* Diluted EPS from continuing operations increases 16.9 percent
to a record $1.87
* Revenue improves 2.5 percent to a record $386.5 million
* School Specialty Science curriculum offerings exceed expectations
* Fiscal 2008 revenue and earnings guidance confirmed
GREENVILLE, Wis., Aug. 14, 2007 (PRIME NEWSWIRE) -- School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported fiscal 2008 first quarter financial results. The Company reported record first quarter revenue, earnings and diluted earnings per share from continuing operations. Diluted earnings per share from continuing operations were $1.87, a 16.9 percent increase over the first quarter of fiscal 2007. Earnings from continuing operations rose $2.8 million to $40.6 million. Revenue improved to $386.5 million, a 2.5 percent increase over the same period last year.
"This year's first quarter was the best ever for School Specialty," said David J. Vander Zanden, Chief Executive Officer. "In spite of a slow start to the quarter, our associates delivered good overall growth, and we again improved our profit margins through cost reduction activities, supply-chain efficiencies and a continued shift in our revenue mix to the more profitable specialty products."
The major highlight of the quarter was the Company's success selling its science curriculum programs to schools across the country, with particularly strong activity in California's statewide adoption process. "Our full-year revenue from the elementary science adoptions in California and South Carolina should exceed our prior estimates by about 50 percent, coming in at just over $30 million," noted Vander Zanden. "We also had strong activity in the non-adoption 'open territories,' including New York City, where a majority of the schools selected our elementary science program. We are very encouraged by the broad acceptance of our core science curriculums, including our middle school offering. More educators than ever are recognizing the value of a hands-on, active-learning approach to science instruction, which is the foundation of our unique offerings."
School Specialty has two core-curriculum science offerings: the Full Option Science System (FOSS(r)) from subsidiary Delta Education (Grades K-5), and Focus on Earth, Life and Physical Science from subsidiary CPO Science (Grades 6-8).
The Company's Essentials segment, which provides supplies and furniture to schools across the country, reported lower revenue for the first quarter, though there was an acceleration in order activity during the latter part of the quarter which has continued through the first half of August. Historical ordering patterns have been delayed due in part to many school districts that set later start dates for fall classes, allowing them to postpone orders for a few weeks. In addition, fourth quarter delays in furniture orders continued in the first quarter as many building projects moved to the final half of the Company's fiscal year.
President and Chief Operating Officer Thomas M. Slagle said other factors also affected the Essentials business during the first quarter. "In last year's fourth quarter we decided to discontinue an underperforming catalog and we walked away from some low-margin bids, which with the order delays, impacted first quarter results," noted Slagle. "Those issues are now behind us and the order flows we're seeing through the first half of August are strengthening."
First Quarter Financial Results
Revenue in the first quarter of fiscal 2008 was a record $386.5 million, a 2.5 percent increase over fiscal 2007 first quarter revenue. Specialty segment revenue grew $18.7 million, or 8.9 percent, in the first quarter of fiscal 2008 from $209.4 million to $228.1 million. The Specialty segment had state adoption revenue of approximately $15 million in the quarter, which was offset to some extent by a $5 million decline in mass-merchant retail sales. Essentials revenue, which was impacted by the later start dates in many school districts, was $166.1 million as compared to the $174.9 million last year. Organic revenue growth for the combined segments was 2.5 percent.
Gross margin improved by 40-basis points from 44.5 percent to 44.9 percent. The increased gross margin was related to a shift in revenue mix toward the Specialty segment, which historically has higher gross margins than the Essentials segment. Revenue from the Specialty segment increased to 56.9 percent of total revenue in the first quarter of fiscal 2008 as compared to 53.6 percent of revenue in the first quarter of fiscal 2007.
Selling, general and administrative (SG&A) expenses decreased from 26.2 percent of revenue in the first quarter of fiscal 2007 to 25.9 percent of revenue in the first quarter of fiscal 2008. SG&A expenses increased $1.3 million from $98.8 million to $100.1 million. The increase in SG&A is attributable to the incremental variable selling and distribution expenses associated with the revenue growth. These increases have been offset to some extent by continued supply chain efficiencies and other cost reduction efforts. First quarter operating income as a percent of revenue increased to 18.9 percent in fiscal 2008 as compared to 18.3 percent in fiscal 2007. Diluted earnings per share from continuing operations increased 16.9 percent from $1.60 in fiscal 2007 to $1.87 in fiscal 2008. Earnings from continuing operations increased 7.5 percent from $37.7 million in the first quarter of fiscal 2007 to $40.6 million in fiscal 2008, which accounted for approximately $0.12 of the $0.27 growth in diluted earnings per share from continuing operations.
