School Specialty Reports Fiscal 2012 First Quarter Results


  • First quarter revenues increase 9 percent; organic revenue grows 2 percent
  • Diluted earnings per share of $0.72; includes $0.05 refinancing charge
  • Full year guidance confirmed

GREENVILLE, Wisc., Aug. 25, 2011 (GLOBE NEWSWIRE) -- School Specialty (Nasdaq:SCHS) today reported fiscal 2012 first quarter financial results. Revenue for the first quarter was $276.1 million compared with $253.0 million in the first quarter of the prior fiscal year, an increase of 9 percent. On a comparable shipment week basis, first quarter revenue increased approximately $5 million, or 2 percent. Approximately $18 million of the revenue increase was attributable to timing of shipments.

Net income was $13.6 million, including refinancing charges net of tax of $1.1 million, compared with a net loss of $331.6 million in last year's first quarter, which included an impairment charge of $344.9 million. Diluted earnings per share, including refinancing charges, was $0.72 in this year's first quarter compared with a loss per share of $17.58 last year, including the impairment charge. Excluding impairment and refinancing charges, diluted earnings per share increased 10 percent to $0.77 per share in the first quarter of fiscal 2012 from $0.70 per share in last year's first quarter. Earnings before interest, tax, depreciation and amortization ("EBITDA") increased 4 percent to $40.3 million in this year's first quarter.

"Growth in revenues in the first quarter marked the second consecutive quarter of improvement in a challenging school budget environment," said Chief Executive Officer David J. Vander Zanden. "Both the Educational Resources and Accelerated Learning segments contributed to the revenue increase in the quarter. State budget and tax collection trends currently suggest that for most states, the worst may be over, and that stabilization and potential improvement in fiscal 2012 actual state performance against budgets should help stem education budget pressure."

"Our business and shipment cycle makes it important to review the combined results of the first two quarters to accurately evaluate performance of the business," cautioned Vander Zanden. "Due to the extra shipping week last fiscal year, our busiest week over the summer has moved from its traditional place in quarter two to the last week of quarter one."

Vander Zanden concluded, "We remain firmly committed to improving gross margins and controlling costs for the balance of the year in order to improve operating performance, and believe that in the long term, shareholders will benefit from this improved operating leverage as education spending increases to meet growing student populations and new curriculum adoptions."

 First Quarter Financial Results

  • Revenue for fiscal 2012's first quarter was $276.1 million, compared with $253.0 million in fiscal 2011's first quarter, an increase of $23.1 million, or 9 percent. Approximately $18 million of this increase was related to the shift in the high volume shipping weeks between the first and second quarter as described above. Organic revenue growth, after adjusting for shift in weeks between the first and second quarter, was 2 percent. The Educational Resource segment had organic revenue growth of 1 percent and the Accelerated Learning segment had organic revenue growth of 3 percent.
     
  • Gross profit was $111.3 million compared with $108.1 million in last year's first quarter. Consolidated gross margin declined 240 basis points to 40.3 percent, compared with the prior year's 42.7 percent. The decline in gross margin was related primarily to pricing discounts and product and freight cost increases within the Educational Resources segment, partially offset by a favorable product mix.
     
  • Selling, general and administrative (SG&A) expenses increased $2.0 million to $79.8 million compared with the prior year's $77.8 million. The increase is primarily related to incremental variable costs associated with the higher volume and the expense associated with the company's incremental investment in catalogs for this back-to-school season. Full-time headcount was down 5 percent at the end of the first quarter, on a year-over-year comparison.
     
  • Interest expense in the first quarter was $7.9 million compared with last year's $8.1 million. Interest expense in the first quarter of fiscal 2012 included $0.7 million of accelerated debt issuance cost amortization related to debt refinancings. First quarter fiscal 2012 interest expense includes $2.5 million of non-cash interest expense related to the company's convertible debt, compared to $3.4 million of non-cash interest expense in last year's first quarter.
     
  • During the first quarter of fiscal 2012, $57.5 million of outstanding 3.75% convertible subordinated debentures were exchanged and refinanced with new debentures. Expenses of $1.1 million associated with this convertible debt exchange were recognized in the current year's first quarter.
     
  • Net income was $13.6 million in the first quarter of fiscal 2012 compared with a net loss of $331.6 million last year's first quarter. Diluted earnings per share in this year's first quarter were $0.72 compared with a loss per share of $17.58 last year. Current year net income included $1.1 million of debt refinancing charges, or $0.05 per diluted share. Last year's net loss included a non-cash goodwill and other intangible asset impairment charge of $344.9 million, or $18.28 per share.
     
