School Specialty Announces Fiscal 2013 Second Quarter Results
November 20 2012 - 8:30AM
- Reports Revenue of $236.9 Million and Net Income of
$14.1 Million - Operating Income Increases 17 Percent to
$25.3 Million - Gross Margin Improves in Quarter and Six
Months Results
School Specialty (Nasdaq:SCHS), a leading K-12
education company with the broadest array of products in the
market, today reported second quarter and six months results for
the period ending October 27, 2012. Revenue for the second quarter
of fiscal 2013 was $236.9 million, compared with $251.4 million in
the prior year, a decline of 5.8 percent. Net income for the second
quarter of fiscal 2013 was $14.1 million or $0.75 per diluted
earnings per share compared with $8.9 million or $0.47 per diluted
share last year.
Revenue for the six months of fiscal 2013 was $489.0 million
compared with $527.5 million last year, a decline of 7.3
percent. Net income for the six months increased to $32.5
million or $1.72 per diluted share, versus $22.4 million or $1.18
per diluted share in the comparable period last year.
"Despite the challenging marketplace, we continued to make
progress on our turnaround strategy and mid and long term
initiatives while staying focused on managing costs," said Michael
P. Lavelle, President and Chief Executive Officer. "Revenue
declines in the second quarter were reduced from earlier this year
with continued improvement in our operating performance. Our
immediate priorities remain improving EBITDA and working capital
while we focus our marketing and sales strategies to support our
revenue goals," he added.
Second Quarter Financial Results
- Revenue for fiscal 2013 second quarter was $236.9 million,
compared with $251.4 million in fiscal 2012, a decline of 5.8
percent. The decline in sales reflects the continued impact of
industry-wide soft educational spending on curriculum products.
- Educational Resources revenue was $171.1 million in the quarter
compared with $173.2 million in the prior year and Accelerated
Learning revenue declined 15.9 percent to $65.6 million from $78.0
million last year.
- Gross profit was $92.7 million compared with $95.1 million last
year, a decline of 2.5 percent. Consolidated gross margin
improved to 39.1 percent, an increase of 130 basis points,
primarily due to margin improvement in both Educational Resources
and Accelerated Learning.
- Selling, general and administrative (SG&A) expenses were
$67.4 million compared with $73.4 million in the prior year's
second quarter, a decline of 8.2 percent, reflecting strong cost
controls. Lower overall sales levels also reduced the variable
cost component which reduced expenses.
- During the second quarter, the company also recorded a $1.4
million impairment charge related to the receipt of $3 million in
settlement of a note issued to the company with the divestiture of
a business in 2008.
- Interest expense for the second quarter was $9.3 million
compared with $6.9 million in the previous year. This increase
is largely driven by higher interest rates on our term loan and a
prepayment charge on a term loan principal payment.
- The provision for income taxes in the second quarter of fiscal
2013 was $0.3 million compared with $6.0 million in the previous
year. The decline in taxes was related to projected annual tax
losses for fiscal 2013.
- Earnings before interest, taxes, depreciation, amortization and
impairment charges (EBITDA) improved 9.3 percent to $34.2 million
compared with $31.3 million in the previous year.
- Net income was $14.1 million compared with $8.9 million last
year. Diluted earnings per share increased 59.7 percent in
this year's second quarter to $0.75 from $0.47 in the comparable
period last year.
- The second quarter of fiscal 2013 included the previously
mentioned impairment charge of $1.4 million or $0.07 per diluted
share. The prior year included restructuring charges of $0.9
million or $0.05 per diluted share. Excluding these charges,
adjusted net income for this year's second quarter was $15.5
million or $0.82 per diluted share compared with $9.7 million or
$0.51 per diluted share in the prior year's second quarter.
Six Months Results
- Revenue for the first six months of fiscal 2013 was $489.0
million, compared with $527.5 million in the same period of the
prior year, a decline of 7.3 percent.
- Educational Resources revenue in the first six months of fiscal
2013 declined 4.0 percent to $344.8 million compared with $359.3
million in fiscal 2012. Accelerated Learning revenue declined
14.3 percent to $143.9 million in the first six months of fiscal
2013 compared with $167.8 million in the prior year.
- Gross profit for the first six months of the fiscal year was
$196.3 million compared with $206.3 million last year. The
consolidated gross margin increased 100 basis points to 40.1
percent from 39.1 percent in the comparable six month period of
fiscal 2012.