Diluted earnings per share, which includes the discontinued School Specialty Media (SSM) business, increased to $1.86 in fiscal 2008 from $1.57 in fiscal 2007's first quarter, an 18.5 percent increase. Net income, which includes a net of tax loss of $0.3 million from SSM, was $40.3 million in the first quarter of fiscal 2008, as compared to the prior year's $36.9 million, which includes a net of tax loss of $0.9 million from SSM.
On June 5, 2007, the Company announced its Board of Directors authorized the repurchase of up to $45 million of its issued and outstanding common stock. During the first quarter of fiscal 2008 the Company repurchased 445,485 shares under this authority for a net purchase price of $16.0 million. Since the beginning of fiscal 2007, the Company has repurchased 2,571,606 shares for a net purchase price of $92.5 million.
Outlook
School Specialty is confirming the fiscal 2008 revenue guidance of $1.06 billion to $1.09 billion, and diluted earnings per share from continuing operations of $2.00 to $2.20 per share. The Company continues to expect free cash flow in fiscal 2008 to be in the range of $65 million to $75 million.
Conference Call
Investors have the opportunity to listen to School Specialty's fiscal 2008 first quarter conference call live over the Internet through Vcall at www.vcall.com. The conference call begins today, August 14, at 10:00 a.m. 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 Investor Information section of the School Specialty corporate web site at 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 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 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, 2007, 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
-------------------------
July 28, July 29,
2007 2006
--------- --------
Revenues $386,513 $377,071
Cost of revenues 213,145 209,160
-------- --------
Gross profit 173,368 167,911
Selling, general and administrative
expenses 100,145 98,839
-------- --------
Operating income 73,223 69,072
Other (income) expense:
Interest expense 5,332 6,142
Interest income (8) (35)
Other 1,209 1,052
-------- --------
Income before provision for income
taxes 66,690 61,913
Provision for income taxes 26,110 24,168
-------- --------
Earnings from continuing operations 40,580 37,745
Earnings (loss) from operations of
discontinued School Specialty Media
business unit, net of income taxes (259) (878)
-------- --------
Net income $ 40,321 $ 36,867
======== ========
Weighted average shares outstanding:
Basic 21,134 22,883
Diluted 21,732 23,523
Basic earnings per share of common
stock:
Earnings from continuing operations $ 1.92 $ 1.65
Earnings (loss) from discontinued
operations (0.01) (0.04)
-------- --------
Total $ 1.91 $ 1.61
======== ========
Diluted earnings per share of
common stock:
Earnings from continuing operations $ 1.87 $ 1.60
Earnings (loss) from discontinued
operations (0.01) (0.03)
-------- --------
Total $ 1.86 $ 1.57
======== ========
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
July 28, April 28, July 29,
2007 2007 2006
----------- ----------- -----------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash
equivalents $ 3,075 $ 2,386 $ 1,380
Accounts
receivable 243,316 65,900 225,931
Inventories 198,868 177,319 171,941
Prepaid expenses and
other current assets 30,689 33,246 35,932
Deferred taxes 10,331 10,201 6,693
----------- ----------- -----------
Total current
assets 486,279 289,052 441,877
Property, plant
and equipment, net 76,447 77,345 79,550
Goodwill 538,257 534,488 584,319
Intangible assets, net 181,579 183,660 162,707
Other 25,517 26,334 27,790
----------- ----------- -----------
Total assets $ 1,308,079 $ 1,110,879 $ 1,296,243
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities -
long-term debt $ 133,598 $ 133,590 $ 133,560
Accounts payable 126,898 77,794 120,048
Other accrued
liabilities 82,463 43,565 73,107
----------- ----------- -----------
Total current
liabilities 342,959 254,949 326,715
Long-term debt -
less current
maturities 366,987 293,139 331,784
Deferred taxes and other 54,213 50,246 50,674
----------- ----------- -----------
