– Record fiscal 2007 revenue from continuing operations of $1.043 million
– Diluted EPS from continuing operations of $1.74 versus $0.77 in fiscal 2006
– Free cash flow of $64.0 million, up 33 percent from last year
– School Specialty Science selected by four of California’s largest school districts
– $45 million share repurchase program authorized
– Confirms fiscal 2008 guidance of $2.00 to $2.20 of diluted EPS from continuing operations
GREENVILLE, Wis., June 5 /PRNewswire-FirstCall/ — School Specialty (NASDAQ:SCHS) , a leading education company providing supplemental learning products to the preK-12 market, today reported record fiscal 2007 revenue and encouraging prospects for the upcoming educational selling season.
Revenue in fiscal 2007 reached a record $1.043 billion, a 6.7 percent increase over fiscal 2006 revenue of $977.3 million. Specialty segment revenue grew 12.3 percent, primarily driven by the acquisition of Delta Education, which was acquired in August 2005, and Essential segment revenue grew 0.5 percent. Organic revenue growth in the Essentials segment was 2.0 percent. Organic revenue growth for the combined segments was 2.2 percent.
Gross profit grew 9.0 percent to $445.6 million compared with $408.7 million in fiscal 2006, primarily driven by increased revenue and a 90-basis-point expansion in gross margin from 41.8 percent to 42.7 percent. The increased gross margin was related to a shift in revenue mix toward the more profitable Specialty segment. Revenue from the Specialty segment increased to 56.7 percent of total revenue in fiscal 2007 from 53.9 percent last year, primarily due to the acquisition of Delta.
Operating income increased from $54.2 million in fiscal 2006 to $93.8 million in fiscal 2007. Selling, general and administrative (SG&A) expenses, which did not include terminated merger costs of $5.2 million in fiscal 2006, increased $2.5 million, or less than 1 percent, from $349.3 million to $351.8 million. The increase in SG&A was due to variable costs associated with increased revenues of $65.9 million, the fixed costs associated with the inclusion of Delta and stock-based compensation expense that was not expensed in fiscal 2006. These increases were offset by cost reduction initiatives, which included headcount reductions, supply chain productivity enhancements and non-recurring expenses incurred in fiscal 2006. In fiscal 2007, SG&A expenses as a percent of revenue decreased 200 basis points from 35.7 percent to 33.7 percent. Stock-based compensation expense, which began in fiscal 2007 with the adoption of SFAS No. 123R, was $4.5 million pre-tax, or $0.15 per diluted share for the year.
Diluted earnings per share increased to $0.80 per share as compared to $0.00 in fiscal 2006. Diluted earnings per share from continuing operations increased to $1.74 per diluted share in fiscal 2007, as compared with $0.77 per diluted share in fiscal 2006. Fiscal 2007 diluted earnings per share from continuing operations was impacted by the Company’s share repurchase program and convertible debt offering, which reduced the number of outstanding shares and resulted in a net increase in interest expense. The combined impact of the share repurchase program and convertible debt offering resulted in an incremental $0.06 of diluted earnings per share from continuing operations.
During fiscal 2007, the Company repurchased 2.1 million shares of its common stock for an aggregate net purchase price of $76.5 million.
“We are very pleased with our progress in fiscal 2007,” said Chief Executive Officer David J. Vander Zanden. “Our associates worked hard to improve our organic growth during the year and they made significant progress in repositioning the company’s potential to achieve additional core-asset growth in the coming year. We continue to invest in new technologies, develop new product offerings and advance our database marketing capabilities, all of which we believe strengthen our future growth prospects. I’m particularly proud of how School Specialty associates have advanced our product sourcing initiatives. This past year, revenues generated from imported products grew to nearly $100 million, which helped expand our margins and enhance our competitive advantages.”
Discontinued Operations
The Company announced April 18, 2007, that it intends to sell its School Specialty Media (SSM) business unit. As a result, the business is being reported as a discontinued operation for fiscal 2007 with a diluted per share loss of $0.94. For the year, SSM reported a net of tax loss from operations of $3.3 million, or $0.15 loss per diluted share. In addition, a $17.8 million net of tax asset impairment charge, or $0.79 loss per diluted share, has been recorded in anticipation of the intended sale.
The discontinued operation decreased diluted earnings per share by $0.77 in fiscal 2006 which consisted of a net of tax impairment charge of $16.4 million, or $0.69 loss per diluted share and a net of tax loss on operations of $1.8 million or $0.08 loss per diluted share.
