School Specialty Announces Fiscal 2014 First Quarter Results - Combined First Quarter Revenues of $202.2 Million, But $22.0 Million of Orders Shifted Into Second Quarter - Combined Gross Margins Improve to 41.2 Percent in Quarter and SG&A Expenses Decline 15.7 Percent vs. Last Year's First Quarter - Combined FY14 Revenues Expected to be $620-$630 Million; Adjusted EBITDA Expected to be $40-$44 Million - Process Improvement Programs Underway to Generate $12-$15 Million of Annualized Savings GREENVILLE, Wis., Sept. 16, 2013 (GLOBE NEWSWIRE) -- School Specialty Inc. ("SSI" or "the Company"), a leading distributor of supplies, furniture and both supplemental and curriculum products to the education marketplace, today announced its fiscal 2014 first quarter results for the period ended July 27, 2013. During the period January 28, 2013 through June 11, 2013, School Specialty, Inc. and certain of its subsidiaries operated as debtors-in-possession under bankruptcy jurisdiction. In accordance with Financial Standards Board Accounting Standards Codification ("ASC") 852, for periods including and subsequent to the filing of the Chapter 11 petition through the bankruptcy emergence date of June 11, 2013, all expenses, gains and losses that result from the reorganization were reported separately as reorganization items in the Consolidated Statements of Operations. Net cash used for reorganization items was disclosed separately in the Consolidated Statement of Cash Flows, and liabilities subject to compromise were reported separately in the Consolidated Balance Sheets. As of June 11, 2013, the Company adopted fresh-start accounting in accordance with ASC 852.The adoption of fresh-start accounting resulted in the Company becoming a new entity for financial reporting purposes.Accordingly, the financial statements on or prior to June 11, 2013 are not comparable with the financial statements for periods after June 11, 2013.The consolidated financial statements as of July 27, 2013 and for the seven weeks then ended and any references to "Successor" or "Successor Company" show the financial position and results of operations of the reorganized Company subsequent to bankruptcy emergence on June 11, 2013.References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company prior to bankruptcy emergence. Management believes that the presentation of Non-GAAP Financial Information, referred to as the Combined Adjusted Results, are reconciled to the most comparable GAAP measures and offer the best comparisons for the comparable fiscal first quarter periods.For further information on the Company's Results of Operations and related Balance Sheet and Cash Flow items, please refer to the Company's Form 10-Q for the period ending July 27, 2013 on file with the Securities and Exchange Commission.Additionally, given the significant seasonality inherent in SSI's business, as well as order timing considerations between quarters, management believes that first half fiscal 2014 results are most useful to determine operating trends and financial performance. First Quarter Financial Results Combined adjusted revenues for the three months ended July 27, 2013 were $202.2 million, compared with $252.1 million in the comparable prior year period, a decline of 19.8%.The decline in revenue was in both the Educational Resources and Accelerated Learning business segments, and was primarily due to the uncertainty caused by the Company's Chapter 11 reorganization and that approximately $22.0 million of first quarter orders were processed later and shifted into the second quarter.Additionally, approximately $5.0 million of the decline was related to large curriculum orders in the prior year's first quarter, which were not expected to recur in the current year.Adjusting for both events, revenues for the comparable periods were down 9.1%. Bookings since the end of the first quarter have been tracking higher, and the Company expects revenues in the second quarter to be generally in line with last year. Combined adjusted gross profit margin for the three months ended July 27, 2013 was 41.2% as compared with 41.1% for the Predecessor Company's three months ended July 28, 2012.This improvement was primarily driven by higher gross margins in the Educational Resources segment, due to the favorable mix between product lines, partially offset by lower margins in the Accelerated Learning segment due to higher product development costs and product mix.The Company remains focused on enhancing its margin structure and believes this can be achieved through continued product innovation