Exhibit 99.1
| | |
 | | FOR IMMEDIATE RELEASE TUESDAY, NOVEMBER 14, 2006 Contacts: David J. Vander Zanden David G. Gomach President / CEO EVP / CFO 920-882-5602 920-882-5854 |
| |
| W6316 Design Drive, Greenville, WI 54942 | | Julie A. Piton |
| P.O. Box 1579, Appleton, WI 54912-1579 | | VP Finance & Investor Relations |
| | 920-882-5606 |
SCHOOL SPECIALTY REPORTS FISCAL 2007 SECOND QUARTER AND YEAR-TO-DATE FINANCIAL RESULTS
Highlights
| | • | | Second quarter diluted EPS grows 50 percent to $1.28 on 10 percent revenue growth |
| | • | | Second quarter operating margin expands 330 basis points |
| | • | | Record Year-to-date revenues of $764 million |
| | • | | California adopts School Specialty inquiry-based science programs |
| | • | | Fiscal 2007 guidance confirmed |
Greenville, WI, November 14, 2006—School Specialty, Inc.(NASDAQ: SCHS) the leading education company providing supplemental learning products to the preK-12 market, today reported record second quarter fiscal 2007 financial results. Revenues for the second quarter grew 10.0 percent from $344.4 million to $378.7 million and diluted earnings per share grew 50.6 percent from $0.85 per share to $1.28 per share. For the first six months, which represents the back-to-school season, revenues were a record $764.1 million, representing 8.8 percent growth over the same period last year. Diluted earnings per share grew 24.5 percent to $2.85 per share from $2.29 per share last year.
“We are pleased to have completed a successful back-to-school season with solid revenue growth and strong earnings enhanced by improvements in operations and cost containment,” said David J. Vander Zanden, President and Chief Executive Officer of School Specialty, Inc.
Second Quarter Financial Results
Revenues for the second quarter of fiscal 2007 rose 10.0 percent from $344.4 million to $378.7 million, driven by approximately 6 percent organic growth and an additional month of acquired Delta revenues in fiscal 2007 compared to fiscal 2006. Gross margin was 42.1 percent as compared with 42.5 percent last year, due primarily to a shift in revenue mix from higher margin business to lower margin business within both the Essentials and Specialty segments.
Operating income for the quarter grew $16.5 million or 41.5 percent from $39.7 million to $56.2 million. Selling, general and administrative expenses (“SG&A”), excluding terminated merger expenses of $2.5 million, decreased $1.1 million to $103.1 million, on a revenue increase of $34.3 million. The improvement in SG&A was primarily due to supply chain efficiencies, cost control and non-recurring expenses that were realized in last year’s second quarter. Stock based compensation expense, which was adopted at the beginning of fiscal 2007, was $1.1 million pre-tax, or $0.04 per diluted share in the second quarter.
Net income grew 42.0 percent from $20.6 million to $29.2 million and diluted earnings per share grew 50.6 percent from $0.85 per share to $1.28 per share including stock based compensation.
During fiscal 2007’s second quarter the Company repurchased 828,921 shares of common stock for a net aggregate purchase price of $29.0 million.
Six Months Financial Results
Revenues for the first six months of fiscal 2007 grew 8.8 percent to a record $764.1 million from $702.4 million. Revenue growth in the Essentials segment was 3.6 percent. Specialty revenues grew 13.5 percent, primarily driven by the acquisition of Delta, which was acquired in August 2005. Organic revenue growth for the combined segments for the first six months of fiscal 2007 exceeded 2 percent. Gross profit grew 9.4% to $332.2 million, driven by increased revenues and gross margin expansion of 30 basis points from 43.2 percent last year to 43.5 percent for the first six months of fiscal 2007. Gross margin expansion was driven by an increase in the revenue mix from Essentials to the more profitable Specialty segment. Revenue from the Specialty business expanded from 53.7 percent of total revenue to 56.1 percent due primarily to the acquisition of Delta.
