– 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
GREENVILLE, Wis., Nov. 20, 2012 (GLOBE NEWSWIRE) — 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(R),
Premier(TM) Agenda, Delta Education(TM), FOSS(R), CPO Science (TM),
Frey Scientific (R), Educator’s Publishing Service, Academy of
Reading(R), Think Math!(TM), MCI(R), S.P.I.R.E.(R) and SPARK(TM).
Educational Resources proprietary brands include: Education
Essentials(R), Sportime(R), Childcraft(R), Sax(R) Arts & Crafts,
Califone(R), abc(R), Abilitations(R), School Smart(R), Classroom
Select(TM) and Projects by Design(R).
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.
