Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - SCHOOL SPECIALTY INC | d260016d8k.htm |
Exhibit 99.1
|
FOR IMMEDIATE RELEASE TUESDAY, NOVEMBER 22, 2011
Contact: David Vander Ploeg Executive VP and CFO 920-882-5854 | |
| W6316 Design Drive, Greenville, WI 54942 P.O. Box 1579, Appleton, WI 54912-1579 |
School Specialty Reports Fiscal 2012 Second Quarter and Year-to-Date Results
| - | Year-to-date revenues declined 3 percent to $528 million |
| - | Cost reductions implemented for additional annual savings of $10 million |
| - | Revenue and earnings guidance revised |
Greenville, WI, November 22, 2011—School Specialty (NASDAQ: SCHS) today reported fiscal 2012 second quarter and year-to-date financial results. Because of the company’s seasonality and the extra week in the prior year, operating results are more accurately evaluated over the full six-month period.
Revenue for the first six months of fiscal 2012 was $527.5 million, compared with $544.9 million in the first six months of the prior year, a decline of 3.2 percent. Earnings before interest, tax, depreciation and amortization (“EBITDA”) totaled $71.7 million compared with $85.2 million in the previous year. Net income was $22.4 million or $1.18 per diluted share in the first six months of fiscal 2012, compared with a net loss in the first six months of last year of $313.5 million, or $16.62 per share. Excluding net of tax impairment charges of $344.9 million or $18.28 per share last year, earnings per share were $1.66 in the first six months of the prior year.
“Unit pricing pressure and reductions in funding for student agendas resulted in two-thirds of the company’s revenue decline in the first six months,” said David J. Vander Zanden, Chief Executive Officer. “Curriculum revenues declined in the mid-single digits from the prior year as order rates across the industry slowed sharply at the start of the new school year, offsetting both our first quarter gains and strong Science adoption revenues in Indiana. Revenue in Educational Resources for the six-month period was nearly the same as last year, and our gross margins expanded in the last two months of the quarter in a market place that remains challenged.”
Vander Zanden continued, “We expect Educational Resources’ revenue and gross margins to continue to improve over the prior year beginning in January as we introduce our new programs for the next selling season. In addition, we have implemented company-wide cost reductions that are expected to contribute ongoing savings of approximately $10 million annually. The entire organization remains focused on how we can best serve our customers in providing cost-effective solutions with our high quality curriculum and educational products in this challenging environment.”
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Second Quarter Financial Results
| • | Revenue for the second quarter was $251.4 million, compared with $291.9 million for the same period last year. Approximately $18 million of this decrease was related to the shift in the high volume shipping weeks between the first and second quarters. Educational Resources revenue was $173.2 million in the second quarter, down 3 percent after adjusting for the shift in weeks. Second quarter revenue for the Accelerated Learning Group was $78.0 million, a decline of 16 percent compared with the same period last year, adjusted for the shift in weeks. The remaining decline was related to lower student agenda sales and slightly lower curriculum sales. |
| • | Gross profit was $95.1 million compared with $117.5 million in last year’s second quarter, a decline of 19.1 percent. Consolidated gross margin declined to 37.8 percent compared with 40.3 percent in the prior year. The decline in gross margin was primarily due to a shift in product mix towards Educational Resources products and to lower gross margin products within the Accelerated Learning segment. |
| • | Selling, general and administrative (SG&A) expenses declined $5.9 million to $73.4 million from the prior year’s $79.3 million. The decline was primarily related to lower volume related expenses and lower compensation and benefit costs. |
| • | Second quarter interest expense increased to $6.9 million from last year’s $6.7 million. |
| • | Net income in this year’s second quarter was $8.9 million or $0.47 per diluted share, compared with last year’s second quarter net income of $18.1 million or $0.96 per diluted share. |
Six-Month Financial Results
| • | Revenue for the first six months of fiscal 2012 was $527.5 million, compared with $544.9 million in the same period of the prior year, a decline of 3.2 percent. Revenue for the six-month period of fiscal 2012 for Educational Resources declined 1.1 percent, at $359.3 million compared with $363.1 million in fiscal 2011. Accelerated Learning revenue declined 7.5 percent to $167.8 million in the first six months of fiscal 2012 compared with $181.4 million in the prior year, primarily as a result of lower student agenda sales and slightly lower curriculum sales. |
