FORM 8-K





UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 8-K


CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (date of earliest event reported):  April 6, 2020


SCHOOL SPECIALTY, INC.


(Exact name of registrant as specified in its charter)





           Delaware              


    000-24385    


      39-0971239      


(State or other jurisdiction


of incorporation)


(Commission


File Number)


(IRS Employer


Identification No.)








W6316 Design Drive


        Greenville, Wisconsin  54942        


(Address of principal executive offices, including zip code)



Registrant’s telephone number, including area code:  (920) 734-5712


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:




[   ]


Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)







[   ]


Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)







[   ]


Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))







[   ]


Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Securities registered pursuant to Section 12(b) of the Act:






 

 

 



Title of each class




Trading Symbol(s)


Name of each exchange on which registered


None


None


None





Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).




Emerging growth company [   ]




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]














Item 7.01


Regulataion FD Disclosure.


On April 6, 2020, School Specialty, Inc. (the “Company”) issued a press release reporting its Fiscal 2019 Results.  On April 6, 2020, the Company also made available its Fiscal Q42019 Investor Presentation Update under the Investors’ tab of its website (www.schoolspecialty.com).  On April 7, 2020, the Company will hold a conference call, which was pre-announced and open to the public, to discuss its results for the fourth quarter and year ended December 28, 2019.  A copy of the press release for the Fiscal 2019 Year-End Investor Update is attached as Exhibit 99.1.  This exhibit is incorporated by reference herein.


This information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section.  Further, the information in this Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of the registrant under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.












Item 9.01.


Financial Statements and Exhibits.


 

(d) Exhibits


 

 

 

 

 

Exhibit No.


Description


 

 

 

 

99.1


Press Release dated April 6, 2020


 

 

 




Forward-Looking Statements


This report and the information furnished herewith may contain statements concerning School Specialty’s future financial condition, results of operations, expectations, plans or prospects.  Such statements are forward-looking statements.  Forward-looking statements also include those preceded by or followed by words like “anticipate,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “projects,” “should,” “targets” and/or similar expressions.  These forward-looking statements are based on School Specialty’s estimates and assumptions as of the date of the information presented, 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 due to a number of factors, including those described in Item 1A. of School Specialty’s Annual Report on Form 10-K for the year ended December 28, 2019, which factors are incorporated herein by reference. Any forward-looking statement in this report and the information furnished herewith speaks only as of the date on which it is made.  Except as required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.








2








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 hereunto duly authorized.










 

SCHOOL SPECIALTY, INC.


 

 

 

 

Dated:  April 6, 2020


By:   /s/ Kevin L. Baehler                


 

  Kevin L. Baehler


  Executive Vice President and


  Chief Financial Officer









3





EXHIBIT 99.1

EXHIBIT 99.1



schslogo.JPG 


W6316 Design Drive, Greenville, WI 54942


P.O. Box 1579, Appleton, WI 54912-1579


 


School Specialty Provides Fiscal 2019 Results


 


Fiscal 2019 Revenue of $626.3 million  


Fiscal 2019 Adjusted EBITDA of $23.9 million  


Fiscal 2019 Free Cash Flow of $1.0 million, an improvement of $20.4 million from 2018  


 


GREENVILLE, Wis., April 6, 2020 – School Specialty, Inc. (OTCQB: SCOO) (“School Specialty”, “SSI” or “the Company”), a leading provider of innovative products and solutions that support integrated learning environments for improved student social, emotional, mental and physical well-being, today provided results for its fiscal fourth quarter and fiscal year ended December 28, 2019.