Fourth Quarter Financial Results from Continuing Operations
Revenue for the fourth quarter of fiscal 2007 was $166.0 million compared with $171.4 million in fiscal 2006. The decrease was primarily due to competitive price pressures, the elimination of an unproductive catalog and delays in furniture shipments in the Essentials business. Gross margin increased 180 basis points in the quarter from 41.4 percent to 43.2 percent, due to a combination of a shift in revenue mix toward the higher-margin Specialty segment and stronger gross margins within both the Specialty and Essentials segments.
Operating loss for the quarter improved to $11.5 million as compared with a loss from continuing operations of $14.1 million in the fourth quarter of fiscal 2006. Selling, general and administrative expenses decreased $1.6 million. The improvement in SG&A was primarily due to catalog optimization and headcount reductions, as well as the reduction in variable expense associated with the revenue change. Partially offsetting these decreases was $1.2 million of stock-based compensation expense in the quarter, an expense that was not incurred in fiscal 2006’s fourth quarter.
The loss in the fourth quarter from continuing operations was $11.3 million in fiscal 2007, compared with a net loss of $13.7 million during the same period last year. The per share loss from continuing operations was $0.53 for the quarter, including $0.04 for the impact of stock-based compensation, as compared with a per share loss from continuing operations of $0.59 in the fourth quarter of fiscal 2006, which did not include stock-based compensation. The fiscal 2007 fourth quarter loss per share from continuing operations was impacted by the Company’s share repurchase program and convertible debt offering, which reduced the number of outstanding shares and resulted in a net increase in interest expense. The combined impact of the share repurchase program and convertible debt offering increased the loss per share by $0.05 in the fourth quarter. Excluding stock-based compensation and the impact of the buyback, the loss from continuing operations per diluted share would have been $0.44 versus a loss per diluted share of $0.59 in the fourth quarter of fiscal 2006.
California Curriculum Adoption
The company reported encouraging activity in the California science curriculum adoption. Four of the state’s largest districts announced they will purchase School Specialty’s Full Option Science System(TM) (FOSS(R)) curriculum from Delta Education (serving grades K-5). Among the districts selecting FOSS were Los Angeles, the nation’s largest school district, San Francisco, Stockton and Oakland. In addition to FOSS, Oakland will also purchase School Specialty’s grade 6-8 CPO science program Focus on Earth, Life and Physical Science. Purchase orders will be received in June and July, for shipments in July through September.
“This success in California is gratifying from not only a business standpoint, but also as a company whose mission it is to help teachers achieve success in the classroom,” said Vander Zanden. “The selection of our science products is a clear sign that educators want to match strong curriculum with varied learning styles found in every classroom.”
School Specialty Educational Publishing President Steven Korte said, “Our two science offerings are active-learning programs with strong alignments with the California content standards and curriculum framework. They provide educators with unique instructional strategies that engage students and produce deep learning in the subject area. At this point in the district approval process more than half a million students in California will be learning science using a core curriculum program from School Specialty.”
Outlook
School Specialty is confirming its previously issued guidance for fiscal 2008 revenue of $1.06 billion to $1.09 billion, and diluted earning per share from continuing operations of $2.00 to 2.20 per share. This reflects approximately $20 million in revenue from the California adoption. Free cash flow in fiscal 2008 is expected to be in the range of $65 million to $75 million. This excludes approximately $20 million of free cash from the income tax savings associated with the sale of SSM.
Share Repurchase Authorization
School Specialty’s Board of Directors has approved a share repurchase program, granting authority to purchase up to $45 million of its issued and outstanding common stock. Purchases under this program may be made from time to time in the open market or in privately negotiated transactions based on ongoing assessments of capital needs of the business, the market price of its stock, general market conditions and other factors. Common stock acquired through the repurchase program will be available for general corporate purposes.
“Given our proven ability to generate strong cash flow, we believe a repurchase program of this type gives us the opportunity to return value to our shareholders, and at the same time maintain our financial flexibility to pursue additional strategic growth initiatives,” said Vander Zanden.
Internet Conference Call
Investors have the opportunity to listen to School Specialty’s fiscal 2007 fourth quarter and year-end conference call live over the Internet through Vcall at http://www.vcall.com/. The conference call begins today, June 5, 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 Presentation pages of the School Specialty corporate web site at http://www.schoolspecialty.com/.
