategies.

Based on these changes, we expect Continuity losses to break even before Corporate allocations this year.

And for the business to be profitable thereafter.

This new plan is being implemented now and depends on our ability to promote follow on products to web source customers via the web and inbound telemarketing sales.

We need to validate this plan.

And we'll closely monitor our performance against it.

If we do not meet our targets, we are prepared to exit the business.

Turning to 2007.

In 2007, revenue declined primarily reflecting higher Harry Potter revenue in the prior year.

When we released the sixth book in the series.

Cost of goods sold improved in absolute dollars and is a percent of revenue.

Primarily reflecting increases in higher margin technology sales and greater fulfillment efficiencies in Clubs, as well as higher costs associated with the Harry Potter release in the prior year.

SG&A declined slightly in absolute dollars as a result of lower Harry Potter related selling expenses and overhead cost reductions, partially offset by higher severance and stock-based compensation expense.

Bad debt expense rose last year due to Continuities, primarily in traditional channel.

In Continuities, bad debt as a percent of revenues was 24.8% compared to 20.6% a year ago.

EPS for the year was $1.42 within our revised range compared to $1.63 in the prior year.

Free cash flow for the year was strong relative to net income, reflecting effective inventory management and the delay of some capital and pre-pub spending.

The year-over-year difference primarily reflected lower net income.

Net debt fell reflecting the year's positive free cash flow.

As a result, the balance sheet was conservatively levered with a net debt to capitalization ratio of 16% down from 22% a year earlier.

For 2008, we expect to see the benefit of actions to drive growth, improve efficiencies, reduce costs and address last year's poor performance in Continuity.

In Children's Book Publishing and Distribution, strong Harry Potter trade sales should drive revenues and profits.

We expect Fairs to show solid growth in revenue per fair and improve results in margins as we focus on our most profitable Fairs and drive consistent performance across our network of Fairs.

In Clubs, we expect relatively flat revenue and profit as the benefit of further promotion streamlining is reinvested in strengthening Club's online presence via [cool].

Continuity losses are expected to be substantially reduced.

For Education, we expect modest growth in educational technology sales.

2007 benefited from strong conversions of READ 180 customers to the enterprise edition.

This year we expect this growth will be partly replaced by higher sales and service revenues as well as growth in ReadAbout and other technology products.

We also expect a modest growth in sales in print product.

Increased spending on new educational technology product development and on the realigned sales force are expected to drive long term growth, but will impact this year's results.

In International, revenues and profits should grow solidly across all our businesses.

In Media, License, and Advertising, we expect a modest decline in revenues due to lower production revenues, partially offset by increased interactive sales and new platforms, and profits will improve in this segment.

Across the Company, we'll proceed with our overhead cost reduction goals, aggressively maintaining the savings we've achieved so far.

This will help offset over $15 million to $20 million in anticipated rate increases in postage, shipping and paper costs this year.

In Corporate overhead, this effort will also help offset higher stock-based compensation expense, hiring to fill critical open positions and higher rent.

In total, we project fiscal 2008 revenues of $2.3 billion to $2.5 billion, based on the higher Harry Potter revenues in growth in Fairs, International, and Education.

We expect margins to rise significantly this year based on the impact of Harry Potter, as well as actions to reduce costs and drive profitable growth, with earnings per diluted share of $2.35 to $2.85.

This full year outlook assumes a fully diluted share count of 38.5 million, an interest expense of $33 million to $35 million.

It also includes after tax severance expense of $0.10 to $0.15 and stock-based compensation expense of $0.10 to $0.15 per diluted share.

This year, we plan capital expenditures of $70 million to $80 million, which reflects a shift of some projects from 2007 to the current year.

We also expect to spend between $75 million and $85 million on pre-publication and production, which partially reflects delays from this-- from 2007 in Educational Publishing following the decision to realign the sales force.

Free cash flow is planned to be between $80 million and $100 million, reflecting strong earnings, which will be partially offset by approximately $50 million in increased CapEx and pre-pub investment, as I just described.

Many of our businesses are seasonal and this materially impacts quarterly revenues and earnings.

Typically our first quarter during the summer months when U.S.

schools are not in session is a small revenue quarter and generates a loss.

So this will be partially offset by sales of Harry Potter this year.

The second and fourth quarters are typically our largest revenue quarters, in which we generate profit.

The third quarter coinciding with school's winter holidays typically generates a small loss.

Overall, our fiscal 2008 outlook is strong for revenue growth, improved margins, and substantial free cash flow.

We also remain committed to achieving our goal of the 9% to 10% operating margins by fiscal 2010 and have developed plans by business to achieve this objective.

