Third Quarter Financial Results
- Revenue for the third quarter of fiscal 2011 was $89.9 million, or down 12.9 percent, compared with $103.1 million in the prior year's third quarter. While continued pressure in school funding and budgets is contributing to these reductions, the rate of decline has improved from the first six months of the fiscal year, as the company expected.
- Gross profit was $32.9 million compared with $42.4 million in last year's third quarter. Consolidated gross margin declined 440 basis points to 36.7 percent, reflecting the continuation of price discounting in the Educational Resources segment in response to competitive pressures in a depressed school spending environment. In addition, product mix, both within and between segments contributed to the decline.
- Selling, general and administrative expenses declined to $59.2 million from the prior year's $65.0 million. The expense decrease is primarily attributable to cost reduction efforts, as well as lower volume.
- Third quarter net interest expense and other declined $1.1 million to $6.4 million from $7.5 million in last year's third quarter. This decline was attributable to a reduction in non-cash interest expense related to the company's convertible debt. Non-cash interest expense declined from $3.3 million in last year's third quarter to $2.1 million in this year's third quarter. The non-cash interest expense reduction was due to the retirement of a $133.0 million convertible bond earlier this year.
- Net loss in the third quarter was $20.2 million ($1.07 per share) compared to a loss of $18.5 million ($0.98 per share) in the same period last year.
Nine-Month Financial Results
- Revenue for the first nine months of fiscal 2011 was $634.7 million compared with $779.6 million in the same period last year, a decline of 18.6 percent. Excluding the $17.5 million of revenue in fiscal 2010's first nine months from last year's sale of School Specialty Publishing, consolidated revenue declined 16.7 percent. Negatively affecting revenue this year were general spending reductions by schools, including a significant decline in furniture sales due to a lack of school construction projects across the U.S., and various execution issues in the Educational Resources segment.
- Year-to-date gross profit was $258.5 million compared with $328.3 million last year. Gross margin declined 140 basis points to 40.7 percent versus last year's 41.1 percent. Most of the decline was due to competitive pricing pressures within the Educational Resources segment, somewhat offset by a favorable product mix.
- Selling, general and administrative expenses declined to $216.3 million (34.1 percent of revenue), from the prior year's $239.7 million (30.7 percent of revenue). The expense decrease is primarily attributable to lower volume, and the past year's cost-reductions, operational consolidation and divesture.
- Nine-month net interest expense and other declined $1.6 million to $21.2 million from last year's $22.8 million. Included in this year's total was $7.7 million of non-cash interest expense related to the company's convertible debt, compared with $9.7 million of non-cash interest expense last year. Partially offsetting the decrease in non-cash interest expense was approximately $0.6 million of incremental loan commitment fees on unborrowed funds related to the company's revolving credit facility.
- A non-cash impairment charge of $411.3 million, or $344.9 million net of tax, was recorded in the first nine months of the fiscal year associated with the annual assessment of goodwill and other indefinite-lived intangible assets. The tax benefit associated with the impairment was negatively impacted by the portion of the goodwill which is non-deductible for tax purposes.
- Year-to-date net loss was $333.7 million ($17.68 per share) compared to net income of $39.6 million ($2.09 per share) in the same period last year. Excluding the net of tax impact of an impairment charge recorded in this year's first quarter, net income was $11.3 million ($0.60 per share).
Credit Facility Amendment
The company also announced it has amended its revolving credit facility. The amendment, among other things, reduces the overall credit facility capacity from $350 million to $300 million, with up to $125 million of the available capacity structured as a Delayed Draw Term Loan to be used to refinance the company's convertible notes. Covenant modifications include increases in both the total and senior leverage ratios, while the facility's interest rate will generally increase 75 basis points on borrowings.