UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF 512 7th AVENUE, 22nd FLOOR (Address, including zip code, and telephone number, including area code, of each Registrant’s principal executive offices) Securities Registered Pursuant to Section 12 (b) of the Act: Securities Registered Pursuant to Section 12 (g) of the Act: Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10 K or any amendment to this
Form 10-K. PART I We are a leading publisher of supplemental education materials for the Pre K-12 market. Our portfolio of products includes a broad range of print and electronic supplemental instructional materials, testing and assessment products and library materials. We believe our
products have a distinctive brand identity and are recognized by our customers for their effectiveness and consistent, high quality educational content. On May 14, 1999, Ripplewood Holdings L.L.C., which specializes in private equity investments, formed WRC Media Inc. (WRC Media or the Company) as a holding company to pursue acquisitions in the media industry. WRC Media now serves as a holding company
for CompassLearning, Inc. (CompassLearning), Weekly Reader Corporation and ChildU, Inc. (ChildU). Weekly Reader Corporation in turn owns the business of Weekly Reader, and the subsidiaries American Guidance Service, Inc. (AGS or American Guidance), World
Almanac Education Group, Inc. (World Almanac) and their respective subsidiaries. WRC Media acquired CompassLearning on July 14, 1999. Prior to this acquisition, WRC Media had no material operations other than seeking acquisitions. On November 17, 1999, WRC Media completed the recapitalization of the Supplemental Education Group of
PRIMEDIA Inc., consisting of the businesses of Weekly Reader, American Guidance and World Almanac and their respective subsidiaries. As a result of this transaction, Weekly Reader became a subsidiary of WRC Media. The Company today has four operating segments: Weekly Reader, American Guidance Service, Compass/ChildU and World Almanac. Weekly Reader. Weekly Reader has been a leading publisher of classroom periodicals for Pre-K-12 students for over 100 years. Weekly Reader publishes 16 classroom periodicals which had a 2003-2004 school year circulation of 6.4 million subscribers. In addition to
its well-recognized classroom periodicals, such as Weekly Reader®, Teen Newsweek and Current Events®. Weekly Reader also publishes, grade-specific workbooks and other supplementary educational materials. The operating segment Weekly Reader includes Lifetime
Learning Systems, Inc. (Lifetime) which operates as our Consumer and Custom Publishing group (CCP). Lifetime custom publishes instructional materials paid for by various sponsors, such as General Motors, Six Flags, Kimberly-Clark, Center for Disease Control and the
Home Safety Council, which are distributed primarily to K-12 students throughout the United States. For the year ended December 31, 2004, Weekly Reader, excluding American Guidance and World Almanac, had net revenue of $45.7 million, representing approximately 22%
of WRC Media’s total net revenue during this period. American Guidance Service. AGS has been a leading publisher of individually administered and group testing and assessment products, and supplemental instructional materials for over 47 years. AGS’s testing and assessment products are primarily for K-12 students
and its supplemental instructional materials are primarily for low-performing students in middle and secondary schools. One or more of AGS’s testing and assessment products or supplemental instructional materials have been used in over 12,000 of the 15,000 school districts
in the United States. Our testing and assessment products are used to diagnose learning disabilities and measure the cognitive ability, educational achievement, or personal and social adjustment of individual students. AGS’s supplemental instructional materials include various
textbooks and worktexts, many of which we believe set the standard for quality in their respective product categories, with full-color content and accompanying extensive teacher support materials. In May 2001, AGS acquired the operating assets of Lindy. Lindy develops
curriculum-based skills assessment and test preparation products on CD-ROM that correlate to national and state curricula. For the year ended December 31, 2004, AGS had net revenue of $70.8 million, representing approximately 34% of WRC Media’s total net revenue
during this period. CompassLearning/ChildU. CompassLearning/ChildU (Compass/ChildU) has been a research-based, technology learning solutions company for over 35 years. Compass/ChildU produces comprehensive educational assessment, curriculum, reporting and management tools
for grades Pre-K-12, all of which are aligned to local, state and national standards. Compass/ChildU offers over 4,000 hours of standards based instruction in reading, writing, language arts, mathematics, science, social studies, and project based learning. 2 This interactive, standards-based managed assessment and curriculum helps educators individualize learning on a per student basis. Compass/ChildU has been serving the Pre-K-12 market for
over 30 years and its products have been a significant part of the learning and teaching process. Research on Compass/ChildU products demonstrates the efficacy of our products in various
environments and under a diverse set of circumstances. Over the past 15 years, more than 16,000 schools, in over 3,000 districts, representing approximately 14% of the 114,000 schools in the
United States, purchased products from Compass/ChildU. In 2002, Compass/ChildU began co-development of the new on-line product, CompassLearning Odyssey®, which had its first release in
May 2002. The CompassLearning Odyssey online curriculum solutions, developed by educators and built on sound instructional pedagogy, utilize engaging, self-paced, project-based activities. In
addition, Compass/ChildU provides consulting/teacher training services to educators on curriculum development and technology integration in the classroom utilizing our Classic a LAN/WAN
product and CompassLearning Odyssey products. For the year ended December 31, 2004, Compass/ChildU had net revenue of $47.6 million, representing approximately 23% of WRC Media’s
total net revenue during this period. Revenues were divided between software licensing (51%), professional development and technical support services (46%), and hardware systems sales (3%). World Almanac. World Almanac has been a leading publisher of reference and informational materials for over 135 years. These materials are targeted to K-12 students, as well as public and academic libraries and government agencies. Over 53% of the approximately
130,000 school and public libraries in the United States have purchased products from World Almanac. World Almanac publishes well-known print reference materials, such as The World Almanac and Book Of Facts®, The World Almanac For Kids® and nonfiction and fiction
books for K-12 students under three imprints of its Gareth Stevens, Inc. (Gareth Stevens). In addition, World Almanac publishes electronic reference materials, such as the Funk & Wagnalls® Encyclopedia database and an Internet-based version of Facts On File World News
Digest®, which in its print version is World Almanac’s leading subscription-based product. World Almanac also distributes proprietary and third-party products that are targeted for K-12 students through its Gareth Stevens and World Almanac Education Library Services
(“WAELS”) catalogs and telesales operations. For the year ended December 31, 2004 World Almanac had net revenue of $45.4 million, representing approximately 21% of WRC Media’s total net revenue during this period. We believe a number of the competitive strengths that have contributed to our leading market positions include: Strong, Well-Established Brand Names. We believe that we have strong brand names in each of the market segments we serve. Several of our most recognized print titles have been in circulation for decades, including WEEKLY READER, which was first published in
1929 and CURRENT EVENTS, a Weekly Reader publication, which was first published in 1902; the PEABODY PICTURE VOCABULARY TEST (PPVT), marketed by AGS, which was first published in 1959 and THE WORLD ALMANAC AND BOOK OF FACTS®,
which was first published in 1868. We believe that our products are well known and trusted by teachers, other educational professionals, and parents for their effectiveness and consistent, high quality educational content. Brand name and reputation are significant criteria in the
purchasing decision process for supplemental education materials and consumer products as they are usually selected at the discretion of individual teachers, school and school district-level administrators or parents. Broad Product Portfolio. We are a leading publisher in the supplemental education materials market and one of the few companies with a comprehensive portfolio of products covering all the major segments of this market. We offer a wide range of products to our
customers. This broad product portfolio allows us to address the most attractive segments of the market and respond to emerging trends and funding sources, including the rapidly developing market of parents seeking to buy supplemental education materials and English
Language Learners (ELL). In addition, the operating groups have access to the content of other groups that they can incorporate into their own products, thus producing a consistent look and feel while lowering editorial costs. The specific products offered by each business
segment are as follows: 3 4 5
Washington, D.C. 20549
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2004
Commission File No. 333-96119
WRC MEDIA INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
2731
(Primary Standard Industrial Classification Number)
13-4066536
(I.R.S. Employer Identification Number)
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
2721
(Primary Standard Industrial Classification Number)
13-3603780
(I.R.S. Employer Identification Number)
COMPASSLEARNING, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7372
(Primary Standard Industrial Classification Number)
13-4066535
(I.R.S. Employer Identification Number)
NEW YORK, NY 10018
(212) 768-1150
None
None
NAME OF EACH EXCHANGE ON
WHICH REGISTERED
NONE
NONE
No 
COMPASSLEARNING /
WEEKLY READER
AMERICAN GUIDANCE
CHILDU
WORLD ALMANAC
INSTRUCTIONAL
MATERIALS
PERIODICALS: 16 grade or subject-
specific periodicals for Pre-K-12
students and 2 subscription supplements.
