With consolidation in the elhi industry driving up the costs of developing and selling basal textbooks, Scholastic has decided not to revise its Literacy Place basal textbook reading program. The company will instead focus on its reading improvement programs that include such products as Read 180 and Read XL. It will also continue to support schools that have bought Literacy Place since it was introduced in 1995.
As a result of the change in strategy, Scholastic will eliminate about 100 editorial and support positions. The company will keep intact its school sales force, which has 111 full-time reps plus 55 per diem reps, intact to sell the reading improvement line, which generates revenues of about $50 million.
Scholastic chairman Richard Robinson said that while Literacy Place has had sales of $250 million since its launch, the program has not met Scholastic's financial objectives and is not expected to be profitable in the near term. The company's reading improvement products, which are geared for students who are reading at or below grade level, are much less expensive to produce than the basal program and are already profitable. Robinson said Scholastic will use some of the features incorporated in Literary Place in its reading-improvement programs.
To account for costs associated with phasing out the basal business, Scholastic will take a one-time charge of between $65 million and $70 million in the fourth quarter, ending May 31, 2001. Literacy Place will represent about 2% of total Scholastic revenues in the current fiscal year, although because of lower prepublication spending and inventory requirements the elimination of the program is expected to improve cash flow in fiscal 2002.
