Attached files
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| 8-K - FORM 8-K - SCHOOL SPECIALTY INC | d8k.htm |
Exhibit 99.1
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FOR IMMEDIATE RELEASE THURSDAY, JUNE 16, 2011 | |||
| Contact: David Vander Ploeg Executive VP and CFO 920-882-5854 |
Mark Fleming Investor Relations & Communications 920-882-5646 | |||
W6316 Design Drive, Greenville, WI 54942
P.O. Box 1579, Appleton, WI 54912-1579
SCHOOL SPECIALTY REPORTS FOURTH QUARTER AND FISCAL 2011 RESULTS
| ¡ | Fourth Quarter Consolidated organic revenue growth of 2 percent |
| ¡ | Educational Resources grows 2 percent; Accelerated Learning grows 4 percent |
| ¡ | Fiscal 2012 guidance issued |
Greenville, WI, June 16, 2011—School Specialty (NASDAQ:SCHS) today reported fiscal fourth quarter and year-end results with revenue growth in both segments, despite continuing budget pressures facing pre-kindergarten through grade 12 educators. Revenue for the final quarter of School Specialty’s 2011 fiscal year grew 8.8 percent compared to last year’s fourth quarter, reaching $127.4 million. Excluding the additional week in this year’s fourth quarter, revenue was $119.3 million, an increase of 2 percent. Consistent with the seasonally slow fourth quarter, the company reported a fourth quarter loss of $22.6 million compared with a loss of $13.7 million in same period last year. The loss in the current-year fourth quarter includes pre-tax special charges related to an equity-method investment impairment of $6.9 million and a $1.9 million loss on exchange of debt. Excluding these special charges, the net loss for the fourth quarter was $17.2 million. Loss per share in the quarter was $1.20. Excluding special charges loss per share was $0.91 versus a prior-year loss of $0.73.
“We are cautiously optimistic with the business trends we saw in the fourth quarter,” said Chief Executive Officer David J. Vander Zanden. “With state income and sales tax revenues starting to exceed most states’ internal projections, we believe education budgets should stabilize and could lead to greater budget visibility and spending confidence on the part of educators for the remainder of the calendar year.
“During the fourth quarter we saw improvement in order volume both in supplies, which met our expectations, and furniture, which exceeded our expectations since that category has been the most impacted by reductions in spending and construction projects. Orders received subsequent to year end show loose furniture up 2 percent and supplies down 2 percent to prior year. Our margins in consumables continued to be impacted by pricing pressures. However, we expect this margin degradation to lessen as we proceed through the selling season and begin to grow as we implement new programs. Our fourth quarter furniture margins did show modest improvement from prior quarter levels, and we expect this improvement to continue through the heavy delivery season for furniture.
“Our Accelerated Learning Group reported revenue growth in the fourth quarter of about 4 percent after adjusting for the incremental week in fiscal 2011, led by our science, math and health categories. Science is building good momentum, with better prospects for state adoptions this year compared to the last selling season. We expect these trends to continue through the busy season.”
Fourth Quarter Financial Results
| — | Revenue for the fourth quarter of fiscal 2011 was $127.4 million, an increase of 8.8 percent compared with $117.0 million in last year’s fourth quarter. Excluding an incremental week in the fourth quarter of fiscal 2011 (14 weeks) as compared to the fourth quarter of fiscal 2010 (13 weeks), revenue increased by 2 percent. The revenue increase reflects growth across both company segments. |
| — | Gross profit was $49.0 million compared with $50.8 million in last year’s fourth quarter. Consolidated gross margin declined 490 basis points to 38.5 percent, primarily due to one-time credits realized in fiscal 2010 and pricing discounts required in consumables and furniture. The company expects the rate of decline to lessen substantially over the next several quarters. In addition, product mix within the Accelerated Learning segment contributed to the decline, and is also expected to improve. |
| — | As expected, selling, general and administrative expenses increased to $71.2 million from the prior year’s $64.7 million, primarily due to the additional week in the current-year fourth quarter, higher volumes, and increased transportation and marketing costs in Educational Resources. |
| • | A non-cash charge of $6.9 million was recorded in the fourth quarter of fiscal 2011 related to an impairment of the company’s 35 percent ownership interest in an unconsolidated affiliate. Macro-economic conditions affecting school spending levels have impacted the results of this investment which led to a decreased valuation. |
