School Specialty Announces Fiscal 2013 Second Quarter Results

School Specialty Announces Fiscal 2013 Second Quarter Results

- 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^®, Premier^™
Agenda, Delta Education^™, FOSS^®, CPO Science ^™, Frey Scientific ^®,
Educator's Publishing Service, Academy of Reading^®, Think Math!^™, MCI^®,
S.P.I.R.E.^® and SPARK^™.Educational Resources proprietary brands include:
Education Essentials^®, Sportime^®, Childcraft^®, Sax^® Arts & Crafts,
Califone^®, abc^®, Abilitations^®, School Smart^®, Classroom Select^™ and
Projects by Design^®.

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.

SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
                                                               
                              Three Months Ended      Six Months Ended
                              October 27, October 29, October 27, October 29,
                               2012        2011        2012        2011
                                                               
Revenues                       $236,866  $251,375  $489,005  $527,459
Cost of revenues               144,166    156,315    292,708    321,123
Gross profit                   92,700     95,060     196,297    206,336
Selling, general and           67,364     73,405     142,480    153,181
administrative expenses
Operating income               25,336     21,655     53,817     53,155
                                                               
Other expense:                                                  
Impairment of long-term asset  1,414      --         1,414      --
Interest expense               9,315      6,867      19,281     14,779
Expense associated with        --         --         --         1,090
convertible debt exchange
Income before provision for    14,607     14,788     33,122     37,286
income taxes
Provision for income taxes     343        6,044      602        14,972
Income before investment       $14,264   $8,744    $32,520   $22,314
inunconsolidated affiliate
Equity in income/(losses) of
investment in unconsolidated   (137)      135        (18)       115
affiliate
Net income                     $14,127   $8,879    $32,502   $22,429
                                                               
Weighted average shares outstanding:                             
Basic                          18,930     18,880     18,915     18,877
Diluted                        18,946     19,020     18,926     18,972
                                                               
Net Income Per Share:                                           
Basic                          $0.75     $0.47     $1.72     $1.19
Diluted                        $0.75     $0.47     $1.72     $1.18
                                                               
Earnings before interest,
taxes, depreciation,
amortization and impairment                                     
charges (EBITDA)
reconciliation:
Net income                    $14,127   $8,879    $32,502   $22,429
Equity in (income)/losses of   137        (135)      18         (115)
unconsolidated affiliate
Provision for income taxes     343        6,044      602        14,972
Expense associated with        --        --        --        1,090
convertible debt exchange
Impairment charge              1,414      --        1,414      --
Depreciation and amortization  6,969      7,319      13,985     14,536
expense
Amortization of development    1,926      2,356      3,994      3,959
costs
Interest expense               9,315      6,867      19,281     14,779
EBITDA                         $34,231   $31,330   $71,796   $71,650



SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
Unaudited
                             October 27, 2012 April 28, 2012 October 29, 2011
ASSETS                                                      
Current assets:                                             
Cash and cash equivalents     $5,577         $484         $4,141
Restricted cash               2,708           --            --
Accounts receivable, net      119,275         62,826        127,722
Inventories                   84,769          100,504       77,253
Deferred catalog costs        3,377           11,737        7,079
Prepaid expenses and other    13,371          11,111        14,218
current assets
Refundable income taxes       3,520           3,570         --
Deferred taxes                4,797           4,797         1,700
Total current assets          237,394         195,029       232,113
Property, plant and           50,836          57,491        59,962
equipment, net
Goodwill                      41,093          41,263        127,990
Intangible assets, net        119,120         124,242       150,521
Development costs and other   35,807          35,206        35,054
Deferred taxes long-term      390             390           7,218
Investment in unconsolidated  9,882           9,900         20,515
affiliate
Total assets                  $494,522       $463,521     $633,373
                                                           
LIABILITIES AND SHAREHOLDERS'                               
EQUITY
Current liabilities:                                        
Current maturities -          $10,833        $955         $43,272
long-term debt
Accounts payable              63,770          74,244        40,816
Accrued compensation          10,974          8,094         12,284
Deferred revenue              3,481           3,095         4,389
Accrued income taxes          --              --            13,122
Other accrued liabilities     20,423          18,932        29,223
Total current liabilities     109,481         105,320       143,106
Long-term debt - less current 284,519         289,668       266,350
maturities
Deferred taxes                --              --            --
Other liabilities             587             587           688
Total liabilities             394,587         395,575       410,144
                                                           