Operating income grew $24.6 million, or 24.8 percent from $99.3 million to $123.9 million for the first six months of fiscal 2007. SG&A, excluding terminated merger costs of $5.2 million in fiscal 2006, increased $9.3 million from $199.1 million to $208.4 million. The increase in SG&A was due to variable costs associated with increased revenues of $61.7 million, the inclusion of Delta and stock based compensation expense, partially offset by reduced costs associated with off-season integration activities, cost containment initiatives and supply chain enhancements. Excluding prior year terminated merger costs of $5.2 million, SG&A as a percent of revenues decreased 100 basis points from 28.3 percent to 27.3 percent. Stock based compensation expense, which was adopted at the beginning of fiscal 2007, was $2.4 million pre-tax, or $0.08 per diluted share for the first six months.
Net income for the first six months grew $10.9 million or 19.8% to $66.1 million and diluted earnings per share expanded 24.5% from $2.29 last year to $2.85 including stock based compensation.
During fiscal 2007, the Company repurchased 1.1 million shares of its common stock for an aggregate net purchase price of $36.5 million.
California Adopts School Specialty Inquiry-Based Science Programs
On November 9, 2006, the California State Board of Education approved the adoption of our hands-on science curricula products,FOSSfrom Delta Education for grades K-5 andFocus on Earth, Life and Physical Science for grades 6-8 from CPO Science. The programs were developed specifically for California and are aligned with California state science standards. This approval allows School Specialty to compete in California school districts for state allocated instructional material funds totaling approximately $200 million for the current science adoption cycle.
Outlook
“With the busy season behind us, we are confirming our fiscal 2007 revenue guidance of $1.06 billion to $1.10 billion, representing organic revenue growth of zero to four percent and confirming our guidance for diluted earnings per share of $2.00 to $2.20, excluding stock based compensation expense, with stock option expense ranging from $0.03 to $0.05 per diluted share per quarter,” said Vander Zanden.
Internet Conference Call
Investors have the opportunity to listen to School Specialty’s fiscal 2007 second quarter conference call live over the Internet through Vcall atwww.vcall.com. The conference call begins today at 10:00 am Central Time. To listen, go to the Vcall website at least 15 minutes before the start of the call to register, download and install any necessary audio software. A replay will be available shortly after the call is completed and for the week that follows. A transcript will be available within two days of the call. The conference call will also be accessible through the General Investor Information Overview and Press Release pages of the School Specialty corporate web site atwww.schoolspecialty.com.
About School Specialty, Inc.
School Specialty is an education company that provides innovative and proprietary products, programs, and services to help educators engage and inspire students of all ages and abilities.
Through leading brands, School Specialty designs, develops, and provides PreK-12 educators with the latest and very best curriculum, supplemental learning resources, and classroom basics.
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 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 29, 2006, 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 | | Six Months Ended |
| | | October 28,
2006 | | October 29,
2005 | | October 28,