 


Ryan Bohr, Executive Vice President and Chief Operating Officer, stated, “The core takeaways from our 2019 performance are that we delivered very effectively for our customers during the back-to-school season and successfully executed pricing and business strategies that had begun to steadily improve our margins in the second half of the year and position us for growth.  Success in these areas had contributed to an exceptionally strong start to 2020 however this was curtailed by the global COVID-19 pandemic.”  Mr. Bohr further stated, “The health of our employees, suppliers and customers is a priority for us and we have focused on safeguarding and supporting their well-being during this challenging time by enabling substantially all of our team to work remotely and implementing additional sanitation and distancing measures in our fulfillment centers. As we adapt to this unprecedented and fluid situation, we have also taken important steps to scale back our cost structure.  We remain operational as an essential business and available to support the needs of our districts, educators and students across the country. When schools start to take the steps necessary to prepare for the 2020/21 school year and School Specialty fully intends to be there to support them.”


 


Mr. Bohr concluded, “With the additional complexities of the COVID-19 situation, our process to address our capital structure is exclusively focused on discussions with our current senior secured lenders.  We have recently executed amendments and forbearance extensions that enable those discussions to continue.  While we do not expect those discussions to result in a transaction that provides meaningful value to our shareholders, we do currently expect we will arrive a transaction that will improve our liquidity position and allow our Company to continue as a going concern.”


 


Fiscal 2019 Results


Revenue was $626.3 million for the fiscal year ended December 28, 2019, as compared to $673.5 million in fiscal 2018, representing a decrease of 7.0%. Fiscal fourth quarter 2019 revenue of $91.0 million was down 20.6% compared to the prior year period; however, the impact of prior year fulfillment center issues resulted in delaying over $10.0 million of shipments from Q3 into Q4 2018.  With the strong operational performance in 2019, the fourth quarter of 2019 did not experience a shift in shipment timing.  Weaker orders in November and December also contributed to the year-over-year revenue decreases in Q4 2019 across all product categories.  A portion of the revenue decline experienced in the fiscal year and the fourth quarter can be attributed to decisions not to pursue certain large, low-margin Supply and Furniture revenue opportunities. 






The Company reported a gross profit margin for the year ended December 28, 2019 of 33.2% as compared to 33.9% reported in 2018. Fourth quarter 2019 gross profit margin was 32.5% compared to 31.5% in the prior year period. 


oWe have seen consistent improvement in year-over-year gross margin trends throughout fiscal 2019, particularly in our Supplies and Furniture product categories.  Supplies gross margin was up approximately 50 bps YOY for full year 2019 and up 350 bps YOY in the fourth quarter of 2019 compared to the prior year’s fourth quarter.  Furniture gross margin was up approximately 110 bps for full year 2019 and up 230 bps in Q4 2019. 


 


Selling, general and administration (“SG&A”) expenses were $217.9 million for the year ended December 28, 2019, which represents a $4.2 million decrease year-over-year.  Excluding incremental restructuring costs in SG&A, SG&A expenses declined by $14.3 million year-over-year, reflecting a continued focus on lowering fixed expenses throughout the Company. SG&A for the fiscal fourth quarter 2019 of $50.5 million was down $1.1 million, or 2.2% below the comparable prior year period. Excluding incremental fourth quarter restructuring costs in SG&A, SG&A expenses declined by $5.7 million, or 11.2%, compared to the fourth quarter of 2018. 


 


The Company reported adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of approximately $23.9 million for the year ended December 28, 2019 compared to $35.1 million in the year ended December 29, 2018.  Approximately $7.3 million of the decrease related to our Agendas product category.  The Agendas product category generated negative EBITDA of approximately $5.3 million in 2019 and the Company exited the product line at the end of 2019.  Fourth quarter Adjusted EBITDA in 2019 was -$9.9 million as compared to -$8.4 million in the prior year fourth quarter. 


 


Free cash flow in 2019 was $1.0 million as compared to -$19.4 million in 2018.  The successful normalization of working capital provided $18.0 million of positive cash flow impact in 2019 as compared to working capital providing a negative cash flow impact of $17.8 million in 2018. Reduced capital expenditures and product development expenditures contributed an additional $3.8 million free cash flow improvement.  These year-over-year improvements to free cash flow were partially offset by $11.2 million of lower EBITDA in 2019, $10.2 million of incremental restructuring and restructuring-related costs and $2.2 million of incremental cash interest in 2019. 


