UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 25, 1998.
[ ] 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)
Delaware 39-0971239
(State or Other (IRS Employer
Jurisdiction of Incorporation) Identification No.)
1000 North Bluemound Drive
Appleton, Wisconsin
(Address of Principal Executive Offices)
54914
(Zip Code)
(920) 734-2756
(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 the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class August 31, 1998
- ------------------------------ ----------------
Common Stock, $0.001 par value 14,572,784
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EXPLANATORY NOTE
This Form 10-Q/A is being filed for the purpose of
correcting the following inadvertent errors: (1) in
the Consolidated Statements of Cash Flows, (a) for the
three months ended July 25, 1998, the "Capital
Contribution by U.S. Office Products" line item under
the heading "Cash flows from financing activities" was
corrected to read $8,818, and the "Net cash from
financing activities" line item under the same heading
was corrected to read $34,073, and (b) for the three
months ended July 26, 1997, the "Other" line item under
the heading "Cash flows from investing activities" was
corrected to read $198, the "Net cash used in investing
activities" line item under the same heading was
corrected to read ($67,129), and the "Advances from
(payments to) U.S. Office Products" line item under the
heading "Cash flows from financing activities" was
corrected to read $14,171. In addition, to the
foregoing, Notes 6 and 7 of the Notes to Unaudited
Consolidated Financial Statements have been revised to
conform to the disclosure contained in the Company's
most recent filing on Form 8-K.
<PAGE>
SCHOOL SPECIALTY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 25, 1998
PART I - FINANCIAL INFORMATION
Page
Number
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at July 25, 1998 1
(Unaudited) and April 25, 1998
Unaudited Consolidated Statements of Income for 2
the Three Months Ended July 25, 1998 and
July 26, 1997
Unaudited Consolidated Statements of Cash Flows 3
for the Three Months Ended July 25, 1998 and
July 26, 1997
Notes to Unaudited Consolidated Financial 5
Statements
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHOOL SPECIALTY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 25, April 25,
1998 1998
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for 92,632 38,719
doubtful accounts of $754 and $716,
respectively
Inventories 56,092 49,306
Prepaid expenses and other current assets 12,435 13,504
Total current assets 161,159 101,529
Property and equipment, net 23,316 22,553
Intangible assets, net 112,450 99,613
Other assets 109 34
Total assets $297,034 $223,729
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 244 $ 11
Short-term payable to U.S. Office Products - 20,277
Accounts payable 42,636 23,788
Accrued compensation 4,772 4,458
Other accrued liabilities 15,327 5,204
Total current liabilities 62,979 53,738
Long-term debt 287 315
Long-term payable to U.S. Office Products - 62,699
Long-term debt to bank 77,600 -
Deferred income taxes 512 511
Total liabilities 141,378 117,263
Stockholders' equity:
Common stock, $0.001 par value per share, 15 -
151,000,000 shares authorized and 14,572,784
shares issued and outstanding
Capital paid in excess of par value 147,495 -
Divisional equity - 104,883
Accumulated other comprehensive income 4 3
Retained earnings 8,142 1,580
Total stockholders' equity 155,656 106,466
Total liabilities and stockholders' equity $297,034 $223,729
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(In thousands, except per share amounts)
For the Three Months
Ended
July 25, July 26,
1998 1997
Revenues $126,657 $87,029
Cost of revenues 82,615 56,692
Gross profit 44,042 30,337
Selling, general and administrative expenses 29,642 18,465
Non-recurring charges 1,074 -
Operating income 13,326 11,872
Other income (expense):
Interest expense (1,177) (1,315)
Interest income 4 -
Income before provision for income taxes 12,153 10,557
Provision for income taxes 5,590 4,753
Net income $ 6,563 $ 5,804
Weighted average shares outstanding:
Basic 14,728 11,809
Diluted 14,848 12,013
Net income per share:
Basic $ 0.45 $ 0.49
Diluted $ 0.44 $ 0.48
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
For the Three
Months Ended
July 25, July 26,
1998 1997
Cash flows from operating activities:
Net income $ 6,563 $ 5,804
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization expense 1,428 818
Non-recurring charges 1,074 -
Change in current assets and liabilities (net
of assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable (52,917) (39,307)
Inventory (3,405) (1,156)
Prepaid expenses and other current assets 1,273 (1,642)
Accounts payable 18,967 10,201
Accrued liabilities 10,214 6,289
Net cash used in operating activities (16,803) (18,993)
Cash flows from investing activities:
Cash paid in acquisitions, net of cash (16,895) (63,740)
received
Additions to property and equipment (902) (3,587)
Other 527 198
Net cash used in investing activities (17,270) (67,129)
Cash flows from financing activities:
Proceeds from (payments of) short-term debt, (20,277) -
net
Advances from (payments to) U.S. Office (62,699) 14,171
Products
Capital contribution by U.S. Office Products 8,818 71,951
Proceeds from issuance of common stock 32,735 -
Proceeds from issuance of long-term debt 77,600 -
Capitalized loan fees (2,104) -
Net cash from financing activities 34,073 86,122
Net increase (decrease) in cash and cash - -
equivalents
Cash and cash equivalents, beginning of period - -
Cash and cash equivalents, end of period $ - $ -
Supplemental disclosures of cash flow
information:
Interest paid $ 530 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(unaudited)
(In thousands)
The Company issued common stock and cash in connection
with certain business combinations accounted for under
the purchase method in the three months ended July 25,
1998 and July 26, 1997. The fair values of the assets
and liabilities of the acquired companies at the dates
of the acquisitions are presented as follows:
For the Three Months
Ended
July 25, July 26,
1998 1997
Accounts receivable $ 996 $ 9,427
Inventories 3,381 14,913
Prepaid expenses and other current assets 302 2,180
Property and equipment 596 3,368
Intangible assets 11,301 48,036
Other assets 520 210
Short-term debt - -
Accounts payable (201) (7,237)
Accrued liabilities - (3,591)
Long-term debt - -
Net assets acquired $16,895 $67,306
Acquisitions were funded as follows:
United States Office Products common $ - $ 3,566
stock
Cash 16,895 63,740
Total $16,895 $67,306
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(In thousands, except per share amounts)
NOTE 1_BASIS OF PRESENTATION
The accompanying unaudited condensed financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a
fair presentation have been included. The Balance
Sheet at April 25, 1998 has been derived from the
Company's audited financial statements for the fiscal
year ended April 25, 1998. For further information,
refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K
for the year ended April 25, 1998.
NOTE 2_STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the three months
ended July 25, 1998 were as follows:
Stockholders' equity balance at April 25, 1998 $106,466
Shares distributed in public offering 32,735
Contribution by U.S. Office Products 9,891
Cumulative translation adjustments 1
Net income 6,563
Stockholders'equity balance at July 25, 1998 $155,656
On June 10, 1998, U.S. Office Products distributed to
its shareholders one share of School Specialty common
stock for every 9 shares of U.S. Office Products common
stock held by each respective shareholder. The share
data reflected in the accompanying financial statements
represents the historical share data for U.S. Office
Products for the period or as of the date indicated,
and retroactively adjusted to give effect to the one
for nine distribution ratio and includes shares issued
in the public offering during the three months ended
July 25, 1998.
NOTE 3_EARNINGS PER SHARE
In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 simplifies the
standards required under current accounting rules for
computing earnings per share and replaces the
presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic
earnings per share ("basic EPS") and diluted earnings
per share ("diluted EPS").
<PAGE>
The following information presents the Company's
computations of basic and diluted EPS for the periods
presented in the consolidated statement of income:
Income Shares Per Share
(Numerator) (Denominator) Amount
Three months ended July 25, 1998:
Basic EPS $6,563 14,728 $ 0.45
Effect of dilutive employee - 120 $(0.01)
stock options
Diluted EPS $6,563 14,848 $ 0.44
Three months ended July 26, 1997:
Basic EPS $5,804 11,809 $ 0.49
Effect of dilutive employee - 204 $(0.01)
stock options
Diluted EPS $5,804 12,013 $ 0.48
The Company had additional employee stock options
outstanding during the periods presented that were not
included in the computation of diluted EPS because they
were anti-dilutive.
