Financing, Consolidation At Haights Cross

The third quarter ended September 30 was "momentous" for Haights Cross Communications, said company chairman Peter Quandt. Quandt was not referring to the company's results, which showed flat sales of $42.2 million and a net loss of $8.6 million, but to the recapitalization of the library and educational publisher that was completed in August. The recapitalization, which included a $30-million revolving credit facility and a $100-million five-year senior secured loan, "strengthened the company's financial structure and provides cash that will be used to grow the company," Quandt reported. Haights Cross will use the cash to fund internal growth projects as well as for acquisitions.

Quandt called the operating results in the quarter "respectable" given the difficult operating environment in which schools and libraries face budget shortfalls. During the quarter, Haights Cross completed the consolidation of separate warehouse and customer service functions at its Sundance/Newbridge, Triumph Learning and Chelsea House divisions into one facility in Northborough, Mass.

Commenting on results in its different units, Haights said that Recorded Books' core library division had single-digit sales growth driven by sale of its new Film Movement line, large-print book series and Bible audio collection. Retail sales were down because of a decline in sales of the Lord of the Rings audio collection. The highlight of the quarter at Chelsea House was the publication of 190 new titles. Among the new releases were three new series edited by Harold Bloom, as well as the introduction of 36 titles in its new Chelsea Clubhouse imprint.

Segment Results

In connection with a new note offering, Haights Cross filed a prospectus with the Securities and Exchange Commission that revealed the most detailed information about the company to date. The filing documented the strong gains posted by Recorded Books in 2002 due to a combination of sales of Lord of the Rings material as well as from a full year's sales of Audio Adventures, which the company acquired in June 2001. The softening school market was reflected in Chelsea House's sales last year, which fell 19.2%, to $15.1 million.

Haights Cross Sales by Segment, 2001-2002
($ in millions)