updated 6/16/2011 8:46:04 AM ET 2011-06-16T12:46:04

  • Fourth Quarter Consolidated organic revenue growth of 2 percent
  • Educational Resources grows 2 percent; Accelerated Learning grows 4 percent
  • Fiscal 2012 guidance issued

GREENVILLE, Wis., June 16, 2011 (GLOBE NEWSWIRE) -- School Specialty (Nasdaq:SCHS) today reported fiscal fourth quarter and year-end results with revenue growth in both segments, despite continuing budget pressures facing pre-kindergarten through grade 12 educators. Revenue for the final quarter of School Specialty's 2011 fiscal year grew 8.8 percent compared to last year's fourth quarter, reaching $127.4 million. Excluding the additional week in this year's fourth quarter, revenue was $119.3 million, an increase of 2 percent. Consistent with the seasonally slow fourth quarter, the company reported a fourth quarter loss of $22.6 million compared with a loss of $13.7 million in same period last year. The loss in the current-year fourth quarter includes pre-tax special charges related to an equity-method investment impairment of $6.9 million and a $1.9 million loss on exchange of debt. Excluding these special charges, the net loss for the fourth quarter was $17.2 million. Loss per share in the quarter was $1.20. Excluding special charges loss per share was $0.91 versus a prior-year loss of $0.73.

"We are cautiously optimistic with the business trends we saw in the fourth quarter," said Chief Executive Officer David J. Vander Zanden. "With state income and sales tax revenues starting to exceed most states' internal projections, we believe education budgets should stabilize and could lead to greater budget visibility and spending confidence on the part of educators for the remainder of the calendar year.

"During the fourth quarter we saw improvement in order volume both in supplies, which met our expectations, and furniture, which exceeded our expectations since that category has been the most impacted by reductions in spending and construction projects. Orders received subsequent to year end show loose furniture up 2 percent and supplies down 2 percent to prior year. Our margins in consumables continued to be impacted by pricing pressures. However, we expect this margin degradation to lessen as we proceed through the selling season and begin to grow as we implement new programs. Our fourth quarter furniture margins did show modest improvement from prior quarter levels, and we expect this improvement to continue through the heavy delivery season for furniture. 

"Our Accelerated Learning Group reported revenue growth in the fourth quarter of about 4 percent after adjusting for the incremental week in fiscal 2011, led by our science, math and health categories. Science is building good momentum, with better prospects for state adoptions this year compared to the last selling season. We expect these trends to continue through the busy season."

Fourth Quarter Financial Results

  • Revenue for the fourth quarter of fiscal 2011 was $127.4 million, an increase of 8.8 percent compared with $117.0 million in last year's fourth quarter. Excluding an incremental week in the fourth quarter of fiscal 2011 (14 weeks) as compared to the fourth quarter of fiscal 2010 (13 weeks), revenue increased by 2 percent. The revenue increase reflects growth across both company segments. 
  • Gross profit was $49.0 million compared with $50.8 million in last year's fourth quarter. Consolidated gross margin declined 490 basis points to 38.5 percent, primarily due to one-time credits realized in fiscal 2010 and pricing discounts required in consumables and furniture. The company expects the rate of decline to lessen substantially over the next several quarters. In addition, product mix within the Accelerated Learning segment contributed to the decline, and is also expected to improve.
  • As expected, selling, general and administrative expenses increased to $71.2 million from the prior year's $64.7 million, primarily due to the additional week in the current-year fourth quarter, higher volumes, and increased transportation and marketing costs in Educational Resources. 
  • A non-cash charge of $6.9 million was recorded in the fourth quarter of fiscal 2011 related to an impairment of the company's 35 percent ownership interest in an unconsolidated affiliate. Macro-economic conditions affecting school spending levels have impacted the results of this investment which led to a decreased valuation.
  • Fourth quarter net interest expense was $6.9 million, a decrease of $0.8 million from last year's fourth quarter due to a reduction in non-cash interest related to convertible debt.
  • During the quarter $100 million of outstanding 3.75% convertible subordinated debentures was exchanged and refinanced with new debentures. Expenses of $1.9 million associated with this convertible debt exchange were recognized in the current-year's fourth quarter. 
  • Net loss in the fourth quarter was $22.6 million ($1.20 per share) compared to a loss of $13.7 million ($0.73 per share) in the same period last year.   Excluding the special charges described above, net loss in fiscal 2011's fourth quarter was $17.2 million ($0.91 per share).