SUPPLEMENTARY MATERIALS
AND WORKBOOKS: A variety of
grade specific materials for K-9
students that build and reinforce basic
skills like Map Skills current health
issues, reading enhancement and
grammar skills.
SPONSORED INSTRUCTIONAL
MATERIALS: A variety of free
instructional materials, including print
and video products, paid for by
corporate, trade association and/or not-for-profit sponsors primarily for K-12
students.
BASIC SKILLS: Supplemental textbooks and
worktexts targeted for low-performing students
in middle and secondary schools covering core
curriculum subjects.
TEST PREPARATION: Instructional materials
to prepare for three of the leading achievement
tests for K-12 students.
PERSONAL GROWTH: Various personal
growth materials covering topics such as drug
use prevention and anti-violence training, self-esteem and career education
ELECTRONIC COURSEWARE: Over four
thousand hours of electronic courseware for
Pre-K-12 students, primarily for reading, math
and language arts.
MANAGEMENT SYSTEM: Odyssey
management system enables teachers to track
student performance, record grades, report on
progress and prescribe lessons based on
results.
TEACHING KITS: Kits developed by
World Almanac Education Library
Services used to teach a variety of skills
including research skills, map skills and
language skills.
SUPPLEMENTAL BOOKS:
Supplemental classroom books, with
teacher’s guides, published by Gareth
Stevens, Inc., focus on primary grade
reading, math, and science curriculum and
on upper elementary and secondary social
studies and science curriculum. Some
titles include Spanish or bilingual
editions for ELL students.
ASSESSMENT PRODUCTS
Assessments in periodicals, as well as
Supplementary Materials.
INDIVIDUALLY ADMINISTERED TESTS:
Assessment products for K-12 students and
adults, includes Ability Assessment, Behavior
& Social Skills Assessment, Language, Speech
& Auditory Skills Assessment.
GROUP ACADEMIC TESTS: Classroom
testing, which offers reliable reading and math
diagnostics for individual students and
aggregate data for tracking yearly progress at
the school and district levels.
ASSESSMENT TEST: CompassLearning
Explorer assessment tool evaluates student
performance, meets the National Assessment
of Educational Progress (NAEP) objectives
and is aligned with the core state standards.
N/A
COMPASSLEARNING /
WEEKLY READER
AMERICAN GUIDANCE
CHILDU
WORLD ALMANAC
N/A
N/A
N/A
K-12 REFERENCE AND OTHER
INFORMATIONAL MATERIALS:
Materials developed by us targeted to K-
12 students such as THE WORLD
ALMANAC FOR KIDS AND GARETH
STEVENS, INC. products, as well as
materials developed by third-parties and
distributed by us. About 7% of GARETH
STEVENS titles are also published in
Spanish or bilingual editions.
GENERAL REFERENCE AND OTHER
INFORMATION MATERIALS:
Materials developed by us, such as THE
WORLD ALMANAC AND BOOK OF
FACTS, FUNK & WAGNALLS
ENCYCLOPEDIA database and FACTS
ON FILE WORLD NEWS DIGEST.
<
Improving Students Achievement. According to the Association for Supervision and Curriculum Development (ASCD), educators need timely access to information about students’ performance from many sources in order to direct the instructional paths of all learners. Assessment and instruction play key roles and must be fair, balanced, and grounded in the art and science of learning and teaching, reflective of curricular and development goals. From the results of on-going assessments, educators must provide remediation, and reinforcement to ensure the success of all learners. The WRC Media family of companies is uniquely positioned to provide the necessary ingredients to deliver measurable results across geographic and cultural horizons for learners of all ages. We believe our products and services represent one of the most extensive portfolios of assessments, supplemental materials, electronic courseware, and professional development offerings that can meet the needs of our diverse school populations and their families.
Stable Revenue Base. We have a significant base of long-term customers who have exhibited substantial product loyalty, resulting in a consistent level of revenues from recurring sales to these customers. In our experience, once a teacher or administrator is familiar with and accustomed to using a supplemental instructional product and has developed lesson plans using the product, the teacher or administrator tends to purchase the same product annually leading to a high subscription renewal rate. In addition, we believe there is an important component of trust in the quality, consistency and support of many of our products which makes it difficult for a competitor to introduce new products for the same subject area without significant investment and the support of key opinion makers in the industry. As a result of this loyalty, many of our products enjoy long customer histories with high renewal rates. About 74% of schools purchasing Weekly Reader periodicals re-subscribe the following year and Facts On File World News Digest has had renewal rates averaging approximately 86% from 1997 through 2003. We believe our school renewal rates are important because of the value we place on ensuring that our periodicals remain available within any given school, providing us with a base on which to further penetrate that school. In addition, seven of our top ten revenue producing testing and assessment products have been published for over 20 years. Typically, these products have undergone revisions to ensure that they reliably meet the existing population’s curriculum needs. Achievement tests generally require revisions every 8 to 10 years while tests that measure personal and social adjustment or cognitive ability in some cases do not require revision for as long as 15 years.
Substantial Electronic Delivery Platform. We believe that we are well positioned to capitalize on this market segment. Most CompassLearning products can be delivered in the school’s platform of choice: LAN, WAN or via the Internet. The CompassLearning Odyssey platform is built from ground-up on a state-of-the-art web based technology architecture that provides schools the flexibility to implement the solution based on a variety of infrastructure settings. The architecture also provides WRC Media with the ability to channel content from sister companies to customers through the Internet. In addition, Facts On File News Services of World Almanac derives more than 60% of its revenues from on-line subscriptions and electronic licensing.
Our primary operating subsidiaries have web sites that promote their respective products, provide product information and customer support, and in some cases, enable users to order products over the Internet. Given the importance of quality and name recognition to the development of Internet-based businesses, we believe that the strength of our brands and our direct distribution channels position us well for significant growth in this area.