2006 | | October 29,
2005 |
Revenues | | $ | 378,672 | | $ | 344,365 | | $ | 764,071 | | $ | 702,402 |
| | | | |
Cost of revenues | | | 219,348 | | | 197,974 | | | 431,822 | | | 398,827 |
| | | | | | | | | | | | |
Gross profit | | | 159,324 | | | 146,391 | | | 332,249 | | | 303,575 |
| | | | |
Selling, general and administrative expenses | | | 103,112 | | | 104,206 | | | 208,393 | | | 199,101 |
Terminated merger related expenses | | | — | | | 2,466 | | | — | | | 5,202 |
| | | | | | | | | | | | |
Operating income | | | 56,212 | | | 39,719 | | | 123,856 | | | 99,272 |
| | | | |
Interest expense and other | | | 8,119 | | | 6,275 | | | 15,278 | | | 9,574 |
| | | | | | | | | | | | |
Income before provision for income taxes | | | 48,093 | | | 33,444 | | | 108,578 | | | 89,698 |
| | | | |
Provision for income taxes | | | 18,891 | | | 12,876 | | | 42,509 | | | 34,534 |
| | | | | | | | | | | | |
Net income | | $ | 29,202 | | $ | 20,568 | | $ | 66,069 | | $ | 55,164 |
| | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 22,212 | | | 22,881 | | | 22,548 | | | 22,869 |
Diluted | | | 22,898 | | | 24,175 | | | 23,213 | | | 24,135 |
| | | | |
| Per share amounts: | | | | | | | | | | | | |
Basic | | $ | 1.31 | | $ | 0.90 | | $ | 2.93 | | $ | 2.41 |
Diluted | | $ | 1.28 | | $ | 0.85 | | $ | 2.85 | | $ | 2.29 |
| | | | |
Earnings before interest and other, taxes, depreciation, intangible asset and product development amortization costs (EBITDA) reconciliation: | | | | | | | | | | | | |
Net income | | $ | 29,202 | | $ | 20,568 | | $ | 66,069 | | $ | 55,164 |
Provision for income taxes | | | 18,891 | | | 12,876 | | | 42,509 | | | 34,534 |
Net interest expense and other | | | 8,119 | | | 6,275 | | | 15,278 | | | 9,574 |
Depreciation and intangible asset amortization expense | | | 6,542 | | | 5,826 | | | 12,860 | | | 11,027 |
Amortization of product development costs | | | 1,829 | | | 1,113 | | | 3,695 | | | 2,270 |
| | | | | | | | | | | | |
EBITDA | | $ | 64,583 | | $ | 46,658 | | $ | 140,411 | | $ | 112,569 |
| | | | | | | | | | | | |
Other expense primarily represents the discount and loss related to securitized accounts receivable. For the three months ended October 28, 2006 and October 29, 2005 the discount and loss was $2,519 and $1,072, respectively. For the six months ended October 28, 2006 and October 29, 2005 the discount and loss was $3,569 and $1,749, respectively.
School Specialty, Inc.
Consolidated Condensed Balance Sheets
(In thousands)
| | | | | | | | | |
| | | October 28,
2006 | | April 29,
2006 | | October 29,
2005 |
| | | (Unaudited) | | | | (Unaudited) |
| Assets | | | | | | | | | |
Cash and cash equivalents | | $ | 9,077 | | $ | 2,403 | | $ | 7,684 |
Accounts receivable | | | 168,063 | | | 60,553 | | | 163,883 |
Inventories | | | 123,281 | | | 158,892 | | | 116,577 |
Prepaid expenses and other current assets | | | 31,782 | | | 49,818 | | | 34,179 |
Deferred taxes | | | 6,260 | | | 7,097 | | | 9,890 |
| | | | | | | | | |
Total current assets | | | 338,463 | | | 278,763 | | | 332,213 |
Property and equipment, net | | | 79,381 | | | 76,774 | | | 75,383 |
Goodwill and other intangible assets, net | | | 747,866 | | | 747,241 | | | 775,357 |
Other | | | 27,977 | | | 27,597 | | | 21,938 |
| | | | | | | | | |
Total assets | | $ | 1,193,687 | | $ | 1,130,375 | | $ | 1,204,891 |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | | |
Current maturities - long-term debt | | $ | 133,571 | | $ | 133,578 | | $ | 275,066 |
Accounts payable | | | 55,427 | | | 74,919 | | | 50,787 |
Other current liabilities | | | 72,003 | | | 35,499 | | | 66,485 |
| | | | | | | | | |
Total current liabilities | | | 261,001 | | | 243,996 | | | 392,338 |
