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- Fiscal Third Quarter EBITDA Improves by
$3.3 MillionVersus Prior Year
- Overall Fiscal Third Quarter and Nine Month Results Tracking in Line with Projections
- Process Improvement Programs Generating Anticipated Cost Savings and Efficiencies
- Company Reiterates FY14 Guidance; Believes Business Has Stabilized with Potential Upside Moving into FY15
Commenting on the Company's performance,
During the period
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 nine month period. 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
Third Quarter Financial Results
- Revenues for the three months ended
January 25, 2014were $74.7 million, a decrease of 7.6% or $6.1 millionas compared to $80.8 millionreported for the three months ended January 26, 2013. Distribution segment revenues declined by 5.3%, or $3.5 millionfrom the three months ended January 26, 2013, and were primarily related to lower sales in the Furniture business, which decreased by approximately $3 million, while sales for the Supplies business were virtually flat for the comparable year-over-year periods. Curriculum segment sales declined 16.4% or $2.5 millionfrom the three months ended January 26, 2013. The decline was felt in the Science and Reading businesses in addition to a $0.6 milliondecline related to the sale of the Company's agenda print plant assets.
- Gross profit margin for the three months ended
January 25, 2014was 35.4% as compared to 36.4% for the three months ended January 26, 2013. Distribution segment gross margin was 32.6% as compared to 33.5% for the three months ended January 25, 2014and January 26, 2013, respectively. The decline in the Distribution segment gross margins was primarily due to a reduction in vendor rebates and a shift in product mix, both of which resulted in approximately 40 basis points each of the decline. Curriculum segment gross margin was 49.3% as compared to 48.4%, an increase of 90 basis points.
- Selling, general and administrative (SG&A) expenses for the three months ended
January 25, 2014were $48.7 millionas compared to $60.2 millionfor the comparable year-ago period, a decrease of $11.6 million. SG&A attributable to the Distribution and Curriculum segments decreased by $5.5 millionand Corporate SG&A decreased by $6.1 million, when comparing the fiscal 2014 and fiscal 2013 periods. Distribution segment SG&A declined by $3.4 million, or 14.8%, primarily due to lower total personnel costs of $1.2 million, as well as lower catalog costs of $0.7 million. The revenue decline for the comparable periods also resulted in a decrease in the variable warehouse and transportation costs of approximately $0.7 million. Curriculum segment SG&A declined by $2.1 millionor 13.7%, primarily due to a $1.2 millionreduction in intangible amortization recognized in the third quarter of fiscal 2013 as compared to the same period this year, as well as a reduction in payroll costs. The reduction in intangible amortization is related to the revaluation of intangible assets as part of fresh-start accounting. Corporate SG&A decline was due primarily to $4.7 millionof prior year bankruptcy-related costs associated with professional fees paid prior to the Chapter 11 filing. Approximately $1.7 millionof the decline was due to lower payroll and benefits, as well as lower depreciation expense of $1.0 millionas a result of fresh-start accounting. These declines were partially offset by $1.6 millionof costs associated with the Company's process improvement actions.
- The Company reported an operating loss of
$24.7 millionfor the three months ended January 25, 2014as compared to an operating loss of $76.6 millionin the comparable year-ago period. This improvement is primarily related to a $45.8 milliongoodwill and other intangible asset impairment charge in last year's third quarter.
- Net interest expense decreased
$3.3 million, from $8 millionin the third quarter of fiscal 2013 to $4.7 millionin the third quarter of fiscal 2014. The Predecessor Company recorded $3.8 millionof interest expense on its convertible debt in the third quarter of fiscal 2013, of which $2.3 millionwas non-cash interest expense. There was no interest expense on the convertible debt in the third quarter of fiscal 2014, as the convertible debt was cancelled on the Effective Date in accordance with the Reorganization Plan. Partially offsetting this decline was approximately $0.8 millionof incremental term loan interest expense related to an increase in average Successor term loan borrowings as compared to the pre-bankruptcy term loan, partially offset by a decrease in the borrowing rate.