Fiscal 2011 Financial Results

  • Revenue for fiscal 2011 was $762.1 million compared with $896.7 million last year, a decline of 15.0 percent. Excluding $17.5 million of revenue in fiscal 2010 from School Specialty Publishing, which was sold prior to last year's third quarter, consolidated revenue declined 13.3 percent. The decline in revenue was due to K-12 education budget pressures resulting in reduced spending by schools, a significant decline in furniture sales as a result of fewer construction projects, and various performance challenges within the Educational Resources segment.
  • Gross profit for the year was $307.5 million compared with $379.1 million last year.   Gross margin declined 190 basis points to 40.4 percent versus last year's 42.3 percent. Most of the reduction was due to competitive pricing pressures within the Educational Resources segment.
  • Selling, general and administrative expenses declined to $287.6 million (37.7 percent of revenue), from the prior year's $304.5 million (34.0 percent of revenue). The expense decrease is primarily attributable to lower revenue, general cost reductions, operational consolidations and a divestiture.
  • Non-cash impairment charges totaling $418.3 million, or $349.1 million net of tax, were recorded in fiscal 2011 associated with impairment of goodwill and other indefinite-lived intangible assets, and the charge associated with the decreased valuation of the company's ownership interest in its unconsolidated affiliate. The tax benefit associated with the impairment was negatively impacted by the portion of the goodwill that is non-deductible for tax purposes.
  • Full-year net interest expense decreased $2.3 million to $28.2 million from last year's $30.5 million. This decrease was attributable to the reduction in non-cash interest expense primarily due to the retirement of $133.0 million of convertible debt early in the company's second quarter.    
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA"), was $53.1 million in fiscal 2011 as compared to $106.6 million in fiscal 2010. The decrease is related to a combination of the revenue declines and the reduction in gross margin.
  • Fiscal 2011's net loss was $356.3 million ($18.88 per share), including the non-cash impairment and debt exchange charges, compared to net income of $25.9 million ($1.37 per diluted share) in the same period last year. Excluding the net of tax impact of all special charges, net loss was $5.9 million ($0.31 per share). 
  • Free cash flow for fiscal 2011 was $35.2 million. Free cash flow was impacted by the company's increased inventory investments of nearly $11 million over earlier plans due to early buying opportunities and business growth.

Outlook

For fiscal 2012, School Specialty is expecting:

  • Revenue to be in the range of $755 million to $780 million, representing flat to positive 3.5 percent growth, on a normalized 52-week comparison.
  • EBITDA to be in the range of $53 million to $59 million, representing margins of 7.0 percent to 7.5 percent.
  • Loss per share to be in the range of $0.35 per share to $0.10 per share. This range reflects a charge of $0.25 per share for non-cash interest related to the convertible debt.
  • Free cash flow to be in the range 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 2011 financial results. The conference call begins today, June 16, 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.

-Financial Tables Follow-

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
 
  Three Months Ended Fiscal Year Ended
  April 30,

2011
April 24,

2010
April 30,

2011
April 24,

2010
         
Revenues  $ 127,355  $ 117,039  $ 762,078  $ 896,678
Cost of revenues  78,378  66,205  454,557  517,530
Gross profit  48,977  50,834  307,521  379,148
Selling, general and administrative expenses  71,225  64,745  287,560  304,451
Impairment of goodwill and intangible assets  --  --  411,390  --
Operating income (loss)  (22,248)  (13,911)  (391,429)  74,697
         
Other (income) expense:        
Interest expense  6,916  7,705  28,157  30,532
Interest income  --  (33)  --  (66)
Impairment of equity-method investment  6,861  --  6,861  --
Loss on convertible debt exchange  1,920  --  1,920  --
Income (loss) before provision for income taxes  (37,945)  (21,583)  (428,367)  44,231
Provision for (benefit from) income taxes  (15,299)  (8,320)  (73,132)  17,678
Income (loss) before investment in unconsolidated affiliate  $ (22,646)  $ (13,263)  $ (355,235)  $ 26,553
Equity in (losses) earnings of unconsolidated affiliate  47  (460)  (1,038)  (701)
Net income (loss)  $ (22,599)  $ (13,723)  $ (356,273)  $ 25,852
         
