Good day, ladies and gentlemen, and welcome to the Scholastic Reports Fiscal 2015 Results and Fiscal 2016 Outlook Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn this conference over to Gil Dickoff, Senior Vice President, Treasurer, and Head of Investor Relations. Please begin.

Thank you very much Latoya, and good morning everyone. Before we begin, I would like to point out that the slides of this presentation are available on our Investor Relations Web site at investor.scholastic.com. I would also like to note that this presentation contains certain forward-looking statements which are subject to the various risks and uncertainties, including the condition of the children's book and educational materials markets, 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 with the SEC. Actual results could differ materially from those currently anticipated. Our comments today include references to certain non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the company's earnings release, which is posted on the Investor Relations Web site. Again, that's at investor.scholastic.com. Now, I would like to introduce Dick Robinson, the Chairman, CEO, and President of Scholastic to begin today's presentation.

Welcome everybody to our year end presentation. We are excited to be here with you. Our results for the year from our continuing operations, which excludes the results of our recently sold Ed Tech business now treated as a discontinued operation, were in line with expectations driven by our revitalized school-based distribution channels and our strong education segment, which includes classroom books, magazines, and instructional programs in literacy. Revenue from continuing operations for the year was 1.64 billion, an increase of 5% over 2014. Operating income from continuing operations, excluding special one-time items grew by 14%. Earnings per diluted share from continuing operations excluding special one-time items were 129 versus 117 in fiscal 2014, an increase of 10%. With enthusiasm for independent reading and for books in schools at a high point, our businesses are performing very well, and we have a tremendous opportunity to build on the favorable market dynamics and grow both our core print and digital publishing businesses and children's books and education. As you know, we completed the sale of the Ed Tech business to Houghton Mifflin Harcourt at the end of May. We also repositioned our media operations so they are better aligned with our core children's book publishing. Accordingly, we now report our results in three segments: children's book publishing and distribution, education, formally called classroom and supplemental materials publishing, and international. With these actions, while we have a complicated story from a reporting perspective this quarter, our strategy is clear. We are focused on growing our core businesses. Our three segments are all connected by the mission of providing high quality schools and classroom-based books and educational material to parents, teachers, and schools in support of children's reading and learning. Our new, more simplified structure will improve accountability, create a more nimble operating…

Thank you, Dick. I will review our full year results, and we will refer to our adjusted full year results from continuing operations only, excluding the Ed Tech business which was sold, unless otherwise indicated. For fiscal 2015, total revenues were 1.64 billion, a 5% increase over 2014. Cost of goods sold as a percent of revenues for the fiscal year ended May 31, 2015 remain constant at 46.3%, compared to the prior fiscal year. SG&A increased versus the prior year primarily driven in equal parts by higher promotion expense in book clubs and higher technology spend on strategic initiatives. Operating income was 79.6 million, up 14% from 69.6 million last year, and resulting in earnings per diluted share of $1.29 in fiscal 2015, versus $1.17 in fiscal 2014. Taking a closer look at our technology spend, the higher technology spend in fiscal 2015 is largely offset in depreciation as we capitalized less of our spend during the design phase. As you will hear in our outlook, we expect to incur higher capital expenditures in fiscal 2016 as these strategic systems go live. Overall, technology spend increased by only 3 million for the year. As previously reported, over the course of the year we had been strategically investing in enterprise-wide content and customer management systems. These technology enhancements will improve our data analytics capability and drive closer, more efficient customer engagements. As part of this process, we are moving to cloud-based staff solutions which will give us flexibility to scale our systems up and down as needed. This should lead to lower technology spend and lower technology risk over time. The special one-time items impacting our continuing operations totaled $0.83 for the year, and included pre-tax charges related to unabsorbed overhead associated with the former Ed Tech business, 15.8 million…

Thanks, Maureen. In summary, we're executing on a clear strategy that highlights Scholastic's strong core publishing and ongoing education businesses connected to unparallel distribution channels, with presence in 90% of U.S. schools. We're expanding companywide sales by driving greater collaboration among businesses to build broader relationships with children, parents, teachers and school administrators. We're leveraging the use of shared editorial and creative content in titles in print and digital throughout the company, and further developing our international publishing capacity in Asia for the strategic sourcing of educational materials for all of our markets. And we are also improving our enterprise-wide technology platforms for content and customer relationship management, and developing enhanced data analytics to support or sales and marketing strategies for classroom magazines, book clubs, book fairs, and classroom books at the school building level, and our broader literacy solutions at district level. We're excited about all these opportunities, and for the opportunity to focus the Scholastic brand and the Scholastic tremendous resources on a clear core mission that will build profitable growth for the future. Thank you. And we'll open the line for questions.

