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McGraw-Hill Ryerson Reports 2013 Annual Results

February 7, 2014

WHITBY, ONTARIO--(Marketwired - Feb. 7, 2014) - McGraw-Hill Ryerson Limited (TSX:MHR)

Attention: Business/Financial Editors

Three Months to December 31 ($000) (unaudited) This Year Year Ago Sales, less returns 18,943 $ 18,931 Other 1,098 2,876 Rental 132 182 ------------------------ Total Revenue $ 20,173$ 21,989 Net Income 2,023 4,362 Net Income per share $ 1.01$ 2.18 Twelve Months to December 31 ($000) (unaudited) Sales, less returns $ 68,204$ 72,258 Other 2,273 4,283 Rental 640 541 ------------------------ Total Revenue $ 71,117$ 77,082 Net Income 5,819 8,145 Net Income per share $ 2.91$ 4.08



Annual Results

The Company's sales revenue, less returns, decreased by 5.6% in 2013, with sales of $68.2 million, compared to $72.3 million in 2012.

The Higher Education Division reported consistent sales with a slight increase of 0.4% in a market that was lower year over year. Sales were supported by the continued increase in adoption of its digital solutions. Higher Education accelerated its leadership in the technology-enabled evolution of education with the continued growth of McGraw-Hill Connect(TM), integrated eContent and online homework solutions, and the LearnSmart Advantage(TM) suite of adaptive learning solutions. The Division continues to be a leader in the industry in partnership and development initiatives that provide educators and students the opportunity to evaluate and purchase our learning solutions directly, and in the forms they prefer, seamlessly integrated into institutions' learning management systems and devices of their choice.

The School Division's sales decreased by 26.7% compared to the previous year. The decline in revenue is a function of non-repeating 2012 sole source contracts and industry-wide sales declines, partly the result of a slow release of new curricula. Industry sales declined by 12.0% relative to 2012 (based on Canadian Education Resource Council data).

The Professional Division net sales grew by 17.9% in 2013 compared to 2012. The improvement in sales was partly the result of a decrease in returns, along with continued growth in eBook sales and our Access suite of digital products.

Cost of goods sold decreased to $25.4 million in 2013, from $26.8 million in 2012. This is consistent with the decrease in sales.

Operating expenses decreased to $29.4 million, from $30.2 million in 2012. There were reductions in compensation, promotion, and legal expenses that were offset by a restructuring charge of $2.9 million. This restructuring will allow us to manage our operating expenses while improving our support for evolving areas such as digital product development and technical support for our customers.

Amortization expenses for pre-publication costs decreased to $7.5 million in 2013 compared to $8.5 million in 2012. The decrease is partly attributable to delays in the release of curricular revisions that impact the School publishing program.

Finance income decreased by $0.2 million, driven by lower average cash balances in 2013 compared to 2012. Finance costs in 2013, consisting mainly of banking charges, remained consistent with prior year.

Net income decreased to $5.8 million from $8.1 million last year, mainly driven by the sales decrease.

Cash increased to $26.4 million as of December 31, 2013 from $15.1 million in 2012, which is mainly a result of the special dividend payments made during the prior year. Total dividend payments were $2.5 million in 2013 compared to $40.3 million in 2012.

Q4 Results

Most of the Company's sales revenue is seasonal, based on the education industry's school terms for the School and Higher Education divisions. As a result, the Company earns a significant amount of its total sales revenue in the third and fourth quarters of each year.

In the fourth quarter of 2013, total revenue decreased 8.3% compared to the fourth quarter of 2012, as a result of a non-recurring retroactive copyright payment received in the prior year. Higher Education sales decreased to $14.5 million from $15.0 million. School division sales decreased $0.4 million, compared to the fourth quarter of 2012, to $2.2 million. Professional sales increased $0.9 million from $1.3 million in 2012. Net income decreased by $2.3 million in the fourth quarter compared to the corresponding quarter in 2012 mainly driven by the non-recurring copyright payment received in 2012.

The accompanying financial statements should be read in conjunction with the "Notes to Financial Statements" included in McGraw-Hill Ryerson's Annual Report.

In business since 1944, McGraw-Hill Ryerson Limited is a leading Canadian publisher of educational resources, and information products and services for lifelong learning and enjoyment. Total revenue in 2013 was $71 million. Additional information is available at http://www.mheducation.ca.