Long-term debt | | | 288,937 | | | 283,629 | | | 149,528 |
Deferred taxes and other | | | 52,134 | | | 49,017 | | | 58,600 |
| | | | | | | | | |
Total liabilities | | | 602,072 | | | 576,642 | | | 600,466 |
Shareholders’ equity | | | 591,615 | | | 553,733 | | | 604,425 |
| | | | | | | | | |
Total liabilities & shareholders’ equity | | $ | 1,193,687 | | $ | 1,130,375 | | $ | 1,204,891 |
| | | | | | | | | |
School Specialty, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
| | | | | | | | |
| | | Six Months Ended | |
| | | October 28,
2006 | | | October 29,
2005 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 66,069 | | | $ | 55,164 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and intangible amortization expense | | | 12,860 | | | | 11,027 | |
Amortization of product development costs | | | 3,695 | | | | 2,270 | |
Amortization of debt fees and other | | | 495 | | | | 661 | |
Share based compensation expense | | | 2,355 | | | | — | |
Deferred taxes | | | 4,199 | | | | 1,571 | |
Loss (Gain) on disposal of property and equipment | | | 274 | | | | (66 | ) |
Net borrowings under accounts receivable securitization facility | | | — | | | | 2,800 | |
Change in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations): | | | | | | | | |
Accounts receivable | | | (107,518 | ) | | | (81,139 | ) |
Inventories | | | 33,578 | | | | 42,109 | |
Deferred catalog costs | | | 8,503 | | | | 7,393 | |
Prepaid expenses and other current assets | | | 8,547 | | | | 1,978 | |
Accounts payable | | | (19,412 | ) | | | (12,736 | ) |
Accrued liabilities | | | 36,781 | | | | 24,155 | |
| | | | | | | | |
Net cash provided by operating activities | | | 50,426 | | | | 55,187 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Cash paid in acquisitions, net of cash acquired | | | — | | | | (270,325 | ) |
Additions to property and equipment | | | (11,123 | ) | | | (5,960 | ) |
Investment in intangible and other assets | | | (102 | ) | | | (1,275 | ) |
Investment in product development costs | | | (4,739 | ) | | | (3,775 | ) |
Proceeds from disposal of property and equipment | | | 932 | | | | 81 | |
| | | | | | | | |
Net cash used in investing activities | | | (15,032 | ) | | | (281,254 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from bank borrowings | | | 679,400 | | | | 977,800 | |
Repayment of debt and capital leases | | | (674,099 | ) | | | (748,987 | ) |
Purchase of treasury shares | | | (36,526 | ) | | | — | |
Payment of debt fees and other | | | (20 | ) | | | (226 | ) |
Proceeds from exercise of stock options | | | 2,525 | | | | 971 | |
| | | | | | | | |
Net cash (used in) provided by financing activities | | | (28,720 | ) | | | 229,558 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 6,674 | | | | 3,491 | |
Cash and cash equivalents, beginning of period | | | 2,403 | | | | 4,193 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 9,077 | | | $ | 7,684 | |
| | | | | | | | |
| Free cash flow reconciliation: | | | | | | | | |
Net cash provided by operating activities | | $ | 50,426 | | | $ | 55,187 | |
Additions to property and equipment | | | (11,123 | ) | | | (5,960 | ) |
Investment in product development costs | | | (4,739 | ) | | | (3,775 | ) |
Proceeds from disposal of property and equipment | | | 932 | | | | 81 | |
Net borrowings under accounts receivable securitization facility | | | — | | | | (2,800 | ) |
| | | | | | | | |
Free cash flow | | $ | 35,496 | | | $ | 42,733 | |
| | | | | | | | |
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
2nd Quarter, Fiscal 2007
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Revenues | |
