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School Specialty Reports Third Quarter And Nine-Month Results

Stocks in this article: SCHS

Further details concerning the amendment will be contained in a Form 8-K to be filed by the company within the next few days with the Securities and Exchange Commission. 

Outlook

School Specialty is maintaining its prior guidance for fiscal 2011:

  • Revenue of $735 million to $770 million,
  • Loss per share of $0.30 to $0.60; which includes the non-cash charge of $0.32 related to convertible debt, but excludes the non-cash impairment of $18.28 per share, and
  • Free cash flow of $50 million to $60 million.

Conference Call

School Specialty will host a conference call to discuss its fiscal 2011 third quarter financial results. The conference call begins today, February 17, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investors section of the School Specialty web site at www.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, including the factors described in Item 1A of School Specialty's Annual Report on Form 10-K for the fiscal year ended April 24, 2010, 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
         
  Three Months Ended Nine Months Ended
  January 22, 2011 January 23, 2010 January 22, 2011 January 23, 2010
         
Revenues  $ 89,859  $ 103,126  $ 634,723  $ 779,639
Cost of revenues  56,910  60,708  376,179  451,325
Gross profit  32,949  42,418  258,544  328,314
Selling, general and administrative expenses  59,169  65,009  216,335  239,706
Impairment Charge  --  --  411,390  --
Operating income/(loss)  (26,220)  (22,591)  (369,181)  88,608
         
Other (income) expense:        
Interest expense  6,365  7,527  21,241  22,827
Interest income  --  (22)  --  (33)
Income/(Loss) before provision for income taxes  (32,585)  (30,096)  (390,422)  65,814
Provision for (benefit from) income taxes  (13,385)  (11,886)  (57,832)  25,998
Income/(loss) before investment in unconsolidated affiliate  $ (19,200)  $ (18,210)  $ (332,590)  $ 39,816
Equity in (losses) of unconsolidated affiliate  (950)  (241)  (1,085)  (241)
Net income/(loss)  $ (20,150)  $ (18,451)  $ (333,675)  $ 39,575
         
Weighted average shares outstanding:        
Basic  18,870  18,849  18,868  18,838
Diluted  18,870  18,849  18,868  18,901
         
Net Income Per Share:        
Basic  $ (1.07)  $ (0.98)  $ (17.68)  $ 2.10
Diluted  $ (1.07)  $ (0.98)  $ (17.68)  $ 2.09
 
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
Unaudited
  January 22, 2011 April 24, 2010 January 23, 2010
ASSETS      
Current assets:      
Cash and cash equivalents  $ 1,667  $ 21,035  $ 23,459
Accounts receivable  70,767  72,734  92,894
Inventories  80,747  99,910  89,844
Deferred catalog costs  16,597  13,593  10,619
Prepaid expenses and other current assets  13,329  14,318  11,267
Refundable income taxes  --  1,539  --
Deferred taxes  9,867  9,867  9,805
Total current assets  192,974  232,996  237,888
Property, plant and equipment, net  64,383  66,607  65,332
Goodwill  127,694  540,248  536,975
Intangible assets, net  158,205  166,552  167,449
Development costs and other  34,352  33,118  28,019
Investment in unconsolidated affiliate  27,215  28,299  29,046
Total assets  $ 604,823  $ 1,067,820  $ 1,064,709
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Current maturities - long-term debt  $ 193,375  $ 132,397  $ 131,013
Accounts payable  64,045  47,954  25,145
Accrued compensation  6,949  7,501  9,915
Deferred revenue  4,112  4,312  5,141
Accrued income taxes  19,204  --  7,837
Other accrued liabilities  26,266  30,905  32,872
Total current liabilities  313,951  223,069  211,923
Long-term debt - less current maturities  60,395  199,742  197,935
Deferred taxes  10,751  92,398  92,427
Other liabilities  1,423  1,423  913
Total liabilities  386,520  516,632  503,198
       
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 24,290,345; 24,280,097 and 24,277,777 shares issued, respectively  24  24  24
Capital paid-in excess of par value  438,818  436,959  437,811
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  22,984  24,052  19,799
(Accumulated deficit)/Retained earnings  (56,886)  276,790  290,514
Total shareholders' equity  218,303  551,188  561,511
Total liabilities and shareholders' equity  $ 604,823  $ 1,067,820  $ 1,064,709
 
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
     
  Nine Months Ended
  January 22, 2011 January 23, 2010
Cash flows from operating activities:    
Net income  $ (333,676)  $ 39,575
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and intangible asset amortization expense  20,742  19,882
Amortization of development costs  3,838  4,191
Amortization of debt fees and other  1,602  1,642
Share-based compensation expense  2,304  3,033
Impairment charge  411,390  --
Investment in unconsolidated affiliate  1,085  241
Deferred taxes  (82,094)  6,071
Loss (gain) on disposal of property, equipment and other  --  275
Non-cash convertible debt deferred financing costs  7,691  9,696
Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations):    
Accounts receivable  2,332  8,773
Inventories  19,162  23,277
Deferred catalog costs  (3,004)  4,918
Prepaid expenses and other current assets  2,528  5,903
Accounts payable  15,883  (32,400)
Accrued liabilities  13,784  5,248
Net cash provided by operating activities  83,567  100,325
     