| • | Gross profit for the first six months of the fiscal year was $206.3 million compared with $225.6 million in the same period last year. Year-to-date consolidated gross margin declined to 39.1 percent from 41.4 percent in the six months of fiscal 2011. Product mix between segments and Educational Resources price discounting were the major contributors to the gross margin decline. |
| • | SG&A expenses declined to $153.2 million compared with the prior year’s $157.2 million. This decline is due to a combination of decreased variable costs associated with the revenue decline and lower compensation costs. |
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| • | Interest expense in the first six months of the fiscal year was $14.8 million compared with last year’s $14.9 million. Fiscal 2012 interest expense for the first six months included $0.7 million of accelerated debt issuance cost amortization related to debt re-financing and $5.0 million of non-cash interest expenses related to the company’s convertible debt, compared to $5.5 million of non-cash interest expense in last year’s first half. |
| • | During the first half 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 six months. |
| • | Net income was $22.4 million or $1.18 per diluted share in the first half of fiscal 2012, compared with a net loss of $313.5 million, or $16.62 per share in last year’s first half. Last year’s net loss included a net of tax, non-cash goodwill and other intangible asset impairment charge of $344.9 million, or $18.28 per share. Excluding this charge, prior year earnings per share was $1.66. |
| • | Free cash flow declined in the first half of fiscal 2012 by $72 million compared to fiscal 2011’s first half. This expected decline was a result of planned early inventory purchases made during the company’s fourth quarter of fiscal 2011 and the timing of accounts payable payments in the current fiscal year. |
Outlook
Due to the weaker than anticipated educational industry sales trends, School Specialty is revising its financial guidance for fiscal 2012 as follows:
| Revised |
Prior | |||
| Revenue |
$730 million to $740 million | $755 million to $780 million | ||
| EBITDA |
$48 million to $52 million | $53 million to $59 million | ||
| Loss per share |
($0.65) to ($0.50) | ($0.35) to ($0.10) | ||
| Free cash flow1 |
$0 million to $10 million | $5 million to $15 million |
| 1 | Including deferred tax payments of approximately $30 million |
The company remains focused on working capital management and debt reduction. During the quarter, continued progress was made to improve days of inventory on hand as well as days of sales outstanding. In addition, the company expects to retire the remaining $42.5 million of the original convertible subordinated notes due 2026 at the end of November, utilizing a portion of the term loan feature of the company’s existing credit facility.
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Conference Call
School Specialty will host a conference call to discuss its fiscal 2012 second quarter financial results. The conference call begins today, November 22, 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.
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School Specialty, Inc.
SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 29, 2011 |
October 23, 2010 |
October 29, 2011 |
October 23, 2010 |
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| Revenues |
$ | 251,375 | $ | 291,879 | $ | 527,459 | $ | 544,863 | ||||||||
| Cost of revenues |
156,315 | 174,357 | 321,123 | 319,269 | ||||||||||||
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| Gross profit |
95,060 | 117,522 | 206,336 | 225,594 | ||||||||||||
| Selling, general and administrative expenses |
73,405 | 79,318 | 153,181 | 157,166 | ||||||||||||
| Impairment charge |
— | — | — | 411,390 | ||||||||||||
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| Operating income/(loss) |
21,655 | 38,204 | 53,155 | (342,962 | ) | |||||||||||
| Other expense: |
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| Interest expense |
6,867 | 6,747 | 14,779 | 14,876 | ||||||||||||
| Expense assocated with convertible debt exchange |
— | — | 1,090 | — | ||||||||||||
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| Income/(loss) before provision for income taxes |
14,788 | 31,457 | 37,286 | (357,838 | ) | |||||||||||
| Provision for (benefit from) income taxes |
6,044 | 13,222 | 14,972 | (44,447 | ) | |||||||||||
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| Income/(loss) before investment in unconsolidated affiliate |
$ | 8,744 | $ | 18,235 | $ | 22,314 | $ | (313,391 | ) | |||||||
