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School Specialty Reports Third Quarter and Nine-Month Results
  --  Supplies order trends improve following new catalog mailings
  --  Cost reductions result in additional SG&A savings
  --  Guidance confirmed
  --  Revolving credit facility amended


GREENVILLE, Wis., Feb. 17, 2011 (GLOBE NEWSWIRE) -- School Specialty (Nasdaq:SCHS) today reported fiscal 2011 third quarter and year-to-date financial results. Revenue for the quarter was $89.9 million, a decline of 12.9 percent compared with revenue of $103.1 million in last year's third quarter. Net loss in the seasonally slow third quarter was $20.2 million, a 9.2 percent increase compared with a loss of $18.5 million in the same period last year. The quarter's loss per share was $1.07 compared with a loss of $0.98 in fiscal 2010.

The company generated an additional $9.3 million in free cash flow in the third quarter, contributing to a year-to-date debt reduction of over $78 million.

"We're encouraged by our third quarter results as revenue trends improved over our first and second quarters," said President and Chief Executive Officer David Vander Zanden. "I'm particularly pleased with the early results of our latest catalog mailings and marketing efforts in Educational Resources. During January we saw a noticeable increase in supplies orders as a result of these catalog drops, and that's very positive since supplies represent about 45 percent of our total revenue. In addition to the enhanced catalogs and circulation, our associates improved our pricing programs, product offerings, e-commerce systems, and sales outreach efforts. We expect sales momentum in consumables to remain positive in the fourth quarter, and help generate improved financial results during the upcoming back-to-school season. Although our furniture business will continue to negatively impact overall group results, we are seeing our large-project revenues stabilize.

"Third quarter revenue for the Accelerated Learning group was modestly below the same period last year due to softness in larger purchases of our reading products and the timing of orders, which we anticipate will benefit our fourth quarter," said Vander Zanden, noting the company's science business had a strong finish to the quarter. "The business remains well positioned for the coming year with a growing lineup of effective education solutions across our categories of reading, science, math, health and student development."

Third Quarter Financial Results

  --  Revenue for the third quarter of fiscal 2011 was $89.9 million, or down
      12.9 percent, compared with $103.1 million in the prior year's third
      quarter. While continued pressure in school funding and budgets is
      contributing to these reductions, the rate of decline has improved from
      the first six months of the fiscal year, as the company expected.

  --  Gross profit was $32.9 million compared with $42.4 million in last
      year's third quarter.   Consolidated gross margin declined 440 basis
      points to 36.7 percent, reflecting the continuation of price discounting
      in the Educational Resources segment in response to competitive
      pressures in a depressed school spending environment. In addition,
      product mix, both within and between segments contributed to the
      decline.

  --  Selling, general and administrative expenses declined to $59.2 million
      from the prior year's $65.0 million. The expense decrease is primarily
      attributable to cost reduction efforts, as well as lower volume.

  --  Third quarter net interest expense and other declined $1.1 million to
      $6.4 million from $7.5 million in last year's third quarter. This
      decline was attributable to a reduction in non-cash interest expense
      related to the company's convertible debt.  Non-cash interest expense
      declined from $3.3 million in last year's third quarter to $2.1 million
      in this year's third quarter. The non-cash interest expense reduction
      was due to the retirement of a $133.0 million convertible bond earlier
      this year.

  --  Net loss in the third quarter was $20.2 million ($1.07 per share)
      compared to a loss of $18.5 million ($0.98 per share) in the same period
      last year.


Nine-Month Financial Results

  --  Revenue for the first nine months of fiscal 2011 was $634.7 million
      compared with $779.6 million in the same period last year, a decline of
      18.6 percent. Excluding the $17.5 million of revenue in fiscal 2010's
      first nine months from last year's sale of School Specialty Publishing,
      consolidated revenue declined 16.7 percent. Negatively affecting revenue
      this year were general spending reductions by schools, including a
      significant decline in furniture sales due to a lack of school
      construction projects across the U.S., and various execution issues in
      the Educational Resources segment.

  --  Year-to-date gross profit was $258.5 million compared with $328.3
      million last year.   Gross margin declined 140 basis points to 40.7
      percent versus last year's 41.1 percent. Most of the decline was due to
      competitive pricing pressures within the Educational Resources segment,
      somewhat offset by a favorable product mix.

  --  Selling, general and administrative expenses declined to $216.3 million
      (34.1 percent of revenue), from the prior year's $239.7 million (30.7
      percent of revenue). The expense decrease is primarily attributable to
      lower volume, and the past year's cost-reductions, operational
      consolidation and divesture.