  • Free cash flow declined in the first quarter of fiscal 2012 by $44.8 million compared to fiscal 2011's first quarter. This expected decline was a result of the planned early inventory purchases made during the company's fourth quarter of fiscal 2011 and the subsequent payments of the related accounts payable.

Outlook

School Specialty is confirming its fiscal 2012 guidance of the following:

  • Revenue of $755 million to $780 million, representing flat to positive 3.5 percent growth, on a normalized 52-week comparison.
  • EBITDA of $53 million to $59 million, representing margins of 7.0 percent to 7.5 percent.
  • Loss per share of $0.35 to $0.10.
  • Free cash flow of $5 million to $15 million, which includes one-time deferred tax payments of approximately $30 million.

Conference Call

School Specialty will host a conference call to discuss its fiscal 2012 first quarter financial results. The conference call begins today, August 25, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investors 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, prospects, or asset values,  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 30, 2011, 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.

-Financial Tables Follow-

 
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
 
  Three Months Ended
  July 30, 2011 July 24, 2010
     
Revenues  $ 276,084  $ 252,984
Cost of revenues  164,808  144,912
Gross profit  111,276  108,072
Selling, general and administrative expenses  79,776  77,848
Impairment charge  --  411,390
Operating income/(loss)  31,500  (381,166)
     
Other expense:    
Interest expense  7,912  8,130
Expense associated with convertible debt exchange  1,090  --
Income/(loss) before provision for income taxes  22,498  (389,296)
Provision for (benefit from) income taxes  8,928  (57,669)
Income/(loss) before investment in unconsolidated affiliate  $ 13,570  $ (331,627)
Equity in losses of unconsolidated affiliate  (20)  --
Net income/(loss)  $ 13,550  $ (331,627)
     
Weighted average shares outstanding:    
Basic  18,873  18,864
Diluted  18,925  18,864
     
Net Income/(Loss) per Share:    
Basic  $ 0.72  $ (17.58)
Diluted  $ 0.72  $ (17.58)
     
Earnings before interest, taxes, depreciation, 
  amortization and impairment
  charges (EBITDA) reconciliation:
 
   
 Net income (loss)  $ 13,550  $ (331,627)
 Equity in losses of unconsolidated affiliate  20  -- 
 Provision for / benefit from income taxes  8,928  (57,669)
 Loss on convertible debt exchange  1,090  -- 
 Impairment of goodwill and intangible assets  --   411,390
 Depreciation and amortization expense  7,218  6,988
 Amortization of development costs  1,602  1,537
 Net interest expense  7,912  8,130
 EBITDA  $ 40,320  $ 38,749
     
     
See accompanying notes to condensed consolidated financial statements.
 
 
SCHOOL SPECIALTY, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
Unaudited
  July 30, 2011 April 30, 2011 July 24, 2010
ASSETS      
Current assets:      
Cash and cash equivalents  $ 3,927  $ 9,821  $ 8,586
Accounts receivable  194,507  67,442  177,888
Inventories   121,526  111,266  126,828
Deferred catalog costs   11,206  16,639  10,268
Prepaid expenses and other current assets   15,584  14,516  16,115
Deferred taxes   --  --  9,866
Total current assets   346,750  219,684  349,551
Property, plant and equipment, net   62,268  65,571  64,672
Goodwill  129,091  129,390  126,786
Intangible assets, net   153,218  155,889  163,541
Other  36,063  36,383  33,134
Deferred taxes long-term  8,887  10,227  --
Investment in unconsolidated affiliate  20,380  20,400  28,299
Total assets   $ 756,657  $ 637,544  $ 765,983
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Current maturities - long-term debt  $ 42,765  $ 98,243  $ 133,809
Accounts payable  125,554  85,639  126,169
Accrued compensation  8,903  7,972  10,764
Deferred revenue  4,348  3,600  5,466
Deferred taxes  --  4,454  --
Accrued income taxes  13,856  11,855  4,264
Other accrued liabilities  37,583  25,428  37,458
Total current liabilities  233,009  237,191  317,930
Long-term debt - less current maturities  306,926  198,036  201,587
Deferred taxes  --  --  27,867
Other liabilities  688  688  1,423
Total liabilities  540,623  435,915  548,807
       
