Supplier for school preK-12. Founded at 1959. 1996 acquired by U.S. Office Product. 1998 spin off from U.S. Office Product.
Accelerated Learning Group: Publish preK-12 curriculum, agenda etc. 30% of revenue. Gross margin 55%.Educational Resources: Classroom and office supplies, learning materials: 45%, furnitures: 25%. Gross margin 35%.
2.Price, Book value, Share outstanding, Market Cap.
Current price: 13.37. Book value: -$4.50. Shares: 18.9m. Market Cap: $250m.
3.Current ratio. Debt/Current Asset ratio. Debt maturity and interest. Inventory level. Cash level.
Current ratio: 1.7. Debt: $267m. Current asset: $264m. Inventory: $75m. Cash: $8m
Convertible Notes:
$200m 3.75% convertible notes due 2026. However, redeemable at Nov 30, 2011, 2016, 2021. It is likely that all or some of them will be redeemed this year.
Convertible Notes:
$200m 3.75% convertible notes due 2026. However, redeemable at Nov 30, 2011, 2016, 2021. It is likely that all or some of them will be redeemed this year.
Line of credit:
$350m credit + $200 term loan. Interest: Eurodollar +3.75%, Currently $67 on balance.
Financial covenants:
1. Total Leverage Ratio < 4.5:1
2. Senior Secured Leverage Ratio < 3.5:1
3. Interest coverage ratio > 3.5:1
4. Capital expenditure < $25m + $5m( unused in prior one year)
4.Revenue, Earning, Deficit check. FCF, Dividend history, Dividend policy, Revenue/Price ratio.
2Q2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Ave
Revenue 545 897 1047 1088 1043 977 1003 908 870 767 692
Income 32.4 25.8 27.1 34.3 9.9 (2.3) 43 40.8 39.6 21.8 12.1
EPS 1.74 1.37 1.44 1.66 0.44 (0.10) 1.88 1.94 1.94 1.17 0.68 1.24
Revenue 545 897 1047 1088 1043 977 1003 908 870 767 692
Income 32.4 25.8 27.1 34.3 9.9 (2.3) 43 40.8 39.6 21.8 12.1
EPS 1.74 1.37 1.44 1.66 0.44 (0.10) 1.88 1.94 1.94 1.17 0.68 1.24
FCF* 57.5 88.7 53.7 76.8 63.8 51.5 23.1 65.1 51.4 77 80.1 >60
AC** 0 13.5 0 5.8 0 276 20.9 89.2 55.8 162 113 >70
Equity -85 -188 -199 -15
Debt 267 332 417 190
AC** 0 13.5 0 5.8 0 276 20.9 89.2 55.8 162 113 >70
Equity -85 -188 -199 -15
Debt 267 332 417 190
shares 18.9 18.9 22.9 17.5
*exclude acquisitions
*exclude acquisitions
** Acquisitions.
From year 2001 to year 2006, total FCF $348m for 6 years. total acquisition cost $717m. Debt from $162m(2000) to $417m, increased by $255m. Share increased by 5m( maybe include 2-3m options)
From year 2006 to year 2010, debt decreased by $85m, share repurchase from 2007 to 2010 are $186m.
No dividends.
From year 2001 to year 2006, total FCF $348m for 6 years. total acquisition cost $717m. Debt from $162m(2000) to $417m, increased by $255m. Share increased by 5m( maybe include 2-3m options)
From year 2006 to year 2010, debt decreased by $85m, share repurchase from 2007 to 2010 are $186m.
No dividends.
5.SG&A, R&D expense. Cost structure.
According to Q2 2011 conference. 2/3 of SG&A are fixed and 1/3 are variable. .
6.Insider holding. Management compensation. Options.
David Vander Zanden(CEO): 371k(include 271k options exercisable)
Jonathan Ledeky(None Exec. Director): 542k.
Jonathan Ledeky(None Exec. Director): 542k.
Compensation:
2010 - 2008: $5.6m, $4.3m, $6.4m
David: $2.0m, $1.8m, $2.6m. However, only $670k cash in salary, rest are stocks and options.
David: 400k options , lowest price $20.
Total options outstanding: $1.6m, ave price $31.
It has a special term that CEO's stock holding should be at least 4 times of his annual salary. Which means his current cash salary should be no more than 371k*$13.37/4=$1.2m.
2010 - 2008: $5.6m, $4.3m, $6.4m
David: $2.0m, $1.8m, $2.6m. However, only $670k cash in salary, rest are stocks and options.
David: 400k options , lowest price $20.
Total options outstanding: $1.6m, ave price $31.
It has a special term that CEO's stock holding should be at least 4 times of his annual salary. Which means his current cash salary should be no more than 371k*$13.37/4=$1.2m.
7. Insider trading info, stock buy back.
No shares bought back in 2010. From 2007 to 2009 bought back 5.4m shares at $186m. Ave Price: $34.4. 2011 still have $34.7m room available for buy back.