Thank you. [Operator Instructions] We have a question from Drew Crum of Stifel. Your line is now open.

Good morning everyone. Maureen, I had a question on the free cash flow. If you look at where you were in fiscal '15 and what you're guiding to the fiscal '16, you've got a number of puts and takes there, kind of one-time items. What is the more normalized free cash flow level that we should expect for the business going forward, now that Ed Tech is not part of the mix? And then on a related note, where should we expect cash -- your ending cash balance to be at the end of fiscal '16? Thanks.

Okay. So Drew, as far as our ongoing cash flow, the transaction-related fees are 20 million, that's a one-time item, and the 10 million of Ed Tech cash flow contribution, well, that will be out of our numbers. So I think you can expect going forward that our cash flow would be very similar to our historical levels, but 10 million less for Ed Tech.

Okay. And the CapEx that you're guiding to this year is elevated [ph] obviously. What is a more normalized run rate for CapEx going forward?

Also, I should say that our definition of free cash flow in 2016 does not include the $186 million tax payment related to Ed Tech sales. So that is not included, which would write down our cash balance at year end. As far as the normal CapEx, I think the range that we are guiding to today is more normal. If you look at our historical levels that would be the range we are normally in. The last two years we stopped CapEx, particularly in the technology area as we assessed what our corporate level needs were. And most of what we spent last year in technology was expense, as opposed to capitalized, because we were in the design phase. Now we will start capitalizing as we go live with certain systems.

Got it, okay. That's helpful. And then just moving over to the international business, do you have an expectation for growth ex-foreign currency in terms of sales? And you guys did some investment spending in fiscal '15, does that continue in '16, and how much of a drag is that on profitability?

So we do expect to grow ex-currency about 4% next year. And this year we grew ex-currency about $7.5 million on that $400 million base. So in real terms, the market currencies are -- the local markets are growing. We're seeing strong growth in Asia, and continue to see double-digit growth. And then single growth in Australia, and the U.K. Canada had some headwinds this year, so they didn't see the same level of growth.

Okay. Just one more question. It's unclear to me what your sales expectations are for trade. It looks like you've got a pretty good pipeline of content coming. Could you frame up what you're assuming in terms of the growth for the business?

Well, we had a great success this year with our Minecraft books and series. And so we have to replace that next year. And so even though we have a very strong outlook in pipeline of new products coming out in 2016, we need to replace the revenues similar to what we did this year with Minecraft replacing some of the Hunger Game revenues.

Okay. Thank you.

Thanks, Drew.

Thank you.

Thank you. [Operator Instructions] The next question is from Barry Lucas of Gabelli & Company. Your line is open.

Great, thank you and good morning. I've got a host of odds and ends, if you don't mind. Maureen, you touched on some normalized numbers earlier, what would be the normalized overhead burden that we are looking at going forward?

I think right now, the way that we are driving our technology spend we leave it all in overhead, and we're not allocating it out to our divisions. So in absolute terms, overhead only went up for technology by 3 million. So overhead -- I'm sorry; the whole company's technology spend only went up by 3 million. Within our overhead, it looks like a $27 million increase. It is offset primarily in the children's books, with a decrease in spend. So next year you will see flat overhead year-over-year, but remember that's about $25 million, $27 million that sits in overhead that used to sit in the divisions.

Okay. And the restricted cash that's sitting on the balance sheet, when those restrictions get listed, or is it somehow tied to these payments that you'll be reimbursed for by the Houghton?

So the way that the restricted cash works is most of it is tied to our service agreements and meeting certain standards of service. And the money begins to be released in August. It's about $2.4 million will be released in August, and our expectation is that escrow will be released during the year. Right now we are meeting all service level requirements, and we feel we are in a good place with our service agreement.

