10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

School Specialty Inc. Reports Operating Results (10-Q)

December 01, 2010 | About:
10qk

10qk

18 followers
School Specialty Inc. (SCHS) filed Quarterly Report for the period ended 2010-10-23.

School Specialty Inc. has a market cap of $238.2 million; its shares were traded at around $12.62 with and P/S ratio of 0.3. School Specialty Inc. had an annual average earning growth of 3.7% over the past 10 years. GuruFocus rated School Specialty Inc. the business predictability rank of 2.5-star.SCHS is in the portfolios of Michael Dell of MSD Capital, Paul Tudor Jones of The Tudor Group, Chris Davis of Davis Selected Advisers, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Accelerated Learning segment revenue decreased by 2.4% from $106.6 million for the three months ended October 24, 2009 (which includes $0.5 million of intersegment revenues) to $104.0 million for the three months ended October 23, 2010 (which was comprised solely of sales to external parties). The divestiture of the School Specialty Publishing business unit (SSP) in the second quarter of last year accounted for $6.8 million of revenue decline. The remaining businesses within the segment had revenue growth of $4.2 million or 4.2%. This revenue growth was related to a shift in the timing of orders between the first and second quarters. The Company believes that approximately $10 million of the second quarter revenue was related to a later ordering back-to-school season. Partially offsetting the incremental revenue associated with the later ordering season was a decline in small dollar orders.

Accelerated Learning segment SG&A decreased $0.8 million, or 2.9%, from $27.9 million for the three months ended October 24, 2009 to $27.1 million for the three months ended October 23, 2010. The divestiture of SSP business in the second quarter of fiscal 2010 led to a $3.0 million decrease in SG&A. Partially offsetting this decrease was an increase of $0.5 million attributable primarily to an increase in its variable costs such as transportation due to the shift in timing of revenue from the first quarter to the second quarter of fiscal 2011. In addition, the segments selling expense increased by approximately $1.4 million as a result of the expansion of its reading intervention and health sales force. Accelerated Learning segment SG&A decreased as a percent of revenues from 26.2% for the three months ended October 24, 2009 to 26.0% for the three months ended October 23, 2010.

Accelerated Learning segment revenues decreased by 14.8% from $213.0 million for the six months ended October 24, 2009 (which includes $1.5 million of intersegment revenues) to $181.4 million for the six months ended October 23, 2010 (which is comprised solely of sales to external parties). The divestiture of the SSP business accounted for $17.5 million of the decline. The acquisition of AutoSkill International, Inc. (AutoSkill), acquired in last years second quarter, added $2.8 million of revenue in the first half of fiscal 2011. The remaining decline of $16.9 million is a result of spending reductions across all education categories due to education spending cuts by states, which the Company believes are affecting school districts spending decisions on purchasing new curriculum-based materials.

As a percent of revenue, SG&A increased from 25.8% for the six months ended October 24, 2009 to 104.3% for the six months ended October 23, 2010. SG&A increased $393.9 million from $174.7 million for the six months ended October 24, 2009 to $568.8 million for the six months ended October 23, 2010. The primary increase in SG&A is attributable to the non-cash impairment charge of $411.4 million the Company took in the first quarter of fiscal 2011. Due to the significance of the impairment charge in the current year, the Company believes it is more meaningful to compare SG&A excluding the impairment charge to last years SG&A in the comparable period. Excluding the impact of the impairment charge taken by the Company in the first quarter of fiscal 2011, SG&A decreased $17.5 million from $174.7 million in the first six months of fiscal 2010 to $157.2 million in the first six months of fiscal 2011. On the same basis, SG&A attributable to the Educational Resources and Accelerated Learning segments decreased a combined $19.9 million and Corporate SG&A increased $2.4 million in the first six months of fiscal 2011 as compared to last years first six months. The increase in Corporate SG&A was related primarily to increases in business technology spending to support the Companys business systems and eCommerce platform and incremental depreciation related to the Companys enterprise resource planning (ERP) system. Excluding the impact of the impairment charge taken by the Company in the first quarter of fiscal 2011, SG&A as a percent of revenue increased from 25.8% for the six months ended October 24, 2009 to 28.8% for the six months ended October 23, 2010, as cost cutting actions did not keep pace with the decline in revenues.

Accelerated Learning segment SG&A decreased $3.6 million, or 6.6%, from $55.4 million for the six months ended October 24, 2009 to $51.8 million for the six months ended October 23, 2010. The divestiture of the SSP business led to a $6.4 million decrease in SG&A. Reduced volume led to approximately $1.8 million of a decrease in its variable costs such as transportation, warehousing, and selling expenses. Partially offsetting these decreased expenses was an increase of $2.5 million in selling expenses as a result of the expansion of the reading intervention and health sales forces. Accelerated Learning segment SG&A increased as a percent of revenues from 26.0% for the six months ended October 24, 2009 to 28.5% for the six months ended October 23, 2010.

The benefit for income taxes was $44.4 million for the first six months of fiscal 2011. The current year income tax benefit includes $66.5 million of income tax benefit related to the $411.4 million goodwill and non-amortizable asset impairment. Approximately $237.8 million of the goodwill impairment was related to non-deductible goodwill associated with past stock acquisitions for which a tax benefit was not recorded. The remaining impairment of $173.4 million generated the $66.5 million of tax benefit. The effective tax rate in the first six months of fiscal 2011 was 12.4%. Due to the significance that the impairment charge has on the effective tax rate, the Company believes the tax provision (benefit) and the effective tax rate excluding the impairment charge are more meaningful comparisons to last years comparable period. Excluding impairment, the tax provision for the first six months of fiscal 2011 was $22.2 million as compared to $37.9 million in the first six months of fiscal 2010. The decline is related to the decrease in earnings before tax. Excluding impairment, the effective tax rate was 41.4% in the first six months of fiscal 2011 as compared to 39.5% in the first six months of fiscal 2010. The increase in the effective tax rate is related primarily to the valuation allowance on foreign tax credit utilization.

Read the The complete Report

About the author:

10qk
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 1.0/5 (1 vote)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK