Business Headlines

School Specialty Reports Fiscal 2010 First Quarter Results

Reading and Math Technology Company Autoskill Acquired; Definitive Agreement Signed To Sell School Specialty Publishing
GREENVILLE, Wis., Aug. 20, 2009 (via GLOBE NEWSWIRE) -- School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported its fiscal 2010 first quarter financial results, and announced both an acquisition and a divestiture that advance the company's long-term strategy. Revenue for the first quarter was $330.4 million, 12.8 percent below the prior year's $378.8 million. Excluding the anticipated decline in curriculum adoption revenue of $10 million, first quarter revenue fell 10 percent, consistent with the prior two quarters. The earnings impact related to the revenue decline has been partially mitigated by cost savings initiatives, which enabled the company to achieve an operating profit margin of 16.5 percent, or 10 basis points below the same period last year.

Free cash flow continued to perform ahead of the prior year. The company's first quarter free cash flow improved $21.5 million, or 44 percent, compared to fiscal 2009's first quarter free cash flow, benefiting from significant working capital improvements, particularly in the collection of receivables. Year-over-year total debt declined $125 million, including the elimination of an accounts receivable securitization facility in fiscal 2009.

School Specialty today also announced the acquisition of AutoSkill International Inc., a leading education technology company that provides educators with reading and math intervention solutions for struggling students. In addition, the company announced it has signed a definitive agreement to divest its retail trade book business, School Specialty Publishing, to Carson-Dellosa Publishing, LLC, a newly formed business entity. Under the agreement, School Specialty will combine its publishing unit assets with those of the Cookie Jar Education Inc. and will receive a 35 percent minority equity interest in Carson-Dellosa Publishing, LLC. The closing is expected to occur in the second quarter of fiscal 2010.

Chief Executive Officer David J. Vander Zanden said first quarter results were supported by cost-cutting initiatives that helped preserve profit margins despite lower revenue. "Our revenue decline over the past nine months has been consistently in the 10 percent range, as educators continued to face the realities of uncertain, or reduced budgets," said Vander Zanden. "We are seeing spending patterns improve for consumables as educators begin to replenish needed supplies and supplemental materials, and we benefit from our new category management go-to-market efforts. However, we believe revenue in the second quarter will continue to show a year-over-year decline consistent with our past nine-month trend, as we see no improvement in furniture orders and we are entering the quarter with lower booked orders compared to the same period last year. We expect the rate of decline to improve in the second half of our fiscal year.

"Despite the current economic challenges, our associates continued to do an excellent job controlling costs and improving efficiencies in several of our processes, particularly in procurement, order fulfillment and transportation," added Vander Zanden. "We are exceeding our $20 million cost reduction goal, and that is a credit to their hard work and dedication."

First Quarter Financial Results
Revenue for the most recent first quarter was $330.4 million, compared with $378.8 million in fiscal 2009's first quarter. The decrease was primarily due to reductions, or delays, in spending by many school districts, and an expected $10 million reduction in science adoption revenue compared to the same period last year. The furniture and equipment category incurred the largest revenue decline, while consumables saw more modest mid-single-digit declines.

Gross profit was $142.8 million compared with $164.0 million in last year's first quarter. Consolidated gross margin was 43.2 percent compared with 43.3 percent last year. Improvements in product pricing and costing initiatives helped mitigate the impact that unfavorable product mix had on gross margin.

Selling, general and administrative (SG&A) expenses declined $12.7 million to $88.3 million compared with the prior year's $101.0 million. The decrease is attributable to lower volume, as well as to aggressive cost-reduction efforts, which enabled the company to maintain SG&A as a percent of revenue at last year's 26.7 percent.

Operating income for the first quarter was $54.5 million compared with $63.0 million for the same period last year. However, operating margin remained relatively flat at 16.5 percent, compared with 16.6 percent in last year's first quarter.

First quarter interest expense of $7.6 million declined from last year's $7.8 million, with both periods including non-cash interest expense of $3.2 million and $2.9 million, respectively as a result of the company's adoption of the new accounting rule for convertible debt (FSP APB 14-1). Excluding the effects of FSP APB 14-1, year-over-year interest expense declined $0.5 million in fiscal 2010's first quarter as the company benefited from a $12.5 million decrease in average borrowings.

Net income for this fiscal year's first quarter was $28.4 million ($1.51 per diluted share) compared with fiscal 2009's first quarter net income of $33.4 million ($1.75 per diluted share). Both quarters included non-cash charges related to FSP APB 14-1, which reduced first quarter diluted EPS by $0.10 in fiscal 2010 and $0.09 in fiscal 2009.
Business Transactions

The company acquired AutoSkill International Inc. for $11.7 million, a technology-based reading and math intervention company. The Ottawa, Canada-headquartered AutoSkill expands School Specialty's educational technology offerings, and builds upon the company's market position in K-12th grade reading and math intervention, with an emphasis in grades 3-9. With annual revenue of $10 million, AutoSkill will become part of School Specialty's Educational Publishing segment. The company is best known for its research-based Academy of READING(r) and Academy of MATH(r) software, which help educators develop intervention strategies to build student fluency in reading and math.

The sale of School Specialty Publishing to Carson-Dellosa Publishing, LLC follows School Specialty's previously announced decision to explore strategic alternatives for its retail trade book business, which primarily markets educational products such as basic skill publications and test preparation materials to parents through mass market retailers and major bookstore chains.

"We are very pleased to have AutoSkill join the School Specialty family," said Vander Zanden. "The company brings us highly regarded instructional technology offerings for our reading intervention business, opens the door to new growth opportunities for us in math intervention, and provides our customers with an effective Response to Intervention (RTI) option for their stimulus funds. With the combination of School Specialty Publishing and Cookie Jar Education in the newly formed Carson-Dellosa Publishing, we will become a minority owner in a stronger business that we expect will generate a significant increase in earnings through integration savings. We view this transaction as a first step to increasing the value of our investment as we move toward monetizing our minority interest longer term."

School Specialty has initiated revenue and earnings guidance for fiscal 2010. The company expects revenue to range from $915 million to $940 million, which includes a projected $22 million decline in curriculum adoption revenue, and an approximate $10 million decline due to the net effect of the divestiture of School Specialty Publishing and the acquisition of AutoSkill. Diluted earnings per share for fiscal 2010 is expected to range from $1.40 to $1.60, which includes a $0.42 non-cash charge for adoption of FSP APB 14-1, and approximately $0.10 in integration costs for the AutoSkill and School Specialty Publishing transactions. Excluding the FSP APB 14-1 charge and the transaction integration costs, the diluted earnings per share range is $1.92 to $2.12. Had FSP APB 14-1 been in effect last year, fiscal 2009's diluted earnings per share would have been $1.44, compared with the reported $1.83.

Fiscal 2010 free cash flow is expected to be $70 million to $80 million, or $3.71 to $4.24 per diluted share, based on weighted average shares outstanding at the close of fiscal 2010's first quarter.

Conference Call
School Specialty will host a conference call to discuss its fiscal 2010 first quarter financial results. The conference call begins today, August 20, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investor Information section of the School Specialty web site at, and a replay of the call will be available.

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

CONTACT: School Specialty, Inc., David Vander Ploeg, Executive VP and CFO, 920-882-5854