| • | Fourth quarter net interest expense was $6.9 million, a decrease of $0.8 million from last year’s fourth quarter due to a reduction in non-cash interest related to convertible debt. |
| • | During the quarter $100 million of outstanding 3.75% convertible subordinated debentures was exchanged and refinanced with new debentures. Expenses of $1.9 million associated with this convertible debt exchange were recognized in the current-year’s fourth quarter. |
| • | Net loss in the fourth quarter was $22.6 million ($1.20 per share) compared to a loss of $13.7 million ($0.73 per share) in the same period last year. Excluding the special charges described above, net loss in fiscal 2011’s fourth quarter was $17.2 million ($0.91 per share). |
Fiscal 2011 Financial Results
| • | Revenue for fiscal 2011 was $762.1 million compared with $896.7 million last year, a decline of 15.0 percent. Excluding $17.5 million of revenue in fiscal 2010 from School Specialty Publishing, which was sold prior to last year’s third quarter, consolidated revenue declined 13.3 percent. The decline in revenue was due to K-12 education budget pressures resulting in reduced spending by schools, a significant decline in furniture sales as a result of fewer construction projects, and various performance challenges within the Educational Resources segment. |
| • | Gross profit for the year was $307.5 million compared with $379.1 million last year. Gross margin declined 190 basis points to 40.4 percent versus last year’s 42.3 percent. Most of the reduction was due to competitive pricing pressures within the Educational Resources segment. |
| • | Selling, general and administrative expenses declined to $287.6 million (37.7 percent of revenue), from the prior year’s $304.5 million (34.0 percent of revenue). The expense decrease is primarily attributable to lower revenue, general cost reductions, operational consolidations and a divestiture. |
| • | Non-cash impairment charges totaling $418.3 million, or $349.1 million net of tax, were recorded in fiscal 2011 associated with impairment of goodwill and other indefinite-lived intangible assets, and the charge associated with the decreased valuation of the company’s ownership interest in its unconsolidated affiliate. The tax benefit associated with the impairment was negatively impacted by the portion of the goodwill that is non-deductible for tax purposes. |
| • | Full-year net interest expense decreased $2.3 million to $28.2 million from last year’s $30.5 million. This decrease was attributable to the reduction in non-cash interest expense primarily due to the retirement of $133.0 million of convertible debt early in the company’s second quarter. |
| • | Earnings before interest, taxes, depreciation and amortization (“EBITDA”), was $53.1 million in fiscal 2011 as compared to $106.6 million in fiscal 2010. The decrease is related to a combination of the revenue declines and the reduction in gross margin. |
| • | Fiscal 2011’s net loss was $356.3 million ($18.88 per share), including the non-cash impairment and debt exchange charges, compared to net income of $25.9 million ($1.37 per diluted share) in the same period last year. Excluding the net of tax impact of all special charges, net loss was $5.9 million ($0.31 per share). |
| • | Free cash flow for fiscal 2011 was $35.2 million. Free cash flow was impacted by the company’s increased inventory investments of nearly $11 million over earlier plans due to early buying opportunities and business growth. |
Outlook
For fiscal 2012, School Specialty is expecting:
| • | Revenue to be in the range of $755 million to $780 million, representing flat to positive 3.5 percent growth, on a normalized 52-week comparison. |
| • | EBITDA to be in the range of $53 million to $59 million, representing margins of 7.0 percent to 7.5 percent. |
| • | Loss per share to be in the range of $0.35 per share to $0.10 per share. This range reflects a charge of $0.25 per share for non-cash interest related to the convertible debt. |
| • | Free cash flow to be in the range of $5 million to $15 million, which includes one-time deferred tax payments of approximately $30 million. |
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Conference Call
School Specialty will host a conference call to discuss its fiscal 2011 financial results. The conference call begins today, June 16, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investors section of the School Specialty web site at www.schoolspecialty.com, 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 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 “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 24, 2010, 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.