  --  Nine-month net interest expense and other declined $1.6 million to $21.2
      million from last year's $22.8 million. Included in this year's total
      was $7.7 million of non-cash interest expense related to the company's
      convertible debt, compared with $9.7 million of non-cash interest
      expense last year. Partially offsetting the decrease in non-cash
      interest expense was approximately $0.6 million of incremental loan
      commitment fees on unborrowed funds related to the company's revolving
      credit facility.

  --  A non-cash impairment charge of $411.3 million, or $344.9 million net of
      tax, was recorded in the first nine months of the fiscal year associated
      with the annual assessment of goodwill and other indefinite-lived
      intangible assets. The tax benefit associated with the impairment was
      negatively impacted by the portion of the goodwill which is
      non-deductible for tax purposes.

  --  Year-to-date net loss was $333.7 million ($17.68 per share) compared to
      net income of $39.6 million ($2.09 per share) in the same period last
      year. Excluding the net of tax impact of an impairment charge recorded
      in this year's first quarter, net income was $11.3 million ($0.60 per
      share).


Credit Facility Amendment

The company also announced it has amended its revolving credit facility. The amendment, among other things, reduces the overall credit facility capacity from $350 million to $300 million, with up to $125 million of the available capacity structured as a Delayed Draw Term Loan to be used to refinance the company's convertible notes. Covenant modifications include increases in both the total and senior leverage ratios, while the facility's interest rate will generally increase 75 basis points on borrowings.

Further details concerning the amendment will be contained in a Form 8-K to be filed by the company within the next few days with the Securities and Exchange Commission.

Outlook

School Specialty is maintaining its prior guidance for fiscal 2011:

  --  Revenue of $735 million to $770 million,
  --  Loss per share of $0.30 to $0.60; which includes the non-cash charge of
      $0.32 related to convertible debt, but excludes the non-cash impairment
      of $18.28 per share, and
  --  Free cash flow of $50 million to $60 million.


Conference Call

School Specialty will host a conference call to discuss its fiscal 2011 third quarter financial results. The conference call begins today, February 17, 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 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 24, 2010, 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        Nine Months Ended
                              ------------------------  ------------------------

                                                                       January
                              January 22,  January 23,   January 22,     23,
                                 2011         2010          2011         2010
                              -----------  -----------  ------------  ----------

  Revenues                       $ 89,859    $ 103,126     $ 634,723   $ 779,639

  Cost of revenues                 56,910       60,708       376,179     451,325
                              -----------  -----------  ------------  ----------
   Gross profit                    32,949       42,418       258,544     328,314
  Selling, general and
   administrative expenses         59,169       65,009       216,335     239,706

  Impairment Charge                    --           --       411,390          --
                              -----------  -----------  ------------  ----------
   Operating income/(loss)       (26,220)     (22,591)     (369,181)      88,608

  Other (income) expense:
   Interest expense                 6,365        7,527        21,241      22,827

   Interest income                     --         (22)            --        (33)
                              -----------  -----------  ------------  ----------
  Income/(Loss) before
   provision for income
   taxes                         (32,585)     (30,096)     (390,422)      65,814
  Provision for (benefit
   from) income taxes            (13,385)     (11,886)      (57,832)      25,998
                              -----------  -----------  ------------  ----------
   Income/(loss) before
    investment in
    unconsolidated affiliate   $ (19,200)   $ (18,210)   $ (332,590)    $ 39,816
                              -----------  -----------  ------------  ----------
  Equity in (losses) of
   unconsolidated affiliate         (950)        (241)       (1,085)       (241)
                              -----------  -----------  ------------  ----------

   Net income/(loss)           $ (20,150)   $ (18,451)   $ (333,675)    $ 39,575
                              ===========  ===========  ============  ==========

  Weighted average shares
   outstanding:
   Basic                           18,870       18,849        18,868      18,838
   Diluted                         18,870       18,849        18,868      18,901

  Net Income Per Share:
   Basic                         $ (1.07)     $ (0.98)     $ (17.68)      $ 2.10
   Diluted                       $ (1.07)     $ (0.98)     $ (17.68)      $ 2.09


                         SCHOOL SPECIALTY, INC.
                 CONSOLIDATED CONDENSED BALANCE SHEETS
                             (In Thousands)
                               Unaudited

                                 January     April 24,     January 23,
                                 22, 2011       2010          2010
                                ----------  ------------  ------------
  ASSETS
  Current assets:
   Cash and cash equivalents       $ 1,667      $ 21,035      $ 23,459
   Accounts receivable              70,767        72,734        92,894
   Inventories                      80,747        99,910        89,844
   Deferred catalog costs           16,597        13,593        10,619
   Prepaid expenses and other
    current assets                  13,329        14,318        11,267
   Refundable income taxes              --         1,539            --