 


School Specialty will be hosting a teleconference and webcast on Tuesday, April 7, 2020 at 9:00 a.m. ET to discuss its results and outlook. Speaking from management will be Michael C. Buenzow, Interim President and Chief Executive Officer; Ryan M. Bohr, Executive Vice President and Chief Operating Officer; and Kevin L. Baehler, Executive Vice President and Chief Financial Officer.


Conference Call Information


 


Toll-free number: 844-882-7832 / International number: 574-990-9706 / Conference ID: 7689336


Replay number: 855-859-2056 / International replay number: 404-537-3406 / Conference ID: 7689336


 


Interested parties can also participate on the webcast by visiting the Investor Relations section of School Specialty’s website at http://investors.schoolspecialty.com. For those who are unable to participate on the live conference call and webcast, a replay will be available approximately one hour after the completion of the call.






About School Specialty, Inc.


School Specialty is a leading provider of educational products and services to the Pre-K- 12th grade market in the U.S. and Canada. The company designs, manufactures and distributes a broad assortment of furniture & equipment, educational technology, general and specialty classroom supplies, facility supplies, safety and security products, and core and supplemental curriculum for science, math and English language arts. These include trusted national brands, as well as well-recognized proprietary brands, like Sax art products, Childcraft furniture and FOSS Science Curriculum. School Specialty also provides expert guidance, design services and professional development within the categories we support. At its core, School Specialty is a purpose-driven organization. Everything offered, from crayons to curriculum to complete learning environments, is designed to support educators, raise student outcomes and ultimately, transform more than classrooms.


 


School Specialty serves the U.S. and Canada through a comprehensive network of distribution centers powered by a multi-channel approach. For more information, visit  https://corporate.schoolspecialty.com/ or connect with us on Facebook, Twitter, Instagram, and Pinterest. Find ideas, resources and inspiration by visiting our blog: https://blog.schoolspecialty.com/.


Statement Concerning Forward-Looking Information


Any statements made in this press release about School Specialty’s future financial condition, results of operations, expectations, plans, or prospects the information regarding our Fiscal 2019 financial performance and business objectives outlook, constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," “projects,” “should,” "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 risk factors described in Item 1A of School Specialty’s Form 10-K for the fiscal year ended December 28, 2019, which risk factors are incorporated herein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.


 


Non-GAAP Financial Information


This press release includes references to Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA represents net income (loss) adjusted for: provision for (benefit from) income taxes; purchase accounting deferred revenue adjustments; restructuring costs; restructuring-related costs included in SG&A; impairment charges; depreciation and amortization expense; amortization of development costs; net interest expense; and stock-based compensation. Free Cash Flow represents Adjusted EBITDA adjusted for: capital expenditures; product development expenditures; proceeds from asset sales; unrealized foreign exchange gains and losses; other; changes in working capital; Cash Interest and Cash Taxes.


 


The Company considers Adjusted EBITDA a relevant supplemental measure of its financial performance and Free Cash Flow a relevant supplemental measure of liquidity. The Company believes these non-GAAP financial measures provide useful supplemental information for investors regarding trends and performance of our ongoing operations and is useful for year-over-year comparisons of such results. We also use these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals.


 


In summary, we believe that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to (i) evaluate our operating and financial performance and future prospects, (ii) compare financial results across accounting periods, (iii) better understand the long-term performance of our core business, (iv) evaluate trends in our business, (v) evaluate our ability to generate cash and improve liquidity, and (vi) assess the Company’s ability to fund both its operating activities and reinvestments into the business, as well as service its debt, including debt repayments, all consistent with how management evaluates such performance and trends.