Commitments and contingencies      
Shareholders' equity:      
Preferred stock, $0001 par value per share, 1,000,000 shares authorized;
    none outstanding
 --  --  --
Common stock, $0001 par value per share, 150,000,000 authorized and
     24,300,545; 24,290,345 and 24,290,345 shares issued, respectively
 24  24  24
Capital paid-in excess of par value  442,764  441,335  437,513
Treasury stock, at cost - 5,420,210; 5,420,210 and 5,420,210 shares, respectively  (186,637)  (186,637)  (186,637)
Accumulated other comprehensive income  25,818  26,390  21,113
(Accumulated deficit)  (65,935)  (79,483)  (54,837)
Total shareholders' equity  216,034  201,629  217,176
Total liabilities and shareholders' equity  $ 756,657  $ 637,544  $ 765,983
 
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
  Three Months Ended
  July 30, 2011 July 24, 2010
Cash flows from operating activities:    
Net income/(loss)  $ 13,550  $ (331,627)
Adjustments to reconcile net income to net cash provided    
by operating activities:    
Depreciation and intangible asset amortization expense  7,218  6,988
Amortization of development costs  1,602  1,537
Amortization of debt fees and other  1,062  625
Share-based compensation expense  517  827
Deferred taxes  (3,728)  (64,712)
Equity in losses of unconsolidated affiliate  20  --
Impairment charge  --   411,390
Expense associated with convertible debt exchange  1,090  -- 
Non cash convertible debt deferred financing costs  2,453  3,436
Changes in current assets and liabilities (net of assets     
acquired and liabilities assumed in business combinations):    
Accounts receivable.  (127,066)  (105,190)
Inventories  (10,259)  (26,921)
Deferred catalog costs  5,433  3,325
Prepaid expenses and other current assets  (1,069)  (259)
Accounts payable.  39,793  77,721
Accrued liabilities.  15,573  15,181
Net cash used in operating activities.  (53,811)  (7,679)
     
Cash flows from investing activities:    
Additions to property, plant and equipment.  (1,265)  (2,410)
Investment in product development costs  (1,954)  (2,181)
Net cash used in investing activities  (3,219)  (4,591)
     
Cash flows from financing activities:    
Proceeds from bank borrowings  176,500  35,400
Repayment of debt and capital leases.  (123,887)  (35,579)
Payment of debt fees and other.  (1,477)  --
Net cash provided by financing activities  51,136  (179)
     
Net decrease in cash and cash equivalents.  (5,894)  (12,449)
Cash and cash equivalents, beginning of period  9,821  21,035
Cash and cash equivalents, end of period  $ 3,927  $ 8,586
     
Free cash flow reconciliation:    
Net cash used in operating activities  $ (53,811)  $ (7,679)
Additions to property and equipment  (1,265)  (2,410)
Investment in development costs  (1,954)  (2,181)
Free cash flow  $ (57,030)  $ (12,270)
 
 
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
1st Quarter, Fiscal 2012
(In thousands)
Unaudited
             
Segment Revenues and Gross Profit/Margin Analysis-QTD        
          % of Revenues
  1Q12-QTD 1Q11-QTD Change $ Change % 1Q12-QTD 1Q11-QTD
Revenues            
 Educational Resources  $ 186,064  $ 175,418  $ 10,646 6.1% 67.4% 69.3%
 Accelerated Learning Group  89,853  77,399  12,454 16.1% 32.5% 30.6%
 Corporate and Interco Elims  167  167  --    0.1% 0.1%
 Total Revenues  $ 276,084  $ 252,984  $ 23,100 9.1% 100.0% 100.0%
             
          % of Revenues
  1Q12-QTD 1Q11-QTD Change $ Change % 1Q12-QTD 1Q11-QTD
Gross Profit            
 Educational Resources  $ 60,437  $ 62,110  $ (1,673) -2.7% 54.3% 57.5%
 Accelerated Learning Group  50,156  45,315  4,841 10.7% 45.1% 41.9%
 Intercompany Eliminations  683  647  36   0.6% 0.6%
 Total Gross Profit  $ 111,276  $ 108,072  $ 3,204 3.0% 100.0% 100.0%
             
Segment Gross Margin Summary-QTD
             
Gross Margin 1Q12-QTD 1Q11-QTD        
 Educational Resources 32.5% 35.4%        
 Accelerated Learning Group 55.8% 58.5%        
 Total Gross Margin 40.3% 42.7%        


            

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