   Deferred taxes                    9,867         9,867         9,805
                                ----------  ------------  ------------
     Total current assets          192,974       232,996       237,888
  Property, plant and
   equipment, net                   64,383        66,607        65,332
  Goodwill                         127,694       540,248       536,975
  Intangible assets, net           158,205       166,552       167,449
  Development costs and other       34,352        33,118        28,019
  Investment in unconsolidated
   affiliate                        27,215        28,299        29,046
                                ----------  ------------  ------------

     Total assets                $ 604,823   $ 1,067,820   $ 1,064,709
                                ==========  ============  ============

  LIABILITIES AND
   SHAREHOLDERS' EQUITY
  Current liabilities:
   Current maturities -
    long-term debt               $ 193,375     $ 132,397     $ 131,013
   Accounts payable                 64,045        47,954        25,145
   Accrued compensation              6,949         7,501         9,915
   Deferred revenue                  4,112         4,312         5,141
   Accrued income taxes             19,204            --         7,837

   Other accrued liabilities        26,266        30,905        32,872
                                ----------  ------------  ------------
     Total current liabilities     313,951       223,069       211,923
  Long-term debt - less
   current maturities               60,395       199,742       197,935
  Deferred taxes                    10,751        92,398        92,427

  Other liabilities                  1,423         1,423           913
                                ----------  ------------  ------------

     Total liabilities             386,520       516,632       503,198
                                ----------  ------------  ------------

  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
    24,290,345; 24,280,097 and
    24,277,777 shares issued,
    respectively                        24            24            24
   Capital paid-in excess of
    par value                      438,818       436,959       437,811
   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            22,984        24,052        19,799
   (Accumulated
    deficit)/Retained earnings    (56,886)       276,790       290,514
                                ----------  ------------  ------------
     Total shareholders'
      equity                       218,303       551,188       561,511
                                ----------  ------------  ------------
     Total liabilities and
      shareholders' equity       $ 604,823   $ 1,067,820   $ 1,064,709
                                ==========  ============  ============


                         SCHOOL SPECIALTY, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In Thousands)
                               Unaudited


                                                 Nine Months Ended
                                              ------------------------

                                                             January
                                               January 22,     23,
                                                  2011         2010
                                              ------------  ----------
  Cash flows from operating activities:
   Net income                                  $ (333,676)    $ 39,575
   Adjustments to reconcile net income to
    net cash provided by operating
    activities:
    Depreciation and intangible asset
     amortization expense                           20,742      19,882
    Amortization of development costs                3,838       4,191
    Amortization of debt fees and other              1,602       1,642
    Share-based compensation expense                 2,304       3,033
    Impairment charge                              411,390          --
    Investment in unconsolidated affiliate           1,085         241
    Deferred taxes                                (82,094)       6,071
    Loss (gain) on disposal of property,
     equipment and other                                --         275
    Non-cash convertible debt deferred
     financing costs                                 7,691       9,696
    Changes in current assets and
     liabilities (net of assets acquired and
     liabilities assumed in business
     combinations):
     Accounts receivable                             2,332       8,773
     Inventories                                    19,162      23,277
     Deferred catalog costs                        (3,004)       4,918
     Prepaid expenses and other current
      assets                                         2,528       5,903
     Accounts payable                               15,883    (32,400)

     Accrued liabilities                            13,784       5,248
                                              ------------  ----------
       Net cash provided by operating
        activities                                  83,567     100,325
                                              ------------  ----------

  Cash flows from investing activities:
   Cash paid in acquisitions, net of cash
    acquired                                            --    (11,700)
   Additions to property, plant and
    equipment                                     (10,220)     (8,494)
   Proceeds from disposal of discontinued
    operations                                          --         800
   Investment in product development costs         (6,655)     (6,679)
   Proceeds from disposal of property, plant
    and equipment                                       --       2,083

   Investment in Noncontrolling Interest                --     (2,226)
                                              ------------  ----------

       Net cash used in investing activities      (16,875)    (26,216)
                                              ------------  ----------

  Cash flows from financing activities:
   Proceeds from bank borrowings                   632,600     304,400
   Repayment of debt and capital leases          (585,660)   (356,803)
   Redemption of convertible debt                (133,000)          --
   Payment of debt and other                            --       (238)

   Proceeds from exercise of stock options              --         120
                                              ------------  ----------

       Net cash used in financing activities      (86,060)    (52,521)
                                              ------------  ----------

  Net (decrease)/increase in cash and cash
   equivalents                                    (19,368)      21,588
  Cash and cash equivalents, beginning of
   period                                           21,035       1,871
                                              ------------  ----------

  Cash and cash equivalents, end of period         $ 1,667    $ 23,459
                                              ============  ==========

