Exhibit 99.1
| | | | |
 | | FOR IMMEDIATE RELEASE THURSDAY, AUGUST 20, 2009 Contact: David Vander Ploeg Executive VP and CFO 920-882-5854 | | Mark Fleming Communications & Investor Relations 920-882-5646 |
W6316 Design Drive, Greenville, WI 54942
P.O. Box 1579, Appleton, WI 54912-1579
SCHOOL SPECIALTY REPORTS FISCAL 2010 FIRST QUARTER RESULTS
| • | | Free cash flow improved 44 percent, despite 13 percent decline in revenue and operating income |
| • | | Reading and math technology company AutoSkill acquired |
| • | | Definitive agreement signed to divest School Specialty Publishing |
| • | | Initiating fiscal 2010 revenue, earnings per share and free cash flow guidance |
Greenville, WI, August 20, 2009—School Specialty (NASDAQ:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported its fiscal 2010 first quarter financial results, and announced both an acquisition and a divestiture that advance the company’s long-term strategy. Revenue for the first quarter was $330.4 million, 12.8 percent below the prior year’s $378.8 million. Excluding the anticipated decline in curriculum adoption revenue of $10 million, first quarter revenue fell 10 percent, consistent with the prior two quarters. The earnings impact related to the revenue decline has been partially mitigated by cost savings initiatives, which enabled the company to achieve an operating profit margin of 16.5 percent, or 10 basis points below the same period last year.
Free cash flow continued to perform ahead of the prior year. The company’s first quarter free cash flow improved $21.5 million, or 44 percent, compared to fiscal 2009’s first quarter free cash flow, benefiting from significant working capital improvements, particularly in the collection of receivables. Year-over-year total debt declined $125 million, including the elimination of an accounts receivable securitization facility in fiscal 2009.
School Specialty today also announced the acquisition of AutoSkill International Inc., a leading education technology company that provides educators with reading and math intervention solutions for struggling students. In addition, the company announced it has signed a definitive agreement to divest its retail trade book business, School Specialty Publishing, to Carson-Dellosa Publishing, LLC, a newly formed business entity. Under the agreement, School Specialty will combine its publishing unit assets with those of Cookie Jar Education Inc. and will receive a 35 percent minority equity interest in Carson-Dellosa Publishing, LLC. The closing is expected to occur in the second quarter of fiscal 2010.
Chief Executive Officer David J. Vander Zanden said first quarter results were supported by cost-cutting initiatives that helped preserve profit margins despite lower revenue. “Our revenue decline over the past nine months has been consistently in the 10 percent range, as educators continued to face the realities of uncertain, or reduced budgets,” said Vander Zanden. “We are seeing spending patterns improve for consumables as educators begin to replenish needed supplies and supplemental materials, and we benefit from our new category management go-to-market efforts. However, we believe revenue in the second quarter will continue to show a year-over-year decline consistent with our past nine-month trend, as we see no improvement in furniture orders and we are entering the quarter with lower booked orders compared to the same period last year. We expect the rate of decline to improve in the second half of our fiscal year.”
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“Despite the current economic challenges, our associates continued to do an excellent job controlling costs and improving efficiencies in several of our processes, particularly in procurement, order fulfillment and transportation,” added Vander Zanden. “We are exceeding our $20 million cost reduction goal, and that is a credit to their hard work and dedication.”