| | | 2Q07-QTD | | | 2Q06-QTD | | | Change $ | | | Change % | | | 2Q07-QTD | | | 2Q06-QTD | |
| Revenues | | | | | | | | | | | | | | | | | | | | | |
Specialty | | $ | 210,658 | | | $ | 187,780 | | | $ | 22,878 | | | 12.2 | % | | 55.6 | % | | 54.5 | % |
Essentials | | | 172,072 | | | | 160,318 | | | | 11,754 | | | 7.3 | % | | 45.4 | % | | 46.5 | % |
Corporate | | | 182 | | | | 173 | | | | 9 | | | 5.2 | % | | 0.0 | % | | 0.1 | % |
Intercompany Eliminations | | | (4,240 | ) | | | (3,906 | ) | | | (334 | ) | | 8.6 | % | | -1.0 | % | | -1.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Revenues | | $ | 378,672 | | | $ | 344,365 | | | $ | 34,307 | | | 10.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | % of Gross Profit | |
| | | 2Q07-QTD | | | 2Q06-QTD | | | Change $ | | | Change % | | | 2Q07-QTD | | | 2Q06-QTD | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | |
Specialty | | $ | 105,999 | | | $ | 96,164 | | | $ | 9,835 | | | 10.2 | % | | 66.5 | % | | 65.7 | % |
Essentials | | | 53,118 | | | | 49,876 | | | | 3,242 | | | 6.5 | % | | 33.3 | % | | 34.1 | % |
Corporate | | | 177 | | | | 173 | | | | 4 | | | 2.3 | % | | 0.1 | % | | 0.1 | % |
Intercompany Eliminations | | | 30 | | | | 178 | | | | (148 | ) | | -83.1 | % | | 0.1 | % | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Gross Profit | | $ | 159,324 | | | $ | 146,391 | | | $ | 12,933 | | | 8.8 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
Segment Gross Margin Summary-QTD
| | | | | | |
| | | 2Q07-QTD | | | 2Q06-QTD | |
| Gross Margin | | | | | | |
Specialty | | 50.3 | % | | 51.2 | % |
Essentials | | 30.9 | % | | 31.1 | % |
Corporate | | 97.3 | % | | 100.0 | % |
Intercompany Eliminations | | -0.7 | % | | -4.6 | % |
Total Gross Margin | | 42.1 | % | | 42.5 | % |
Segment Revenues and Gross Profit/Margin Analysis-YTD
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Revenue | |
| | | 2Q07-YTD | | | 2Q06-YTD | | | Change $ | | | Change % | | | 2Q07-YTD | | | 2Q06-YTD | |
| Revenues | | | | | | | | | | | | | | | | | | | | | |
Specialty | | $ | 428,454 | | | $ | 377,523 | | | $ | 50,931 | | | 13.5 | % | | 56.1 | % | | 53.7 | % |
Essentials | | | 346,923 | | | | 334,860 | | | | 12,063 | | | 3.6 | % | | 45.4 | % | | 47.7 | % |
Corporate | | | 357 | | | | 332 | | | | 25 | | | 7.5 | % | | 0.1 | % | | 0.1 | % |
Intercompany Eliminations | | | (11,663 | ) | | | (10,313 | ) | | | (1,350 | ) | | 13.1 | % | | -1.6 | % | | -1.5 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Revenues | | $ | 764,071 | | | $ | 702,402 | | | $ | 61,669 | | | 8.8 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | % of Gross Profit | |
| | | 2Q07-YTD | | | 2Q06-YTD | | | Change $ | | | Change % | | | 2Q07-YTD | | | 2Q06-YTD | |
| Gross Profit | | | | | | | | | | | | | | | | | | | | | |
Specialty | | $ | 220,596 | | | $ | 193,102 | | | $ | 27,494 | | | 14.2 | % | | 66.4 | % | | 63.6 | % |
Essentials | | | 112,041 | | | | 110,409 | | | | 1,632 | | | 1.5 | % | | 33.7 | % | | 36.4 | % |
Corporate | | | 357 | | | | 332 | | | | 25 | | | 7.5 | % | | 0.1 | % | | 0.1 | % |
Intercompany Eliminations | | | (745 | ) | | | (268 | ) | | | (477 | ) | | 178.0 | % | | -0.2 | % | | -0.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Gross Profit | | $ | 332,249 | | | $ | 303,575 | | | $ | 28,674 | | | 9.4 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
Segment Gross Margin Summary-YTD
| | | | | | |
| | | 2Q07-YTD | | | 2Q06-YTD | |
| Gross Margin | | | | | | |
Specialty | | 51.5 | % | | 51.1 | % |
Essentials | | 32.3 | % | | 33.0 | % |
Corporate | | 100.0 | % | | 100.0 | % |
Intercompany Eliminations | | 6.4 | % | | 2.6 | % |
Total Gross Margin | | 43.5 | % | | 43.2 | % |