Adjusted EBITDA and Free Cash Flow do not represent, and should not be considered, an alternative to net income or operating income, or an alternative to cashflow from operations, as determined by GAAP, and our calculation may not be comparable to similarly titled measures reported by other companies.


 


 


Company Contacts


Ryan Bohr, EVP and Chief Operating OfficerKevin Baehler, EVP and Chief Financial Officer 


Ryan.bohr@schoolspecialty.comKevin.baehler@schoolspecialty.com 


Tel: 920-882-5868Tel: 920-882-5882 


 


Investor and Media Relations Contact


Mark Barbalato – FTI Consulting


Mark.barbalato@fticonsulting.com


Tel: 212-850-5707






SCHOOL SPECIALTY, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(In Thousands, Except Share and Per Share Amounts)


 













































 


 


 


 


 


 


 


December 28, 2019


 


December 29, 2018


ASSETS


 


 


 


 


 


Current assets:


 


 


 


 


 


Cash and cash equivalents


 


$2,077


 


$1,030


 


Accounts receivable, less allowance for doubtful accounts


 


61,718


 


77,888


 


Inventories, net


 


71,424


 


90,061


 


Prepaid expenses and other current assets


 


17,956


 


 15,763


 


Refundable income taxes


 


431


 


1,019


 


 


Total current assets


 


153,606


 


185,761


Property, plant and equipment, net


 


27,429


 


 31,902


Operating lease right-of-use asset


 


14,768


 


–   


Goodwill


 


 


–   


 


4,580


Intangible assets, net


 


24,733


 


 33,306


Development costs and other


 


13,740


 


 14,807


Deferred taxes long-term


 


466


 


320


 


 


Total assets


 


$234,742


 


$270,676


 


 


 


 


 


 


 


 


 


 


LIABILITIES AND STOCKHOLDERS’ EQUITY


 


 


 


 


Current liabilities:


 


 


 


 


 


Current maturities – long-term debt


 


$145,194


 


$30,352


 


Current operating lease liability


 


4,886


 


–   


 


Accounts payable


 


24,011


 


 41,277


 


Accrued compensation


 


8,929


 


 7,302


 


Contract liabilities


 


7,006


 


 5,641


 


Accrued royalties


 


1,992


 


 2,678


 


Other accrued liabilities


 


13,439


 


11,379


 


 


Total current liabilities


 


205,457


 


98,629


Long-term debt – less current maturities


 


–  


 


103,583


Opearting lease liability


 


10,008


 



Other liabilities


 


493


 


1,101


 


 


Total liabilities


 


215,958


 


203,313


 


 


 


 


 


 


 


 


 


 


Stockholders’ equity:


 


 


 


 


 


Preferred stock, $0.001 par value per share, 500,000 


 


 


 


 


 


 


shares authorized; none outstanding


 


 


 


 


–   


 



 


Common stock, $0.001 par value per share, 50,000,000 shares authorized;


 


 


 


 


 


 


 


 


7,025,219  and 7,000,000 shares issued and outstanding, respectively 


 


 


7


 


7


 


Capital in excess of par value


 


125,793


 


125,072


 


Treasury stock, at cost 5,145; 0 and 0 shares, respectively 


 


 


(34)


 



 


Accumulated other comprehensive loss


 


(1,797)


 


 (2,079)


 


Accumulated deficit 


 


 


 


 


(105,185)


 


 (55,637)


 


 


Total stockholders’ equity


 


18,784


 


67,363


 


 


Total liabilities and stockholders’ equity


 


$234,742


 


$270,676







SCHOOL SPECIALTY, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(In Thousands, Except Per Share Amounts)


 















































 


 


 


 


 


For the Three Months Ended


 


For the Twelve Months Ended


 


 


 


 


 


December 28, 2019


 


December 29, 2018


 


December 28, 2019


 


December 29, 2018


 


 


 


 


 


 


 


 


 


 


 


 


Revenues


 


$ 91,020


 


$114,613


 


$626,073


 


$  673,452


Cost of revenues


 


