* Q4 loss per share from continuing operations improves to 60 cents versus last year's 66 cents * Cost reduction efforts help drive $8.8 million drop in Q4 SG&A expenses; down $9.7 million excluding restructuring charge from cost-savings efforts * Loss from continuing operations in the seasonally slow Q4 improves 10.9 percent * Full-year free cash flow reaches a record $101.3 million, or $5.36 per diluted share
GREENVILLE, Wis., June 11, 2009 (GLOBE NEWSWIRE) -- School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported its fourth quarter and fiscal 2009 financial results. Revenue for the fourth quarter was $156.2 million, 10.1 percent below the prior year. Cost-savings initiatives, however, helped deliver a 10.9 percent improvement in the loss from continuing operations in the seasonally slow fourth quarter.
For the full-year, School Specialty's free cash flow was a record $101.3 million, an increase of 34.1 percent over fiscal 2008's $75.5 million. Fiscal 2009's free cash flow equates to $5.36 per share, based on year-end weighted average diluted shares outstanding, and includes approximately $11 million in cash tax savings from the sale of the company's media business in late fiscal 2008, and working capital improvements in fiscal 2009.
Chief Executive Officer David J. Vander Zanden said School Specialty weathered a difficult economic environment in the fourth quarter, while making significant progress in several areas that position the company for future growth in both revenue and earnings. "Our associates did an excellent job growing our gross margins, controlling costs and driving efficiency improvements as we managed through the fourth quarter," said Vander Zanden. "Their efforts, combined with the build out of our new category management structure, give us a solid operational platform for fiscal 2010 and beyond. I'm also very pleased with our continuing ability to generate strong free cash flow, which was at an all-time high this past year."
Fourth Quarter Financial Results
* Revenue for the fourth quarter of fiscal 2009 was $156.2 million, compared with $173.6 million in the prior year's fourth quarter. The decrease was primarily due to reductions in spending by school districts caused by uncertainty in the timing and level of state education funding. * Gross profit was $62.2 million compared with $68.6 million in last year's fourth quarter. Consolidated gross margin improved 30 basis points to 39.8 percent from the prior year's 39.5 percent, reflecting various pricing and product cost initiatives, which positively impacted the fourth quarter. * Selling, general and administrative expenses declined to $76.5 million, or $75.6 million excluding a restructuring charge (48.4 percent of revenue), from the prior year's $85.3 million (49.1 percent of revenue). The decrease is attributable to the company's previously announced cost-reduction efforts and lower volume. * The operating loss for the fourth quarter was $14.3 million, or $13.4 million excluding the pre-tax restructuring charge, compared to an operating loss of $16.7 million last year. * Loss from continuing operations in the fourth quarter was $11.3 million ($0.60 per share) compared to a loss from continuing operations of $12.7 million ($0.66 per share) in the comparable period last year. Stock repurchases over the past year and the restructuring charge increased the loss per share in this year's fourth quarter by approximately $0.05.
Fiscal 2009 Financial Results
* Consolidated revenue for fiscal 2009 was $1.047 billion compared with $1.088 billion last year. The two primary drivers of this reduction were an expected $27 million decline in state science adoption revenue, and lower levels of spending by schools. * Gross profit for the year was $428.6 million compared with $461.2 million last year. Gross margin declined 150 basis points to 40.9 percent versus last year's 42.4 percent. Approximately 80 basis points of the decline was due to product mix, with the remainder primarily due to raw material and fuel cost increases. * Selling, general and administrative expenses declined to $350.9 million, or $347.0 million excluding restructuring charges (33.1 percent of revenue), from the prior year's $361.8 million (33.3 percent of revenue). The fiscal 2009 restructuring charges related to the company's cost-reduction efforts, and the closing of its Lyons, NY, distribution center. * Operating income for fiscal 2009 was $77.7 million, including the pre-tax restructuring charge of $3.9 million, compared to operating income of $99.5 million last year. Operating margin decreased to 7.4 percent of revenue from 9.1 percent of revenue in fiscal 2008. * Earnings from continuing operations were $34.5 million ($1.83 per diluted share) compared to last year's $45.8 million ($2.21 per diluted share). Restructuring charges recorded in fiscal 2009 reduced earnings from continuing operations by $2.4 million, net of tax ($0.13 per diluted share). Stock repurchases over the past two years increased fiscal 2009's earnings per share by $0.12. * The company's fiscal 2009 free cash flow totaled $101.3 million. During the year the company used its cash to reduce outstanding debt by approximately $96 million, before a $50 million incremental borrowing required as a result of the company's decision to discontinue its accounts receivable securitization program. In addition, the company repurchased 497,000 shares at a cost of $15.3 million during the first quarter. No other shares were repurchased during the year.
School Specialty has redefined its segment reporting, effective with the current fourth quarter and fiscal 2009 earnings report, reflecting the company's new category management business alignment and the resulting change in internal reporting and management. The new School Specialty Educational Resources segment is comprised of the former Education Essentials segment plus five product categories from the former Specialty segment: art, early childhood, physical education, special needs and the Classroom Direct catalog business. The new School Specialty Publishing segment consists of the remaining product categories of the former Specialty segment: science, reading and literacy, coordinated school health, and planning and student development. For fiscal 2009, Educational Resources accounted for 70.4% of revenues while Publishing represented 29.6%.
Attached to this release are tables comparing segment revenue and gross profit for the fourth quarter and full year under both new and old segment reporting definitions. To help with the transition, investors may find it useful to refer to both tables of information. Please be advised that certain estimates and judgments have been made in depicting the margins of the old reporting segments.
Outlook
At this time, School Specialty is not providing specific revenue or earnings guidance due to delays in the passage of state and school budgets, as well as general economic uncertainties. However, the company believes that because of actions taken during fiscal 2009 it can begin to grow EPS in 2010 over 2009 at revenues of approximately $960 million, with the following expectations:
* Science adoption revenue is expected to decline approximately $22 million from fiscal 2009 levels. * Gross margin is expected to grow 60 to 70 basis points over fiscal 2009. * SG&A is expected to be 33.4 percent to 33.8 percent of revenue. * Free cash flow is expected to be $65 million to $75 million. * Non-cash charge for adoption of FSP APB 14-1 of $0.42 per diluted share and $0.39 per diluted share for fiscal 2010 and 2009, respectively.
The company believes it will be in a position to provide specific revenue and earnings guidance later in the back-to-school season as it gains more visibility around order velocity.
Conference Call
School Specialty will host a conference call to discuss its fiscal 2009 financial results. The conference call begins today, June 11, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investor Information section of the School Specialty web site at www.schoolspecialty.com, and a replay of the call will be available.
About School Specialty, Inc.
School Specialty is a leading education company that provides innovative and proprietary products, programs and services to help educators engage and inspire students of all ages and abilities to learn. The company designs, develops, and provides preK-12 educators with the latest and very best curriculum, supplemental learning resources, and school supplies. Working in collaboration with educators, School Specialty reaches beyond the scope of textbooks to help teachers, guidance counselors and school administrators ensure that every student reaches his or her full potential.
For more information about School Specialty, visit www.schoolspecialty.com.
Cautionary Statement Concerning Forward-Looking Information
Any statements made in this press release about future results of operations, expectations, plans or prospects, including but not limited to statements included under the heading "Outlook," constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "should," "plans," "targets" and/or similar expressions. These forward-looking statements are based on School Specialty's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the factors described in Item 1A of School Specialty's Annual Report on Form 10-K for the fiscal year ended April 26, 2008, which factors are incorporated herein by reference. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
Three Months Ended Fiscal Year Ended
---------------------- ----------------------
April 25, April 26, April 25, April 26,
2009 2008 2009 2008
---------- ---------- ---------- ----------
Revenues $ 156,170 $ 173,632 $1,046,980 $1,087,903
Cost of revenues 93,985 104,987 618,377 626,661
---------- ---------- ---------- ----------
Gross profit 62,185 68,645 428,603 461,242
Selling, general and
administrative
expenses 76,530 85,339 350,919 361,754
---------- ---------- ---------- ----------
Operating income
(loss) (14,345) (16,694) 77,684 99,488
Other (income) expense:
Interest expense 4,439 5,046 18,205 19,857
Interest income (11) (5) (333) (28)
Other (124) 373 2,679 5,718
---------- ---------- ---------- ----------
Income (loss) before
provision for income
taxes (18,649) (22,108) 57,133 73,941
Provision for (benefit
from) income taxes (7,355) (9,426) 22,592 28,129
---------- ---------- ---------- ----------
Earnings (loss) from
continuing operations (11,294) (12,682) 34,541 45,812
Loss from discontinued
School Specialty
Media business unit,
net of income taxes -- (2,810) -- (4,691)
---------- ---------- ---------- ----------
Net income (loss) $ (11,294) $ (15,492) $ 34,541 $ 41,121
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 18,795 19,205 18,802 20,196
Diluted 18,795 19,205 18,895 20,708
Basic earnings (loss)
per share of common
stock:
Earnings (loss) from
continuing
operations $ (0.60) $ (0.66) $ 1.84 $ 2.27
Loss from discontinued
operations -- (0.15) -- (0.23)
---------- ---------- ---------- ----------
Total $ (0.60) $ (0.81) $ 1.84 $ 2.04
========== ========== ========== ==========
Diluted earnings (loss)
per share of common
stock:
Earnings (loss) from
continuing
operations $ (0.60) $ (0.66) $ 1.83 $ 2.21
Loss from discontinued
operations -- (0.15) -- (0.22)
---------- ---------- ---------- ----------
Total $ (0.60) $ (0.81) $ 1.83 $ 1.99
========== ========== ========== ==========
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
April 25, April 26,
2009 2008
---------- ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,871 $ 4,034
Accounts receivable 103,683 77,591
Inventories 127,108 149,548
Deferred catalog costs 15,537 14,845
Prepaid expenses and other current assets 17,347 18,857
Refundable income taxes 1,566 9,288
Deferred taxes 9,805 15,726
---------- ----------
Total current assets 276,917 289,889
Property, plant and equipment, net 70,183 77,311
Goodwill 532,318 543,630
Intangible assets, net 168,082 176,771
Other 27,551 29,726
---------- ----------
Total assets $1,075,051 $1,117,327
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities - long-term debt $ 133,682 $ 133,628
Accounts payable 56,786 64,340
Accrued compensation 12,821 19,476
Deferred revenue 4,254 6,641
Accrued income taxes -- --
Other accrued liabilities 28,231 30,593
---------- ----------
Total current liabilities 235,774 254,678
Long-term debt - less current maturities 266,229 312,210
Deferred taxes and other 75,255 70,671
Other liabilities 913 1,080
---------- ----------
Total liabilities 578,171 638,639
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value per share,
1,000,000 shares authorized; none outstanding -- --
Common stock, $0.001 par value per share,
150,000,000 authorized and 24,243,438 and
23,631,135 shares issued, respectively 24 24
Capital paid-in excess of par value 393,327 380,073
Treasury stock, at cost - 5,420,210 and
4,922,610 shares, respectively (186,637) (171,387)
Accumulated other comprehensive income 10,805 25,158
Retained earnings 279,361 244,820
---------- ----------
Total shareholders' equity 496,880 478,688
---------- ----------
Total liabilities and shareholders' equity $1,075,051 $1,117,327
========== ==========
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Fiscal Year Ended
----------------------
April 25, April 26,
2009 2008
---------- ----------
Cash flows from operating activities:
Net income $ 34,541 $ 41,121
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and intangible asset
amortization expense 24,315 25,348
Amortization of development costs 6,401 8,963
Amortization of debt fees and other 1,394 1,959
Loss on disposal of School Specialty Media
business unit -- 1,519
Share-based compensation expense 4,488 5,490
Deferred taxes 10,631 14,924
Loss (Gain) on disposal of property,
equipment and other 490 263
Changes in current assets and liabilities
(net of assets acquired and liabilities
assumed in business combinations):
Change in amounts sold under receivables
securitization, net (50,000) --
Accounts receivable 21,867 (12,688)
Inventories 22,313 23,234
Deferred catalog costs (692) (2,294)
Prepaid expenses and other current assets 10,860 (4,134)
Accounts payable (8,484) (13,702)
Accrued liabilities (6,910) 13,703
---------- ----------
Net cash provided by operating activities 71,214 103,706
---------- ----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
acquired -- (5,828)
Additions to property, plant and equipment (11,622) (17,723)
Proceeds from disposal of discontinued
operations 2,485 --
Investment in product development costs (8,523) (10,849)
Proceeds from disposal of School Specialty
Media business unit -- 1,350
Proceeds from disposal of property, plant and
equipment 186 375
---------- ----------
Net cash used in investing activities (17,474) (32,675)
---------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings 680,000 691,200
Repayment of debt and capital leases (725,890) (672,091)
Purchase of treasury stock (15,250) (94,879)
Proceeds from exercise of stock options 3,194 5,559
Excess income tax benefit from exercise of
stock options 1,440 828
Payment of debt fees and other 603 --
---------- ----------
Net cash used in financing activities (55,903) (69,383)
---------- ----------
Net increase in cash and cash equivalents (2,163) 1,648
Cash and cash equivalents, beginning of period 4,034 2,386
---------- ----------
Cash and cash equivalents, end of period $ 1,871 $ 4,034
========== ==========
Free cash flow reconciliation:
Net cash provided by operating activities $ 71,214 $ 103,706
Additions to property and equipment (11,622) (17,723)
Investment in development costs (8,523) (10,849)
Proceeds from disposal of property and
equipment 186 375
Net accounts receivable securitization
facility 50,000 --
---------- ----------
Free cash flow $ 101,255 $ 75,509
========== ==========
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2009
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
-----------------------------------------------------
% of Revenues
--------------
Change 4Q09- 4Q08-
4Q09-QTD 4Q08-QTD Change $ % QTD QTD
-------- -------- -------- ------ ------ ------
Revenues
Educational
Resources $121,834 $137,708 $(15,874) -11.5% 78.0% 79.3%
Publishing 34,338 37,120 (2,782) -7.5% 22.0% 21.4%
Corporate and
Interco Elims (2) (1,197) 1,195 0.0% -0.7%
-------- -------- -------- ------ ------
Total Revenues $156,170 $173,631 $(17,461) -10.1% 100.0% 100.0%
======== ======== ======== ====== ======
% of Gross
Profit
--------------
Change 4Q09- 4Q08-
4Q09-QTD 4Q08-QTD Change $ % QTD QTD
-------- -------- -------- ------ ------ ------
Gross Profit
Educational
Resources $ 46,243 $ 51,956 $ (5,713) -11.0% 74.4% 75.7%
Publishing 15,264 17,444 (2,180) -12.5% 24.5% 25.4%
Corporate and
Interco Elims 678 (756) 1,434 1.1% -1.1%
-------- -------- -------- - ------ ------
Total Gross
Profit $ 62,185 $ 68,644 $ (6,459) -9.4% 100.0% 100.0%
======== ======== ======== ====== ======
Segment Gross Margin Summary-QTD
--------------------------------
Gross Margin 4Q09-QTD 4Q08-QTD
-------- --------
Educational
Resources 38.0% 37.7%
Publishing 44.5% 47.0%
Total Gross
Margin 39.8% 39.5%
Segment Revenues and Gross Profit/Margin Analysis-YTD
-----------------------------------------------------
% of Revenue
--------------
Change 4Q09- 4Q08-
4Q09-YTD 4Q08-YTD Change $ % YTD YTD
---------- ---------- -------- ------ ------ ------
Revenues
Educational
Resources $ 737,068 $ 755,174 $(18,106) -2.4% 70.4% 69.4%
Publishing 310,203 335,290 (25,087) -7.5% 29.6% 30.8%
Corporate
and Interco
Elims (291) (2,561) 2,270 0.0% -0.2%
---------- ---------- -------- ------ ------
Total
Revenues $1,046,980 $1,087,903 $(40,923) -3.8% 100.0% 100.0%
========== ========== ======== ====== ======
% of Gross
Profit
--------------
Change 4Q09- 4Q08-
4Q09-YTD 4Q08-YTD Change $ % YTD YTD
---------- ---------- -------- ------ ------ ------
Gross Profit
Educational
Resources $ 256,641 $ 275,143 $(18,502) -6.7% 60.0% 59.6%
Publishing 168,914 184,405 (15,491) -8.4% 39.4% 40.0%
Corporate
and Interco
Elims 3,048 1,694 1,354 0.6% 0.4%
---------- ---------- -------- ------ ------
Total Gross
Profit $ 428,603 $ 461,242 $(32,639) -7.1% 100.0% 100.0%
========== ========== ======== ====== ======
Segment Gross Margin Summary-YTD
--------------------------------
Gross Margin 4Q09-YTD 4Q08-YTD
---------- ----------
Educational
Resources 34.8% 36.4%
Publishing 54.5% 55.0%
Total Gross
Margin 40.9% 42.4%
School Specialty, Inc.
Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2009
(In thousands)
Unaudited
Revenues and Gross Profit/Margin Analysis-QTD
---------------------------------------------
% of Revenues
--------------
Change 4Q09- 4Q08-
4Q09-QTD 4Q08-QTD Change $ % QTD QTD
-------- -------- -------- ------ ------ ------
Revenues
Specialty $ 94,466 $104,494 $(10,027) -9.6% 60.5% 60.2%
Essentials 65,618 71,585 (5,966) -8.3% 42.0% 41.2%
Corporate and
Interco Elims (3,915) (2,446) (1,469) -2.5% -1.4%
-------- -------- -------- ------ ------
Total Revenues $156,170 $173,632 $(17,462) -10.1% 100.0% 100.0%
======== ======== ======== ====== ======
% of Gross
Profit
--------------
Change 4Q09- 4Q08-
4Q09-QTD 4Q08-QTD Change $ % QTD QTD
-------- -------- -------- ------ ------ ------
Gross Profit
Specialty $ 41,215 $ 46,843 $ (5,628) -12.0% 66.3% 68.2%
Essentials 22,272 23,017 (745) -3.2% 35.8% 33.5%
Corporate and
Interco Elims (1,301) (1,215) (86) -2.1% -1.7%
-------- -------- -------- ------ ------
Total Gross
Profit $ 62,186 $ 68,645 $ (6,459) -9.4% 100.0% 100.0%
======== ======== ======== ====== ======
Gross Margin Summary-QTD
------------------------
Gross Margin 4Q09-QTD 4Q08-QTD
-------- --------
Specialty 43.6% 44.8%
Essentials 33.9% 32.2%
Total Gross
Margin 39.8% 39.5%
Revenues and Gross Profit/Margin Analysis-YTD
---------------------------------------------
% of Revenue
--------------
Change 4Q09- 4Q08-
4Q09-YTD 4Q08-YTD Change $ % YTD YTD
---------- ---------- -------- ------ ------ ------
Revenues
Specialty $ 600,892 $ 639,809 $(38,916) -6.1% 57.4% 58.8%
Essentials 453,331 455,385 (2,053) -0.5% 43.3% 41.9%
Corporate
and Interco
Elims (7,244) (7,290) 46 -0.7% -0.7%
---------- ---------- -------- ------ ------
Total
Revenues $1,046,980 $1,087,903 $(40,923) -3.8% 100.0% 100.0%
========== ========== ======== ====== ======
% of Gross
Profit
--------------
Change 4Q09- 4Q08-
4Q09-YTD 4Q08-YTD Change $ % YTD YTD
---------- ---------- -------- ------ ------ ------
Gross Profit
Specialty $ 291,462 $ 317,268 $(25,806) -8.1% 68.0% 68.8%
Essentials 137,320 144,280 (6,960) -4.8% 32.0% 31.3%
Corporate
and Interco
Elims (179) (306) 127 0.0% -0.1%
---------- ---------- -------- ------ ------
Total Gross
Profit $ 428,603 $ 461,242 $(32,639) -7.1% 100.0% 100.0%
========== ========== ======== ====== ======
Gross Margin Summary-YTD
------------------------
Gross Margin 4Q09-YTD 4Q08-YTD
---------- ----------
Specialty 48.5% 49.6%
Essentials 30.3% 31.7%
Total Gross
Margin 40.9% 42.4%