First Quarter Financial Results
| • | | Revenue for the most recent first quarter was $330.4 million, compared with $378.8 million in fiscal 2009’s first quarter. The decrease was primarily due to reductions, or delays, in spending by many school districts, and an expected $10 million reduction in science adoption revenue compared to the same period last year. The furniture and equipment category incurred the largest revenue decline, while consumables saw more modest mid-single-digit declines. |
| • | | Gross profit was $142.8 million compared with $164.0 million in last year’s first quarter. Consolidated gross margin was 43.2 percent compared with 43.3 percent last year. Improvements in product pricing and costing initiatives helped mitigate the impact that unfavorable product mix had on gross margin. |
| • | | Selling, general and administrative (SG&A) expenses declined $12.7 million to $88.3 million compared with the prior year’s $101.0 million. The decrease is attributable to lower volume, as well as to aggressive cost-reduction efforts, which enabled the company to maintain SG&A as a percent of revenue at last year’s 26.7 percent. |
| • | | Operating income for the first quarter was $54.5 million compared with $63.0 million for the same period last year. However, operating margin remained relatively flat at 16.5 percent, compared with 16.6 percent in last year’s first quarter. |
| • | | First quarter interest expense of $7.6 million declined from last year’s $7.8 million, with both periods including non-cash interest expense of $3.2 million and $2.9 million, respectively, as a result of the company’s adoption of the new accounting rule for convertible debt (FSP APB 14-1). Excluding the effects of FSP APB 14-1, year-over-year interest expense declined $0.5 million in fiscal 2010’s first quarter as the company benefited from a $12.5 million decrease in average borrowings. |
| • | | Net income for this fiscal year’s first quarter was $28.4 million ($1.51 per diluted share) compared with fiscal 2009’s first quarter net income of $33.4 million ($1.75 per diluted share). Both quarters included non-cash charges related to FSP APB 14-1, which reduced first quarter diluted EPS by $0.10 in fiscal 2010 and $0.09 in fiscal 2009. |
Business Transactions
The company acquired AutoSkill International Inc. for $11.7 million, a technology-based reading and math intervention company. The Ottawa, Canada-headquartered AutoSkill expands School Specialty’s educational technology offerings, and builds upon the company’s market position in K-12th grade reading and math intervention, with an emphasis in grades 3-9. With annual revenue of $10 million, AutoSkill will become part of School Specialty’s Educational Publishing segment. The company is best known for its research-based Academy of READING® and Academy of MATH® software, which help educators develop intervention strategies to build student fluency in reading and math.
The divestiture of School Specialty Publishing to Carson-Dellosa Publishing, LLC follows School Specialty’s previously announced decision to explore strategic alternatives for its retail trade book business, which primarily markets educational products such as basic skill publications and test preparation materials to parents through mass market retailers and major bookstore chains.
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“We are very pleased to have AutoSkill join the School Specialty family,” said Vander Zanden. “The company brings us highly regarded instructional technology offerings for our reading intervention business, opens the door to new growth opportunities for us in math intervention, and provides our customers with an effective Response to Intervention (RTI) option for their stimulus funds. With the combination of School Specialty Publishing and Cookie Jar Education in the newly formed Carson-Dellosa Publishing, we will become a minority owner in a stronger business that we expect will generate a significant increase in earnings through integration savings. We view this transaction as a first step to increasing the value of our investment as we move toward monetizing our minority interest longer term.”
Outlook
School Specialty has initiated revenue and earnings guidance for fiscal 2010. The company expects revenue to range from $915 million to $940 million, which includes a projected $22 million decline in curriculum adoption revenue, and an approximate $10 million decline due to the net effect of the divestiture of School Specialty Publishing and the acquisition of AutoSkill. Diluted earnings per share for fiscal 2010 is expected to range from $1.40 to $1.60, which includes a $0.42 non-cash charge for adoption of FSP APB 14-1, and approximately $0.10 in integration costs for the AutoSkill and School Specialty Publishing transactions. Excluding the FSP APB 14-1 charge and the transaction integration costs, the diluted earnings per share range is $1.92 to $2.12. Had FSP APB 14-1 been in effect last year, fiscal 2009’s diluted earnings per share would have been $1.44, compared with the reported $1.83.
Fiscal 2010 free cash flow is expected to be $70 million to $80 million, or $3.71 to $4.24 per diluted share, based on weighted average shares outstanding at the close of fiscal 2010’s first quarter.