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SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
| Three Months Ended | Fiscal Year Ended | |||||||||||||||
| April 30, 2011 |
April 24, 2010 |
April 30, 2011 |
April 24, 2010 |
|||||||||||||
| Revenues |
$ | 127,355 | $ | 117,039 | $ | 762,078 | $ | 896,678 | ||||||||
| Cost of revenues |
78,378 | 66,205 | 454,557 | 517,530 | ||||||||||||
| Gross profit |
48,977 | 50,834 | 307,521 | 379,148 | ||||||||||||
| Selling, general and administrative expenses |
71,225 | 64,745 | 287,560 | 304,451 | ||||||||||||
| Impairment of goodwill and intangible assets |
- | - | 411,390 | - | ||||||||||||
| Operating income (loss) |
(22,248) | (13,911) | (391,429) | 74,697 | ||||||||||||
| Other (income) expense: |
||||||||||||||||
| Interest expense |
6,916 | 7,705 | 28,157 | 30,532 | ||||||||||||
| Interest income |
- | (33) | - | (66) | ||||||||||||
| Impairment of equity-method investment |
6,861 | - | 6,861 | - | ||||||||||||
| Loss on convertible debt exchange |
1,920 | - | 1,920 | - | ||||||||||||
| Income (loss) before provision for income taxes |
(37,945) | (21,583) | (428,367) | 44,231 | ||||||||||||
| Provision for (benefit from) income taxes |
(15,299) | (8,320) | (73,132) | 17,678 | ||||||||||||
| Income (loss) before investment in unconsolidated affiliate |
$ | (22,646) | $ | (13,263) | $ | (355,235) | $ | 26,553 | ||||||||
| Equity in (losses) earnings of unconsolidated affiliate |
47 | (460) | (1,038) | (701) | ||||||||||||
| Net income (loss) |
$ | (22,599) | $ | (13,723) | $ | (356,273) | $ | 25,852 | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
18,868 | 18,859 | 18,870 | 18,843 | ||||||||||||
| Diluted |
18,868 | 18,859 | 18,870 | 18,874 | ||||||||||||
| Net Income (Loss) Per Share: |
||||||||||||||||
| Basic |
$ | (1.20) | $ | (0.73) | $ | (18.88) | $ | 1.37 | ||||||||
| Diluted |
$ | (1.20) | $ | (0.73) | $ | (18.88) | $ | 1.37 | ||||||||
| Earnings before interest, taxes, depreciation, amortization and impairment charges (EBITDA) reconciliation: |
||||||||||||||||
| Net income (loss) |
$ | (22,599) | $ | (13,723) | $ | (356,273) | $ | 25,852 | ||||||||
| Equity in (losses) earnings of unconsolidated affiliate |
(47) | 460 | 1,038 | 701 | ||||||||||||
| Provision for income taxes |
(15,299) | (8,320) | (73,132) | 17,678 | ||||||||||||
| Loss on convertible debt exchange |
1,920 | - | 1,920 | - | ||||||||||||
| Impairment of equity-method investment |
6,861 | - | 6,861 | - | ||||||||||||
| Impairment of goodwill and intangible assets |
- | - | 411,390 | - | ||||||||||||
| Depreciation and amortization expense |
7,090 | 6,964 | 27,832 | 26,847 | ||||||||||||
| Amortization of development costs |
1,496 | 875 | 5,334 | 5,067 | ||||||||||||
| Net interest expense |
6,916 | 7,672 | 28,157 | 30,466 | ||||||||||||
| EBITDA |
$ | (13,662) | $ | (6,072) | $ | 53,127 | $ | 106,611 | ||||||||
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SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
| April 30, 2011 |
April 24, 2010 |
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| (Unaudited) | (Unaudited) | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 9,821 | $ | 21,035 | ||||
| Accounts receivable, net |
67,442 | 72,734 | ||||||
| Inventories, net |
111,266 | 99,910 | ||||||
| Deferred catalog costs |
16,639 | 13,593 | ||||||
| Prepaid expenses and other current assets |
14,516 | 14,318 | ||||||
| Refundable income taxes |
- | 1,539 | ||||||
| Deferred taxes |
- | 9,867 | ||||||
| Total current assets |
219,684 | 232,996 | ||||||
| Property, plant and equipment, net |
65,571 | 66,607 | ||||||
| Goodwill |
129,390 | 540,248 | ||||||
| Intangible assets, net |
155,889 | 166,552 | ||||||
| Other |
36,383 | 33,118 | ||||||
| Deferred taxes - long-term |
9,676 | - | ||||||
| Investment in unconsolidated affiliate |
20,400 | 28,299 | ||||||
| Total assets |