- The Company recorded
$0.9 millionof expenses for reorganization items in the third quarter of fiscal 2014, which consisted primarily of fees associated with activities as part of the Reorganization Plan.
- Net loss for the third quarter of fiscal 2014 was
$30.1 millioncompared with a net loss of $109.9 millionin the comparable period last year. On a diluted per share basis, net loss was $30.14for the three months ended January 25, 2014as compared to a net loss per diluted share of $5.81in the three months ended January 26, 2013.
- Adjusted earnings before income taxes, depreciation and amortization (EBITDA) was
($14.6) millionin the fiscal 2014 third quarter as compared to ($17.9) millionin the comparable fiscal 2013 period.
Process Improvement Program Update
In fiscal 2014,
Mr. Henderson continued, "Our organization has really come together and is aligning behind a common goal – servicing our customers. We've focused on improving our back-end support, operations in particular, and we intend to do everything possible to ensure our customers receive the products and solutions they order on time and at the most competitive prices. We've re-established payment terms with a majority of our vendors, our inventory position is clean, and we're pre-building furniture solutions to meet anticipated customer requirements. Our Supplies business is showing signs of improvement as well, and while curriculum sales are down, we believe we're well positioned over the coming years, especially with the anticipated adoption of Common Core Standards and Next Generation Science Standards. While industry-wide challenges remain, the market and our business are showing signs of stabilization and I am confident in our ability to generate consistent returns for our stakeholders."
Nine Month Financial Results
Non-GAAP combined results for the nine months ended
- Combined revenues for the nine months ended
January 25, 2014were $522.5 million, an 8.3% decline from revenues of $569.8 millionin the comparable year-ago period. Distribution segment combined revenues decreased 7.4% from the nine months ended January 26, 2013. Approximately $12 millionand $18 millionof the decline were related to the supplies and furniture product lines, respectively. The decline in combined revenues was primarily related to the fact that revenue in the back-to-school season was adversely impacted by factors related to the Chapter 11 Cases. The rate of decline in the Distribution segment's orders has lessened, post-emergence, and the Company believes this indicates a stabilization of revenue as it moves into the upcoming back-to-school season. Curriculum segment combined revenues decreased 10.3% from the nine months ended January 26, 2013. Approximately $5 millionof the decline is related to large curriculum orders from the prior year, which were not expected to recur in the current year and approximately $9 millionis related to declines in the Company's student planner and agenda product lines. The Company is in the process of transitioning its agenda offerings to digital formats, which should help offset future declines. Revenues through the first nine months of the year are tracking in line with projections.
- Combined gross margin for the nine months ended
January 25, 2014was 38.8% as compared to 39.6% for the nine months ended January 26, 2013. This decline is due to a combination of reduced vendor rebates in the current year in the Company's Distribution segment. This decline was also due to lower margins in the Curriculum segment, as sales for curriculum-related products are under pressure until Common Core Standards are finalized across states, and school budgets improve.
- Combined SG&A expenses for the nine months ended
January 25, 2014were $184.9 millionas compared to $202.7 millionfor the comparable year-ago period, a decrease of $17.9 million. This was primarily a result of reduced catalog costs, lower personnel costs, reductions in combined depreciation and intangible amortization, and warehouse and freight savings. Additionally, the Company incurred $5.3 millionof costs associated with process improvement actions, and incurred $4.7 millionof bankruptcy-related costs, which were incurred in last year's third quarter.
- Combined operating income for the nine months ended
January 25, 2014was $12.0 millionas compared to an operating loss of $22.8 millionfor the nine months ended January 26, 2013. This increase is related primarily to an impairment charge of $45.8 millionin the prior year, partially offset by a combined $6.0 millionof restructuring and other facility exit costs in the current year.