Strong Distribution Channels. Our products are used in over 90% of all public school districts, by over 18 million students, and in over 75% of all public schools and libraries. We have an extensive network with direct distribution channels into these end user markets. Some of our products are sold using direct field and telephone sales, emphasizing one-to-one relationships with teachers, school, school or district-level administrators and other educational professionals. CompassLearning, for example, uses a three-pronged approach that provides every customer a sales contact, an educational consultant and a technology support person, for comprehensive customer service. We also utilize sophisticated direct mail campaigns, which at Weekly Reader and World Almanac are enhanced by our proprietary databases. These databases track the purchasing habits of teachers, schools and/or librarians for many of our products, as well as specific demographics and other factors we believe influence purchasing habits.
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Weekly Reader |
Weekly Reader has five primary product lines: elementary school periodicals; middle and secondary school periodicals; supplementary products and workbooks; consumer and custom publishing, and licensing.
Elementary School Periodicals. Weekly Reader®, first published in 1929, has established itself as a leading source for fiction and non-fiction reading for students in grade Pre-K to grade 6. Weekly Reader® features seven grade-specific editions for students, with between 25 and 32 issues per school year for each edition. Weekly Reader also offers one optional monthly supplement, ScienceSpin® for elementary grades.
Subscriptions to Weekly Reader elementary school periodicals in the 2003-2004 school year represented approximately 34% of all elementary school periodical subscriptions circulated in that year by the three major publishers of these periodicals. According to publishers’ Statements of Ownership filed with the USPS in the fall of 2004 for average circulation for the 2003-2004 school year, Weekly Reader’s circulation for elementary school periodicals in the 2003-2004 school year totaled approximately 4.9 million subscriptions.
Each edition of Weekly Reader is specifically written and designed for a particular grade level in order to deliver engaging fiction and non-fiction reading to elementary school students at a conceptually appropriate level. The editions for younger audiences contain “soft” news focusing on topics such as fire prevention and animals. Higher-grade level editions contain “hard” news concerning topics such as world news and current events, including, for example, the 2004 presidential primary elections, corporate corruption and the Middle East conflict. A teacher’s guide with background information, discussion topics and follow-up questions is included with each issue of each edition.
Middle and Secondary School Periodicals. We publish nine subject-specific periodicals covering six subject areas for students in middle and secondary schools, and a Sex Supplement Education Supplemental publication. These include Current Events®, Teen Newsweek, Current Science, Writing, Read, Current Health 1 and 2, Career World and Know Your World Extra with between 6 and 26 issues published per school year per periodical. For example, Current Events® first published in 1902, remains one of our most popular periodicals for middle school students, and continues to provide information on current events tailored to the reading levels and school curriculum of students in the sixth through tenth grades.
Weekly Reader’s middle and secondary school periodical subscriptions in the 2003-2004 school year represented approximately 42% of all middle and secondary school periodical subscriptions circulated that year by the two major publishers. Weekly Reader’s middle and secondary school periodicals had the second highest total circulation of periodicals for these schools in the 2003-2004 school year with approximately 1.5 million subscriptions. In 2003 and 2004, approximately 79% of middle and secondary schools renewed a subscription from the previous year. To target the growing sixth to eighth grade market, Weekly Reader entered into a relationship with Newsweek magazine to create Teen Newsweek, which was launched in September 1999. Teen Newsweek focuses on social studies and current events and contains grade-appropriate news stories that link history, geography, government and cultures to the news stories. The relationship is intended to capitalize on Weekly Reader’s expertise in publishing and marketing materials for classroom use and Newsweek’s strong news image.
Supplemental Products and Workbooks. We offer skills books, a line of workbooks and other supplemental education materials that build and reinforce students’ basic skills in curriculum areas such as language arts as well as other titles which focus on life issues, such as current events or health. The skills book product line includes over 12 different series of workbooks targeting, grade-specific titles spanning K-9 grades. For example, the highly successful Map Skills for Today series builds geographic literacy by teaching students basic map- reading concepts and skills. The success of this series is attributable to a sequential approach to teaching map skills that matches the curriculum established by many school systems. Additional products include series covering topics such as AIDS and anti-drug educational materials.
Consumer and Custom Publishing. The Consumer and Custom Publishing division (“CCP”), has emerged as a leader in the creation and distribution of a variety of supplemental education materials. These products are commissioned by corporate, trade association and/ or not-for-profit sponsors and are distributed free to the target audience. The materials produced focus on topics chosen by the sponsor and are typically targeted for use in K-12 classrooms. CCP also produces sponsored supplemental education materials targeted
7
for the college and senior citizen markets. Many of the programs contain multiple media components including: posters, teacher’s guides and reproducible student activities and additional audio, CD, video and web based material. Custom published programs have been produced for corporate sponsors such as General Motors, Kimberly Clark, as well as not-for-profit sponsors such as the Center for Disease Control, Florida Department of Citrus and The Home Safety Council.
Licensing. Weekly Reader licenses editorial assets, promotes other products inserted in its publications and provides its “seal of approval” to various editorial and consumer products. Weekly Reader’s licensed content is generally recognized as revenue over the term of the license agreement. Weekly Reader continues to sell “Weekly Reader Editor’s Choice” book selections licensed from trade publishers on the QVC Shopping Network generating the largest one-day sales totals in Weekly Reader’s history. In 2004, approximately 1.6 million Weekly Reader Editor’s Choice books were sold on QVC.
WeeklyReader.com. In addition to our presence in the classroom through printed materials, Weekly Reader’s website, provides students, teachers and parents with materials, in the form of articles, puzzles, experiments and games, which correlate with the content of Weekly Reader periodicals. In addition, the web site informs users about our periodicals and skills books allowing customers to subscribe over the Internet.
American Guidance Services |
AGS has two principal product lines: testing and assessment products; and core curriculum and supplemental instructional materials.
Testing and Assessment Products. AGS’s testing and assessment products provide educators with reliable, individually-administered and group tests, and manuals explaining how to administer our tests. Our testing and assessment products and supplemental instructional materials are primarily used in K-12 schools, but are also used in community health centers, clinics, hospitals, correctional facilities, community colleges and other adult education programs. These products are used to diagnose learning disabilities and measure the cognitive ability, educational achievement and personal and social adjustment of students.
AGS currently publishes over 30 testing and assessment products. AGS’s testing and assessment products are generally sold as part of a test kit. Test kits typically contain the test record forms, “easels” used to administer the test items, and a manual describing the proper method to score and evaluate the particular test. Three of AGS’s top five testing products, based on sales, have been published for over 20 years. AGS’s tests are revised periodically to ensure that they reliably measure existing populations. Achievement tests generally require revisions every eight to ten years while tests that measure personal and social adjustment or cognitive ability in some cases do not require revision for as long as 15 years.