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| Equity in earnings/(losses) of unconsolidated affiliate |
135 | (135 | ) | 115 | (135 | ) | ||||||||||
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| Net income/(loss) |
$ | 8,879 | $ | 18,100 | $ | 22,429 | $ | (313,526 | ) | |||||||
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| Weighted average shares outstanding: |
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| Basic |
18,880 | 18,870 | 18,877 | 18,867 | ||||||||||||
| Diluted |
19,020 | 18,873 | 18,972 | 18,867 | ||||||||||||
| Net Income/(Loss) Per Share: |
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| Basic |
$ | 0.47 | $ | 0.96 | $ | 1.19 | $ | (16.62 | ) | |||||||
| Diluted |
$ | 0.47 | $ | 0.96 | $ | 1.18 | $ | (16.62 | ) | |||||||
| Earnings before interest, taxes, depreciation, amortization and impairment charges (EBITDA) reconciliation: |
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| Net income (loss) |
$ | 8,879 | $ | 18,100 | $ | 22,429 | $ | (313,526 | ) | |||||||
| Equity in (earnings)/losses of unconsolidated affiliate |
(135 | ) | 135 | (115 | ) | 135 | ||||||||||
| Provision for / benefit from income taxes |
6,044 | 13,222 | 14,972 | (44,447 | ) | |||||||||||
| Expense associated with convertible debt exchange |
— | — | 1,090 | — | ||||||||||||
| Impairment charge |
— | — | — | 411,390 | ||||||||||||
| Depreciation and amortization expense |
7,319 | 6,881 | 14,536 | 13,869 | ||||||||||||
| Amortization of development costs |
2,356 | 1,395 | 3,959 | 2,931 | ||||||||||||
| Interest expense |
6,867 | 6,747 | 14,779 | 14,876 | ||||||||||||
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| EBITDA |
$ | 31,330 | $ | 46,480 | $ | 71,650 | $ | 85,228 | ||||||||
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School Specialty, Inc.
SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
Unaudited
| October 29, 2011 |
April 30, 2011 |
October 23, 2010 |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | 4,141 | $ | 9,821 | $ | 8,105 | ||||||
| Accounts receivable, net |
127,722 | 67,442 | 147,057 | |||||||||
| Inventories |
77,253 | 111,266 | 75,190 | |||||||||
| Deferred catalog costs |
7,079 | 16,639 | 7,997 | |||||||||
| Prepaid expenses and other current assets |
14,218 | 14,516 | 16,099 | |||||||||
| Deferred taxes |
1,700 | — | 9,866 | |||||||||
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| Total current assets |
232,113 | 219,684 | 264,314 | |||||||||
| Property, plant and equipment, net |
59,962 | 65,571 | 64,259 | |||||||||
| Goodwill |
127,990 | 129,390 | 127,146 | |||||||||
| Intangible assets, net |
150,521 | 155,889 | 160,852 | |||||||||
| Other |
35,054 | 36,383 | 33,321 | |||||||||
| Deferred taxes long-term |
7,218 | 10,227 | — | |||||||||
| Investment in unconsolidated affiliate |
20,515 | 20,400 | 28,080 | |||||||||
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| Total assets |
$ | 633,373 | $ | 637,544 | $ | 677,972 | ||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
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| Current maturities—long-term debt |
$ | 43,272 | $ | 98,243 | $ | 849 | ||||||
| Accounts payable |
40,816 | 85,639 | 81,412 | |||||||||
| Accrued compensation |
12,284 | 7,972 | 8,567 | |||||||||
| Deferred revenue |
4,389 | 3,600 | 4,895 | |||||||||
| Deferred taxes |
— | 4,454 | — | |||||||||
| Accrued income taxes |
13,122 | 11,855 | 29,103 | |||||||||
| Other accrued liabilities |
29,223 | 25,428 | 33,567 | |||||||||
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| Total current liabilities |
143,106 | 237,191 | 158,393 | |||||||||
| Long-term debt—less current maturities |
266,350 | 198,036 | 266,471 | |||||||||
| Deferred taxes |
— | — | 15,252 | |||||||||
| Other liabilities |
688 | 688 | 1,423 | |||||||||
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| Total liabilities |
410,144 | 435,915 | 441,539 | |||||||||
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| Commitments and contingencies |
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| Shareholders’ equity: |
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| 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 |
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| 24,300,545; 24,290,345 and 24,290,345 shares issued, respectively |
24 | 24 | 24 | |||||||||
| Capital paid-in excess of par value |
443,293 | 441,335 | 437,943 | |||||||||
| 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 |
23,603 | 26,390 | 21,839 | |||||||||
| (Accumulated deficit) |
(57,054 | ) | (79,483 | ) | (36,736 | ) | ||||||
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| Total shareholders’ equity |
223,229 | 201,629 | 236,433 | |||||||||
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| Total liabilities and shareholders’ equity |
$ | 633,373 | $ | 637,544 | $ | 677,972 | ||||||
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School Specialty, Inc.
SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
| Six Months Ended | ||||||||
| October 29, 2011 |
October 23, 2010 |
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| Cash flows from operating activities: |
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| Net income |
$ | 22,429 | $ | (313,526 | ) | |||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and intangible asset amortization expense |
14,536 | 13,869 | ||||||
| Amortization of development costs |
3,959 | 2,931 | ||||||
| Amortization of debt fees and other |
1,751 | 1,118 | ||||||
| Share-based compensation expense |
1,181 | 1,443 | ||||||
| Impairment charge |
— | 411,390 | ||||||
| Investment in unconsolidated affiliate |
(115 | ) | 135 | |||||
| Deferred taxes |
(4,246 | ) | (77,606 | ) | ||||
| Expense associated with convertible debt exchange |
1,090 | — | ||||||
| Non-cash convertible debt deferred financing costs |
5,005 | 5,542 | ||||||
| Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations): |
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| Accounts receivable |
(61,162 | ) | (74,064 | ) | ||||
| Inventories |
34,000 | 24,718 | ||||||
| Deferred catalog costs |
9,560 | 5,596 | ||||||
| Prepaid expenses and other current assets |
295 | (243 | ) | |||||
| Accounts payable |
(45,089 | ) | 33,051 | |||||
| Accrued liabilities |
10,101 | 33,248 | ||||||
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| Net cash (used in)/provided by operating activities |
(6,705 | ) | 67,602 | |||||
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| Cash flows from investing activities: |
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| Additions to property, plant and equipment |
(3,667 | ) | (5,917 | ) | ||||
| Investment in product development costs |
(3,816 | ) | (4,254 | ) | ||||
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| Net cash used in investing activities |
(7,483 | ) | (10,171 | ) | ||||
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| Cash flows from financing activities: |
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| Proceeds from bank borrowings |
300,600 | 449,400 | ||||||
| Repayment of debt and capital leases |
(290,429 | ) | (386,761 | ) | ||||
| Redemption of convertible debt |
— | (133,000 | ) | |||||
| Payment of debt and other |
(1,663 | ) | — | |||||
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| Net cash provided by/(used in) financing activities |
8,508 | (70,361 | ) | |||||
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| Net decrease in cash and cash equivalents |
(5,680 | ) | (12,930 | ) | ||||
| Cash and cash equivalents, beginning of period |
9,821 | 21,035 | ||||||
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| Cash and cash equivalents, end of period |
$ | 4,141 | $ | 8,105 | ||||
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| Free cash flow reconciliation: |
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| Net cash (used in)/provided by operating activities |
$ | (6,705 | ) | $ | 67,602 | |||
| Additions to property and equipment |
(3,667 | ) | (5,917 | ) | ||||
| Investment in product development costs |
(3,816 | ) | (4,254 | ) | ||||
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| Free cash flow |
$ | (14,188 | ) | $ | 57,431 | |||
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School Specialty, Inc.
School Specialty, Inc.
