Tony Lucki, who took over as CEO of Houghton Mifflin October 1, said results for the third quarter ended September 30 were in line with expectations. Total revenue was virtually flat in the quarter at $558.3 million, and HM had net income of $95.1 million compared to a net loss of $713.6 million in last year's third quarter, a figure that included $775 million in goodwill charges.
HM's college division had the strongest performance in the quarter, with sales ahead 7.7%, to $115.2 million, led by sales of new textbook titles in such areas as chemistry and math. Sales in the elhi group rose 0.6%, to $390.3 million, with sales in the testing division leading the growth. Trade and reference group revenue fell 20%, to $38 million, due to the decline in sales from J.R.R. Tolkien titles that had benefited in 2002 from the release of the Lord of the Rings movie. The decrease was partially offset by sales of $5.2 million from Kingfisher, which was added to the trade unit last December.
Lucki said that because of timing issues, especially in the elhi segment, where a significant amount of early ordering took place, it was more meaningful to view the company's results over the first nine months of the year. During that span, revenue rose 5.9%, to $1.05 billion, and the net loss was $14.4 million compared to a loss of $757.6 million in the first nine months of 2002. Both Lucki and Sylvia Metayer, acting CFO, said HM was on track to deliver a sales increase in the year between 3% and 4%, while operating income would decrease due to acquisition-related costs. One extra expense is $25 million in retention bonuses paid to key executives to ensure that they would stay with HM following its acquisition by Thomas H. Lee and Bain Capital.
For the nine-month period, sales in the elhi group rose nearly 10%, to $740.2 million. The major contributor to the gain was the overwhelming success of HM's reading program in California. Sales in certain secondary school subjects were also up as were testing division sales. Lucki said that funds released during the year to support the No Child Left Behind Act helped to offset state budget shortfalls. The bulk of the NCLB money for buying instructional material is being directed to reading programs. That was a key reason behind HM's acquisition last month of Cognitive Concepts, a company that develops research-based literacy products.
College group sales were up 7% in the nine-month period, to $169 million, and Lucki said he expected the unit's strong performance to continue for the balance of the year. Despite recent publicity about high textbook prices, college publishing "is a great business," Lucki said. Trade division sales were down 14% through September, to $95.2 million.
In personnel news, Lucki said he expected to name a new CFO soon to replace the departed David Caron.
In documents filed with the Securities and Exchange Commission, HM reported that Lucki will receive a base salary of at least $600,000 annually and will be eligible to receive a bonus of up to 100% of his base salary. Lucki also received a signing bonus worth $554,167.