Total liabilities 764,159 598,334 709,173
----------- ----------- -----------
Total shareholders'
equity 543,920 512,545 587,070
----------- ----------- -----------
Total liabilities
and shareholders'
equity $ 1,308,079 $ 1,110,879 $ 1,296,243
=========== =========== ===========
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Three Months Ended
-------------------------
July 28, July 29,
2007 2006
--------- ---------
Cash flows from operating activities:
Net income $ 40,321 $ 36,867
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and intangible asset
amortization expense 6,305 6,318
Amortization of development costs 3,221 1,866
Amortization of debt fees and other 508 247
Share-based compensation expense 1,503 1,214
Deferred taxes 3,087 2,161
Gain on disposal of property, equipment
and other (4) (21)
Changes in current assets and
liabilities (net of assets acquired
and liabilities assumed in business
combinations):
Accounts receivable (177,390) (165,476)
Inventories (21,412) (12,836)
Deferred catalog costs 2,915 5,635
Prepaid expenses and other current
assets (298) 7,665
Accounts payable 49,306 45,337
Accrued liabilities 39,626 37,494
--------- ---------
Net cash used in operating activities (52,312) (33,529)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and
equipment (3,445) (6,679)
Investment in intangible and other
assets -- (102)
Investment in product development costs (2,923) (2,369)
Proceeds from disposal of property,
plant and equipment 15 604
--------- ---------
Net cash used in investing activities (6,353) (8,546)
--------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings 199,000 317,600
Repayment of debt and capital leases (125,144) (269,483)
Purchase of treasury stock (15,989) (7,575)
Proceeds from exercise of stock options 1,310 510
Excess income tax benefit from exercise
of stock options 177 --
--------- ---------
Net cash provided by financing
activities 59,354 41,052
--------- ---------
Net increase (decrease) in cash and
cash equivalents 689 (1,023)
Cash and cash equivalents, beginning
of period 2,386 2,403
--------- ---------
Cash and cash equivalents, end of
period $ 3,075 $ 1,380
========= =========
Free cash flow reconciliation:
Net cash used in operating activities $ (52,312) $ (33,529)
Additions to property and equipment (3,445) (6,679)
Investment in development costs (2,923) (2,369)
Proceeds from disposal of property
and equipment 15 604
--------- ---------
Free cash flow $ (58,665) $ (41,973)
========= =========
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
1st Quarter, Fiscal 2008
(In thousands)
Unaudited
Segment Revenues and Gross
Profit/Margin Analysis-QTD
---------------------------
1Q08-QTD 1Q07-QTD Change $ Change %
---------- ---------- --------- ---------
Revenues
Specialty $ 228,139 $ 209,468 $ 18,671 8.9%
Essentials 166,131 174,851 (8,720) -5.0%
Corporate 168 175 (7) -4.0%
Intercompany
Eliminations (7,925) (7,423) (502) 6.8%
--------- --------- ---------
Total Revenues $ 386,513 $ 377,071 $ 9,442 2.5%
========= ========= =========
1Q08-QTD 1Q07-QTD Change $ Change %
---------- ---------- --------- ---------
Gross Profit
Specialty $ 118,661 $ 109,582 $ 9,079 8.3%
Essentials 55,948 58,928 (2,980) -5.1%
Corporate 168 175 (7) -4.0%
Intercompany
Eliminations (1,409) (774) (635) 82.0%
--------- --------- ---------
Total Gross
Profit $ 173,368 $ 167,911 $ 5,457 3.3%
========= ========= =========
% of Revenues
----------------------
1Q08-QTD 1Q07-QTD
-------- --------
Revenues
Specialty 58.9% 55.6%
Essentials 43.1% 46.4%
Corporate 0.0% 0.0%
Intercompany Eliminations -2.0% -2.0%
-------- --------
Total Revenues 100.0% 100.0%
======== ========
% of Revenues
----------------------
1Q08-QTD 1Q07-QTD
-------- --------
Gross Profit
Specialty 68.3% 65.4%
Essentials 32.3% 35.1%
Corporate 0.1% 0.1%
Intercompany Eliminations -0.7% -0.6%
-------- --------
Total Gross Profit 100.0% 100.0%
======== ========
Segment Gross Margin Summary-QTD
--------------------------------
1Q08-QTD 1Q07-QTD
Gross Margin -------- --------
Specialty 52.0% 52.3%
Essentials 33.7% 33.7%
Corporate 100.0% 100.0%
Intercompany Eliminations 17.8% 10.4%
Total Gross Margin 44.9% 44.5%