Cash flows from investing activities:    
Cash paid in acquisitions, net of cash acquired  --  (11,700)
Additions to property, plant and equipment  (10,220)  (8,494)
Proceeds from disposal of discontinued operations  --  800
Investment in product development costs  (6,655)  (6,679)
Proceeds from disposal of property, plant and equipment  --  2,083
Investment in Noncontrolling Interest  --  (2,226)
Net cash used in investing activities  (16,875)  (26,216)
     
Cash flows from financing activities:    
Proceeds from bank borrowings  632,600  304,400
Repayment of debt and capital leases  (585,660)  (356,803)
Redemption of convertible debt  (133,000)  --
Payment of debt and other  --  (238)
Proceeds from exercise of stock options  --  120
Net cash used in financing activities  (86,060)  (52,521)
     
Net (decrease)/increase in cash and cash equivalents  (19,368)  21,588
Cash and cash equivalents, beginning of period  21,035  1,871
Cash and cash equivalents, end of period  $ 1,667  $ 23,459
     
Free cash flow reconciliation:    
Net cash used in operating activities  $ 83,567  $ 100,325
Additions to property and equipment  (10,220)  (8,494)
Investment in development costs  (6,655)  (6,679)
Proceeds from disposal of property and equipment  --   2,083
Free cash flow  $ 66,692  $ 87,235
 
 
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
3rd Quarter, Fiscal 2011
(In thousands)
Unaudited
             
Segment Revenues and Gross Profit/Margin Analysis-QTD        
          % of Revenues
  3Q11-QTD 3Q10-QTD Change $ Change % 3Q11-QTD 3Q10-QTD
Revenues            
Educational Resources  $ 69,785  $ 81,984  $ (12,199) -14.9% 77.7% 79.5%
Accelerated Learning  19,907  21,007  (1,100) -5.2% 22.2% 20.4%
Corporate and Interco Elims  167  135  32   0.1% 0.1%
Total Revenues  $ 89,859  $ 103,126  $ (13,267) -12.9% 100.0% 100.0%
             
          % of Gross Profit
  3Q11-QTD 3Q10-QTD Change $ Change % 3Q11-QTD 3Q10-QTD
Gross Profit            
Educational Resources  $ 22,196  $ 30,044  $ (7,848) -26.1% 67.4% 70.8%
Accelerated Learning  10,267  11,884  (1,617) -13.6% 31.2% 28.0%
Corporate and Interco Elims  486  490  (4)   1.4% 1.2%
Total Gross Profit  $ 32,949  $ 42,418  $ (9,469) -22.3% 100.0% 100.0%
             
Segment Gross Margin Summary-QTD        
             
Gross Margin 3Q11-QTD 3Q10-QTD        
Educational Resources 31.8% 36.6%        
Accelerated Learning 51.6% 56.6%        
Total Gross Margin 36.7% 41.1%        
 
 
             
Segment Revenues and Gross Profit/Margin Analysis-YTD        
          % of Revenue
  3Q11-YTD 3Q10-YTD Change $ Change % 3Q11-YTD 3Q10-YTD
Revenues            
Educational Resources  $ 432,897  $ 546,791  $ (113,894) -20.8% 68.2% 70.1%
Accelerated Learning  201,325  233,573  (32,248) -13.8% 31.7% 30.0%
Corporate and Interco Elims  501  (725)  1,226   0.1% -0.1%
Total Revenues  $ 634,723  $ 779,639  $ (144,916) -18.6% 100.0% 100.0%
             
          % of Gross Profit
  3Q11-YTD 3Q10-YTD Change $ Change % 3Q11-YTD 3Q10-YTD
Gross Profit            
Educational Resources  $ 143,046  $ 195,536  $ (52,490) -26.8% 55.3% 59.6%
Accelerated Learning  113,485  130,944  (17,459) -13.3% 43.9% 39.9%
Corporate and Interco Elims  2,013  1,834  179   0.8% 0.5%
Total Gross Profit  $ 258,544  $ 328,314  $ (69,770) -21.3% 100.0% 100.0%
             
Segment Gross Margin Summary-YTD        
             
Gross Margin 3Q11-YTD 3Q10-YTD        
Educational Resources 33.0% 35.8%        
Accelerated Learning 56.4% 56.1%        
Total Gross Margin 40.7% 42.1%        
CONTACT: David Vander Ploeg
         Executive VP and CFO
         920-882-5854
         
         Mark Fleming
         Investor Relations & Corp. Communications
         920-882-5646

School Specialty, Inc.

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