and better supply chain efficiencies.As a result of improvements year-to-date and with the expected product mix on a go-forward basis this fiscal year, the Company expects gross margins will trend generally in line with recent years. Combined adjusted selling, general and administrative (SG&A) expenses for the three months ended July 27, 2013 were $63.3 million as compared to $75.1 million for the comparable year-ago period, a decline of $11.8 million or 15.7%.This decline was primarily a result of cost control measures instituted by the Company as it continues to right-size the organization to lower costs and improve productivity and efficiencies, as well as variable selling costs associated with decreased revenues. As a percent of revenue, SG&A increased from 29.8% for the three months ended July 28, 2012 to 31.3% for the three months ended July 27, 2013. Net interest expense for the fiscal 2014 first quarter was $6.1 million compared to $10.0 million in the comparable prior year period, a decrease of $3.9 million.The decrease in net interest expense was due primarily to prior year interest associated with the Company's convertible notes, which were subsequently discharged when the Company emerged from Chapter 11 reorganization. The Company recorded a $104.9 million net restructuring gain for the three months ended July 27, 2013.This consists of $161.9 million of cancellation of indebtedness income, offset by $16.1 million of professional, financing and other fees, and $40.9 million of fresh-start and other reorganization fees. The provision for income taxes in the first quarter of fiscal 2014 was $1.9 million compared to $0.3 million in the comparable prior year period. Adjusted earnings before income taxes, depreciation and amortization (EBITDA) was $28.2 million in the fiscal 2014 first quarter as compared to $37.7 million in the comparable fiscal 2013 period, a decline of $9.5 million.This decline was primarily related to the volume declines discussed previously, partially offset by savings realized in the SG&A categories as a result of a smaller workforce and the corresponding labor savings, as well as reductions in catalog expenditures.Due to the timing of order fulfillment discussed previously and booking trends observed since the end of the first quarter, we anticipate a large percentage of this net decline being recovered in the second quarter. Net income for the first quarter of fiscal 2014 was $114.4 million compared with $18.4 million in the comparable period last year.Current period results include $102.3 million of net benefits from the composite of all reorganization and post-bankruptcy-related items flowing through the income statement during the Predecessor and Successor periods of the fiscal first quarter. "Our first quarter reflected the challenges resulting from our emergence from Chapter 11 reorganization as we only officially emerged halfway through the quarter.On the positive side, our bookings have shown significant improvement since the end of the first quarter, and we recaptured some of those lost sales opportunities in the second quarter," stated Jim Henderson, Chairman of the Board and Interim President and CEO."While we're not in a robust educational spending environment today, signs do point to increased funding and the uptick in our order flow is a positive sign that our business has stabilized consistent with our projections.Our balance sheet has also significantly improved with our total debt cut in half post-emergence and we are focusing on our working capital management to further improve cash generation.Additionally, our process improvement initiatives should strengthen our capital structure further, while freeing up resources to invest in our business and our supply chain." Henderson continued, "My focus as Chairman and as a senior leader of this company is three-fold: to stabilize our business, improve our infrastructure and return School Specialty to sustainable growth, with better and consistent bottom-line performance." Fiscal 2014 First Quarter Corporate Developments and Subsequent Events *Emergence from Chapter 11 Reorganization: On June 11, 2013, School Specialty completed its financial restructuring and officially emerged from its Chapter 11 reorganization. *New Financing Facilities: On June 11, 2013, School Specialty disclosed its new capital financing, securing a fully committed $175 million asset-based revolving credit facility led by Bank of America, N.A. and SunTrust Bank, along with a $145 million term loan facility led by Credit Suisse Securities (USA) LLC. *Changes