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-- 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, July 24, 2011 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, April 30, July 24, 2011 2011 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, July 24, 2011 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 ------------------ Change 1Q12-QTD 1Q11-QTD 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 $ 23,100 100.0% 100.0% ========== ========== ========== 9.1% ======== ======== % of Revenues ------------------ Change 1Q12-QTD 1Q11-QTD 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 $ 3,204 100.0% 100.0% ========== ========== ========== 3.0% ======== ======== 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%
This news release was distributed by GlobeNewswire, www.globenewswire.com
SOURCE: School Specialty, Inc.
CONTACT: David Vander Ploeg
Executive VP and CFO
920-882-5854