- SG&A expenses declined 7.0 percent to $142.5 million
compared with the prior year's $153.2 million. The decline is
due to a combination of decreased variable costs associated with
the revenue decline and lower compensation costs.
- Interest expense in the six months of the current fiscal year
was $19.3 million compared with last year's $14.8
million. Fiscal 2013 interest expense was higher due to costs
related to the debt refinancing, higher interest rates on our term
loan and a prepayment charge on term loan principal.
- 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 last year's first six months.
- EBITDA for the six months was $71.8 million compared with $71.7
million in the previous year's six month period.
- Net income was $32.5 million or $1.72 per diluted share in the
first half of fiscal 2013, compared with net income of $22.4
million or $1.18 per diluted share last year.
- For the first six months of fiscal 2013, one-time costs
included the previously mentioned $1.4 million or $0.07 per diluted
share impairment charge, $2.5 million or $0.13 per diluted share
related to debt refinancing expenses, and $1.1 million or $0.06 per
diluted share in restructuring charges. For the six month
comparable period last year, results included a $0.7 million or
$0.04 per diluted share expense associated with the exchange of
convertible debt and $0.9 million or $0.05 per diluted share from
restructuring charges. On an adjusted basis for the six
months, fiscal 2013 adjusted net income would have been $37.5
million or $1.98 per diluted share compared with $23.9 million or
$1.26 per diluted share in fiscal 2012.
- Free cash flow in the first half of fiscal 2013 increased $28.1
million to $13.9 million compared to negative free cash flow of
$14.2 million in fiscal 2012's first half.
Financial Outlook
"We believe that given the challenging market this school
season, fiscal year 2013 revenues are likely to decline in the
mid-single digit range compared with fiscal 2012. Although
revenue is softer than our previously anticipated performance
levels for fiscal 2013, given our margin and cost reduction
actions, we continue to believe that fiscal 2013 will look similar
to fiscal 2012 actual results in terms of EBITDA," said
Lavelle.
Conference Call
The second quarter earnings conference call is scheduled for
today at 11 a.m. ET/10 a.m. CT. The live audio webcast will
include accompanying slides and is available on the Investors
section of School Specialty's web site at www.schoolspecialty.com
under Presentations. The presentation will be archived on the
company's website and available later in the day.
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.
Accelerated Learning's major products include: Wordly Wise
3000®, Premier™ Agenda, Delta Education™, FOSS®, CPO Science ™,
Frey Scientific ®, Educator's Publishing Service, Academy of
Reading®, Think Math!™, MCI®, S.P.I.R.E.® and
SPARK™. Educational Resources proprietary brands include:
Education Essentials®, Sportime®, Childcraft®, Sax® Arts &
Crafts, Califone®, abc®, Abilitations®, School Smart®, Classroom
Select™ and Projects by Design®.
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 "Financial
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 28, 2012, 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. |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In Thousands, Except Per Share
Amounts) |
Unaudited |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
October 27,
2012 |
October 29,
2011 |
October 27,
2012 |
October 29,
2011 |
|
|
|
|
|
Revenues |
$ 236,866 |
$ 251,375 |
$ 489,005 |
$ 527,459 |
Cost of revenues |
144,166 |