No shares bought back in 2010. From 2007 to 2009 bought back 5.4m shares at $186m. Ave Price: $34.4. 2011 still have $34.7m room available for buy back.
10.Employee numbers. Revenue/Employee. Compensation/Employee.
at June 2010: 2007. Ave $450k revenue per employee.
at June 2010: 2007. Ave $450k revenue per employee.
11.Industry comparison.
Major competitors in the same industry. Whether the business is competitive?
12.Major events.
Many big acquisitions from 2001 to 2006. Sales are higher while FCF stay the same. $276m one in 2006 seems a very bad one.
13.Concerns.
1. From Q2 2011 report, it might not comply with the financial covenant. "The Company may need to work with its lenders to secure a waiver or amend such ratios in the near future." Overall, I feel they could get a new one if they can't meet the covenant.
2. The insider holding is low. However, there is special term of stocks must be 4 times of CEO salary term and the options CEO got, it likely will be share buy back than dividend in the future.3. No tangible book value and no dividend.
4. Many acquisitions during the past, However, after 2006, they seems switched to share buy back. The current credit facility limits capital expenditure, But DOES NOT limits acquisitions.
14.Other research.
Feb. 24, 2011
Q3 2011 data
1. Total Debt: $253m.
2. Line of credit changed
(1) $175m credit +$125m term loan. Interest: Eurodollar + 4.5%. $47.5m outstanding.
(2) Covenant:
<1> Total Leverage Ratio < 4.5:1, summer time of 2011 < 6:1.
<2> Senior Secured Leverage Ratio < 3.5:1, first half of 2012 < 3.75:1
<3> Interest coverage ratio > 3.0:1, 2011 to 2012 > 2.5:1, 2.75:1
<4> Capital expenditure < $25m + $5m( unused in prior one year)
<1> Annual interest around 4% will be accumulated in principal until 2026.
<2> Convertible at $22.62 per share. No more than 20% of current shares which should be 3.8m
<3> Holder can redeem at Nov. 2014, 2018, 2022. Company can redeem after May. 2014
Mar. 15, 2011
Bought at $14.29
July 7. 2011
1. CEO will retire 2012.
2. Another $57.5m of the convertible notes were refinanced to the 4% convertible notes mature at 2026. the rest $42.5m still there.
Jan. 18, 2013
Current price $0.63. Close to bankruptcy.
1. Asset based credit (ABL) :
Secured by current asset and second priority on long term assets. Mature at Sept. 2014, may be extend by one year if convertible note is refinanced. At Oct. 31, 2012, $55m outstanding. Interest 4.65%
2. Term loan credit:
Secured by long term assets and second priority of current assets. Mature at Sept. 2014, may be extend by one year if convertible note is refinanced. At Oct. 31, 2012, $67m outstanding. Interest 14.5%
3. Convertible Notes
Unsecured 3.75% mature at 2026, however, it can be recalled at Sept. 2014. Conversion price: $22.62 per share. Current balance $161m. Based on a Jan. 10, 2013 filing, Zazove Associates, LLC might hold $62m of them which could be converted to 2,743,591 shares.
At Dec. 31, 2012, it actually triggered default of ABL and Term loan. However, Jan. 04, 2013, it entered forbearance agreement with ABL and Term loan lender to extent the covenant break until Feb. 01, 2013.
Cash: $8.2m. Inventory: $85m. Receivable: $119m. Long term assets: $60m.
The company is profitable and from my view, it can survive the current forbearance. Then it will be likely have a refinance of its convertible notes some time this year or next year. The notes will transfer to major stack in equity and the current share holder will get minor stack. Currently it is hard to calc the share value until the deal is made.
Nov. 04, 2013
Actually the company goes to bankruptcy at end of Jan. and exit bankruptcy at June. Quite a story there. Mainly the battle between the ABL lender(Bayside) and the Convertible Notes holder.
1. At the end (by Oct. 30th), Bayside got all money back and plus $21m in early payment fee( originally it is $26m). While Convertible Notes holder got almost all of the equity in the new company. Although some of them didn't participate the post bankruptcy financing which got much less.
2. The only loser is the equity holder which got nothing in the new company. I think this is very unfair given the company not necessarily need to go bankrupt.
3. Both CEO and CFO step down and will be replaced by the new owner which is pretty much a normal thing to happen.
4. Currently the company is remain as private with one million shares.
Nov. 21, 2013
Ownership of 1m shares:
BulwarkBay Investment Group LLC : 65,226
J. GOLDMAN MASTER FUND, L.P. : 88,698
ZAZOVE ASSOCIATES, LLC :313,598
Scoggin Capital Management II LLC: 18,693
STEEL EXCEL INC.:75,593
Wolverine Flagship Fund Trading Limited : 74,489
Davis Selected Advisers, L.P. :71,383
Davis Appreciation & Income Fund: 69,205
BulwarkBay and J. GOLDMAN filed S-1 to sale their 402k share for $85 per share.
