UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JANUARY 24, 2004.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 000-24385
SCHOOL SPECIALTY, INC.
(Exact Name of Registrant as Specified in its Charter)
| Wisconsin | 39-0971239 | |
| (State or Other Jurisdiction of Incorporation) |
(IRS Employer Identification No.) |
W6316 Design Drive
Greenville, Wisconsin
(Address of Principal Executive Offices)
54942
(Zip Code)
(920) 734-5712
(Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at March 5, 2004 | |
| Common Stock, $0.001 par value | 18,998,487 |
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 24, 2004
-Index-
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Unaudited Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
| January 24, 2004 |
April 26, 2003 |
January 25, 2003 | |||||||
| ASSETS | |||||||||
| Current assets: |
|||||||||
| Cash and cash equivalents |
$ | 44,246 | $ | 2,389 | $ | 5,411 | |||
| Accounts receivable, less allowance for doubtful accounts of $2,706, $3,796 and $3,263, respectively |
52,044 | 48,533 | 56,593 | ||||||
| Inventories |
86,377 | 109,419 | 82,809 | ||||||
| Deferred catalog costs |
13,385 | 17,445 | 16,213 | ||||||
| Prepaid expenses and other current assets |
18,711 | 8,891 | 15,066 | ||||||
| Assets held for sale |
— | 1,100 | 1,350 | ||||||
| Deferred taxes |
4,594 | 4,324 | 6,905 | ||||||
| Total current assets |
219,357 | 192,101 | 184,347 | ||||||
| Property and equipment, net |
59,418 | 63,969 | 63,909 | ||||||
| Goodwill |
457,037 | 430,672 | 423,185 | ||||||
| Intangible assets, net |
51,308 | 43,640 | 42,320 | ||||||
| Other |
8,622 | 5,953 | 5,303 | ||||||
| Total assets |
$ | 795,742 | $ | 736,335 | $ | 719,064 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities: |
|||||||||
| Current maturities – long-term debt |
$ | 557 | $ | 512 | $ | 116,016 | |||
| Accounts payable |
35,064 | 57,355 | 39,232 | ||||||
| Accrued compensation |
9,937 | 15,117 | 12,607 | ||||||
| Deferred revenue |
4,179 | 6,735 | 4,087 | ||||||
| Accrued income taxes |
13,135 | 139 | 14,030 | ||||||
| Accrued restructuring |
242 | 457 | 589 | ||||||
| Other accrued liabilities |
19,089 | 13,177 | 17,288 | ||||||
| Total current liabilities |
82,203 | 93,492 | 203,849 | ||||||
| Long-term debt |
299,821 | 292,844 | 167,315 | ||||||
| Deferred taxes |
28,952 | 28,546 | 23,621 | ||||||
| Total liabilities |
410,976 | 414,882 | 394,785 | ||||||
| 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 shares authorized and 18,974,484, 18,435,066 and 18,425,566 shares issued and outstanding, respectively |
19 | 18 | 18 | ||||||
| Capital paid-in excess of par value |
227,811 | 215,992 | 215,821 | ||||||
| Accumulated other comprehensive income |
7,725 | 3,149 | 1,291 | ||||||
| Retained earnings |
149,211 | 102,294 | 107,149 | ||||||
| Total shareholders’ equity |
384,766 | 321,453 | 324,279 | ||||||
| Total liabilities and shareholders’ equity |
$ | 795,742 | $ | 736,335 | $ | 719,064 | |||
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| January 24, 2004 |
January 25, 2003 |
January 24, 2004 |
January 25, 2003 |
|||||||||||||
| Revenues |
$ | 106,609 | $ | 110,554 | $ | 746,105 | $ | 725,980 | ||||||||
| Cost of revenues |
64,305 | 67,839 | 440,007 | 428,865 | ||||||||||||
| Gross profit |
42,304 | 42,715 | 306,098 | 297,115 | ||||||||||||
| Selling, general and administrative expenses |
54,105 | 52,232 | 214,843 | 207,987 | ||||||||||||
| Operating income (loss) |
(11,801 | ) | (9,517 | ) | 91,255 | 89,128 | ||||||||||
| Other (income) expense: |
||||||||||||||||
| Interest expense |
4,611 | 4,206 | 13,625 | 13,454 | ||||||||||||
| Interest income |
(10 | ) | (21 | ) | (46 | ) | (38 | ) | ||||||||
| Other |
284 | 545 | 956 | 1,577 | ||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
(16,686 | ) | (14,247 | ) | 76,720 | 74,135 | ||||||||||
| Provision for (benefit from) income taxes |
(6,580 | ) | (5,706 | ) | 29,803 | 29,690 | ||||||||||
| Net income (loss) |
$ | (10,106 | ) | $ | (8,541 | ) | $ | 46,917 | $ | 44,445 | ||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
18,894 | 18,424 | 18,767 | 18,288 | ||||||||||||
| Diluted |
18,894 | 18,424 | 23,999 | 23,417 | ||||||||||||
| Net income (loss) per share: |
||||||||||||||||
| Basic |
$ | (0.53 | ) | $ | (0.46 | ) | $ | 2.50 | $ | 2.43 | ||||||
| Diluted |
$ | (0.53 | ) | $ | (0.46 | ) | $ | 2.14 | $ | 2.08 | ||||||
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Nine Months Ended |
||||||||
| January 24, 2004 |
January 25, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 46,917 | $ | 44,445 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization expense |
12,932 | 11,430 | ||||||
| Amortization of debt fees and other |
2,071 | 1,886 | ||||||
| Restructuring related payments |
(215 | ) | (274 | ) | ||||
| (Gain) loss on disposal or impairment of property and equipment |
(13 | ) | 936 | |||||
| Change in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations): |
||||||||
| Accounts receivable |
(873 | ) | (9,692 | ) | ||||
| Inventories |
28,001 | 28,179 | ||||||
| Prepaid expenses and other current assets |
(6,099 | ) | (1,698 | ) | ||||
| Accounts payable |
(25,269 | ) | (14,958 | ) | ||||
| Accrued liabilities |
11,601 | 1,633 | ||||||
| Net cash provided by operating activities |
69,053 | 61,887 | ||||||
| Cash flows from investing activities: |
||||||||
| Cash paid in acquisitions, net of cash acquired |
(36,112 | ) | (47,432 | ) | ||||
| Additions to property and equipment |
(4,897 | ) | (7,809 | ) | ||||
| Proceeds from disposal of property and equipment |
1,132 | 638 | ||||||
| Net cash used in investing activities |
(39,877 | ) | (54,603 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from bank borrowings |
260,700 | 197,100 | ||||||
| Repayment of debt and capital leases |
(386,779 | ) | (211,264 | ) | ||||
| Proceeds from convertible debt offering |
133,000 | — | ||||||
| Payment of debt fees and other |
(4,044 | ) | (115 | ) | ||||
| Proceeds from exercise of stock options |
9,804 | 6,283 | ||||||
| Net cash provided by (used in) financing activities |
12,681 | (7,996 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
41,857 | (712 | ) | |||||
| Cash and cash equivalents, beginning of period |
2,389 | 6,123 | ||||||
| Cash and cash equivalents, end of period |
$ | 44,246 | $ | 5,411 | ||||
3
SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(In thousands)
The Company entered into certain business combinations in the nine months ended January 24, 2004, and January 25, 2003, which were paid for using cash. The fair values of the assets and liabilities of the acquired companies at the dates of the acquisitions are presented as follows:
| For the Nine Months Ended |
||||||||
| January 24, 2004 |
January 25, 2003 |
|||||||
| Accounts receivable |
$ | 1,861 | $ | 12,581 | ||||
| Inventories |
5,025 | 12,880 | ||||||
| Deferred catalog costs |
— | 2,325 | ||||||
| Prepaid expenses and other assets |
347 | 152 | ||||||
| Property and equipment |
654 | 1,026 | ||||||
| Goodwill |
21,558 | 30,797 | ||||||
| Intangible assets |
10,829 | 9,142 | ||||||
| Short-term debt |
(102 | ) | (1,115 | ) | ||||
| Accounts payable |
(2,889 | ) | (7,098 | ) | ||||
| Accrued liabilities< | ||||||||