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. 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 http://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)
UnauditedThree Months Ended Fiscal Year Ended
April 28, April 29, April 28, April 29,
2007 2006 2007 2006
(13 weeks)(13 weeks) (52 weeks) (52 weeks)Revenues $166,040 $171,371 $1,043,152 $977,302
Cost of revenues 93,991 100,378 597,515 568,623
Gross profit 72,049 70,993 445,637 408,679
Selling, general and
administrative expenses 83,529 85,115 351,839 349,302
Merger-related expenses – – – 5,202Operating income (loss) (11,480) (14,122) 93,798 54,175
Interest expense and other 6,129 6,917 28,105 23,346
Income (loss) before
provision for (benefit from)
income taxes (17,609) (21,039) 65,693 30,829Provision for (benefit from)
income taxes (6,351) (7,388) 26,468 12,581Earnings (loss) from
continuing operations (11,258) (13,651) 39,225 18,248Earnings (loss) from
operations of discontinued
School Specialty Media
reporting unit, net of
income taxes (17,942) (18,928) (21,179) (18,187)Net income (loss) $(29,200) $(32,579) $18,046 $61
Weighted average shares
outstanding:
Basic 21,177 22,952 21,873 22,898
Diluted 21,177 22,952 22,545 23,739Basic earnings per share of
common stock:
Earnings (loss) from
continuing operations $(0.53) $(0.59) $1.79 $0.80
Earnings (loss) from
discontinued operations $(0.85) $(0.83) $(0.96) $(0.80)
Net earnings $(1.38) $(1.42) $0.83 $0.00Diluted earnings per share of
common stock:
Earnings (loss) from
continuing operations $(0.53) $(0.59) $1.74 $0.77
Earnings (loss) from
discontinued operations $(0.85) $(0.83) $(0.94) $(0.77)
Net earnings $(1.38) $(1.42) $0.80 $0.00School Specialty, Inc.
Consolidated Condensed Balance Sheets
(In thousands)
UnauditedApril 28, April 29,
2007 2006Assets
Cash and cash equivalents $2,386 $2,403
Accounts receivable 65,900 60,553
Inventories 177,319 158,892
Prepaid expenses and other current assets 33,246 49,818
Deferred taxes 10,201 7,097
Total current assets 289,052 278,763
Property, plant and equipment, net 77,345 76,774
Goodwill and other intangible assets, net 718,148 747,241
Other 26,334 27,597
Total assets $1,110,879 $1,130,375Liabilities and Shareholders’ Equity
Current maturities – long-term debt $133,590 $133,578
Accounts payable 77,794 74,919
Other current liabilities 43,565 35,499
Total current liabilities 254,949 243,996
Long-term debt 293,139 283,629
Deferred taxes and other 50,246 49,017
Total liabilities 598,334 576,642
Shareholders’ equity 512,545 553,733
Total liabilities & shareholders’
equity $1,110,879 $1,130,375School Specialty, Inc.
Consolidated Statements of Cash Flows
(In thousands)
UnauditedFiscal Year Ended
April 28, April 29,
2007 2006
(52 weeks) (52 weeks)Cash flows from operating activities:
Net income $18,046 $61
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and intangible
asset amortization expense 25,843 23,382
Amortization of development costs 6,237 4,610
Impairment charge 29,000 26,600
Share-based compensation expense 4,507 –
Amortization of debt fees and other 1,361 1,493
Deferred taxes (1,630) (3,887)
Loss on disposal of property,
equipment and other 292 424
Changes in current assets and
liabilities (net of assets acquired
and liabilities assumed in business
combinations):
Change in amounts sold under
receivables securitization, net – 2,800
Accounts receivable (5,995) 22,313
Inventories (19,503) 601
Deferred catalog costs 6,291 469
Prepaid expenses and other current
assets 14,124 (7,087)
Accounts payable 2,874 11,802
Accrued liabilities 9,413 (6,740)
Net cash provided by
operating activities 90,860 76,841Cash flows from investing activities:
Cash paid in acquisitions, net of
cash acquired – (271,560)
Additions to property, plant and
equipment (18,169) (15,694)
Investment in intangible and other
assets (202) (4,391)
Investment in development costs (9,684) (10,321)
Proceeds from business
dispositions, net of cash disposed – 453
Proceeds from disposal of property,
plant and equipment 1,013 245
Net cash used in investing
activities (27,042) (301,268)Cash flows from financing activities:
Proceeds from convertible debt offering 200,000 –
Proceeds from bank borrowings 704,400 2,275,000
Repayment of debt and capital leases (894,878) (2,053,574)
Purchase of treasury stock (76,508) –
Payment of debt fees and other (5,223) (1,660)
Proceeds from exercise of stock options 7,798 2,871
Excess income tax benefit from
exercise of stock options 576 –
Net cash provided by (used in)
financing activities (63,835) 222,637Net (decrease) increase in cash and
cash equivalents (17) (1,790)
Cash and cash equivalents, beginning
of period 2,403 4,193
Cash and cash equivalents, end of period $2,386 $2,403Free cash flow reconciliation:
Net cash provided by
operating activities $90,860 $76,841
Additions to property, plant
and equipment (18,169) (15,694)
Investment in development costs (9,684) (10,321)
Proceeds from disposal of
property, plant and equipment 1,013 245
Net accounts receivable
securitization facility activity – (2,800)
Free cash flow $64,020 $48,271School Specialty, Inc.