  Free cash flow reconciliation:
   Net cash used in operating activities          $ 83,567   $ 100,325
   Additions to property and equipment            (10,220)     (8,494)
   Investment in development costs                 (6,655)     (6,679)
   Proceeds from disposal of property and
    equipment                                           --       2,083
                                              ------------  ----------

   Free cash flow                                 $ 66,692    $ 87,235
                                              ============  ==========


                                     School Specialty, Inc.
                 Segment Analysis - Revenues and Gross Profit/Margin Analysis
                                   3rd Quarter, Fiscal 2011
                                         (In thousands)
                                           Unaudited


  Segment Revenues and Gross Profit/Margin
   Analysis-QTD
  -------------------------------------------------

                                                                              % of Revenues
                                                                           ------------------

                                                                   Change
                              3Q11-QTD    3Q10-QTD     Change $       %    3Q11-QTD  3Q10-QTD
                             ----------  ----------  ------------  ------  --------  --------
  Revenues
   Educational Resources       $ 69,785    $ 81,984    $ (12,199)  -14.9%     77.7%     79.5%
   Accelerated Learning          19,907      21,007       (1,100)   -5.2%     22.2%     20.4%
   Corporate and Interco
    Elims                           167         135            32              0.1%      0.1%
                             ----------  ----------  ------------          --------  --------

     Total Revenues            $ 89,859   $ 103,126    $ (13,267)            100.0%    100.0%
                             ==========  ==========  ============  -12.9%  ========  ========


                                                                            % of Gross Profit
                                                                           ------------------

                                                                   Change
                              3Q11-QTD    3Q10-QTD     Change $       %    3Q11-QTD  3Q10-QTD
                             ----------  ----------  ------------  ------  --------  --------
  Gross Profit
   Educational Resources       $ 22,196    $ 30,044     $ (7,848)  -26.1%     67.4%     70.8%
   Accelerated Learning          10,267      11,884       (1,617)  -13.6%     31.2%     28.0%
   Corporate and Interco
    Elims                           486         490           (4)              1.4%      1.2%
                             ----------  ----------  ------------          --------  --------

     Total Gross Profit        $ 32,949    $ 42,418     $ (9,469)            100.0%    100.0%
                             ==========  ==========  ============  -22.3%  ========  ========


  Segment Gross Margin Summary-QTD
  -------------------------------------------------


  Gross Margin                3Q11-QTD    3Q10-QTD
                             ----------  ----------
   Educational Resources          31.8%       36.6%
   Accelerated Learning           51.6%       56.6%
     Total Gross Margin           36.7%       41.1%


  -------------------------------------------------------------------------------------------


  -------------------------------------------------------------------------------------------


  Segment Revenues and Gross Profit/Margin
   Analysis-YTD
  -------------------------------------------------

                                                                              % of Revenue
                                                                           ------------------

                                                                   Change
                              3Q11-YTD    3Q10-YTD     Change $       %    3Q11-YTD  3Q10-YTD
                             ----------  ----------  ------------  ------  --------  --------
  Revenues
   Educational Resources      $ 432,897   $ 546,791   $ (113,894)  -20.8%     68.2%     70.1%
   Accelerated Learning         201,325     233,573      (32,248)  -13.8%     31.7%     30.0%
   Corporate and Interco
    Elims                           501       (725)         1,226              0.1%     -0.1%
                             ----------  ----------  ------------          --------  --------

     Total Revenues           $ 634,723   $ 779,639   $ (144,916)            100.0%    100.0%
                             ==========  ==========  ============  -18.6%  ========  ========


                                                                            % of Gross Profit
                                                                           ------------------

                                                                   Change
                              3Q11-YTD    3Q10-YTD     Change $       %    3Q11-YTD  3Q10-YTD
                             ----------  ----------  ------------  ------  --------  --------
  Gross Profit
   Educational Resources      $ 143,046   $ 195,536    $ (52,490)  -26.8%     55.3%     59.6%
   Accelerated Learning         113,485     130,944      (17,459)  -13.3%     43.9%     39.9%
   Corporate and Interco
    Elims                         2,013       1,834           179              0.8%      0.5%
                             ----------  ----------  ------------          --------  --------

     Total Gross Profit       $ 258,544   $ 328,314    $ (69,770)            100.0%    100.0%
                             ==========  ==========  ============  -21.3%  ========  ========


  Segment Gross Margin Summary-YTD
  -------------------------------------------------


  Gross Margin                3Q11-YTD    3Q10-YTD
                             ----------  ----------
   Educational Resources          33.0%       35.8%
   Accelerated Learning           56.4%       56.1%
     Total Gross Margin           40.7%       42.1%

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
Mark Fleming
Investor Relations & Corp. Communications
920-882-5646