in Senior Leadership: On July 22, 2013, School Specialty announced that Michael P. Lavelle would resign as President and CEO, which took effect on August 9, 2013 and that James R. Henderson, Chairman, would assume the role as Interim President and CEO, a position he currently holds while a search for a permanent replacement is underway.Additionally, David Vander Ploeg, the Company's CFO, announced that he would be retiring at calendar year end. *Organizational Alignment: Over the past few weeks, the Company has instituted various changes, which include the consolidation of its Distribution Center network, the exiting of Commercial Printing plant operations, and further alignment in its Supplies and Furniture distribution operations.While there will be cost savings as a result of these events, changes were not solely driven by cost reductions, but rather, the early stages of a Process Improvement Program to generate customer, supply chain and operational efficiencies. *Process Improvement Program: With full Board of Directors support, School Specialty has kicked-off a Process Improvement Program designed to better align the Company's operating groups, enhance systems and processes and drive efficiency throughout the organization – all done in an effort to improve the customer experience.Moving into fiscal year 2015, the Company anticipates significant operational improvements, cost savings and innovation enhancements as a result.The majority of initiatives will be gradual and done after the heavy school selling season has ended and will always be done with 100% customer satisfaction in mind. In addition, management has identified further operational initiatives that will be pursued in multiple phased efforts once the initial Process Improvement Program has been completed. Mr. Henderson added, "Over the coming year, we'll be realigning our operations focused on one thing – becoming better.We have strong talent throughout SSI and our brands remain strong.Our nationwide distribution and partner network is perhaps our biggest strength and this is something we will grow and capitalize on.There will be some organizational enhancements, which will encompass more LEAN principles but the most important element of this change will be better customer support.With one of the largest assortment of products servicing the educational markets, and the distribution network to reach every school across the country, opportunities are there for the taking.We'll be more focused on delivering our customers the products they need with an unparalleled customer experience.All of us at School Specialty remain focused on increasing stakeholder value." Market Outlook During the Company's Chapter 11 reorganization, filings were made with the U.S. Bankruptcy Court with respect to the Company's fiscal year 2014 financial outlook.The Company had projected revenues of $645 million and Adjusted EBITDA of $44 million in those filings.Based on year-to-date performance and the market outlook for the remainder of the year, the Company believes that revenues will be approximately $620-$630 million, which implies growth over the budget after the 2014 fiscal first quarter decline.Additionally, adjusting for public company expenses of approximately $2 million, which were not part of the reorganization plan, the Company is projecting Adjusted EBITDA of $40-$44 million. The cumulative effect of the initial process improvement program initiatives are expected to generate annualized cost savings of $12-$15 million, with one-time cash generation in excess of $20 million.Restructuring charges in fiscal 2014 are expected to be in the range of $12-$14 million and capital expenditures, originally budgeted at $19 million, are expected to beapproximately $16-$17 million. School Specialty intends to publish a letter to shareholders with an accompanying presentation on its financial results later this week.The Company will not be hosting a teleconference, but management will be available to address questions after the filing of this supplemental information. This information will also be available on our website, www.schoolspecialty.com in the Investor Relations section. About School Specialty, Inc. School Specialty is a leading distributor of innovative and proprietary products, programs and services to the education marketplace. The Company designs, develops, and provides educators with the latest and very best school supplies, furniture and both curriculum and supplemental learning resources. 