Weighted average shares outstanding:        
Basic  18,868  18,859  18,870  18,843
Diluted   18,868  18,859  18,870  18,874
         
Net Income (Loss) Per Share:        
Basic   $ (1.20)  $ (0.73)  $ (18.88)  $ 1.37
Diluted  $ (1.20)  $ (0.73)  $ (18.88)  $ 1.37
   
Earnings before interest, taxes, depreciation, amortization and impairment charges (EBITDA) reconciliation:  
Net income (loss)  $ (22,599)  $ (13,723)  $ (356,273)  $ 25,852
Equity in (losses) earnings of unconsolidated affiliate  (47)  460  1,038  701
Provision for income taxes  (15,299)  (8,320)  (73,132)  17,678
Loss on convertible debt exchange  1,920  --   1,920  -- 
Impairment of equity-method investment  6,861  --   6,861  -- 
Impairment of goodwill and intangible assets  --   --   411,390  -- 
Depreciation and amortization expense  7,090  6,964  27,832  26,847
Amortization of development costs  1,496  875  5,334  5,067
Net interest expense  6,916  7,672  28,157  30,466
EBITDA  $ (13,662)  $ (6,072)  $ 53,127  $ 106,611
     
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
 
  April 30, 2011 April 24, 2010
ASSETS (Unaudited) (Unaudited)
Current assets:    
Cash and cash equivalents  $ 9,821  $ 21,035
Accounts receivable, net  67,442  72,734
Inventories, net  111,266  99,910
Deferred catalog costs  16,639  13,593
Prepaid expenses and other current assets  14,516  14,318
Refundable income taxes  --  1,539
Deferred taxes  --  9,867
Total current assets  219,684  232,996
Property, plant and equipment, net  65,571  66,607
Goodwill  129,390  540,248
Intangible assets, net  155,889  166,552
Other  36,383  33,118
Deferred taxes - long-term  9,676  --
Investment in unconsolidated affiliate  20,400  28,299
Total assets  $ 636,993  $ 1,067,820
   
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:    
Current maturities - long-term debt  $ 95,207  $ 132,397
Accounts payable  85,639  47,954
Accrued income taxes  14,089  -- 
Accrued compensation  7,972  7,501
Deferred revenue  3,600  4,312
Deferred taxes  1,973  --
Other accrued liabilities  25,428  30,905
Total current liabilities  233,908  223,069
Long-term debt - less current maturities  201,073  199,742
Deferred taxes and other  --  92,398
Other liabilities  383  1,423
Total liabilities  435,364  516,632
     
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 and 24,280,097 shares issued, respectively  24  24
Capital paid-in excess of par value  441,335  436,959
Treasury stock, at cost - 5,420,210 and 5,420,210 shares, respectively  (186,637)  (186,637)
Accumulated other comprehensive income  26,390  24,052
Retained earnings (accumulated deficit)  (79,483)  276,790
Total shareholders' equity  201,629  551,188
Total liabilities and shareholders' equity  $ 636,993  $ 1,067,820
 
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
 
  Fiscal Year Ended
  April 30,

2011
April 24,

2010
Cash flows from operating activities:    
Net income (loss)  $ (356,273)  $ 25,852
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and intangible asset amortization expense  27,832  26,847
Amortization of development costs  5,334  5,067
Investment in unconsolidated affiliate  1,038  701
Amortization of debt fees and other  2,162  2,420
Share-based compensation expense  2,846  2,448
Impairment of goodwill and intangible assets  411,390  --
Impairment of equity-method investment  6,861  --
Loss on convertible debt exchange  1,920  --
Deferred taxes  (92,090)  5,981
Loss on disposal of property, equipment and other  --  652
Non-cash convertible debt deferred financing costs  9,999  13,062
Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations):    
Accounts receivable  5,783  29,008
Inventories  (11,297)  13,586
Deferred catalog costs  (3,046)  1,944
Prepaid expenses and other current assets  1,347  1,417
Accounts payable  38,430  (9,267)
Accrued liabilities  7,774  (7,659)
Net cash provided by operating activities  60,010  112,059
     