$ | 636,993 | $ | 1,067,820 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current maturities - long-term debt |
$ | 95,207 | $ | 132,397 | ||||
| Accounts payable |
85,639 | 47,954 | ||||||
| Accrued income taxes |
14,089 | - | ||||||
| Accrued compensation |
7,972 | 7,501 | ||||||
| Deferred revenue |
3,600 | 4,312 | ||||||
| Deferred taxes |
1,973 | - | ||||||
| Other accrued liabilities |
25,428 | 30,905 | ||||||
| Total current liabilities |
233,908 | 223,069 | ||||||
| Long-term debt - less current maturities |
201,073 | 199,742 | ||||||
| Deferred taxes and other |
- | 92,398 | ||||||
| Other liabilities |
383 | 1,423 | ||||||
| Total liabilities |
435,364 | 516,632 | ||||||
| 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 24,290,345 and 24,280,097 shares issued, respectively |
24 | 24 | ||||||
| Capital paid-in excess of par value |
441,335 | 436,959 | ||||||
| Treasury stock, at cost - 5,420,210 and 5,420,210 shares, respectively |
(186,637) | (186,637) | ||||||
| Accumulated other comprehensive income |
26,390 | 24,052 | ||||||
| Retained earnings (accumulated deficit) |
(79,483) | 276,790 | ||||||
| Total shareholders’ equity |
201,629 | 551,188 | ||||||
| Total liabilities and shareholders’ equity |
$ | 636,993 | $ | 1,067,820 | ||||
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SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
| Fiscal Year Ended | ||||||||
| April 30, 2011 |
April 24, 2010 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (356,273) | $ | 25,852 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and intangible asset amortization expense |
27,832 | 26,847 | ||||||
| Amortization of development costs |
5,334 | 5,067 | ||||||
| Investment in unconsolidated affiliate |
1,038 | 701 | ||||||
| Amortization of debt fees and other |
2,162 | 2,420 | ||||||
| Share-based compensation expense |
2,846 | 2,448 | ||||||
| Impairment of goodwill and intangible assets |
411,390 | - | ||||||
| Impairment of equity-method investment |
6,861 | - | ||||||
| Loss on convertible debt exchange |
1,920 | - | ||||||
| Deferred taxes |
(92,090) | 5,981 | ||||||
| Loss on disposal of property, equipment and other |
- | 652 | ||||||
| Non-cash convertible debt deferred financing costs |
9,999 | 13,062 | ||||||
| Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations): |
||||||||
| Accounts receivable |
5,783 | 29,008 | ||||||
| Inventories |
(11,297) | 13,586 | ||||||
| Deferred catalog costs |
(3,046) | 1,944 | ||||||
| Prepaid expenses and other current assets |
1,347 | 1,417 | ||||||
| Accounts payable |
38,430 | (9,267) | ||||||
| Accrued liabilities |
7,774 | (7,659) | ||||||
| Net cash provided by operating activities |
60,010 | 112,059 | ||||||
| Cash flows from investing activities: |
||||||||
| Cash paid in acquisitions, net of cash acquired |
(360) | (11,700) | ||||||
| Additions to property, plant and equipment |
(15,789) | (13,832) | ||||||
| Acquisition of intangible and other assets |
- | (1,800) | ||||||
| Proceeds from note receivable |
- | 700 | ||||||
| Investment in product development costs |
(9,052) | (10,035) | ||||||
| Proceeds from disposal of property, plant and equipment |
- | 2,083 | ||||||
| Investment in Noncontrolling Interest |
- | (2,226) | ||||||
| Net cash used in investing activities |
(25,201) | (36,810) | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from bank borrowings |
810,600 | 304,400 | ||||||
| Repayment of debt and capital leases |
(720,068) | (356,979) | ||||||
| Redemption of Convertible Debt |
(133,000) | - | ||||||
| Proceeds from exercise of stock options |
- | 117 | ||||||
| Payment of debt fees and other |
(3,555) | (3,623) | ||||||
| Net cash used in financing activities |
(46,023) | (56,085) | ||||||
| Net increase in cash and cash equivalents |
(11,214) | 19,164 | ||||||
| Cash and cash equivalents, beginning of period |
21,035 | 1,871 | ||||||
| Cash and cash equivalents, end of period |
$ | 9,821 | $ | 21,035 | ||||
| Free cash flow reconciliation: |
||||||||
| Net cash provided by operating activities |
$ | 60,010 | $ | 112,059 | ||||
| Additions to property and equipment |
(15,789) | (13,832) | ||||||
| Investment in development costs |
(9,052) | (10,035) | ||||||
| Proceeds from disposal of property and equipment |
- | 2,083 | ||||||
| Free cash flow |
$ | 35,169 | $ | 90,275 | ||||
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School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2011
(In thousands)
Unaudited
| Segment Revenues and Gross Profit/Margin Analysis-QTD |
||||||||||||||||||||||||||||
| % of Revenues | ||||||||||||||||||||||||||||
| 4Q11-QTD | 4Q10-QTD | Change $ | Change % | 4Q11-QTD | 4Q10-QTD | |||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||
| Educational Resources |
$ | 101,906 | $ | 94,258 | $ | 7,648 | 8.1% | 80.0% | 80.5% | |||||||||||||||||||
| Accelerated Learning |
25,282 | 22,584 | 2,698 | 11.9% | 19.9% | 19.3% | ||||||||||||||||||||||
| Corporate and Interco Elims |
167 | 197 | (30) | 0.1% | 0.2% | |||||||||||||||||||||||
| Total Revenues |
$ | 127,355 | $ | 117,039 | $ | 10,316 | 8.8% | 100.0% | 100.0% | |||||||||||||||||||
| % of Gross Profit | ||||||||||||||||||||||||||||
| 4Q11-QTD | 4Q10-QTD | Change $ | Change % | 4Q11-QTD | 4Q10-QTD | |||||||||||||||||||||||
| Gross Profit |
||||||||||||||||||||||||||||
| Educational Resources |
$ | 36,333 | $ | 37,476 | $ | (1,143) | -3.0% | 74.2% | 73.7% | |||||||||||||||||||
| Accelerated Learning |
12,383 | 12,498 | (115) | -0.9% | 25.3% | 24.6% | ||||||||||||||||||||||
| Corporate and Interco Elims |
261 | 860 | (599) | 0.5% | 1.7% | |||||||||||||||||||||||
| Total Gross Profit |
$ | 48,977 | $ | 50,834 | $ | (1,857) | -3.7% | 100.0% | 100.0% | |||||||||||||||||||
| Segment Gross Margin Summary-QTD |
||||||||||||||||||||||||||||
| Gross Margin | 4Q11-QTD | 4Q10-QTD | ||||||||||||||||||||||||||
| Educational Resources |
35.7% | 39.8% | ||||||||||||||||||||||||||
| Accelerated Learning |
49.0% | 55.3% | ||||||||||||||||||||||||||
| Total Gross Margin |
38.5% | 43.4% | ||||||||||||||||||||||||||
| Segment Revenues and Gross Profit/Margin Analysis-YTD |
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| % of Revenue | ||||||||||||||||||||||||||||
| 4Q11-YTD | 4Q10-YTD | Change $ | Change % | 4Q11-YTD | 4Q10-YTD | |||||||||||||||||||||||
| Revenues |
|
|
|
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| Educational Resources |
$ | 534,803 | $ | 641,048 | $ | (106,245) | -16.6% | 70.2% | 71.5% | |||||||||||||||||||
| Accelerated Learning |
226,607 | 256,157 | (29,550) | -11.5% | 29.7% | 28.6% | ||||||||||||||||||||||
| Corporate and Interco Elims |
668 | (527) | 1,195 | 0.1% | -0.1% | |||||||||||||||||||||||
| Total Revenues |
$ | 762,078 | $ | 896,678 | $ | (134,600) | -15.0% | 100.0% | 100.0% | |||||||||||||||||||
| % of Gross Profit | ||||||||||||||||||||||||||||
| 4Q11-YTD | 4Q10-YTD | Change $ | Change % | 4Q11-YTD | 4Q10-YTD | |||||||||||||||||||||||
| Gross Profit |
||||||||||||||||||||||||||||
| Educational Resources |
$ | 179,379 | $ | 233,011 | $ | (53,632) | -23.0% | 58.4% | 61.5% | |||||||||||||||||||
| Accelerated Learning |
125,868 | 143,442 | (17,574) | -12.3% | 40.9% | 37.8% | ||||||||||||||||||||||
| Corporate and Interco Elims |
2,274 | 2,695 | (421) | 0.7% | 0.7% | |||||||||||||||||||||||
| Total Gross Profit |
$ | 307,521 | $ | 379,148 | $ | (71,627) | -18.9% | 100.0% | 100.0% | |||||||||||||||||||
| Segment Gross Margin Summary-YTD |
||||||||||||||||||||||||||||
| Gross Margin | 4Q11-YTD | 4Q10-YTD | ||||||||||||||||||||||||||
| Educational Resources |
33.5% | 36.3% | ||||||||||||||||||||||||||
| Accelerated Learning |
55.5% | 56.0% | ||||||||||||||||||||||||||
| Total Gross Margin |
40.4% | 42.3% | ||||||||||||||||||||||||||
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