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. Statement Concerning Forward-Looking Information Any statements made in this press release about future financial conditions, results of operations, expectations, plans, or prospects, including the information in the heading "Market 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 27, 2013, 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 COMBINED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Unaudited / Non-GAAP Successor Predecessor Non-GAAP Predecessor Company Company Combined Company Seven Weeks Six Weeks Three Months Three Months Ended Ended Ended Ended July 27, June 11, July 27, July 28, 2012 2013 2013 2013 Revenues $143,499 $58,697 $202,196 $252,139 Cost of revenues 83,741 35,079 118,820 148,542 Gross profit 59,758 23,618 83,376 103,597 Selling, general and 35,867 27,473 63,340 75,116 administrative expenses Bankruptcy related 2,595 -- 2,595 -- restructuring charges Operating income 21,296 (3,855) 17,441 28,481 Other expense: Interest expense 2,821 3,235 6,056 9,966 Reorganization items, net 1,280 (106,174) (104,894) -- Income before provision 17,195 99,084 116,279 18,515 for income taxes Provision for income taxes 252 1,641 1,893 259 Income before income of 16,943 97,443 114,386 18,256 unconsolidated affiliate Income of unconsolidated -- -- -- 119 affiliate Net income $16,943 $97,443 $114,386 $18,375 Adjusted Earnings before interest, taxes, depreciation, amortization, bankruptcy-related restructuring and impairment charges (EBITDA) reconciliation: Net income $114,386 $18,375 Equity in (income)/losses of unconsolidated -- (119) affiliate Provision for income taxes 1,893 259 Reorganization items, net (104,894) -- Bankruptcy related 2,595 -- restructuring costs Share-based compensation -- 119 expense Depreciation and 5,849 7,016 amortization expense Amortization of 2,396 2,068 development costs Net interest expense 6,056 9,966 Adjusted EBITDA $28,281 $37,684 SCHOOL SPECIALTY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In Thousands, Except Share Data) Successor Predecessor Company Company July 27, April 27, 2013 July 28, 2012 2013 ASSETS Current assets: Cash and cash equivalents $9,787 $20,769 $5,542 Restricted cash 25,820 26,302 2,708 Accounts receivable, less allowance for doubtful accounts of $2,176, $926 138,879 58,942 178,293 and $2,597, respectively Inventories 104,868 92,582 112,467 Deferred catalog costs 5,793 8,924 7,773 Prepaid expenses and other current 26,667 29,901 11,050 assets Refundable income taxes 5,334 9,793 3,580 Deferred taxes -- -- 4,797 Total current assets 317,148 247,213 326,210 Property, plant and equipment, net 46,309 39,209 54,238 Goodwill 23,661 -- 41,010 Intangible assets, net 47,427 110,306 121,627 Development costs and other 38,042 30,079 40,274 Deferred taxes long-term 51 51 390 Investment in unconsolidated affiliate 715 715 10,019 Total assets $473,353 $427,573 $593,768 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities - long-term debt $62,229 $198,302 $79,444 Accounts payable 49,124 22,897 103,099 Accrued compensation 7,597 7,197 10,723 Deferred revenue 2,605 2,237 3,354 Accrued fee for early termination of 25,582 25,000 -- long-term debt Other accrued liabilities 34,467 21,905 26,027 Total current liabilities 181,604 277,538 222,647 Long-term debt - less current 152,932 -- 285,508 maturities Other liabilities 925 925 587 Liabilities subject to compromise -- 228,302 -- Total liabilities 335,461 506,765 508,742 Commitments and contingencies Stockholders' equity (deficit): Predecessor preferred stock, $0.001 par value per share, 1,000,000 shares -- -- -- authorized; none outstanding Predecessor common stock, $0.001 par value per share, 150,000,000 shares -- 24 24 authorized; 24,599,159 and 24,597,856 shares issued, respectively Predecessor capital in excess of par 446,232 444,456 value Predecessor treasury stock, at cost, 5,420,210 and 5,420,210 shares, -- (186,637) (186,637) respectively Successor preferred stock, $0.001 par value per share, 500,000 shares -- -- -- authorized; none outstanding Successor common stock, $0.001 par value per share, 2,000,000 shares 1 -- -- authorized; 1,000,004 shares outstanding Successor capital in excess of par 120,955 -- -- value Accumulated other comprehensive income (7) 22,381 22,308 (loss) Retained earnings (accumulated 16,943 (361,192) (195,125) deficit) Total stockholders' equity (deficit) 137,892 (79,192) 85,026 Total liabilities and stockholders' $473,353 $427,573 $593,768 equity (deficit) CONTACT: Glenn Wiener IR@SchoolSpecialty.com Tel: 212-786-6011 School Specialty, Inc.
School Specialty Announces Fiscal 2014 First Quarter Results