- Combined interest expense decreased
$11.9 millionfrom $27.3 millionfor the nine months ended January 26, 2013to $15.4 millionfor the nine months ended January 25, 2014. This was due primarily to $11.3 millionof interest expense on the Company's convertible debt for the nine months ended January 26, 2013, of which $6.8 millionwas non-cash interest expense. Interest expense on the convertible debt was not accrued subsequent to the Chapter 11 filing and the convertible debt was canceled in accordance with the Company's Reorganization Plan. For the nine months ended January 25, 2014, interest expense associated with the Successor Company'sNew Term Loan was approximately $1.7 milliongreater than the Predecessor Company'sterm loan interest expense for the nine months ended January 26, 2013due to an increase in average borrowings under the New Term Loan Credit Agreement, as compared to the pre-bankruptcy term loan, partially offset by a decrease in the interest rate. Additionally, interest expense for the nine months ended January 26, 2013included $2.5 millionof debt issuance cost write-offs, as compared to zero in the current year, associated with the debt refinancing completed in May 2012.
- During the third quarter of fiscal 2013, the Company recorded a
$25.1 millionprepayment charge related to the acceleration of the obligations under the Baysideterm loan credit agreement. In the second quarter of fiscal 2014, an agreement was reached with Bayside, who retained $21 millionand refunded the Company $5.4 million( $4.1 millionof which was a partial refund of the early termination fee and the balance of which was a recovery of interest expense). There was no additional activity related to this item in the third quarter of fiscal 2014.
- In the nine months ended
January 25, 2014, the Company recorded a $79.3 millionnet reorganization gain. This consisted of $162.4 millionof cancellation of indebtedness income related to the settlement of prepetition liabilities and changes in the Predecessor Company'scapital structure related to the Reorganization Plan, offset by $30.2 millionof fresh-start adjustments, $21.4 millionof cancellation of debt upon the issuance of equity, $18.5 millionof professional, financing and other fees, $7.0 millionof contract rejections and $5.1 millionof other reorganization adjustments.
- Combined net income for the nine month period ended
January 25, 2014was $77.6 millioncompared with a net loss of $77.4 millionin the comparable nine month period last year. On a diluted per share basis, net income was $5.53for the nine months ended January 25, 2014, as compared to a net loss per diluted share of $4.09for the nine months ended January 26, 2013.
- Combined Adjusted EBITDA was
$46.6 millionin the fiscal 2014 nine month period as compared to $53.9 millionin the comparable fiscal 2013 period. This decline was primarily related to lower sales volumes for the comparable nine month periods, partially offset by savings realized in SG&A.
Mr. Henderson concluded, "As of the quarter end, our outstanding borrowings on our new term loan were just over
Statement Concerning Forward-Looking Information
Any statements made in this press release about
– Tables to Follow –
|SCHOOL SPECIALTY, INC.|
|CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS|
|(In Thousands, Except Per Share Amounts)|
|Unaudited / Non-GAAP|
|Three Months Ended
January 25, 2014
|Three Months Ended
January 26, 2013
|Thirty-Three Weeks Ended
January 25, 2014
|Six Weeks Ended
June 11, 2013
|Nine Months Ended
January 25, 2014
Nine Months Ended January 26, 2013
|Revenues||$ 74,664||$ 80,791||$ 463,792||$ 58,697||$ 522,489||$ 569,796|
|Cost of revenues||48,216||51,385||284,494||35,079||319,573||344,093|
|Selling, general and administrative expenses||48,672||60,229||157,378||27,473||184,851||202,709|
|Operating income (loss)||(24,653)||(76,612)||15,886||(3,855)||12,031||(22,795)|
