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School Specialty Reports Fourth Quarter and Fiscal 2009 Results


 * 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%

CONTACT: School Specialty
David Vander Ploeg, Executive VP and CFO
920-882-5854
Communications & Investor Relations
Mark Fleming
920-882-5646