156,315 |
292,708 |
321,123 |
Gross profit |
92,700 |
95,060 |
196,297 |
206,336 |
Selling, general and administrative
expenses |
67,364 |
73,405 |
142,480 |
153,181 |
Operating income |
25,336 |
21,655 |
53,817 |
53,155 |
|
|
|
|
|
Other expense: |
|
|
|
|
Impairment of long-term asset |
1,414 |
-- |
1,414 |
-- |
Interest expense |
9,315 |
6,867 |
19,281 |
14,779 |
Expense associated with convertible debt
exchange |
-- |
-- |
-- |
1,090 |
Income before provision for income taxes |
14,607 |
14,788 |
33,122 |
37,286 |
Provision for income taxes |
343 |
6,044 |
602 |
14,972 |
Income before investment
in unconsolidated affiliate |
$ 14,264 |
$ 8,744 |
$ 32,520 |
$ 22,314 |
Equity in income/(losses) of investment in
unconsolidated affiliate |
(137) |
135 |
(18) |
115 |
Net income |
$ 14,127 |
$ 8,879 |
$ 32,502 |
$ 22,429 |
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
Basic |
18,930 |
18,880 |
18,915 |
18,877 |
Diluted |
18,946 |
19,020 |
18,926 |
18,972 |
|
|
|
|
|
Net Income Per Share: |
|
|
|
|
Basic |
$ 0.75 |
$ 0.47 |
$ 1.72 |
$ 1.19 |
Diluted |
$ 0.75 |
$ 0.47 |
$ 1.72 |
$ 1.18 |
|
|
|
|
|
Earnings before interest, taxes,
depreciation, amortization and impairment charges (EBITDA)
reconciliation: |
|
|
|
|
Net income |
$ 14,127 |
$ 8,879 |
$ 32,502 |
$ 22,429 |
Equity in (income)/losses of
unconsolidated affiliate |
137 |
(135) |
18 |
(115) |
Provision for income taxes |
343 |
6,044 |
602 |
14,972 |
Expense associated with convertible debt
exchange |
-- |
-- |
-- |
1,090 |
Impairment charge |
1,414 |
-- |
1,414 |
-- |
Depreciation and amortization
expense |
6,969 |
7,319 |
13,985 |
14,536 |
Amortization of development costs |
1,926 |
2,356 |
3,994 |
3,959 |
Interest expense |
9,315 |
6,867 |
19,281 |
14,779 |
EBITDA |
$ 34,231 |
$ 31,330 |
$ 71,796 |
$ 71,650 |
|
|
SCHOOL SPECIALTY,
INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(In Thousands, Except Share and
Per Share Amounts) |
Unaudited |
|
October 27,
2012 |
April 28, 2012 |
October 29,
2011 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ 5,577 |
$ 484 |
$ 4,141 |
Restricted cash |
2,708 |
-- |
-- |
Accounts receivable, net |
119,275 |
62,826 |
127,722 |
Inventories |
84,769 |
100,504 |
77,253 |
Deferred catalog costs |
3,377 |
11,737 |
7,079 |
Prepaid expenses and other current
assets |
13,371 |
11,111 |
14,218 |
Refundable income taxes |
3,520 |
3,570 |
-- |
Deferred taxes |
4,797 |
4,797 |
1,700 |
Total current assets |
237,394 |
195,029 |
232,113 |
Property, plant and equipment, net |
50,836 |
57,491 |
59,962 |
Goodwill |
41,093 |
41,263 |
127,990 |
Intangible assets, net |
119,120 |
124,242 |
150,521 |
Development costs and other |
35,807 |
35,206 |
35,054 |
Deferred taxes long-term |
390 |
390 |
7,218 |
Investment in unconsolidated affiliate |
9,882 |
9,900 |
20,515 |
Total assets |
$ 494,522 |
$ 463,521 |
$ 633,373 |
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current maturities - long-term debt |
$ 10,833 |
$ 955 |
$ 43,272 |
Accounts payable |
63,770 |
74,244 |
40,816 |
Accrued compensation |
10,974 |
8,094 |
12,284 |
Deferred revenue |
3,481 |
3,095 |
4,389 |
Accrued income taxes |
-- |
-- |
13,122 |
Other accrued liabilities |
20,423 |
18,932 |
29,223 |
Total current liabilities |
109,481 |
105,320 |
143,106 |
Long-term debt - less current maturities |
284,519 |
289,668 |
266,350 |
Deferred taxes |
-- |
-- |
-- |
Other liabilities |
587 |
587 |
688 |
Total liabilities |
394,587 |
395,575 |
410,144 |
|
|
|
|
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 24,599,159; 24,290,345 and 24,300,545
shares issued, respectively |
24 |
24 |
24 |
Capital paid-in excess of par value |
445,059 |