|Impairment long-term asset||--||--||--||--||--||1,414|
|Early termination of long-term indebtedness||--||25,054||--||--||--||25,054|
|Change in fair value of interest rate swap||(134)||--||488||--||488||--|
|Refund of early termination fee||--||--||(4,054)||--||(4,054)||--|
|Reorganization items, net||901||--||5,548||(84,799)||(79,251)||--|
|Income (loss) before provision for income taxes||(30,135)||(109,694)||1,763||77,709||79,472||(76,572)|
|Provision for (benefit from) income taxes||0||(1,185)||258||1,641||1,899||(583)|
|Income (loss) before income of unconsolidated affiliate||(30,135)||(108,509)||1,505||76,068||77,573||(75,989)|
|Loss of unconsolidated affiliate||--||(1,418)||--||--||--||(1,436)|
|Net income (loss)||$ (30,135)||$ (109,927)||$ 1,505||$ 76,068||$ 77,573||$ (77,425)|
|Adjusted Earnings before interest, taxes, depreciation, amortization, bankruptcy-related costs, restructuring and impairment charges (EBITDA) reconciliation:|
|Net income (loss)||$ (30,135)||$ (109,927)||$ 77,573||$ (77,425)|
|Equity in (income)/losses of unconsolidated affiliate||--||1,418||--||1,436|
|Provision for (benefit from) income taxes||--||(1,185)||1,899||(583)|
|Reorganization items, net||901||--||(79,251)||--|
|Impairment long-term asset||--||--||--||1,414|
|Bankruptcy-related restructuring costs||2,429||--||6,034||--|
|Bankruptcy-related costs incl in SG&A||1,562||4,733||5,369||4,733|
|Change in fair value of interest rate swap||(134)||--||488||--|
|Early termination fee||--||25,054||(4,054)||25,054|
|Depreciation and amortization expense||4,810||7,049||17,273||21,034|
|Amortization of development costs||1,258||1,142||5,854||5,136|
|Net interest expense||4,715||8,028||15,376||27,309|
|Adjusted EBITDA||$ (14,594)||$ (17,899)||$ 46,561||$ 53,897|
|SCHOOL SPECIALTY, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)|
|(In Thousands, Except Share Data)|
|Successor Company||Predecessor Company|
|January 25, 2014||April 27, 2013||January 26, 2013|
|Cash and cash equivalents||$17,888||$ 20,769||$ 5,310|
|Accounts receivable, less allowance for doubtful accounts of $1,267, $926 and $941, respectively||56,017||58,942||57,299|
|Deferred catalog costs||9,933||8,924||12,363|
|Prepaid expenses and other current assets||13,655||29,901||10,356|
|Refundable income taxes||5,432||9,793||2,546|
|Assets held for sale||2,200||--||--|
|Total current assets||178,349||247,213||183,139|
|Property, plant and equipment, net||36,036||39,209||47,352|
|Intangible assets, net||49,371||110,306||111,937|
|Development costs and other||36,413||30,079||35,644|
|Deferred taxes long-term||47||51||47|
|Investment in unconsolidated affiliate||715||715||8,464|
|Total assets||$322,519||$ 427,573||$ 386,583|
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)|
|Current maturities - long-term debt||$1,434||$ 198,302||$ 309,268|
|Accrued fee for early termination of long-term debt||--||25,000||--|
|Other accrued liabilities||14,555||21,905||15,516|
|Total current liabilities||46,491||277,538||395,614|
|Long-term debt - less current maturities||152,581||--||--|
|Liabilities subject to compromise||--||228,302||--|
|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 authorized; 24,599,159 and 24,599,159 shares issued, respectively||--||24||24|
|Predecessor capital in excess of par value||446,232||445,629|
|Predecessor treasury stock, at cost, 5,420,210 and 5,420,210 shares, respectively||--||(186,637)||(186,637)|
|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 authorized; 1,000,004 shares outstanding||1||--||--|
|Successor capital in excess of par value||120,955||--||--|
|Accumulated other comprehensive income (loss)||(436)||22,381||22,471|
|Retained earnings (accumulated deficit)||1,505||(361,192)||(290,925)|
|Total stockholders' equity (deficit)||122,025||(79,192)||(9,438)|
|Total liabilities and stockholders' equity (deficit)||$322,519||$ 427,573||$ 386,583|
CONTACT: Company Contact
Glenn WienerIR@SchoolSpecialty.com Tel: 212-786-6011