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME McGraw-Hill Ryerson Limited. Incorporated under the laws of Ontario (In thousands of dollars-except per share data) Year ended December 31 2013 2012 Revenue (note 2) Sales revenue, less returns 68,204 72,258 Other income 2,273 4,283 Rental income 640 541 ---------------------------------------------------------------------------- Total revenue 71,117 77,082 Cost of goods sold (note 11) 25,353 26,754 ---------------------------------------------------------------------------- Gross profit 45,764 50,328 Operating expenses (notes 5, 7 and 8) 29,422 30,208 Amortization, net of impairment-pre-publication costs (note 6) 7,520 8,477 Depreciation-property, plant and equipment (note 12) 785 842 ---------------------------------------------------------------------------- Operating income 8,037 10,801 Finance income (note 14) 152 323 Finance costs 191 178 Foreign exchange gain (loss) (90) 282 ---------------------------------------------------------------------------- Income before income taxes 7,908 11,228 Income tax expense (note 9) 2,089 3,083 ---------------------------------------------------------------------------- Net income for the year attributable to equity holders of the Company 5,819 8,145 Other comprehensive income (loss) Actuarial gain (loss) on employee future benefits, net of tax (note 7) 468 (122) ---------------------------------------------------------------------------- Total comprehensive income for the year attributable to equity holders of the Company 6,287 8,023 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings per share Basic and diluted $ 2.91$ 4.08 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- STATEMENTS OF FINANCIAL POSITION (In thousands of dollars) December December January 1, As at 31, 2013 31, 2012 2012 Assets (note 2) (note 2) Current Cash (note 14) 26,370 15,146 41,926 Marketable securities (note 14) 998 799 716 Trade and other receivables, net (note 14) 8,976 10,463 11,429 Inventories, net (note 11) 3,312 4,601 6,123 Due from parent and affiliated companies (note 10) 559 1,783 1,925 Prepaid expenses and other assets 401 333 280 Income taxes receivable 293 - - ---------------------------------------------------------------------------- Total current assets 40,909 33,125 62,399 ---------------------------------------------------------------------------- Property, plant and equipment, net (note 12) 12,757 13,423 14,071 Intangible assets (note 6) 11,118 13,754 16,439 Deferred tax assets, net (note 9) 1,013 773 469 ---------------------------------------------------------------------------- Total non-current assets 24,858 27,950 30,979 ---------------------------------------------------------------------------- Total assets 65,797 61,075 93,378 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities and Equity Current Trade and other payables 10,817 10,045 10,849 Realignment payable (note 5) 1,776 646 273 Income taxes payable - 265 713 Due to parent and affiliated companies (note 10) 3,709 4,693 4,784 ---------------------------------------------------------------------------- Total current liabilities 16,302 15,649 16,619 ---------------------------------------------------------------------------- Employee future benefits (note 7) 1,894 2,517 2,185 Long-term payable (note 5) 1,003 350 44 ---------------------------------------------------------------------------- Total liabilities 19,199 18,516 18,848 ---------------------------------------------------------------------------- Equity Share Capital Authorized 5,000,000 no par value common shares Issued and outstanding 1,996,638 common shares 1,997 1,997 1,997 Paid in capital 1,319 1,081 702 Accumulated other comprehensive income (loss) 346 (122) 71 Retained earnings 42,936 39,603 71,760 ---------------------------------------------------------------------------- Total equity 46,598 42,559 74,530 ---------------------------------------------------------------------------- Total liabilities and equity 65,797 61,075 93,378 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- STATEMENTS OF CHANGES IN EQUITY (In thousands of dollars) Accumulated other Share Paid-in comprehensive Retained capital capital income earnings Total Balance, December 31, 2011 1,997 702 - 71,760 74,459 Dividends paid ($20.185 per share) - - - (40,302) (40,302) Additional paid-in capital (note 8) - 379 - - 379 Net Income - - - 8,145 8,145 Items not to be reclassified to profit or loss in subsequent periods: Other comprehensive loss - - (122) - (122) ---------------------------------------------------------------------------- Balance, December 31, 2012 1,997 1,081 (122) 39,603 42,559 Dividends paid ($1.245 per share) - - - (2,486) (2,486) Additional paid-in capital (note 8) - 238 - - 238 Net Income - - - 5,819 5,819 Items not to be reclassified to profit or loss in subsequent periods: Other comprehensive income - - 468 - 468 ---------------------------------------------------------------------------- Balance, December 31, 2013 1,997 1,319 346 42,936 46,598 ---------------------------------------------------------------------------- STATEMENT OF CASH FLOWS (In thousands of dollars) Years ended December 31 2013 2012 Operating Activities Net income for the year 5,819 8,145 Add (deduct) non-cash items Amortization, net of impairment-pre-publication costs (note 6) 7,520 8,477 Depreciation-property, plant and equipment (note 12) 785 842 Increase (decrease) in employee future benefits (155) 72 Deferred taxes (note 9) (240) (237) ---------------------------------------------------------------------------- 13,729 17,299 Net change in non-cash working capital balances related to operations (note 15) 4,973 1,941 ---------------------------------------------------------------------------- Cash provided by operating activities 18,702 19,240 ---------------------------------------------------------------------------- Investing Activities Investment in pre-publication costs (note 6) (4,912) (5,820) Investment in property, plant and equipment (note 12) (119) (194) Increase in marketable securities (199) (83) ---------------------------------------------------------------------------- Cash used in investing activities (5,230) (6,097) ---------------------------------------------------------------------------- Financing Activities Dividends paid to shareholders (2,486) (40,302) Change in paid-in capital (note 8) 238 379 ---------------------------------------------------------------------------- Cash used in financing activities (2,248) (39,923) ---------------------------------------------------------------------------- Net increase (decrease) in cash during the year 11,224 (26,780) Cash, beginning of year 15,146 41,926 ---------------------------------------------------------------------------- Cash end of year 26,370 15,146 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- FOR FURTHER INFORMATION PLEASE CONTACT: McGraw-Hill RyersonBrenda Arseneault Vice President and Chief Financial Officer (905) 430-5223 www.mheducation.ca Source: McGraw-Hill Ryerson Limited


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