Conference Call
School Specialty will host a conference call to discuss its fiscal 2010 first quarter financial results. The conference call begins today, August 20, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investor Information section of the School Specialty web site atwww.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,
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including the factors described in Item 1A of School Specialty’s Annual Report on Form 10-K for the fiscal year ended April 25, 2009, 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-
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SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
| | | | | | | | |
| | | Three Months Ended | |
| | | July 25, 2009 | | | (As Adjusted)*
July 26, 2008 | |
Revenues | | $ | 330,367 | | | $ | 378,794 | |
Cost of revenues | | | 187,576 | | | | 214,792 | |
| | | | | | | | |
Gross profit | | | 142,791 | | | | 164,002 | |
Selling, general and administrative expenses | | | 88,252 | | | | 101,017 | |
| | | | | | | | |
Operating income | | | 54,539 | | | | 62,985 | |
| | |
Other (income) expense: | | | | | | | | |
Interest expense | | | 7,560 | | | | 7,809 | |
Interest income | | | (10 | ) | | | (79 | ) |
Other | | | — | | | | 555 | |
| | | | | | | | |
Income before provision for income taxes | | | 46,989 | | | | 54,700 | |
Provision for income taxes | | | 18,560 | | | | 21,350 | |
| | | | | | | | |
Net income | | | 28,429 | | | | 33,350 | |
| | | | | | | | |
| | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | | 18,829 | | | | 18,840 | |
Diluted | | | 18,876 | | | | 19,107 | |
| | |
Basic earnings per share of common stock: | | | | | | | | |
Earnings from continuing operations | | $ | 1.51 | | | $ | 1.77 | |
| | | | | | | | |
Total | | $ | 1.51 | | | $ | 1.77 | |
| | | | | | | | |
| | |
Diluted earnings per share of common stock: | | | | | | | | |
Earnings from continuing operations | | $ | 1.51 | | | $ | 1.75 | |
| | | | | | | | |
Total | | $ | 1.51 | | | $ | 1.75 | |
| | | | | | | | |
| * | The Company adopted at the beginning of Fiscal 2010 Financial Accounting Standards Board Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”(“FSP APB 14-1”). The adoption of FSP APB 14-1 required an adjustment of previously reported amounts assigned to debt, deferred taxes, equity and interest expense. |
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SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
| | | | | | | | | | | | |
| | | July 25, 2009 | | | (As Adjusted from
Audited Statements)*
April 25, 2009 | | | (As Adjusted)*
July 26, 2008 | |
| | | (Unaudited) | | | | | | (Unaudited) | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,867 | | | $ | 1,871 | | | $ | 5,672 | |
Accounts receivable | | | 237,942 | | | | 103,683 | | | | 241,100 | |
Inventories | | | 167,921 | | | | 127,108 | | | | 170,784 | |
Deferred catalog costs | | | 9,816 | | | | 15,537 | | | | 11,812 | |
Prepaid expenses and other current assets | | | 15,037 | | | | 17,347 | | | | 14,869 | |
Refundable income taxes | | | — | | | | 1,566 | | | | — | |
Deferred taxes | | | 9,805 | | | | 9,805 | | | | 16,921 | |
| | | | | | | | | | | | |
Total current assets | | | 444,388 | | | | 276,917 | | | | 461,158 | |
Property, plant and equipment, net | | | 69,060 | | | | 70,183 | | | | 75,198 | |
Goodwill | | | 539,109 | | | | 532,318 | | | | 543,696 | |
Intangible assets, net | | | 165,505 | | | | 168,082 | | | | 174,621 | |
Other | | | 27,632 | | | | 27,551 | | | | 28,723 | |
| | | | | | | | | | | | |
Total assets | | $ | 1,245,694 | | | $ | 1,075,051 | | | $ | 1,283,396 | |
| | | | | | | | | | | | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Current maturities - long-term debt | | $ | 128,354 | | | $ | 127,071 | | | $ | 123,369 | |
Accounts payable | | | 131,280 | | | | 56,786 | | | | 113,467 | |
Accrued compensation | | | 12,871 | | | | 12,821 | | | | 15,523 | |
Deferred revenue | | | 5,777 | | | | 4,254 | | | | 8,018 | |
Accrued income taxes | | | 12,502 | | | | — | | | | 10,201 | |
Other accrued liabilities | | | 37,286 | | | | 28,231 | | | | 44,462 | |
| | | | | | | | | | | | |
Total current liabilities | | | 328,070 | | | | 229,163 | | | | 315,040 | |
Long-term debt - less current maturities | | | 275,902 | | | | 244,586 | | | | 344,944 | |
Deferred taxes | | | 63,982 | | | | 60,025 | | | | 64,686 | |
Other liabilities | | | 913 | | | | 913 | | | | 1,080 | |
| | | | | | | | | | | | |
Total liabilities | | | 668,867 | | | | 534,687 | | | | 725,750 | |
| | | | | | | | | | | | |
| | | |
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 24,255,767; 24,243,438 and 24,194,468 shares issued, respectively | | | 24 | | | | 24 | | | | 24 | |
Capital paid-in excess of par value | | | 462,287 | | | | 461,234 | | | | 457,858 | |
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 | | | 17,785 | | | | 10,804 | | | | 25,241 | |
Retained earnings | | | 283,368 | | | | 254,939 | | | | 261,160 | |
| | | | | | | | | | | | |
Total shareholders’ equity | | | 576,827 | | | | 540,364 | | | | 557,646 | |
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,245,694 | | | $ | 1,075,051 | | | $ | 1,283,396 | |
| | | | | | | | | | | | |
| * | The Company adopted at the beginning of Fiscal 2010 Financial Accounting Standards Board Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”(“FSP APB 14-1”). The adoption of FSP APB 14-1 required an adjustment of previously reported amounts assigned to debt, deferred taxes, equity and interest expense |
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SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
| | | | | | | | |
| | | Three Months Ended | |
| | | July 25, 2009 | | | (As Adjusted)*
July 26, 2008 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 28,429 | | | $ | 33,350 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and intangible asset amortization expense | | | 6,762 | | | | 6,265 | |
Amortization of development costs | | | 1,831 | | | | 1,773 | |
Amortization of debt fees and other | | | 520 | | | | 510 | |
Share-based compensation expense | | | 1,273 | | | | 1,610 | |
Deferred taxes | | | 3,661 | | | | 3,429 | |
Loss (gain) on disposal of property, equipment and other | | | — | | | | 1 | |
Non cash convertible debt deferred financing costs | | | 3,166 | | | | 2,916 | |
Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations): | | | | | | | | |
Accounts receivable | | | (134,156 | ) | | | (163,527 | ) |
Inventories | | | (40,582 | ) | | | (21,261 | ) |
Deferred catalog costs | | | 5,721 | | | | 3,033 | |
Prepaid expenses and other current assets | | | 3,802 | | | | 12,034 | |
Accounts payable | | | 74,259 | | | | 49,184 | |
Accrued liabilities | | | 22,978 | | | | 25,541 | |
| | | | | | | | |
Net cash used in operating activities | | | (22,336 | ) | | | (45,142 | ) |
| | | | | | | | |
| | |
Cash flows from investing activities: | | | | | | | | |
Additions to property, plant and equipment | | | (2,946 | ) | | | (2,120 | ) |
Proceeds from business dispositions | | | 200 | | | | 1,742 | |
Investment in product development costs | | | (2,194 | ) | | | (1,780 | ) |
Proceeds from disposal of property, plant and equipment | | | — | | | | 45 | |
| | | | | | | | |
Net cash used in investing activities | | | (4,940 | ) | | | (2,113 | ) |