444,428 |
443,293 |
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 |
22,486 |
23,631 |
23,603 |
Accumulated deficit |
(180,997) |
(213,500) |
(57,054) |
Total shareholders' equity |
99,935 |
67,946 |
223,229 |
Total liabilities and shareholders'
equity |
$ 494,522 |
$ 463,521 |
$ 633,373 |
|
|
SCHOOL SPECIALTY,
INC. |
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(In Thousands) |
Unaudited |
|
|
|
|
Six Months
Ended |
|
October 27,
2012 |
October 29,
2011 |
Cash flows from operating activities: |
|
|
Net income |
$ 32,502 |
$ 22,429 |
Adjustments to reconcile net
income to net cash provided |
|
by operating activities: |
|
|
Depreciation and intangible asset
amortization expense |
13,985 |
14,536 |
Amortization of development costs |
3,994 |
3,959 |
Amortization of debt fees and other |
3,779 |
1,751 |
Share-based compensation expense |
723 |
1,181 |
Impairment of long-term asset |
1,414 |
-- |
Equity in losses/(income) of investment
in unconsolidated affiliate |
18 |
(115) |
Deferred taxes |
-- |
(4,246) |
Expense associated with convertible debt
exchange |
-- |
1,090 |
Non-cash convertible debt interest
expense |
4,497 |
5,005 |
Changes in current assets and
liabilities: |
|
|
Accounts receivable |
(56,356) |
(61,162) |
Inventories |
15,737 |
34,000 |
Deferred catalog costs |
8,008 |
9,560 |
Prepaid expenses and other current
assets |
(2,212) |
295 |
Accounts payable |
(11,001) |
(45,089) |
Accrued liabilities |
4,446 |
10,101 |
Net cash provided by/(used in) operating
activities |
19,534 |
(6,705) |
|
|
|
Cash flows from investing activities: |
|
|
Additions to property, plant and
equipment |
(2,460) |
(3,667) |
Investment in product development
costs |
(3,182) |
(3,816) |
Change in restricted cash |
(2,708) |
-- |
Proceeds from note receivable |
3,000 |
-- |
Net cash used in investing
activities |
(5,350) |
(7,483) |
|
|
|
Cash flows from financing activities: |
|
|
Proceeds from bank borrowings |
819,753 |
300,600 |
Repayment of debt and capital leases |
(819,591) |
(290,429) |
Payment of debt and other |
(9,253) |
(1,663) |
Net cash (used in)/provided by financing
activities |
(9,091) |
8,508 |
|
|
|
Net decrease in cash and cash
equivalents |
5,093 |
(5,680) |
Cash and cash equivalents, beginning of
period |
484 |
9,821 |
Cash and cash equivalents, end of period |
$ 5,577 |
$ 4,141 |
|
|
|
Free cash flow
reconciliation: |
|
|
Net cash (used in)/provided by operating
activities |
$ 19,534 |
$ (6,705) |
Additions to property and equipment |
(2,460) |
(3,667) |
Investment in product development
costs |
(3,182) |
(3,816) |
Free cash flow |
$ 13,892 |
$ (14,188) |
|
|
School Specialty,
Inc. |
Segment Analysis -
Revenues and Gross Profit/Margin Analysis |
(In
thousands) |
Unaudited |
|
|
|
|
|
|
|
Segment Revenues
and Gross Profit/Margin Analysis-QTD |
|
|
|
|
|
|
|
|
|
|
% of
Revenues |
|
2Q13-QTD |
2Q12-QTD |
Change $ |
Change % |
2Q13-QTD |
2Q12-QTD |
Revenues |
|
|
|
|
|
|
Educational Resources |
$ 171,089 |
$ 173,222 |
$ (2,133) |
-1.2% |
72.2% |
68.9% |
Accelerated Learning |
65,610 |
77,986 |
(12,376) |
-15.9% |
27.7% |
31.0% |
Corporate and Interco Elims |
167 |
167 |
-- |
|
0.1% |
0.1% |
Total Revenues |
$ 236,866 |
$ 251,375 |
$ (14,509) |
-5.8% |
100.0% |
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
% of Gross
Profit |
|
2Q13-QTD |
2Q12-QTD |
Change $ |
Change % |
2Q13-QTD |
2Q12-QTD |
Gross Profit |
|
|
|
|
|
|
Educational Resources |
$ 57,082 |
$ 53,481 |
$ 3,601 |
6.7% |
61.6% |
56.3% |
Accelerated Learning |
35,456 |
40,825 |
(5,369) |
-13.2% |
38.2% |
42.9% |
Corporate and Interco Elims |
162 |
754 |
(592) |
|
0.2% |
0.8% |
Total Gross Profit |
$ 92,700 |