Educators and clinicians apply AGS’s testing and assessment products on an individual basis to understand a student’s particular educational needs. In our experience, once the validity and effectiveness of a test is established and accepted in the educational community, educators’, psychologists’ and clinicians’ familiarity with the product grows along with their reluctance to change suppliers and learn different assessment content, administration approaches and scoring techniques. Additionally, these professionals often prefer to continue using the same tests over a long period of time in order to compare performance of their student populations. The goal of AGS is to increase its brand awareness in the markets it serves, primarily specialists in the K-12 market. Our goal is to establish the AGS name in association with our products and services. By increasing our visibility as a company on a national and local level with special educators, we will be able to help the customer connect our products with our company name. To grow in our critical markets, AGS plans to aggressively pursue five main areas for growing our product line:
| • | Revisions — Many of our top-selling tests and curriculum have recently been revised or are on schedule to be revised over the next 5 years. |
| • | New Products — AGS annually introduces new product through internal development. |
| • | Acquisitions — AGS historically has pursued acquisitions to enhance and supplement its internal development efforts. |
8
| • | Distribution — AGS has increased its emphasis on distributing complementary products to its target markets. Currently we distribute 258 titles from Gareth-Stevens, World Almanac and Weekly Reader, and we have added key reading assessments that will position us
well to capture Reading First, a federally funded reading initiative program. |
| • | New Markets — AGS will seek new segments with the education industry in which to participate where it can leverage core capabilities in new ways that supports entry into growing education markets. |
Core Curriculum and Supplemental Instructional Materials. AGS’s supplemental instructional materials consist of curriculum-based instructional materials, many of which are for low-performing students. Low-performing students are defined as those students scoring in the lower 50th percentile of the student population at a particular grade level. We focus primarily on serving middle and secondary schools with additional sales to post-secondary markets, such as community colleges and correctional facilities. We generally produce three types of instructional materials: supplemental hardcover textbooks in core curriculum areas for low-performing students, with related products such as workbooks; soft cover worktexts in core curriculum areas for low-performing students; and test preparation materials which can be used to prepare all students for leading achievement tests.
AGS’s supplemental hardcover textbooks are designed to provide comprehensive coverage of skills and concepts in short, concise lessons. They are geared to a fourth grade reading level or below with photography and content that are appropriate for middle and secondary school students, as well as adults.
We believe AGS’s supplemental hardcover textbooks set the standard for quality in the market, with full-color content and accompanying extensive teacher support materials. Each textbook has a wrap-around teacher’s edition that reproduces the student edition with notes for the teacher indicated next to the text such as overviews for each new lesson, alternative questions a teacher may ask and answers to questions in the text. Each textbook has available a set of quizzes, worksheets, problem sets and other materials that teachers are permitted to reproduce for their classes. These materials also are available on CD-ROM. Most of AGS’s supplemental hardcover textbooks have related soft cover workbooks, activity books and study guide programs including videos available in print and on CD-ROM for self-guided learning.
AGS’s soft cover worktexts also cover core curriculum areas. These worktexts are designed as stand-alone products so that a teacher may use them to supplement any textbook. These soft cover worktexts cover smaller portions of any given curriculum area other than our supplemental hardcover textbooks.
Approximately 11% of AGS’s net revenue for the year ended December 31, 2004 was from sales of testing and assessment products, curriculum and supplemental instructional materials in which the end users were not K-12 schools.
AGS also publishes a line of test-preparation materials developed to assist students preparing to take three of the leading achievement tests: Stanford Achievement Test (SAT), Iowa Test of Basic Skills (ITBS), and TERRANOVA (Comprehensive Test of Basic Skills (CTBS) and Multiple Assessments tests).
Additional preparation materials for state specific tests are also published. AGS’s test preparation materials are sold in package format.
Compass/ChildU |
Compass/ChildU is a research-based, technology learning solutions company that produces educational assessment, curriculum, reporting and management tools for grades Pre-K-12, all of which are aligned to local, state, and national standards. The Compass/ChildU solutions are easily integrated into classroom activities that support curricular goals. Compass/ChildU derives most of its revenue from the sale of solution products and related professional development and technical support services.
The Compass/ChildU solutions are focused on the following five areas: comprehensive assessment that diagnoses individual students based on state/national standards; comprehensive curriculum in reading, English Language Learners (ELL), writing, mathematics, science and social studies that is prescribed to each student based on our assessment system diagnosis or based on teachers’ assessment; learning management system that
9
allows teachers to track student performance and intervene as necessary and administrators to track teacher/student progress; parental access to the system allows them to view student performance and progress at school and be more involved; and professional development for teachers to integrate this type of a system into their classroom.
Compass/ChildU’s CompassLearning Odyssey® product line is a comprehensive library of over four thousand hours of interactive, standards-based, managed curriculum. The CompassLearning Odyssey® curriculum focuses on reading, ELL, writing, mathematics, science, social studies and data management tools designed for grades Pre-K-12. Studies have demonstrated that the use of software containing stimulating graphics, interactive animation, and audio technology for all types of learning instruction help motivate students to learn. Assessment products assign lessons based on each student’s needs. Each module covers a full range of development, from basic skill instruction, to critical thinking exercises, to project-based learning. Management tools are designed to reduce the time teachers spend on administrative tasks and increase one-on-one work with students. The CompassLearning Odyssey product line is delivered in the school’s platform of choice including LAN, WAN and Internet access.
The CompassLearning Explorer® assessment tool is designed to evaluate student performance. It covers the National Assessment of Educational Progress (NAEP) objectives and is aligned with core state standards. CompassLearning Explorer offers criterion-referenced emulated tests and individualized learning paths with the flexibility to integrate third-party products, while allowing for customization to meet individual students and teachers’ needs. The data on individual student performance is provided to teachers in near real-time manner to help them make informed decisions and customize learning for every learner. The solution can be delivered via the Internet with computer-based and print components. Curriculum options vary, letting students navigate through the program at their own pace or on a timed basis. The solution also provides parent login to allow parents to track the progress of their child/children. The parents also have the ability to review the curriculum with their child at home to provide enforcement.
Compass/ChildU provides professional development services and technical support services. Compass/ChildU has a team of educational consultants providing professional development services to teachers, ranging from basic software training to services designed to assist teachers in implementing and integrating technology into the classroom. Compass/ChildU offers various technical support services in connection with the purchase and ongoing use of its software products. An initial buyer of our software products typically purchases one year of telephone help-line services, on-site system engineer services and software maintenance.
A typical Compass/ChildU sale consists of software products packaged with professional development and technical support services. The management, assessment and curriculum software price is based on number of users, subject and grade level purchased. Professional development services are typically purchased under a contract for a specific number of consulting days. Technical support services are typically purchased under one-year contracts with the price based on the size of the implementation, as well as the level of service requested. After the expiration of any service contract, services can be purchased on an ongoing basis.
World Almanac |
World Almanac’s operations are divided into the following five divisions: World Almanac Books, World Almanac Education Library Services, Gareth Stevens, Inc., Facts On File News Services and Funk & Wagnalls.
World Almanac Books. The World Almanac and Book Of Facts® is, we believe, one of the most widely used and well-respected general reference publications in the United States. In 1999, the Library Journal ranked us as the number two best reference source of the millennium (after Merriam-Webster’s Third International Dictionary). We believe The World Almanac and Book Of Facts provides more complete and up-to-date information than competing almanacs. Its comprehensiveness and brand identity are critical assets. In print for over 135 years, The World Almanac and Book Of Facts perennially makes the New York Times’ bestseller list. We estimate that more than 80 million copies of the World Almanac and Book Of Facts have been sold since 1868. World Almanac Books also licenses the content of The World Almanac and Book Of
10
Facts to third parties for inclusion in their products. Since 1995, World Almanac Books has also published The World Almanac For Kids, with over 2,400,000 copies sold to date.
World Almanac Education Library Services. World Almanac Education Library Services is a niche distributor of reference, nonfiction and fiction books, which it targets primarily to K-12 school and public libraries. There are approximately 120,000 K-12 school libraries and 16,000 public libraries in the United States. World Almanac Education Library Services reviews and selects materials from third-party publishers for inclusion in its nine catalogs. The catalogs also feature The World Almanac and Book Of Facts, The World Almanac For Kids and numerous best selling series from Gareth Stevens and World Almanac Education Library Services mailed approximately 2.1 million catalogs in 2004. World Almanac Education Library Services also publishes a small number of proprietary teaching kits, including kits covering research skills, map skills and Language Arts skills, which include items such as lesson plans for books we believe are appropriate for instructional use and encourage multiple-copy sales. A growing telesales unit is responsible for generating an increasing portion of WAELS’ revenue and has made it possible for WAELS to extend its reach into the customer base. A new field sales force will launch this year, making WAELS a true multi-sales channel operation.
Gareth Stevens (Gareth Stevens) publishes nonfiction and fiction books for K-12 students. These books cover a broad spectrum of topics including nature, science, social studies, reference, and language arts, all closely related to curriculum standards. Approximately 86% of Gareth Stevens sales derive from books published under the three Gareth Stevens imprints: Gareth Stevens Publishing (K-6), World Almanac Library (4-12), and Weekly Reader Early Learning Library (Pre-K-3). In the Gareth Stevens Publishing imprint, a majority of these titles are sourced from domestic and international third parties for which Gareth Stevens usually holds, at a minimum, exclusive publishing rights for K-12 educational market in North America. Royalty advances are generally paid on titles sourced in this manner and then earned out over the life of the title. In the World Almanac Library and Weekly Reader Early Learning Library imprints, the majority of titles are created by Gareth Stevens, and for these titles, Gareth Stevens owns or controls worldwide publishing rights. The remaining approximately 14% of Gareth Stevens sales result from the telesales distribution of books from other publishers including Capstone, Gale/Blackbirch, Heinemann Library, Picture Window, Crabtree, and Compass Point, sold on consignment through the LibraryOne Direct division, as well as through other inside sales divisions.
Facts On File News Services. World Almanac, through Facts On File News Services, publishes and sells subscription news reference products in print and Internet formats. There are five print products: Facts On File World News Digest; Issues And Controversies On File; Today’s Science On File; Editorials On File; and Software and CD-ROM Reviews On File.
Its core product, Facts On File World News Digest, is a highly respected publication used by libraries as a comprehensive archive of world events coverage dating back to 1940 in both the print and electronic version. Librarians, journalists and library patrons typically use Facts On File News Services products to research historical events. The in-house editorial staff of Facts On File World News Digest distills key news information from more than 100 different newspapers, periodicals, journals and government Internet sources and uses it to update the product weekly in the print and Internet formats. The print edition of Facts On File World News Digest sold approximately 2,000 subscriptions in 2004 and continues to meet with great acceptance, as evidenced by renewal rates averaging over 85% from 1997 through 2004. Subscriptions to the print edition have gradually declined as it is replaced by Internet-based versions of the product described below.
To take advantage of accelerated library spending on electronic delivery of reference materials, World Almanac launched FACTS.com in 1999, an on-line version of Facts On File World News Digest. The increased functionality of the Internet version allows World Almanac to price this product higher than the print version. The Internet version has a list price of $1,695 for a single-site installation, with price discounts per site for multiple-site installation. In 2000, we launched three additional World Almanac databases as part of the Reference Suite @ Facts.com web service: Issues and Controversies On File, Today’s Science On File and the World Almanac Reference Database. In 2003, we launched Facts For Learning, an elementary school reference and research product. FACTS.com subscriptions are sold primarily through telemarketing.
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Funk & Wagnalls. World Almanac operates in the electronic encyclopedia business through Funk & Wagnalls. Although the Funk & Wagnalls Encyclopedia is no longer published in print format, Funk & Wagnalls licenses an electronic version of its encyclopedic database to various third parties and is delivered via FACTS.com. Funk & Wagnalls also annually sells a general yearbook containing a review of the major news events that transpired in the previous year and a science yearbook containing a review of the major scientific events in the previous year. The yearbooks (general and science) are licensed from World Book Encyclopedia, Inc. The active subscriber list for these two publications, which primarily consists of former subscribers to the print edition of the Funk & Wagnalls Encyclopedia, is approximately 25,000 for the general yearbook and 9,000 for the science yearbook. Most science yearbook subscribers are also general yearbook subscribers. We do not target new subscribers for these yearbooks; however, renewal rates have averaged approximately 82% for the general yearbook and 78% for the science yearbook from 1997 through 2003.
Product and Content Development |
Weekly Reader. Weekly Reader has a team working in product and content development. This team includes editors and writers, who are typically grade and subject specialists with journalism or teaching experience; and designers, who are responsible for the “look and feel” of the products, including the layout of each publication.
Editors, writers and designers work in teams on each project including planning meetings used for determining content and educational focus, the selection of appropriate graphics and photographs and final editing before submission for printing. The time it takes to develop our products varies substantially according to the type of product. Product development for a new periodical typically takes approximately nine months from concept to initial marketing, whereas new issues of our existing periodicals typically take approximately one to two weeks from conception to printing. Our supplementary products typically take approximately six to eight months from concept to initial marketing for an entirely new title, and approximately two to three months for updated versions of existing titles. Development times for custom published programs vary substantially depending upon the scope of work considered; however, the average contract takes approximately three to four months from concept to distribution.
Weekly Reader’s periodicals are written by a combination of staff and freelance writers. Rights to materials are generally acquired as work made for hire, or by copyright assignment, or by license. Our staff of editors, writers and designers determines the subject matter for the particular edition after which the content is primarily written and edited by Weekly Reader’s employees. For ScienceSpin, however, once the content and educational focus for a particular issue is determined internally, the writing is contracted out to third parties with the relevant scientific knowledge and the ability to write for the applicable target audience. Teen Newsweek is written internally based upon content from upcoming stories in Newsweek made available to our writers prior to Newsweek’s publication, and our own internally created content. The Teen Newsweek writers determine which stories are appropriate for the targeted audience and then rewrite the stories with age appropriate information and language. Teen Newsweek’s content is subject, in all cases, to Newsweek’s approval.
Weekly Reader’s supplementary products are typically written by freelance writers at the direction of Weekly Reader’s editors. Rights to materials are generally acquired as work made for hire, or by copyright assignment, or by license. Consumer and Custom Publishing programs are developed in a variety of multiple media by an in-house editorial and design staff with varying degrees of direction provided by the applicable sponsor. In the past, a number of corporate sponsors have commissioned Consumer and Custom Publishing to create and deliver a specific concept for which they are seeking implementation and production, while other sponsors simply have a message they wish to communicate to a target audience and request proposals as how best to accomplish that goal.
Prior to distribution, whether created internally or externally, all of Weekly Reader and Consumer and Custom Publishing programs are reviewed by a senior editor for their age and content appropriateness.
American Guidance Services. AGS’s new and revised testing and assessment products are primarily developed internally. Rights to materials are generally acquired as work made for hire, or by copyright assignment, or by license. Most developers utilized by AGS are trained in one or more specialties including
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psychology, education, early childhood development and speech/language, among other disciplines. In some cases, the in-house personnel revise existing products under the direction of prominent independent authors who control the original copyright or content of the test and who receive royalties from the sale of these tests.
Our testing and assessment products are firmly rooted in established psychological and pedagogical theory, and our product development philosophy is customer focused. New test concepts are usually derived from the marketplace, often from our sales representatives who are in contact with teachers, guidance counselors, school psychologists, school administrators and other professionals who identify a testing need.
We develop new products through a systematic review of industry trends, including emerging trends in the education community, or in conversations with educators and other professionals who attend various trade and professional conferences where we are an exhibitor or attendee. Occasionally, we will be approached by an external author with a new test concept, which we will then evaluate in terms of its overall market potential. AGS also distributes a few select assessments from other publishers.
After we have created or revised a test, we then subject it to field tests. Once field-testing and any indicated adjustments are complete, the test undergoes standardization, generally being tested on 200 students per the age year targeted by the test and covering a broad range of demographic characteristics. In addition, we seek support for the test from key opinion makers in the subject area of the test. Only after these processes do we begin to market the test. The process is similar for most revisions of existing tests because when a test is updated, the new content similarly must be field-tested and then the revised test must undergo standardization. The development cycle for a new test or to make revisions to an existing test is typically five years from concept through the launch of the new or revised test. The life cycle for the new or revised test can be up to 15 years or more in some cases.
We develop supplemental instructional products internally and externally with developers and in close consultation with outside authors, on a royalty basis or on a fee-for-service arrangement. New product concepts are derived from various sources, including in-house development staff, outside authors and our sales force based on their regular meetings with educators and administrators. Most of these instructional products have a development cycle of approximately one year. For those not developed internally, we solicit bids for our new products from outside developers and award the contract based on price and other factors relating to the developer’s ability to deliver the finished product according to our exact specifications.
Compass/ChildU. Compass/ChildU has a combined product development team consisting of software engineers, programmers, quality assurance analysts, technical writers, instructional designers, subject matter experts, and project managers. The three primary objectives of their co-development efforts focus are creating local, state and national standards-based assessment product; delivering a Pre-K-12 local, state and national standards-based curricula; and developing a state-of-the-art instructional management and data reporting system.
Compass/ChildU is utilizing content from WRC Media affiliate companies and is employing off-shore software and content development resources to reduce costs and expedite delivery. These initiatives have helped and will continue to help the Company increase productivity.
World Almanac. World Almanac has in-house editorial staffs that at World Almanac Books and Funk & Wagnalls, work in conjunction with outside work-for-hire editors to develop its content; at the Facts On File New Services, develop the content of their products; and at Gareth Stevens, work with creative staff to develop content and also work with outside work-for-hire editors, writers, designers and licensors to develop content.
Individual members of the in-house editorial staff are generally responsible for only one of the product lines. The contents of our Funk & Wagnalls yearbooks are licensed from third parties. The Gareth Stevens nonfiction and fiction books are comprised of either content licensed from third parties and then repackaged and/or rewritten for the K-12 market in the United States or, especially in the case of books for the World Almanac Library and Weekly Reader Early Learning Library imprints, contain original content developed by in-house staff, freelance writers, and other providers of editorial services. World Almanac Education Library Services’ creative staff which designs the layout for the catalogs, selects the reference and informational
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materials which will be included in the catalogs and manages outside editorial services in the creating of new teaching kits.
World Almanac Education Library Services updates its catalogs twice each year. New editions of The World Almanac and Book Of Facts and The World Almanac For Kids are published each year. New product development is currently focused on offering products through Internet delivery. In 2000, we launched the following three additional World Almanac databases as part of the Facts On File News Services web service: Issues & Controversies On File, Today’s Science On File and the World Almanac Reference Database. In 2003, we launched Facts For Learning, an elementary school reference and research product. In 2003, our Facts On File archives since 1940 were included in the product delivered through the Internet.
Customers |
Our targeted customers, who vary depending on the product line and channel, are teachers, school and school district-level administrators, librarians, other educational professionals and parents.
Weekly Reader’s periodicals and other instructional materials are purchased mainly by teachers, as well as by school and school district-level administrators.
Customers of the Consumer and Custom Publishing programs generally are: corporations; trade associations; not-for-profit organizations; basal and supplemental publishers; and government agencies.
Customers of AGS’s assessment products generally are guidance counselors, school psychologists, speech pathologists, special education teachers and other similar school district-level specialists. Customers of AGS’s supplemental instructional materials generally are teachers and school-level administrators, as well as school district-level administrators. AGS also has customers outside of K-12 schools for its testing and assessment products and supplemental instructional materials, which include clinical psychologists, community colleges, adult educational programs and correctional facilities.
One or more of AGS’s testing and assessment or supplemental instructional products are used in over 12,000 school districts, or approximately 80% of the school districts in the United States.
Compass/ChildU’s customers consist primarily of school and school district-level administrators, including: superintendents; curriculum directors; technology directors; and principals. Although individual teachers do not typically make final purchasing decisions, they frequently have substantial input in the decision making process.
In 2004, approximately 90% of World Almanac’s sales were to schools and libraries. The remaining 10% of its sales consisted of yearbook sales and sales of The World Almanac and Book Of Facts and The World Almanac For Kids to trade consumers.
World Almanac Education Library Services and Gareth Stevens sell their products primarily to school libraries and to a lesser extent to public libraries and to schools and teachers for classroom use.
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Sales, Marketing and Distribution |
We have an extensive network with direct distribution channels to reach our primary customers. Our primary operating subsidiaries use one or more of the following methods to sell and market our products: direct mail, direct sales, outbound call centers and distribution through retail channels and independent resellers. The chart set forth below contains information regarding sales, marketing and distribution by Weekly Reader, American Guidance, Compass/ChildU and World Almanac, including their primary distribution channels.
| Weekly Reader | American Guidance | Compass- Learning / ChildU |
World Almanac | ||||||||||
Primary Method of Sales and Marketing |
Direct Mail | Direct Sales Force (field and telesales) | Direct Sales Force | Direct Mail: World Almanac Education Library Services and Funk & Wagnalls. Outbound Call Centers: Gareth Stevens, Inc., World Almanac Library Services and Facts On File News Services. Retail Marketing: World Almanac Books | |||||||||
Number of Mailings in 2004 |
46 mailings for a total mail quantity of 9.9 million pieces | Total mail quantity of 1.1 million pieces | N/A | World Almanac Education Library Services had 27 mailings for a total mail quantity of 2.1 million; Funk & Wagnalls Yearbook mail campaigns once a year | |||||||||
Number of Schools/Teachers/ Libraries in Database |
Over 114,000 schools; 4.1 million teachers | 240,000 customer locations | Over 27,000 labs in over 114,000 schools | Approximately 112,000 schools, 16,300 school districts, 15,900 public libraries, 3,900 academic libraries | |||||||||
Estimated Number of Schools/School Districts/Libraries with our products |
Over 56,000 schools | Over 12,000 school districts | Over 16,000 schools | Over 70,000 school and public libraries have purchased products from World Almanac |
Direct Mail. Direct mail consists mainly of well-planned mailings that target current and prospective customers, often with enclosed product samples and catalogs, which are used to generate product sales. This marketing technique is utilized to a significant extent by Weekly Reader, World Almanac’s World Almanac Education Library Services, and to a lesser extent by American Guidance, Compass/ChildU and World Almanac’s Funk & Wagnalls.
Weekly Reader’s classroom periodicals are marketed primarily through the use of direct mailings. Its experienced and skilled marketing staff has developed detailed mailing schedules and marketing strategies to reach current and prospective customers. In the marketing of its classroom periodicals, Weekly Reader has developed and maintained a valuable and proprietary database tracing the purchasing habits of approximately 4.1 million individual teachers and administrators and approximately 114,000 schools over the past five years as well as various demographic factors in each locale. In 2004, Weekly Reader mailed over 0.6 million catalogs and 9.3 million direct mail pieces primarily to teachers, as well as to school and school district-level administrators.
World Almanac also uses direct mail to generate sales. World Almanac’s World Almanac Education Library Services also uses direct mail to sell its products. This division of World Almanac has developed a sophisticated database that tracks customers and purchasing habits, including monetary value of an average purchase and other relevant factors, which it uses to target customers with the appropriate catalogs. Over 50% of World Almanac Education Library Services’ sales are generated from mailings of its main catalog, which is sent to existing and prospective customers. World Almanac mailed approximately 2.7 million direct mail pieces in 2004, including 2.5 million catalogs.
AGS printed and mailed more than 1.1 million promotional materials and catalogs in 2004, aimed at developing customer leads, spurring direct-response sales and building overall marketplace awareness of its brand and products.
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Funk & Wagnalls primarily markets its yearbooks to former subscribers of its previously published print format encyclopedia using direct mail.
Outbound Call Centers. Involves the use of the telephone to contact current and prospective customers as a means of generating sales. World Almanac’s Gareth Stevens, Inc. World Almanac Education Library Services and Facts On File News Services utilize this marketing technique to a significant extent, while Weekly Reader and Compass/ChildU use it to a lesser extent.
Gareth Stevens marketing strategy consists primarily of selling products through its active and growing outbound sales program. The division generates approximately 37% of all Gareth Stevens sales by contacting existing and prospective accounts to solicit commitments to preview titles from Gareth Stevens, Inc. and other third-party publishers. Through the preview process, librarians are invited to receive copies of Gareth Stevens titles or the third-party titles it distributes. The librarians then have the opportunity to review actual copies of the selected titles at their convenience. Gareth Stevens inside sales representatives follow up with these librarians over a specified time period to ensure that the product has been received and reviewed. Any titles not selected for purchase are picked up from the librarian’s location, with all postage and handling expenses borne by Gareth Stevens. Depending on the school year cycle, there are usually between 50 and 100 part-time and full-time telesales representatives in the Gareth Stevens telemarketing unit.
World Almanac’s Facts On File News Services’ strategy for attracting new customers consists of using targeted prospects derived from a variety of sources including rented lists, followed by telemarketing calls from representatives who are recruited and trained by Facts On File News Services. Over the past three years, World Almanac Education Library Services has increased its telemarketing capacity to promote its products, and this channel accounted for 20% of revenues in 2004.
Weekly Reader’s outbound sales call center primarily targets new subscribers. Weekly Reader also conducts sales campaigns, to assist in the generation of renewal sales.
Compass/ChildU’s inside sales group assists its direct sales force by qualifying sales leads in conjunction with funding eligibility and also promotes renewal sales of professional development and technical support services contracts.
Direct Sales Forces. AGS, Compass/ChildU and Weekly Reader’s CCP each primarily use a direct sales force to sell and market their products.
To market its testing and supplemental instructional materials, AGS pursues a strategy of developing strong relationships with its current and prospective customers primarily by using its sales organization. Beginning September 2003, the sales personnel were aligned to either the assessment or curriculum product line, whereas each previously the sold all of AGS’ products. We feel that this focus will improve their effectiveness and ultimately increase customer satisfaction and sales.
These representatives work closely with schools to determine which of AGS’s products best serve the needs of a specific school’s student body. In a departure from traditional telemarketing, AGS’s telephone (inside) sales representatives develop relationships with customers and occasionally make field visits. All of AGS’s sales representatives go through a training process with defined objectives that they must satisfy during the initial six months of their employment and each year thereafter. In addition, AGS enlists professionals on a per diem basis to provide instruction to educators concerning test administration, scoring and other professional training such as disciplinary methods and substance abuse and violence prevention techniques.
Compass/ChildU maintains a direct sales force of over 60 employees. The sales representatives are each assigned to a sales region within the United States. Each member of the direct sales force has access to Compass/ChildU’s database of detailed information concerning the school districts, current customers, school funding and other data for its sales territories. On the basis of this information, the sales representatives seek to establish relationships with, and brand awareness for, Compass/ChildU’s products among existing and potential customers in their respective districts by making personal sales visits to the schools or school administrators.
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WRC Consumer and Custom Publishing has a dedicated field based marketing and sales team who make presentations directly to potential basal and supplemental publisher corporations, trade associations and not-for-profit organization clients. These representatives are covering the largest Designated Market Areas in the United States. Presentations generally consist of proposals for education materials and programs to be distributed free to teachers and schools under the client’s sponsorship. In addition, World Almanac also has engaged an independent licensing agent specifically to leverage The World Almanac and Book of Facts.
Retail Marketing/wholesalers. Approximately 74% of World Almanac Books’ revenue is generated from product sold through retail bookstores or through wholesalers into mass-market locations such as supermarkets and newsstands. World Almanac Books’ products are also sold to book clubs and other resellers, as well as into libraries through World Almanac Education Library Services. In addition, Gareth Stevens distributes approximately 50% of its products through its network of wholesalers to libraries and classrooms.
Internet Web Sites. Weekly Reader (www.weeklyreader.com), AGS (www.agsnet.com), and World Almanac (www.worldalmanaclibrary.com, www.garethstevens.com, www.facts.com) all have free Internet web sites, which allow customers to order their products. The Weekly Reader web site features pages specifically addressing students, teachers, and parents; and offers materials in the form of puzzles, experiments and games that correlate with the content of Weekly Reader periodicals.
The AGS web site, provides extensive company information, customer service information, order placement information and a complete description of its products. The web site also includes product forums, which give detailed information about those specific products. AGS had approximately $12.4 million in web site sales, including orders initiated with an Internet effort code and actual online orders, in 2004.
World Almanac has multiple websites that offer a variety of content and services. Both the World Almanac Education Library Services and Gareth Stevens websites offer Internet ordering as well as provide a complete description of their products. The World Almanac for Kids website offers materials in the form of games, quizzes and reference facts that correlate with the content of The World Almanac for Kids book. In addition to free Internet websites, World Almanac sells subscription based Internet products through its Facts On File News Services unit.
The Compass/ChildU web site serves as a customer resource for information about its software solutions. Compass/ChildU also uses its web site for customer support self service. Compass/ChildU’s Odyssey product is delivered through the web and is accessible at http://www.compasslearningodyssey.com.
Shipment. Our periodicals are typically shipped second-class mail directly from the location at which they were printed. Teen Newsweek, however, is delivered by truck and/or air directly to United States Postal Service bulk mail centers to speed delivery. Our other print materials are typically delivered by fourth-class mail or, in some cases, by the United Parcel Service or other courier services.
Competition |
Weekly Reader. Our primary competitors in the Pre-K-12 classroom periodicals market are Scholastic Inc. and Time, Inc. These publishers together with Weekly Reader publish virtually the entire market of periodicals targeted for Pre-K-12 classrooms. Scholastic Inc. publishes nine editions in the elementary school market and eight editions in the middle and secondary school market. Time, Inc. publishes three editions in the elementary school market but has no editions in the middle and secondary school market. Competition in the school periodicals market is based primarily on content, price, reputation, and customer service.
In the elementary school periodicals market, we believe we compete effectively with our competitors by combining engaging and grade appropriate content that ties closely to school curriculum. In the secondary school periodicals market, our competitive strengths include content that appeals to the student, which also has strong educational value and ties to school curriculum.
In supplementary products, we compete with many large and small publishers, primarily on the basis of subject matter, expertise and price.
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In the arena of sponsored supplemental educational materials, Consumer and Custom Publishing competes primarily with Scholastic Inc., and regional competitors. Competition in this market is based on editorial quality, distribution capability and cost. Consumer and Custom Publishing’s core competencies, which we believe give us a significant competitive advantage over our smaller competitors, include the ability to leverage the Weekly Reader and World Almanac brands; multiple media product development offerings; and broad distribution capabilities through the Company’s distribution channels.
American Guidance Services. In the assessment area, our principal competitors are The Psychological Corporation (now known as Harcourt Assessments) and Riverside Publishing Company.
These companies focus mainly on norm-referenced achievement tests, which are administered in large groups, while individually administered assessment tests, our target market, represent a secondary product line. We believe we are well positioned to compete successfully in both the individually administered assessment test market and the supplemental print instructional materials market based on our reputation, content and ability to reach the customer base.
In the individually administered assessment test market, where quality and reputation are the primary decision criteria, we have been providing market-leading materials for over 47 years. We believe we are internationally recognized for publishing technically sound diagnostic assessments that are primarily used to identify strengths and weaknesses at the individual level. Because we believe none of our competitors has matched our depth in content, authorship and test instruction in speech/language assessments, we maintain a competitive advantage in the individually administered assessment test market.
Globe Fearon, a unit of Pearson, is our largest competitor in the middle school and high school low-level textbook market. Improvements in AGS Publishing’s textbook line (4-color printing, teacher tools and technology enablers) as well as development of new textbook lines and participation in statewide adoptions have enabled AGS to maintain and improve market share in this arena.
Compass/ChildU. Within the electronic courseware market, we compete primarily with other providers of integrated curriculum software and, to a lesser extent, with independent software vendors and traditional print education publishers. Our primary competitors are: Plato Learning/Lightspan, NCS Learn (CCC), and Riverdeep. Competition in the supplemental electronic instructional materials market is based primarily upon product effectiveness, design flexibility and relationships with customers. We believe we are competitive on all these factors. Our CompassLearning Odyssey product is more advanced than most of our competitors in its architecture, flexibility and curriculum design and pedagogy. Over the past two years, the CompassLearning Odyssey solution has won several industry awards including 2004 eSchool New Reader’s Choice Awards and it is a 2005 finalist for Codie Awards.
World Almanac. World Almanac Education Library Services is a niche player in the school and public library distribution business. Competitors range from full service distributors, such as Follet Library Resources and Baker & Taylor Corporation, to smaller ones such as Gumdrop Books, Inc. and Davidson Titles, Inc. World Almanac Education Library Services competes with larger distributors by providing: more product information; energetic customer service; and a pre-screened selection of the season’s titles.
Gareth Stevens, Inc. competes in the K-12 nonfiction and fiction-publishing segment of this market, which is highly fragmented with many competitors ranging from small publishers that specialize in the library market to larger publishers that also sell into the trade market. Some of Gareth Stevens, Inc.’s larger competitors (and their library imprints or subsidiaries) include: Reed Elsevier (Heinemann Library, Raintree Steck Vaughn); Scholastic (Children’s Press, Franklin Watts); The Gale Group (Lucent, Greenhaven, KidHaven, Blackbirch); Capstone Publishing; Haights Cross (Chelsea House); Rosen Publishing Group (Rosen, Rosen Central, PowerKids Press); and Lerner Publishing.
Gareth Stevens, Inc.’s classroom publishing line competes with the classroom products of a wide range of publishers which include: McGraw-Hill; Scholastic; Harcourt Brace; Houghton Mifflin Company; Haights Cross; and National Geographic.
Competition in the electronic reference materials category is somewhat more concentrated. Some of the larger competitors in this category include: The Gale Group, Inc.; EBSCO Industries, Inc.; and ProQuest, Inc.
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Products sold to school and public libraries tend to be less price sensitive than in a consumer market. The World Almanac and Book Of Facts compete primarily with the three other almanacs currently available: The Time/Information Please Almanac; The New York Times Almanac; and Encyclopedia Britannica Almanac.
According to Bookscan sales data for the most recent edition, The World Almanac and Book Of Facts has a market share greater than 80%. Competition in all of these segments is primarily based on reputation and brand names of products, the length of time products have been on the market and the uniqueness of a product. We believe we have a competitive advantage with all these factors. Many of our competitors, however, have larger publishing organizations, and therefore are able to generate greater potential economies of scale than we can. Our larger competitors, which offer broader product lines, also provide more comprehensive shopping opportunities to library customers than we do with our narrower product focus.
Production, Fulfillment and Customer Service |
All of our print products are printed and bound by third parties with whom we have contracts or to whom we issue purchase orders on a project-by-project basis. We believe that outside printing and binding services at competitive prices are available, and we currently use a different printer for each product line. Most of our pre-press production, typesetting, layout and design functions are conducted in-house, with the exception of American Guidance where most pre-press is conducted by third-party vendors. Our non-print products, such as Consumer and Custom Publishing’s videos and CompassLearning’s CD-ROMs, are produced internally and, if necessary, replicated by third parties. Some of World Almanac’s divisions rely on internal production capabilities while others utilize third-party manufacturers.
The principal raw materials utilized in our products are paper and ink. Paper is purchased by Weekly Reader and several of World Almanac’s divisions from both suppliers and printers directly based on pricing and, to a lesser extent, availability, while American Guidance and Gareth Stevens purchase finished goods including paper components from the printers of their publications. Ink utilized by our publications is provided by the respective printers of our publications and included in the cost of print production. Both paper and ink are commodity products, which are affected by demand, capacity and economic conditions. We believe that adequate sources of supply are, and will continue to be, available to fulfill our requirements.
Order processing, customer service, cash application and collection, and fulfillment functions have been performed at separate locations for each of our operating subsidiaries, which currently include:
| • | Weekly Reader – Delran, New Jersey; |
| • | AGS – Circle Pines and Shoreview, Minnesota; |
| • | CompassLearning – Phoenix, Arizona and San Diego, California; and |
| • | World Almanac – Delran, New Jersey, Milwaukee, Wisconsin, New York, New York and Cleveland, Ohio. |
Fulfillment for some of Weekly Reader and World Almanac’s products are conducted by third parties.
Intellectual Property |
Each operating unit maintains a portfolio of registered trademarks. The decision to register a given trademark is made on an individual basis.
Weekly Reader. Copyright in each printed periodical or skills book is held by Weekly Reader, including any materials written by freelance or third party contract writers. Photographs or artwork used in our products are typically used pursuant to one-time licenses, which grant us the right to use the photograph or artwork in the particular product and within the United States only. Some material from third parties is reprinted with permission for one-time use. Ownership of the intellectual property rights in the materials produced by Consumer and Custom Publish