Houghton Mifflin Weathers Ownership Changes

Houghton Mifflin's revenue rose 19% between 2000 and 2002, to $1.19 billion, but the company's bottom line took some hits due to the July 2001 sale to Vivendi and the December 30, 2002, sale to an investment group headed by Bain Capital and Thomas H. Lee. In particular, a $775-million goodwill charge taken in 2002 by HM's new owners dropped operating income from $140.8 million in 2000 to an operating loss of $703.5 million last year; operating income in 2001 was $37.7 million. The results, which provide the first detailed look at HM's performance since it was acquired by Vivendi nearly two years ago, were made public in connection with a proposed new bond offering being issued by the company.

HM is now operating in four segments. It added a testing services category to accommodate its December 2001 acquisition of Assessment Systems Inc., which it integrated into its Computer Adaptive Technologies unit to form the new company Promissor. Promissor's sales accounted for most of the $65.1 million in revenue in HM's "other" segment last year, and its addition helped drive HM's total revenue up 5.5% in 2002. HM's college division also followed up a strong 2001 with gains in 2002. Sales in the unit rose 14%, to $212 million, an increase HM attributed to strong domestic frontlist sales, higher high school advanced-placement sales and lower returns.

Sales in the elhi division fell 2.6% in 2002, to $773 million. Like other elhi publishers, HM blamed fewer state adoptions and budget shortfalls as the main reasons for the decline. The company said it also had an unexpected decline in sales of the Woodcock-Johnson III Complete Battery testing program. Bright spots in 2002 included a big win in the California elementary school reading adoption and a good reception of new supplemental products.

After increasing by nearly 45% in 2001, to $147 million, sales in the trade and reference group slipped 1.7% in 2002, to $144.5 million. Sales in both 2001 and 2002 received a huge boost from the Lord of the Rings movies that were released in December 2001 and 2002. HM is the hardcover publisher of J.R.R. Tolkien, and while sales of his titles soared in the two years, the company expects that Tolkien sales will taper off.

Sales in the first quarter of 2003, in fact, fell 24% in the trade division, to $27 million. The decline in Tolkien sales was partially offset by $3.4 million in revenue from Larousse Kingfisher Chambers, which HM took over last year. Total first-quarter sales for HM rose 6.1%, to $132.8 million, led by a 25% sales increase in the elhi division, to $69.6 million. College division sales were up 3.5%, to $21 million. Operating loss in the quarter increased to $103.8 million from $84.5 million in the comparable period in 2002.

Kingfisher, which HM "bought" from then-parent company Vivendi for $4 million, had sales of $16 million in 2002, and its sale was one of a handful of changes that took place under the ownership of Vivendi and the Bain/Lee equity group. In addition to selling Kingfisher to HM, Vivendi also sold its Educational Resources, Roger Wagner Publishing and Curriculum Advantage subsidiaries to HM. Curriculum Advantage was sold to Prime Entertainment earlier this year, while Educational Resources and Wagner were combined with Sunburst Technologies, which was sold to Educational Technologies last fall for $22.8 million. An HM spokesperson said the divestitures were part of the company's decision to focus its technology initiatives on projects that directly support its existing products rather than developing standalone technology products.

The company also shifted the mission of its Classwell Learning Group subsidiary from developing a distinct online education program to working with HM's divisions to create complementary products to the HM list. HM, along with Sylvan Ventures and Inception Capital, formed Classwell in September 2000. Under provisions in the joint venture agreement, HM's partners could demand a buyout from HM if HM was sold. Both parties exercised that right, and HM bought out its partners for about $47 million.

According to documents filed with the Securities and Exchange Commission, HM's worldwide workforce increased by 50 people between the end of 2000 and early 2003, to 3,550 (HM's sales force makes up about 22% of all employees). During that time, the company implemented a plan to eliminate 350 positions in its corporate staff and elhi operations.

Houghton Mifflin Sales by Segment
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