61,471


 


78,467


 


418,475


 


444,937


 


Gross profit


 


29,549


 


36,146


 


207,598


 


228,515


Selling, general and administrative expenses


 


50,505


 


51,615


 


217,921


 


222,168


Impairment charge


 


–   


 


22,262


 


4,863


 


22,262


Facility exit costs and restructuring


 


391


 


1,314


 


2,681


 


2,463


Loss on asset sold


 


4,089


 


–   


 


4,089


 


  –   


 


Operating income (loss)


 


(25,436)


 


(39,045)


 


(21,956)


 


(18,378)


Other expense:


 


 


 


 


 


 


 


 


 


Interest expense


 


5,591


 


4,197


 


20,519


 


 15,548


 


Loss on early extinguishment of debt


 


 


 


8,032


 


–   


 


8,032


 


  –   


 


Change in fair value of derivatives


 


(1,238)


 


–   


 


82


 


   –   


Income (loss) before benefit from income taxes


 


(37,821)


 


(43,242)


 


(50,589)


 


(33,926)


Provision for (benefit from) income taxes


 


(1,240)


 


(4,605)


 


(1,041)


 


4,815


 


Net income (loss)


 


$ (36,581)


 


$  (38,637)


 


$  (49,548)


 


$  (38,741)


 


 


 


 


 


 


 


 


 


 


 


 


Weighted average shares outstanding:


 


 


 


 


 


 


 


 


 


Basic


 


7,025


 


7,000


 


7,016


 


7,000


 


Diluted


 


7,025


 


7,000


 


7,016


 


7,000


 


 


 


 


 


 


 


 


 


 


 


 


Net Loss per Share:


 


 


 


 


 


 


 


 


 


Basic


 


$ (5.21)


 


$  (5.52)


 


$ (7.06)


 


$  (5.53)


 


Diluted


 


$ (5.21)


 


$ (5.52)


 


$ (7.06)


 


$  (5.53)


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


December 28, 2019


 


December 29, 2018


 


December 28, 2019


 


December 29, 2018


 


Adjusted Earnings before interest, taxes, depreciation, 


 


 


 


 


 


 


 


 


 


 


 


 amortization, change in value of derivatives,  restructuring


 


 


 


 


 


 


 


 


 


 


 


 and impairment charges (EBITDA) reconciliation:


 


 


 


 


 


 


 


 


 


 


 


 Net income (loss)


 


 


 


$  (36,581)


 


$ (38,637)


 


$ (49,548)


 


$  (38,741)


 


 Provision for (benefit from) income taxes


 


 


 


(1,240)


 


(4,605)


 


(1,041)


 


4,815


 


 Purchase accounting deferred revenue adjustment


 


 


 


–   


 


17


 


–   


 


732


 


Loss on early extinguishment of debt 


 


 


 


8,032


 


–   


 


8,032


 


       –   


 


Loss on asset sold


 


 


 


4,089


 


–   


 


4,089


 


      –   


 


Impairment charge   


 


 


 


–   


 


22,262


 


4,863


 


 22,262


 


Restructuring costs   


 


 


 


391


 


1,314


 


2,681


 


2,463


 


Restructuring-related costs incl in SG&A  


 


 


 


5,085


 


456


 


12,468


 


2,458


 


Change in fair value of derivatives


 


 


 


(1,238)


 


–   


 


82


 


   –   


 


Depreciation and amortization expense


 


 


 


4,797


 


4,310


 


17,915


 


17,917


 


Amortization of development costs


 


 


 


994


 


1,412


 


4,465


 


5,602


 


Net interest expense


 


 


 


5,591


 


4,197


 


20,519


 


 15,548


 


Stock-based compensation


 


 


 


182


 


842


 


(589)


 


 2,020


 


Adjusted EBITDA


 


 


 


$ (9,898)


 


$ (8,432)


 


$  23,936


 


$ 35,076