Peoples Educational Holdings, Inc. Reports Fiscal Fourth Quarter and Year End Results

SADDLE BROOK, NJ--(Marketwire - August 17, 2009) - Peoples Educational Holdings, Inc.
(NASDAQ: PEDH), a leading provider of supplemental educational material for
the K-12 school market, today announced its financial results for its
fourth quarter and year ended May 31, 2009.

Revenue for the fourth quarter was $7.4 million, a decrease of 10% from the
same period in the prior year. Revenue from the Test Preparation,
Assessment and Instruction product group was $5.2 million for the quarter,
a decline of 16% from the prior year. College Preparation revenue for the
quarter was $1.7 million, a decrease of 15% from the prior year. In
addition, $0.4 million of revenue was generated from the new Literacy
product offerings, which was launched during the fourth quarter. Net loss
for the quarter, including the $0.7 million income tax expense related to
the establishment of a deferred tax valuation allowance, was $1.3 million
compared to a net loss of $0.7 million in the prior year. Non-GAAP net
loss, which excludes non-recurring costs, including the deferred tax
valuation allowance expense, and adjusts for the difference between
prepublication expenditures and amortization for the quarter was $0.4
million compared to a loss of $0.2 million during the same period in the
prior year (see Exhibit 1).

Revenue for the year ended May 31, 2009 was $36.9 million, a decrease of 8%
from the prior year. Test Preparation, Assessment and Instruction product
group revenue was $22.4 million for the year, a decline of 13%. College
Preparation revenue was $14.1 million for the year, a decrease of 2%. In
addition, $0.4 million of revenue was generated from the new Literacy
products. Net loss for the year was $1.1 million compared to a loss of $0.8
million in fiscal 2008. Included in the loss for fiscal 2009 was a $0.7
million income tax expense related to the establishment of a deferred tax
valuation allowance. Non-GAAP net income was $0.7 million, an improvement
of 36%, when compared with $0.5 million in fiscal 2008 (see Exhibit 1).

Financial Highlights for the Year Ended May 31, 2009

-- Free Cash Flow, which is cash provided by operating activities reduced
by expenditures for publication cost, equipment and intangibles, (see
Exhibit 2) improved $1.2 million on a year-over-year basis from $1.0
million to $2.2 million.
-- Non-GAAP earnings per basic and diluted share increased from $0.11 in
the prior year to $0.15, an improvement of 36%.
-- Direct Costs have slightly increased from 43.2% of revenue in the
prior year to 44.4%; however this increase is due to a change in revenue
mix.
-- Selling and Marketing costs decreased 17% from $11.2 million in the
prior year to $9.3 million in the current year. As a percentage of revenue,
the expense decreased on a year-over-year basis from 28% to 25%.
-- General and Administrative expenses of $4.5 million represent a
decline of 4% from the prior year.
-- Bank Debt at May 31, 2009 was $13.7 million, a decrease of $2.2
million from the same period in the prior year.
-- Interest Expense decreased from $1.3 million to $0.7 million primarily
due to lower average outstanding debt on a year-over-year basis, lower
interest rates and a $143,000 decrease in the fair value adjustment related
to the interest rate swap on our term loan.
-- We expanded our product offering into the literacy market niche as we
entered into exclusive distribution agreements with three publishers to
distribute their literacy products in the United States.

Business Outlook

Brian T. Beckwith, President and CEO, commented, "Although the K-12
supplemental materials market has been challenging over the past year, we
continued to gain market share by outperforming the market. According to
the Association of American Publishers, supplemental spending for the year
ended May 31, 2009, decreased 15% compared to the prior year. Despite the
difficult environment, and the resulting decline in revenues, we're pleased
that we were able to increase our Non-GAAP net income and Free Cash Flow
compared to the prior year through aggressive cost reductions. Looking
ahead to fiscal 2010, we expect to resume revenue growth while focusing on
continued improvements in profitability. We are projecting revenue to be
between $37 million and $39 million, and net income to be $0.5 million to
$0.9 million or $0.11 to $0.20 per basic share. We expect Non-GAAP net
income to be between $0.7 million and $1.1 million or $0.16 to $0.25 per
basic share. In addition, we expect positive Free Cash Flow to range
between $2.0 million to $2.5 million."

Use of Non-GAAP Financial Measures

Some of the measures in this press release are Non-GAAP financial measures
within the meaning of SEC Regulation G. Peoples Educational Holdings, Inc.
believes presenting Non-GAAP net income and Non-GAAP earnings per share and
Free Cash Flow are useful to investors because it describes the operating
performance of the Company and helps investors gauge the Company's ability
to generate cash flow excluding non-recurring charges and fluctuations
between new product development amortization and new product development
expenditures. Company management uses these Non-GAAP measures as important
indicators of the Company's past performance and to plan and forecast
performance in future periods. The Non-GAAP financial information Peoples
Educational Holdings presents, may not be comparable to similarly titled
financial measures used by other companies, and investors should not
consider Non-GAAP financial measures in isolation from, or in substitution
for, financial information presented in compliance with GAAP.

About Peoples Educational Holdings, Inc.

Peoples Educational Holdings, Inc. is a publisher and marketer of print and
electronic educational materials for the K-12 school market. We focus our
efforts in three market areas:

Test Preparation, Assessment, and Instruction

Test Preparation and Assessment: We create and sell state customized, print
and electronic, test preparation and assessment materials that help
teachers prepare students for success in school and for required state
proficiency tests.

Instruction: We produce and sell proprietary state customized print
worktexts, and print and web-based delivered assessments. These products
provide students with in-depth instruction and practice in reading,
language arts, and mathematics. In addition, our backlist remedial and
multicultural products are included in this group.

Literacy

We distribute for three publishers, on an exclusive basis in the United
States, supplemental literacy materials for grades K-8. These materials
include an extensive selection of leveled reading materials, high interest
engaging resources for striving readers, series that integrate reading,
science and social studies, and selections and strategies for students who
are in the process of learning English.

College Preparation

We distribute instructional materials that meet the academic standards high
schools require for honors, college preparation, and Advanced Placement
courses. We are the exclusive high school distributor for two major college
publishers, and we also create proprietary supplemental materials for this
market.

Our proprietary products are supplemental in nature. They are predominately
soft-cover, high gross profit margin titles that can be sold efficiently
through our direct sales force, as well as through catalogs, direct mail,
telemarketing, and independent commission sales representatives.
Distributed products are both basal and supplemental in nature.

Forward-Looking Statements

This press release contains forward-looking statements regarding the
Company and its markets as defined in section 21E of the Securities
Exchange Act of 1934. These forward-looking statements involve a number of
risks and uncertainties, including (1) demand from major customers, (2)
effects of competition, (3) changes in product or customer mix or revenues
and in the level of operating expenses, (4) rapidly changing technologies
and the Company's ability to respond thereto, (5) the impact of competitive
products and pricing, (6) local and state levels of educational spending,
(7) ability to retain qualified personnel, (8) ability to retain its
distribution agreements in the College Preparation market, (9) the
sufficiency of the Company's copyright protection, and (10) ability to
continue to rely on the services of a third party warehouse, and other
factors as discussed in the Company's filings with the SEC. The actual
results that the Company achieves may differ materially from any
forward-looking statements due to such risks and uncertainties. The Company
undertakes no obligation to revise any forward-looking statements in order
to reflect events or circumstances that may arise after the date of this
report. Readers are urged to carefully review and consider the various
disclosures made by the Company in this press release and the reports the
Company files with the Securities and Exchange Commission that attempt to
advise interested parties of the risks and factors that may affect the
Company's business and results of operations.

CONSOLIDATED BALANCE SHEETS (AUDITED)
(In Thousands-Except Share Data)

May 31, May 31,
2009 2008
-------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 42 $ 53
Accounts Receivable Net of Allowances for
Doubtful Accounts and Returns 2,842 3,664
Inventory 4,219 4,394
Prepaid Expenses and Other 323 404
Prepaid Marketing Expenses 862 829
Deferred Income Taxes 1,092 1,024
-------- --------
Total Current Assets 9,380 10,368
Equipment - At Cost, Less Accumulated Depreciation
of $2,241 and $1,994, respectively 387 566
-------- --------
Other Assets
Deferred Prepublication Costs, Net 13,466 15,200
Deferred Income Taxes 1,006 1,536
Trademarks, Net 170 191
Prepaid Expenses and Other 273 263
Prepaid Marketing Expenses - 495
-------- --------
Total Other Assets 14,915 17,685
-------- --------
Total Assets $ 24,682 $ 28,619
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long Term Obligations $ 2,034 $ 2,042
Accounts Payable 3,998 4,906
Accrued Compensation 170 247
Other Accrued Expenses 855 347
Deferred Revenue 278 475
-------- --------
Total Current Liabilities 7,335 8,017
Long Term Obligations, Less Current Maturities 11,854 14,046
-------- --------
Total Liabilities 19,189 22,063
-------- --------
Commitments and Contingencies
Stockholders' Equity
Preferred Stock, authorized 1,500,000 shares; none
issued - -
Common Stock, $0.02 par value; authorized 8,500,000
shares; issued, 4,478,434 as of May 31, 2009 and
4,470,734 as of May 31, 2008 90 89
Additional Paid In Capital 8,060 8,013
Accumulated Deficit (2,593) (1,482)
Treasury Stock, 16,232 shares for both periods, at cost (64) (64)
-------- --------
Total Stockholders' Equity 5,493 6,556
-------- --------
Total Liabilities and Stockholders' Equity $ 24,682 $ 28,619
======== ========

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands-Except Share Data)

Three Months Ended Twelve Months Ended
May 31, May 31,
2009 2008 2009 2008
(Unaudited) (Unaudited) (Audited) (Audited)
---------- ---------- ---------- ----------

Revenue, Net $ 7,386 $ 8,230 $ 36,867 $ 39,989

Cost of Revenue
Direct Costs 3,136 3,430 16,378 17,256
Prepublication Cost
Amortization 1,516 1,639 6,556 6,704
---------- ---------- ---------- ----------
Total 4,652 5,069 22,934 23,960

Gross Profit 2,734 3,161 13,933 16,029

Selling, General and
Administrative Expenses 3,454 3,991 13,818 15,958
---------- ---------- ---------- ----------

Income (Loss) from Operations (720) (830) 115 71

Other Expenses, Net 96 53 115 95
Interest Expense 113 153 677 1,287
---------- ---------- ---------- ----------
Total 209 206 792 1,382

Loss Before Income Taxes (929) (1,036) (677) (1,311)

Income Tax Expense (Benefit) 341 (374) 434 (537)

---------- ---------- ---------- ----------
Net Loss $ (1,270) $ (662) $ (1,111) $ (774)
========== ========== ========== ==========

Net Loss per Common Share
Basic and Diluted $ (0.28) $ (0.15) $ (0.25) $ (0.17)

Weighted-average Number of
Common Shares Outstanding
Basic and Diluted 4,462 4,455 4,457 4,445

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AUDITED)
(In Thousands)

Twelve Months Ended
May 31,
2009 2008
----------- -----------
Cash Flows From Operating Activities
Net Loss $ (1,111) $ (774)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities
Depreciation 284 308
Amortization of Prepublication Costs and
Trademarks 6,591 6,732
Stock-Based Compensation 48 50
Market Value Adjustment of Interest Rate Swap 5 148
Deferred Income Taxes 462 (534)
Changes in Assets and Liabilities
Accounts Receivable 822 297
Inventory 175 789
Prepaid Expenses and Other 72 37
Prepaid Marketing Expenses 462 437
Accounts Payable and Accrued Expenses (477) (1,678)
Deferred Revenue (197) 148
----------- -----------
Net Cash Provided By Operating Activities 7,136 5,960
----------- -----------

Cash Flows From Investing Activities
Purchases of Equipment (106) (177)
Expenditures for Intangibles (15) (78)
Expenditures for Prepublication Costs (4,821) (4,724)
----------- -----------
Net Cash Used In Investing Activities (4,942) (4,979)
----------- -----------

Cash Flows From Financing Activities
Net Payments Under Line of Credit (163) (465)
Proceeds From the Exercise of Stock Options - 88
Principal Payments On Long Term Debt (2,042) (649)
----------- -----------
Net Cash Used In Financing Activities (2,205) (1,026)
----------- -----------

Net Decrease in Cash and Cash Equivalents (11) (45)

Cash and Cash Equivalents
Beginning of Year 53 98
----------- -----------
End of Year $ 42 $ 53
=========== ===========

Supplemental Cash Flow Information
Cash Payments for:
Interest $ 692 $ 1,180
=========== ===========

Exhibit 1

Reconciliation of Net Loss to Non-GAAP Adjusted Net Income (Loss)

(In Thousands - Except Share Data)

Three Months Ended 12 Months Ended
5/31/2009 5/31/2008 5/31/2009 5/31/2008
--------- --------- --------- ---------
Net Loss $ (1,270) $ (662) $ (1,111) $ (774)

Amortization of Prepublications
Costs 1,516 1,639 6,556 6,704
Cash Expenditures for
Prepublication Costs (1,155) (835) (4,821) (4,724)
Market Value Adjustment of
Interest Rate Swap (31) (90) 5 148
Adjusted Income Tax Benefit (122) (286) (644) (851)
--------- --------- --------- ---------
Subtotal $ (1,062) $ (234) $ (15) $ 503
Deferred Tax Valuation
Allowance 700 - 700 -
--------- --------- --------- ---------
Non-GAAP Net Income (Loss) $ (362) $ (234) $ 685 $ 503
========= ========= ========= =========

Basic Weighted Shares
Outstanding 4,462 4,455 4,457 4,445

Non-GAAP Earnings (Loss) Per
Share $ (0.08) $ (0.05) $ 0.15 $ 0.11

Exhibit 2

Reconciliation of Net Cash Provided by Operating Activities to Free Cash
Flow

(In Thousands)
12 Months Ended
5/31/2009 5/31/2008
--------- ---------
Net Cash Provided by Operating
Activities $ 7,136 $ 5,960
Cash Expenditures for Equipment
and Intangibles (121) (255)
Cash Expenditures for
Prepublication Costs (4,821) (4,724)
--------- ---------
Free Cash Flow $ 2,194 $ 981
========= =========