| | | | | | | | |
| | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from bank borrowings | | | 109,800 | | | | 202,900 | |
Repayment of debt and capital leases | | | (80,365 | ) | | | (143,054 | ) |
Purchase of treasury stock | | | — | | | | (15,250 | ) |
Payment of debt fees and other | | | (238 | ) | | | — | |
Proceeds from exercise of stock options | | | 75 | | | | 2,471 | |
Excess income tax benefit from exercise of stock options | | | — | | | | 1,826 | |
| | | | | | | | |
Net cash provided by financing activities | | | 29,272 | | | | 48,893 | |
| | | | | | | | |
| | |
Net increase in cash and cash equivalents | | | 1,996 | | | | 1,638 | |
Cash and cash equivalents, beginning of period | | | 1,871 | | | | 4,034 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 3,867 | | | $ | 5,672 | |
| | | | | | | | |
| | |
Free cash flow reconciliation: | | | | | | | | |
Net cash used in operating activities | | $ | (22,336 | ) | | $ | (45,142 | ) |
Additions to property and equipment | | | (2,946 | ) | | | (2,120 | ) |
Investment in development costs | | | (2,194 | ) | | | (1,780 | ) |
Proceeds from disposal of property and equipment | | | — | | | | 45 | |
| | | | | | | | |
Free cash flow | | $ | (27,476 | ) | | $ | (48,997 | ) |
| | | | | | | | |
| * | The Company adopted at the beginning of Fiscal 2010 Financial Accounting Standards Board Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt InstrumentsThat May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”(“FSP APB 14-1”). The adoption of FSP APB 14-1 required an adjustment of previously reported amounts assigned to debt, deferred taxes, equity and interest expense. |
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School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
1st Quarter, Fiscal 2010
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Revenues | |
| | | 1Q10-QTD | | | 1Q09-QTD | | | Change $ | | | Change % | | | 1Q10-QTD | | | 1Q09-QTD | |
Revenues | | | | | | | | | | | | | | | | | | | | | |
Educational Resources | | $ | 224,943 | | | $ | 252,250 | | | $ | (27,307 | ) | | -10.8 | % | | 68.1 | % | | 66.6 | % |
Publishing | | | 106,345 | | | | 126,828 | | | | (20,483 | ) | | -16.2 | % | | 32.2 | % | | 33.5 | % |
Corporate and Interco Elims | | | (921 | ) | | | (284 | ) | | | (637 | ) | | | | | -0.3 | % | | -0.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Revenues | | $ | 330,367 | | | $ | 378,794 | | | $ | (48,427 | ) | | -12.8 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | % of Revenues | |
| | | 1Q10-QTD | | | 1Q09-QTD | | | Change $ | | | Change % | | | 1Q10-QTD | | | 1Q09-QTD | |
Gross Profit | | | | | | | | | | | | | | | | | | | | | |
Educational Resources | | $ | 82,715 | | | $ | 89,093 | | | $ | (6,378 | ) | | -7.2 | % | | 57.9 | % | | 54.3 | % |
Publishing | | | 59,515 | | | | 74,021 | | | | (14,506 | ) | | -19.6 | % | | 41.7 | % | | 45.1 | % |
Intercompany Eliminations | | | 561 | | | | 888 | | | | (327 | ) | | | | | 0.4 | % | | 0.6 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total Gross Profit | | $ | 142,791 | | | $ | 164,002 | | | $ | (21,211 | ) | | -12.9 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
|
Segment Gross Margin Summary-QTD | |
| | | 1Q10-QTD | | | 1Q09-QTD | | | | | | | | | | | | | |
Gross Margin | | | | | | | | | | | | | | | | | | | | | |
Educational Resources | | | 36.8 | % | | | 35.3 | % | | | | | | | | | | | | | |
Publishing | | | 56.0 | % | | | 58.4 | % | | | | | | | | | | | | | |
Total Gross Margin | | | 43.2 | % | | | 43.3 | % | | | | | | | | | | | | | |
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