Segment Analysis – Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2007
(In thousands)
UnauditedSegment Revenues and Gross Profit/Margin Analysis-QTD
% of Revenues
4Q07-QTD 4Q06-QTD Change$ Change% 4Q07-QTD 4Q06-QTD
(13 weeks)(13 weeks)
Revenues
Specialty $104,249 $103,879 $370 0.4% 62.8% 60.6%
Essentials 67,539 73,832 (6,293) -8.5% 40.7% 43.1%
Corporate 180 175 5 2.9% 0.1% 0.1%
Intercompany
Eliminations (5,928) (6,515) 587 -9.0% -3.5% -3.8%
Total Revenues $166,040 $171,371 $(5,331) -3.1% 100.1% 100.0%% of Gross Profit
4Q07-QTD 4Q06-QTD Change$ Change% 4Q07-QTD 4Q06-QTD
(13 weeks)(13 weeks)
Gross Profit
Specialty $50,149 $48,220 $1,929 4.0% 69.6% 67.9%
Essentials 22,800 23,975 (1,175) -4.9% 31.6% 33.8%
Corporate 180 175 5 2.9% 0.2% 0.2%
Intercompany
Eliminations (1,080) (1,377) 297 -21.6% -1.5% -1.9%
Total Gross
Profit $72,049 $70,993 $1,056 1.5% 99.9% 100.0%Segment Gross Margin Summary-QTD
Gross Margin 4Q07-QTD 4Q06-QTD
Specialty 48.1% 46.4%
Essentials 33.8% 32.5%
Corporate 100.0% 100.0%
Intercompany
Eliminations 18.2% 21.1%
Total Gross
Margin 43.4% 41.4%Segment Revenues and Gross Profit/Margin Analysis-YTD
% of Revenue
4Q07-YTD 4Q06-YTD Change$ Change% 4Q07-YTD 4Q06-YTD
(52 weeks)(52 weeks)
Revenues
Specialty $591,866 $527,201 $64,665 12.3% 56.7% 53.9%
Essentials 471,141 468,757 2,384 0.5% 45.2% 48.0%
Corporate 720 686 34 5.0% 0.1% 0.1%
Intercompany
Eliminations (20,575) (19,342) (1,233) 6.4% -2.0% -2.0%
Total Revenues $1,043,152 $977,302 $65,850 6.7% 100.0% 100.0%% of Gross Profit
4Q07-YTD 4Q06-YTD Change$ Change% 4Q07-YTD 4Q06-YTD
(52 weeks)(52 weeks)
Gross Profit
Specialty $295,196 $258,178 $37,018 14.3% 66.2% 63.2%
Essentials 151,956 151,633 323 0.2% 34.1% 37.1%
Corporate 720 686 34 5.0% 0.2% 0.2%
Intercompany
Eliminations (2,235) (1,818) (417) 22.9% -0.5% -0.5%
Total Gross
Profit $445,637 $408,679 $36,958 9.0% 100.0% 100.0%Segment Gross Margin Summary-YTD
Gross Margin 4Q07-YTD 4Q06-YTD
Specialty 49.9% 49.0%
Essentials 32.3% 32.3%
Corporate 100.0% 100.0%
Intercompany
Eliminations 10.9% 9.4%
Total Gross
Margin 42.7% 41.8%
First Call Analyst:
FCMN Contact:
Source: School Specialty, Inc.
CONTACT: David Gomach, Chief Financial Officer, +1-920-882-5854, or Mark
Fleming, Corp. Communications & Investor Relations, +1-920-882-5646, both of
School Specialty
Web site: http://www.schoolspecialty.com/
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