Segment Analysis—Revenues and Gross Profit/Margin Analysis
(In thousands)
Unaudited
| Segment Revenues and Gross Profit/Margin Analysis-QTD |
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| % of Revenues | ||||||||||||||||||||||||
| 2Q12-QTD | 2Q11-QTD | Change $ | Change % | 2Q12-QTD | 2Q11-QTD | |||||||||||||||||||
| Revenues |
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| Educational Resources |
$ | 173,222 | $ | 187,693 | $ | (14,471 | ) | -7.7 | % | 68.9 | % | 64.3 | % | |||||||||||
| Accelerated Learning |
77,986 | 104,019 | (26,033 | ) | -25.0 | % | 31.0 | % | 35.6 | % | ||||||||||||||
| Corporate and Interco Elims |
167 | 167 | — | 0.1 | % | 0.1 | % | |||||||||||||||||
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| Total Revenues |
$ | 251,375 | $ | 291,879 | $ | (40,504 | ) | -13.9 | % | 100.0 | % | 100.0 | % | |||||||||||
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| % of Gross Profit | ||||||||||||||||||||||||
| 2Q12-QTD | 2Q11-QTD | Change $ | Change % | 2Q12-QTD | 2Q11-QTD | |||||||||||||||||||
| Gross Profit |
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| Educational Resources |
$ | 53,481 | $ | 58,740 | $ | (5,259 | ) | -9.0 | % | 56.3 | % | 50.0 | % | |||||||||||
| Accelerated Learning |
40,825 | 57,903 | (17,078 | ) | -29.5 | % | 42.9 | % | 49.3 | % | ||||||||||||||
| Corporate and Interco Elims |
754 | 879 | (125 | ) | 0.9 | % | 0.7 | % | ||||||||||||||||
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| Total Gross Profit |
$ | 95,060 | $ | 117,522 | $ | (22,462 | ) | -19.1 | % | 100.1 | % | 100.0 | % | |||||||||||
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| Segment Gross Margin Summary-QTD |
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| 2Q12-QTD | 2Q11-QTD | |||||||||||||||||||||||
| Gross Margin |
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| Educational Resources |
30.9 | % | 31.3 | % | ||||||||||||||||||||
| Accelerated Learning |
52.3 | % | 55.7 | % | ||||||||||||||||||||
| Total Gross Margin |
37.8 | % | 40.3 | % | ||||||||||||||||||||
| Segment Revenues and Gross Profit/Margin Analysis-YTD |
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| % of Revenue | ||||||||||||||||||||||||
| 2Q12-YTD | 2Q11-YTD | Change $ | Change % | 2Q12-YTD | 2Q11-YTD | |||||||||||||||||||
| Revenues |
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| Educational Resources |
$ | 359,286 | $ | 363,111 | $ | (3,825 | ) | -1.1 | % | 68.1 | % | 66.6 | % | |||||||||||
| Accelerated Learning |
167,839 | 181,418 | (13,579 | ) | -7.5 | % | 31.8 | % | 33.3 | % | ||||||||||||||
| Corporate and Interco Elims |
334 | 334 | — | 0.1 | % | 0.1 | % | |||||||||||||||||
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| Total Revenues |
$ | 527,459 | $ | 544,863 | $ | (17,404 | ) | -3.2 | % | 100.0 | % | 100.0 | % | |||||||||||
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| % of Gross Profit | ||||||||||||||||||||||||
| 2Q12-YTD | 2Q11-YTD | Change $ | Change % | 2Q12-YTD | 2Q11-YTD | |||||||||||||||||||
| Gross Profit |
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| Educational Resources |
$ | 113,918 | $ | 120,850 | $ | (6,932 | ) | -5.7 | % | 55.2 | % | 53.6 | % | |||||||||||
| Accelerated Learning |
90,982 | 103,218 | (12,236 | ) | -11.9 | % | 44.1 | % | 45.8 | % | ||||||||||||||
| Corporate and Interco Elims |
1,436 | 1,526 | (90 | ) | 0.7 | % | 0.6 | % | ||||||||||||||||
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| Total Gross Profit |
$ | 206,336 | $ | 225,594 | $ | (19,258 | ) | -8.5 | % | 100.0 | % | 100.0 | % | |||||||||||
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| Segment Gross Margin Summary-YTD |
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| 2Q12-YTD | 2Q11-YTD | |||||||||||||||||||||||
| Gross Margin |
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| Educational Resources |
31.7 | % | 33.3 | % | ||||||||||||||||||||
| Accelerated Learning |
54.2 | % | 56.9 | % | ||||||||||||||||||||
| Total Gross Margin |
39.1 | % | 41.4 | % | ||||||||||||||||||||
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