Okay. One on the business and then capital allocation, you touched base on Goosebumps and the movie that's coming out, anything special, I'm sure you're doing some specials. I hope you can provide a little color as to how you prep for that, and what would be the anticipation in terms of revenues or the benefits thereof from the movie?

I think that Ellie Berger will answer that question, Barry. Thank you.

Well, it's actually already started a pretty ambitious program in anticipation of the movie as you say will come out in the fall. So we already have a big promotion going on in Barnes and Noble, which is off to a great, great start. We have a lot of enthusiasm across the board. In addition to the backlist, which we have refreshed a lot of books, we have five tie-in [ph] books coming out a few weeks in advance of the movie. And we're also leveraging that across all of our channels, and as well as globally. So we have a lot of enthusiasm, a lot of momentum in the market leading up to the movie.

So that's part of what you are banking on to replace Minecraft I take it?

Yes. That's some of the excitement we have coming into the fall, yes.

Okay. Maybe more for Dick now; on the capital allocation, you're talking $315 million net cash after taxes, the restricted cash comes back closing at $350. And then you've got the building. And I don't know, Dick, $50 million repurchase of authorization feels a little skinny.

Well, I think the board wanted to respond to the fact that we do have increased cash and we do want to return cash to shareholders. However, we're going to do in this in a measured fashion. And so we chose to do opportunistic stock buybacks as opposed to plan. But we'll keep looking at this, Barry, and knowing that our shareholders are certainly interested in the whole question.

Okay. I mean the cash is certainly a drag at -- with practically zero interest rates, it doesn't help performance. Not that we're asking to rush out the money, shouldn't burn a hole in your pocket. Obviously it's not, but it is a drag. And on the building, anything further in terms of color; you've certainly mentioned often enough that the SoHo district is on fire. What are some of the issues that are impeding or swelling the process? I don't want to say impeding…

Well, having just completed the Ed Tech transaction, Barry, with those cash which you say is drag, we're not necessarily in a hurry to bring anymore drag into our picture. But as we discussed in our last conference call, we've not entered into any agreement on real estate here in SoHo, but the commercial real estate market as you suggest remained strong for both retail and office space, and interest remains high in our real estate for sure. The purchase of our headquarters location last year was very timely and well executed we think, and we believe our real estate is going to help the company and our shareholders substantially over the long-term, but we're measuring carefully what we want to do with it, and we'll obviously continue to keep you informed when and if we have a plan.

Great. Thanks very much, Dick.

Thank you, Barry. Good to talk with you.

Thank you. And I do show we have a question from Drew Crum of Stifel. Your line is open.

Okay, thanks. Just to follow-up to Barry's question on capital allocation; Dick, can you talk about the board's position on buybacks versus dividends, and philosophically how you approach that? I can appreciate that the $50 million addition to the share buyback, but I know in the past you guys have been reluctant to buyback more stock and -- concerns around reducing your liquidity further given the large buybacks you've done in the past. So can you just address philosophically how the board looks at dividends versus buybacks going forward?

Sure. Well, I should remind you that since 2006 we have returned like $560 million to shareholders through a combination of buybacks and dividends. So we haven't been bashful about this over time. The board really didn't stop to consider our dividend policy at this point, Barry, as for this board meeting. I think we're looking to talk about this in our September meeting to figure out for our next year of operation what our dividend policy should be short and longer term. So the lack of an increase in the dividend is not a statement on our long-term attitude toward dividends. At the same time, we are -- sorry, Drew, this is in response to your question, not to Barry. In response to the buybacks, I think again, we will come back to you with a program on the stock buybacks that will be clearer over time.

Okay. Thanks, guys.

Thank you.

Thank you. At this time, I would like to turn the call back over to Richard for any closing remarks.

Thanks very much. We've had a complicated fiscal year to explain. I hope we did that to your satisfaction. We are focused on our core business operations going forward. We are excited about the changes in our marketplace that are giving us great optimism about our near-term and long-term future. We are focused on our core children's book operation, or expanding education operations, and we are building in our international for the long-term. We thank you for your support and interest, and we look forward to talking to you again in September.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.