$ 95,060 |
$ (2,360) |
-2.5% |
100.0% |
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Gross
Margin Summary-QTD |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
2Q13-QTD |
2Q12-QTD |
|
|
|
|
Educational Resources |
33.4% |
30.9% |
|
|
|
|
Accelerated Learning |
54.0% |
52.3% |
|
|
|
|
Total Gross Margin |
39.1% |
37.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Revenues
and Gross Profit/Margin Analysis-YTD |
|
|
|
|
|
|
|
|
|
|
% of
Revenue |
|
2Q13-YTD |
2Q12-YTD |
Change $ |
Change % |
2Q13-YTD |
2Q12-YTD |
Revenues |
|
|
|
|
|
|
Educational Resources |
$ 344,776 |
$ 359,286 |
$ (14,510) |
-4.0% |
70.5% |
68.1% |
Accelerated Learning |
143,895 |
167,839 |
(23,944) |
-14.3% |
29.4% |
31.8% |
Corporate and Interco Elims |
334 |
334 |
-- |
|
0.1% |
0.1% |
Total Revenues |
$ 489,005 |
$ 527,459 |
$ (38,454) |
-7.3% |
100.0% |
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
% of Gross
Profit |
|
2Q13-YTD |
2Q12-YTD |
Change $ |
Change % |
2Q13-YTD |
2Q12-YTD |
Gross Profit |
|
|
|
|
|
|
Educational Resources |
$ 117,641 |
$ 113,918 |
$ 3,723 |
3.3% |
59.9% |
55.2% |
Accelerated Learning |
78,330 |
90,982 |
(12,652) |
-13.9% |
39.9% |
44.1% |
Corporate and Interco Elims |
326 |
1,436 |
(1,110) |
|
0.2% |
0.7% |
Total Gross Profit |
$ 196,297 |
$ 206,336 |
$ (10,039) |
-4.9% |
100.0% |
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Gross
Margin Summary-YTD |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
2Q13-YTD |
2Q12-YTD |
|
|
|
|
Educational Resources |
34.1% |
31.7% |
|
|
|
|
Accelerated Learning |
54.4% |
54.2% |
|
|
|
|
Total Gross Margin |
40.1% |
39.1% |
|
|
|
|
|
|
|
|
|
|
School Specialty,
Inc. |
Reconciliation of GAAP
Net Income and Net Income per Share to Adjusted Net Income and Net
Income per Diluted Share |
(In Thousands, Except Per Share
Amounts) |
Unaudited |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
October 27,
2012 |
October 29,
2011 |
October 27,
2012 |
October 29,
2011 |
|
|
|
|
|
GAAP Net Income |
$ 14,127 |
$ 8,879 |
$ 32,502 |
$ 22,429 |
Special Items, net of tax: |
|
-- |
|
-- |
Expense associated with convertible debt
exchange |
-- |
-- |
-- |
671 |
Expense associated with debt refinancing
(included in interest expense) |
-- |
-- |
2,490 |
-- |
Restructuring (included in SG&A) |
-- |
864 |
1,103 |
864 |
Impairment of long-term asset |
1,414 |
-- |
1,414 |
-- |
Adjusted Net Income |
$ 15,541 |
$ 9,743 |
$ 37,509 |
$ 23,964 |
|
|
|
Three
Months Ended |
Six
Months Ended |
|
October 27,
2012 |
October 29,
2011 |
October 27,
2012 |
October 29,
2011 |
|
|
|
|
|
GAAP Net Income per Diluted Share |
$ 0.75 |
$ 0.47 |
$ 1.72 |
$ 1.18 |
Special Items, net of tax: |
|
|
|
|
Expense associated with convertible debt
exchange |
-- |
-- |
-- |
0.04 |
Expense associated with debt refinancing
(included in interest expense) |
-- |
-- |
0.13 |
-- |
Restructuring (included in SG&A) |
-- |
0.05 |
0.06 |
0.05 |
Impairment of long-term asset |
0.07 |
-- |
0.07 |
-- |
Adjusted Net Income per diluted
share |
$ 0.82 |
$ 0.51 |
$ 1.98 |
$ 1.26 |
|
|
|
|
|
Note: Totals may not foot due to
rounding differences. |
|
|
|
|
|
|
|
|
School Specialty's financial
results for the three and six months ended October 27, 2012 and
October 29, 2011 included certain items that management believes
are not representative of its operating performance. This
additional information and reconciliation is not meant to be
considered in isolation or as a substitute for the company's
results of operations as prepared and presented in accordance
with GAAP. |
CONTACT: David Vander Ploeg
Executive VP and CFO
920-882-5854
Elizabeth M. Higashi, CFA
Investor Relations
920-243-5392