NOTE 4_ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of
general purpose financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15,
1997. The Company's other comprehensive income for the
period ended July 25, 1998 is $1 and $4, on a
cumulative basis. The Company's comprehensive income
is comprised solely of translation adjustments.
NOTE 5_CREDIT FACILITY
On June 9, 1998, the Company entered into a secured
$250,000 revolving credit facility with NationsBank,
N.A. as administrative agent. The credit facility will
terminate five years from inception. Interest on
borrowings under the credit facility will accrue at a
rate of, at the Company's option, either LIBOR plus
1.00% or the lender's base rate, plus a margin of 0% to
.25% for up to the first 6 months under the agreement.
Thereafter, interest will accrue at a rate of (i) LIBOR
plus a range of .625% to 2.000%, or (ii) the lender's
base rate plus a range of .125% to .250% (depending on
the Company's leverage ratio of funded debt to EBITDA).
Indebtedness will be secured by substantially all of
the assets of the Company. The credit facility is
subject to terms and conditions typical of facilities
of such size and includes certain financial covenants.
The Company borrowed under the credit facility to repay
the U.S. Office Products' debt which it was obligated
to repay as part of its spin-off from U.S. Office
Products on June 10, 1998. The balance of the credit
facility will be available for working capital, capital
expenditures and acquisitions, subject to compliance
with financial covenants. The amount outstanding as of
July 25, 1998 under the credit facility was $77,600.
NOTE 6_BUSINESS COMBINATIONS
During the fiscal period ended April 25, 1998, the
Company completed 8 business combinations which were
accounted for under the purchase method.
In the first quarter of fiscal 1999, the Company made a
significant acquisition accounted for under the
purchase method of accounting for an aggregate cash
purchase price of $16,895, resulting in goodwill of
approximately $11,000 which will be amortized over 40
years. The results of this acquisition have been
included in the Company's results from its respective
date of acquisition.
<PAGE>
The following presents the unaudited pro forma results
of operations of the Company for the quarters ending
July 25, 1998 and July 26, 1997 and includes the
Company's consolidated financial statements, which give
retroactive effect to the acquisitions as if all such
purchase acquisitions had been made at the beginning of
fiscal 1998. The results presented below include
certain pro forma adjustments to reflect the
amortization of intangible assets, adjustments to
interest expense, adjustments to depreciation,
adjustments in executive compensation and the inclusion
of a federal income tax provision on all earnings at an
effective tax rate of 46% and 48% for the quarters
ended July 25, 1998 and July 26, 1997, respectively:
For the Quarter
Ended
July 25, July 26,
1998 1997
Revenues $129,037 $131,956
Net income 6,825 7,639
Net income per share:
Basic $ 0.46 $ 0.65
Diluted $ 0.46 $ 0.64
On March 30, 1998, the Company acquired certain assets
of Education Access out of a Federal bankruptcy
proceeding. Accordingly, revenues and net loss for
Education Access included in the above pro forma
results were $1,900 and ($90), respectively, for the
quarter ended July 25, 1998, compared with revenues and
net income of $9,700 and $469, respectively, for the
quarter ended July 26, 1997. In addition, the Company
incurred a one-time non-recurring charge in the quarter
ended July 25, 1998, consisting of compensation expense
attributed to the U.S. Office Products stock option
tender offer and the sale of shares of stock to certain
executive management of the Company, net of
underwriting discounts. The after tax charge included
in net income for the quarter ended July 25, 1998 is
$642.
The July 26, 1997 net income per share does not give pro
forma effect to the 2,375 shares issued in the Company's
offering and the sale of shares to executive management
on June 9, 1998.
The unaudited pro forma results of operations are
prepared for companies for comparative purposes only
and do not necessarily reflect the results that would
have occurred had the acquisitions occurred at the
beginning of fiscal 1998 or the results which may occur
in the future.