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 24,599,159;    24              24            24
24,290,345 and 24,300,545
shares issued, respectively
Capital paid-in excess of par 445,059         444,428       443,293
value
Treasury stock, at cost
5,420,210; 5,420,210 and      (186,637)       (186,637)     (186,637)
5,420,210 shares,
respectively
Accumulated other             22,486          23,631        23,603
comprehensive income
Accumulated deficit           (180,997)       (213,500)     (57,054)
Total shareholders' equity    99,935          67,946        223,229
Total liabilities and         $494,522       $463,521     $633,373
shareholders' equity



SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
                                                                
                                                     Six Months Ended
                                                     October 27, October 29,
                                                      2012        2011
Cash flows from operating activities:                            
Net income                                            $32,502   $22,429
Adjustments to reconcile net income to net cash provided          
by operating activities:                                         
Depreciation and intangible asset amortization        13,985     14,536
expense
Amortization of development costs                     3,994      3,959
Amortization of debt fees and other                   3,779      1,751
Share-based compensation expense                      723        1,181
Impairment of long-term asset                         1,414       --
Equity in losses/(income) of investment in            18          (115)
unconsolidated affiliate
Deferred taxes                                        --          (4,246)
Expense associated with convertible debt exchange     --         1,090
Non-cash convertible debt interest expense            4,497       5,005
Changes in current assets and liabilities:                       
Accounts receivable                                   (56,356)   (61,162)
Inventories                                           15,737     34,000
Deferred catalog costs                                8,008      9,560
Prepaid expenses and other current assets             (2,212)    295
Accounts payable                                      (11,001)   (45,089)
Accrued liabilities                                   4,446      10,101
Net cash provided by/(used in) operating activities   19,534     (6,705)
                                                                
Cash flows from investing activities:                            
Additions to property, plant and equipment            (2,460)    (3,667)
Investment in product development costs               (3,182)    (3,816)
Change in restricted cash                             (2,708)    --
Proceeds from note receivable                         3,000      --
Net cash used in investing activities                 (5,350)    (7,483)
                                                                
Cash flows from financing activities:                            
Proceeds from bank borrowings                         819,753    300,600
Repayment of debt and capital leases                  (819,591)  (290,429)
Payment of debt and other                             (9,253)     (1,663)
Net cash (used in)/provided by financing activities   (9,091)    8,508
                                                                
Net decrease in cash and cash equivalents             5,093      (5,680)
Cash and cash equivalents, beginning of period        484        9,821
Cash and cash equivalents, end of period              $5,577    $4,141
                                                                
Free cash flow reconciliation:                                   
Net cash (used in)/provided by operating activities   $19,534   $(6,705)
Additions to property and equipment                   (2,460)    (3,667)
Investment in product development costs               (3,182)    (3,816)
Free cash flow                                        $13,892   $(14,188)



School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
(In thousands)
Unaudited
                                                                
Segment Revenues and Gross                                        
Profit/Margin Analysis-QTD
                                                        % of Revenues
                   2Q13-QTD   2Q12-QTD   Change $    Change 2Q13-QTD 2Q12-QTD
                                                      %
Revenues                                                         
Educational         $171,089 $173,222 $(2,133)  -1.2%  72.2%    68.9%
Resources
Accelerated         65,610    77,986    (12,376)   -15.9% 27.7%    31.0%
Learning
Corporate and       167       167       --              0.1%     0.1%
Interco Elims
Total Revenues      $236,866 $251,375 $(14,509) -5.8%  100.0%   100.0%
                                                                
                                                        % of Gross Profit
                   2Q13-QTD   2Q12-QTD   Change $    Change 2Q13-QTD 2Q12-QTD
                                                      %
Gross Profit                                                     
Educational         $57,082  $53,481  $3,601    6.7%   61.6%    56.3%
Resources
Accelerated         35,456    40,825    (5,369)    -13.2% 38.2%    42.9%
Learning
Corporate and       162       754       (592)            0.2%     0.8%
Interco Elims
Total Gross Profit  $92,700  $95,060  $(2,360)  -2.5%  100.0%   100.0%
                                                                
                                                                
Segment Gross Margin                                              
Summary-QTD
                                                                
Gross Margin        2Q13-QTD   2Q12-QTD                            
Educational         33.4%      30.9%                               
Resources
Accelerated         54.0%      52.3%                               
Learning
Total Gross Margin  39.1%      37.8%                               
                                                                
                                                                
Segment Revenues and Gross                                        
Profit/Margin Analysis-YTD
                                                        % of Revenue
                   2Q13-YTD   2Q12-YTD   Change $    Change 2Q13-YTD 2Q12-YTD
                                                      %
Revenues                                                         
Educational         $344,776 $359,286 $(14,510) -4.0%  70.5%    68.1%
Resources
Accelerated         143,895   167,839   (23,944)   -14.3% 29.4%    31.8%
Learning
Corporate and       334       334       --              0.1%     0.1%
Interco Elims
Total Revenues      $489,005 $527,459 $(38,454) -7.3%  100.0%   100.0%
                                                                
                                                        % of Gross Profit
                   2Q13-YTD   2Q12-YTD   Change $    Change 2Q13-YTD 2Q12-YTD
                                                      %
Gross Profit                                                     
Educational         $117,641 $113,918 $3,723    3.3%   59.9%    55.2%
Resources
Accelerated         78,330    90,982    (12,652)   -13.9% 39.9%    44.1%
Learning
Corporate and       326       1,436     (1,110)          0.2%     0.7%
Interco Elims
Total Gross Profit  $196,297 $206,336 $(10,039) -4.9%  100.0%   100.0%
                                                                
                                                                
Segment Gross Margin                                              
Summary-YTD
                                                                
Gross Margin        2Q13-YTD   2Q12-YTD                            
Educational         34.1%      31.7%                               
Resources
Accelerated         54.4%      54.2%                               
Learning
Total Gross Margin  40.1%      39.1%                               

                                                              

School Specialty, Inc.
Reconciliation of GAAP Net Income and Net Income per Share to Adjusted Net
Income and Net Income per Diluted Share
(In Thousands, Except Per Share Amounts)
Unaudited
                                                              
                        Three Months Ended          Six Months Ended
                        October 27,   October 29,   October 27,  October 29,
                         2012          2011          2012         2011
                                                              
GAAP Net Income          $14,127     $8,879      $32,502    $22,429
Special Items, net of                 --                      --
tax:
Expense associated with
convertible debt         --          --          --         671
exchange
Expense associated with
debt refinancing         --          --          2,490       --
(included in interest
expense)
Restructuring (included  --          864          1,103       864
in SG&A)
Impairment of long-term  1,414        --          1,414       --
asset
Adjusted Net Income      $15,541     $9,743      $37,509    $23,964
                        
                        Three Months Ended          Six Months Ended
                        October 27,   October 29,   October 27,  October 29,
                         2012          2011          2012         2011
                                                              
GAAP Net Income per      $0.75       $0.47       $1.72      $1.18
Diluted Share
Special Items, net of                                          
tax:
Expense associated with
convertible debt         --          --          --         0.04
exchange
Expense associated with
debt refinancing         --          --          0.13        --
(included in interest
expense)
Restructuring (included  --          0.05         0.06        0.05
in SG&A)
Impairment of long-term  0.07         --          0.07        --
asset
Adjusted Net Income      $0.82       $0.51       $1.98      $1.26
perdiluted share
                                                              
Note: Totals may not foot due to                                
rounding differences.
                                                              
School Specialty's financial results for the three and six months ended
October 27, 2012 and October 29, 2011 included certain items that management
believes are not representative of its operating performance.This additional
information and reconciliation is not meant to be considered in isolation or
as a substitute for the company's results of operations as preparedand
presented in accordance with GAAP.

CONTACT: David Vander Ploeg
         Executive VP and CFO
         920-882-5854
        
         Elizabeth M. Higashi, CFA
         Investor Relations
         920-243-5392

School Specialty, Inc.
 
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