Cash flows from investing activities:    
Cash paid in acquisitions, net of cash acquired  (360)  (11,700)
Additions to property, plant and equipment  (15,789)  (13,832)
Acquisition of intangible and other assets  --  (1,800)
Proceeds from note receivable  --  700
Investment in product development costs  (9,052)  (10,035)
Proceeds from disposal of property, plant and equipment  --  2,083
Investment in Noncontrolling Interest  --  (2,226)
Net cash used in investing activities  (25,201)  (36,810)
     
Cash flows from financing activities:    
Proceeds from bank borrowings  810,600  304,400
Repayment of debt and capital leases  (720,068)  (356,979)
Redemption of Convertible Debt  (133,000)  --
Proceeds from exercise of stock options  --  117
Payment of debt fees and other  (3,555)  (3,623)
Net cash used in financing activities  (46,023)  (56,085)
     
Net increase in cash and cash equivalents  (11,214)  19,164
Cash and cash equivalents, beginning of period  21,035  1,871
Cash and cash equivalents, end of period  $ 9,821  $ 21,035
     
Free cash flow reconciliation:    
Net cash provided by operating activities  $ 60,010  $ 112,059
Additions to property and equipment  (15,789)  (13,832)
Investment in development costs  (9,052)  (10,035)
Proceeds from disposal of property and equipment  --   2,083
Free cash flow  $ 35,169  $ 90,275
 
 
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2011
(In thousands)
Unaudited
 
Segment Revenues and Gross Profit/Margin Analysis-QTD        
          % of Revenues
  4Q11-QTD 4Q10-QTD Change $ Change % 4Q11-QTD 4Q10-QTD
Revenues            
Educational Resources  $ 101,906  $ 94,258  $ 7,648 8.1% 80.0% 80.5%
Accelerated Learning  25,282  22,584  2,698 11.9% 19.9% 19.3%
Corporate and Interco Elims  167  197  (30)   0.1% 0.2%
Total Revenues  $ 127,355  $ 117,039  $ 10,316 8.8% 100.0% 100.0%
           
          % of Gross Profit
  4Q11-QTD 4Q10-QTD Change $ Change % 4Q11-QTD 4Q10-QTD
Gross Profit            
Educational Resources  $ 36,333  $ 37,476  $ (1,143) -3.0% 74.2% 73.7%
Accelerated Learning  12,383  12,498  (115) -0.9% 25.3% 24.6%
Corporate and Interco Elims  261  860  (599)   0.5% 1.7%
Total Gross Profit  $ 48,977  $ 50,834  $ (1,857) -3.7% 100.0% 100.0%
           
Segment Gross Margin Summary-QTD          
             
Gross Margin 4Q11-QTD 4Q10-QTD        
Educational Resources 35.7% 39.8%        
Accelerated Learning 49.0% 55.3%        
Total Gross Margin 38.5% 43.4%        
         
         
         
Segment Revenues and Gross Profit/Margin Analysis-YTD        
          % of Revenue
  4Q11-YTD 4Q10-YTD Change $ Change % 4Q11-YTD 4Q10-YTD
Revenues            
Educational Resources  $ 534,803  $ 641,048  $ (106,245) -16.6% 70.2% 71.5%
Accelerated Learning  226,607  256,157  (29,550) -11.5% 29.7% 28.6%
Corporate and Interco Elims  668  (527)  1,195   0.1% -0.1%
Total Revenues  $ 762,078  $ 896,678  $ (134,600) -15.0% 100.0% 100.0%
           
          % of Gross Profit
  4Q11-YTD 4Q10-YTD Change $ Change % 4Q11-YTD 4Q10-YTD
Gross Profit            
Educational Resources  $ 179,379  $ 233,011  $ (53,632) -23.0% 58.4% 61.5%
Accelerated Learning  125,868  143,442  (17,574) -12.3% 40.9% 37.8%
Corporate and Interco Elims  2,274  2,695  (421)   0.7% 0.7%
Total Gross Profit  $ 307,521  $ 379,148  $ (71,627) -18.9% 100.0% 100.0%
           
Segment Gross Margin Summary-YTD          
           
Gross Margin 4Q11-YTD 4Q10-YTD        
Educational Resources 33.5% 36.3%        
 Accelerated Learning 55.5% 56.0%        
 Total Gross Margin 40.4% 42.3%        
CONTACT: David Vander Ploeg
         Executive VP and CFO
         920-882-5854
         
         Mark Fleming
         Investor Relations & Communications
         920-882-5646

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