NOTE 7_SUBSEQUENT EVENTS
Beckley Cardy Acquisition
Subsequent to July 25, 1998, the Company completed an
acquisition of The National School Supply Company
(otherwise known as Beckley-Cardy) that was accounted
for under the purchase method of accounting. The
aggregate consideration paid for this acquisition was
approximately $77,000 in cash plus assumed debt of
approximately $60,000, resulting in goodwill of
approximately $76,000 which will be amortized over 40
years. The timing of this acquisition reflects
additional seasonal working capital borrowings of
approximately $13,000, which is included in the $60,000
debt assumed. The results of this acquisition will be
included in the Company's results from its respective
date of acquisition.
The following presents the unaudited pro forma results
of operations of the Company for the quarters ending
July 25, 1998 and July 26, 1997 and includes the
Company's consolidated financial statements, which give
retroactive effect to the Beckley-Cardy acquisition as
well as the acquisitions referred to in Note 6 above,
as if all such purchase acquisitions had been made at
the beginning of fiscal 1998. The results presented
below include certain pro forma adjustments to reflect
the amortization of intangible assets, adjustments to
interest expense, adjustments in executive compensation
and the inclusion of a federal income tax provision on
all earnings at an effective tax rate of 49% and 56%
for the quarters ended July 25, 1998 and July 26, 1997,
respectively:
<PAGE>
For the Quarter
Ended
July 25, July 26,
1998 1997
Revenues $182,727 $184,778
Net income 7,267 6,659
Net income per share:
Basic $ 0.49 $ 0.56
Diluted $ 0.49 $ 0.55
On March 30, 1998, the Company acquired certain assets
of Education Access out of a Federal bankruptcy
proceeding. Accordingly, revenues and net loss for
Education Access included in the above pro forma
results were $1,900 and ($90), respectively, for the
quarter ended July 25, 1998, compared with revenues and
net income of $9,700 and $469, respectively, for the
quarter ended July 26, 1997. In addition, the Company
incurred a one-time non-recurring charge in the quarter
ended July 25, 1998, consisting of compensation expense
attributed to the U.S. Office Products stock option
tender offer and the sale of shares of stock to certain
executive management of the Company, net of
underwriting discounts. The after tax charge included
in net income for the quarter ended July 25, 1998 is
$642.
The July 26, 1997 net income per share does not give pro
forma effect to the 2,375 shares issued in the Company's
offering and the sale of shares to executive management
on June 9, 1998.
The unaudited pro forma results of operations are
prepared for companies for comparative purposes only
and do not necessarily reflect the results that would
have occurred had the acquisitions occurred at the
beginning of fiscal 1998 or the results which may occur
in the future.
Term Loan
On August 14, 1998, the Company received a commitment
from NationsBank for an additional $100,000 term loan,
amending and increasing the existing $250,000 credit
facility to a total of $350,000. The amended credit
facility, consisting of a $250,000 senior revolving
credit facility and a $100,000 term loan, was executed
with the bank under essentially the same terms and
conditions as the Company's existing credit facility.
NationsBank is currently syndicating the $350,000
facility with an expected closing date of September 30,
1998. On the syndication closing date, the Company
will transfer $100,000 from the revolving credit
facility to the term loan. The expanded credit
facility will be available for funding future
acquisitions and working capital needs. The term loan
will amortize quarterly over five years under the
following amortization schedule with the first
principal payment due January 30, 1999:
Year 1 $10,000
Year 2 15,000
Year 3 15,000
Year 4 30,000
Year 5 30,000
$100,000
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
SCHOOL SPECIALTY, INC.
(Registrant)
9/22/98 /s/ Daniel P. Spalding
- ------- --------------------------
Date Daniel P. Spalding
Chairman of the Board and
Chief Executive Officer
(Principal Executive
Officer)
9/22/98 /s/ Donald J. Noskowiak
- ------- ---------------------------
Date Donald J. Noskowiak
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