With that, I'll turn the call back over to Dick.

Thanks very much, Maureen.

Of course, we were disappointed by 2007 in respect to our Continuities business, which had a difficult year.

We believe we have a strong plan for Continuities for the upcoming year, as Maureen has described.

We also anticipate a wonderful launch of Harry Potter.

I will now moderate a question and answer period.

And I'm joined by some of the Executive Team here, which includes Lisa Holton, President of Book Fairs and Trade, Judy Newman, President of Book Clubs, Seth Radwell, President of e-Scholastic and Scholastic At Home, and Hugh Roome, President of Scholastic International.

Margery is at the sales meeting I described earlier and I can handle the questions about Education, if any.

With that we'll open the call to questions.

Thank you.

The floor's now open for questions.

(OPERATOR INSTRUCTIONS) Our first question is coming from Peter [Selkowski] with Goldman Sachs.

Please go ahead.

Hi, it's actually Peter Appert.

Good morning, Peter.

Maureen, I was hoping you might share with us your assessment here after six plus months, I guess, in terms of what you think needs to happen structurally business mix wise et cetera to get to the 9% to 10% margin level?

Well I-- Peter, over the last six months, I've been spending my time in a number of areas.

First of all evaluating the Continuity business.

I think we need to substantially reduce those losses.

Within our Fair network, we're looking at underperforming warehouses and looking at how to standardize process and improve efficiencies there so we could drive higher margins in our Fair business.

We're looking across the organization at overhead spending, making sure we aggressively manage head count and control discretionary spend.

And we're looking across our overall distribution network to make sure that we do everything we can to improve operations to offset the anticipated rate increases in paper, postage and manufacturing.

As well as looking at our tech group, as you know Dick just said how we've realigned the sales force to really focus on our-- growing our technology product and developing new product in that area to really drive our highest margin business.

And I think that those all together will result in us achieving our operating goals.

And we've developed long term plans to get there.

And we have plans by business to drive margins to that 9% to 10% operating margin by the fiscal year 2010.

Okay.

Great.

Thank you.

That's helpful.

The Clubs and Fairs revenue numbers, obviously has slowed down in terms of growth rates from pace of a few years ago.

Can you talk a little bit about the metrics you used to assess performance there?

Give us a better sense of sort of the underlying trends in the business.

I'm thinking of things like sort of order count and revenue per order in the Club business.

Are the metrics progressing in a way that suggests there really is some underlying growth opportunity in those businesses?

Well, Peter, let me start with the core business of Book Publishing.

Clubs we had a dramatic profit turn around this year and through the simplification of the process in the current '08 year, we are investing in [cool], which will give us an open more access to teacher and parent customers.

In Fairs, as Maureen had said, we're improving our marketing and improving the mix of product available at the Fairs.

We're looking at the different types of Fairs and some of them are more profitable than others.

And we're looking at rationalizing across the cost network.

Revenue per Fair and revenue per order in Clubs remain the most important metrics as well as the related costs increases.

But I'm very optimistic about the opportunities we have on our core Book Publishing business to improve profitability.

Sales are flat or they're growing only at mid-single-digits, which is true of the the Book Business overall.

But because of our channel outreach through the internet and other things we can -- I believe we can do better than that.

Let me ask Lisa and Judy to comment on Fair and Club opportunities.

Thanks, Dick.

Well, I think you summed it up pretty eloquently.

I mean just to give you some of the numbers, Fairs last year had a 2% growth, which was split between higher Fair count and actually revenue per Fair.

But in fact, since the software sales are actually reported through the Media, Licensing and Advertising, if you folded those in the full growth revenue per Fair would have been approximately 4%.

In terms of the total revenue performance of the Fair's segment or the revenue per Fairs?

That's revenue per fair.

Okay.

Thank you.

And Judy.

Yes, hi, Peter.

As far as clubs went, we executed really well on this strategy to simplify the Book Club experience for teachers by eliminating Trumpet and Troll and then of course eliminating the cost associated with running those brands.

And the great news was that essentially revenues stayed flat, so we had a tremendous profit improvement this year, which is great.

And --so we're now very excited about the next opportunity to take this great business that's been so robust really for 60 years with that great value proposition of getting books to kids and teachers and children through the classroom and now taking it online and leveraging that base of 54% of our orders coming through online.

And now working on new [cool], which we're going to begin testing in the second half of next year.

And that's going to, as Dick said, give us an opportunity to work more directly with teachers and parents online.

So we do see that as an opportunity for good growth.

Yes, I think on the margin question, Peter, this will not be new to you, but the core Children's Book business profitability focus right, costs and modest revenue increases.

Educational technology rapid growth which continues to surprise everybody, although we know that there's this tremendous growth in that segment of education and high profitability.

International has had a very good year with a very strong margin improvement and it's growing rapidly in Southeast Asia in particular.

But it's-- we've done well in every aspect of International this year.

And then leveraging the internet with greater opportunities and advertising sales now offsetting some of the very significant investments we put into the internet over the last 15 years and improving our ability to sell through the internet offers another great opportunity for improving the margins.

And as Maureen says, we are steadfastly committed to the '09, '10 period to reach those margin targets, which I strongly believe we will reach.

And of course, that's the core value proposition for Scholastic.

Great.

And then, Judy, did the teacher participation rates remain basically constant year-to-year?

Yes, we had great -- that was the big success story of this year that the teachers came back and really focused on the Scholastic core Club.

Okay.

Great.

And last thing, Dick, there is some speculation in the press that Ms.

Rowling has another Harry Potter book possibly in the works.

What do you think?

Well, we'll let Lisa answer that one, Peter.

So-- right now we're focussed on the amazing results of what she has done for the first seven.

So-- but looking forward, Lisa, any comment on that question?

Well, just reiterate what Dick said, which is we're now counting the hours, as well as the minutes and looking towards midnight.

I am getting calls all week from accounts actually whose reservations are climbing the last couple of days who are now worried about stock supply over the weekend, which is always a good sign.

She herself has been pretty clear, although she hasn't said much.

She's a writer, she will always continue to write.

She said she has a new book, but she's also clearly said that in terms of the actual series and the ongoing arc of the original story that seven will bring that to a close.

Okay.

Great.

Thanks very much.

Thank you, Peter.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question is coming from Drew Crum with Stifel Nicolaus.

Please go ahead.

Thanks, good morning, everyone.

Maureen, I wonder if you could comment on your thoughts around free cash flow and what we should think about as a Fair run rate for free cash flow maybe as a percentage of net income going forward?

Well, as Dick mentioned for the last four years, our cash flow performance has exceeded our operating profit performance.

This year, you'll see us reinvesting some cash in the business in terms of pre-pub development, particularly around Educational Technology products.

And so this year, although our earnings are going to be up substantially, you'll see we're also reinvesting in the product development area.

As well as the fact that we did a significant share repurchase, in which we'll increase our interest carry on the share repurchase.

But is accretive to earnings.

I guess just as an extension of that question, you mentioned the buyback.

Our CapEx in a long-term term should be in line with depreciation and amortization.

Okay.

And just to follow on that point, you mentioned the share buyback program.

Just talk about or maybe review with us priorities in terms of uses of cash and your appetite or capacity to return additional capital or cash to shareholders through a buyback or a dividend.

Well, I think we're very pleased with our ability to return value to shareholders, this was a substantial buyback as you know.

We took on new financing to buy back a significant number of our shares.

And we'll continue to look at activities discussed -- in discussion with our Board to how to enhance shareholder value.

The accelerated share repurchase is still ongoing, and is still active.

Okay.

Maybe shifting gears to Harry Potter, can you talk about without quantifying your expectations in terms of profits around book seven relative to prior hard copy book releases?

It should be in line with the prior book releases.

We have higher sales price, but we also have higher costs.

Okay.

And last question, Dick, any significant changes for the Company in terms of pricing strategies as you enter fiscal year '08?

Drew, you hit upon one of the levers of profit and margin improvement that we should have discussed in the earlier discussion with Peter.

We are -- we've done some pricing analysis.

I'd say we're really at the beginning of our sophisticated understanding of how we can improve pricing.

We all believe we are generally underpriced in our-- especially in our Book Business.

And that there're opportunities for pricing improvement and therefore margin improvement.

I would say that we're work-- we will have a plan during this year that we probably can execute in the following year in fiscal '09 and that's one of the highest priorities in the Company.

Okay great.

Thank you.

Thank you.

At this time, I'd like to turn the floor back over to Management for any closing remarks.

Well, we appreciate very much your support.

We know that like you we are disappointed in the Continuities business this year and we're determined to improve it.

And if we cannot improve it, we will exit the business as we have said.

We're very excited about the impact of Harry Potter and the publishing of Harry Potter.

And what it says about Scholastic and our personality as a big marketer and creator of reading and learning for young people.

That's an important issue in front of us right now.

We are determined to make the longer term margin targets that we were discussing earlier.

And we believe that there is life after Harry Potter and that the organization is prepared to grow and expand in the areas that we discussed in Educational technology, International use of the internet, as well as profit improvement from our core business.

Thank you very much for your support.

And go out and find out what happens in Harry Potter tomorrow night.

Thank you very much.

Thank you.

That does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.