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School Specialty Reports Second Quarter And Year-to-Date Results

Conference Call

School Specialty will host a conference call to discuss its fiscal 2011 second quarter financial results. The conference call begins today, November 18, 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.

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
         
  Three Months Ended Six Months Ended
  October 23, 2010 October 24, 2009 October 23, 2010 October 24, 2009
         
Revenues  $ 291,879  $ 346,146  $ 544,863  $ 676,513
Cost of revenues  174,357  203,041  319,269  390,617
Gross profit  117,522  143,105  225,594  285,896
Selling, general and administrative expenses  79,318  86,445  157,166  174,697
Impairment Charge  --  --  411,390  --
Operating income/(loss)  38,204  56,660  (342,962)  111,199
         
Other (income) expense:        
Interest expense  6,747  7,739  14,876  15,298
Interest income  --  --  --  (10)
Income/(Loss) before provision for income taxes  31,457  48,921  (357,838)  95,911
Provision for (benefit from) income taxes  13,222  19,324  (44,447)  37,885
income/(loss) before investment in        
 unconsolidated affiliate  $ 18,235  $ 29,597  $ (313,391)  $ 58,026
Equity in (losses) of unconsolidated        
affiliate  (135)  --   (135)  -- 
Net income/(loss)  $ 18,100  $ 29,597  $ (313,526)  $ 58,026
         
Weighted average shares outstanding:        
Basic  18,870  18,837  18,867  18,833
Diluted   18,873  18,911  18,867  18,892
         
Net Income Per Share:        
Basic  $ 0.96  $ 1.57  $ (16.62)  $ 3.08
Diluted  $ 0.96  $ 1.57  $ (16.62)  $ 3.07
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
  October 23, 2010 April 24, 2010 October 24, 2009
ASSETS (Unaudited)   (Unaudited)
Current assets:      
Cash and cash equivalents  $ 8,105  $ 21,035  $ 8,836
Accounts receivable  147,057  72,734  192,633
Inventories  75,190  99,910  109,784
Deferred catalog costs   7,997  13,593  5,843
Prepaid expenses and other current assets   16,099  14,318  13,651
Refundable income taxes   --  1,539  --
Deferred taxes  9,866  9,867  9,805
Total current assets  264,314  232,996  340,552
Property, plant and equipment, net   64,259  66,607  68,331
Goodwill   127,146  540,248  545,222
Intangible assets, net   160,852  166,552  170,154
Development costs and other   33,321  33,118  28,760
Investment in unconsolidated affiliate   28,080  28,299  --
Total assets   $ 677,972  $ 1,067,820  $ 1,153,019
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Current maturities - long-term debt  $ 849  $ 132,397  $ 129,663
Accounts payable  81,412  47,954  40,315
Accrued compensation  8,567  7,501  12,953
Deferred revenue  4,895  4,312  4,579
Accrued income taxes  29,103  --  21,380
Other accrued liabilities  33,567  30,905  38,788
Total current liabilities  158,393  223,069  247,678
Long-term debt - less current maturities  266,471  199,742  230,658
Deferred taxes  15,252  92,398  93,896
Other liabilities  1,423  1,423  913
Total liabilities  441,539  516,632  573,145
       
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; 24,280,097 and 24,265,678 shares issued, respectively  24  24  24
Capital paid-in excess of par value  437,943  436,959  436,923
Treasury stock, at cost 5,420,210; 5,420,210 and 5,420,210 shares, respectively  (186,637)  (186,637)  (186,637)
Accumulated other comprehensive income  21,839  24,052  20,599
Retained (deficit)/earnings  (36,736)  276,790  308,965
Total shareholders' equity  236,433  551,188  579,874
Total liabilities and shareholders' equity  $ 677,972  $ 1,067,820  $ 1,153,019
 
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
     
  Six Months Ended
  October 23, 2010 October 24, 2009
Cash flows from operating activities:    
Net income  $ (313,526)  $ 58,026
Adjustments to reconcile net income to net cash provided    
by operating activities:    
Depreciation and intangible asset amortization expense  13,869  13,196
Amortization of development costs  2,931  3,514
Amortization of debt fees and other  1,118  1,055
Share-based compensation expense  1,443  2,159
Impairment charge  411,390  --
Investment in unconsolidated affiliate  135  --
Deferred taxes  (77,606)  7,452
Loss (gain) on disposal of property, equipment and other  --  275
Non-cash convertible debt deferred financing costs  5,542  6,398
Changes in current assets and liabilities (net of assets     
acquired and liabilities assumed in business combinations):    
Accounts receivable  (74,064)  (86,610)
Inventories  24,718  17,653
Deferred catalog costs  5,596  9,694
Prepaid expenses and other current assets  (243)  3,967
Accounts payable  33,051  (17,190)
Accrued liabilities  33,248  25,189
Net cash provided by operating activities  67,602  44,778
     
Cash flows from investing activities:    
Cash paid in acquisitions, net of cash acquired  --  (11,700)
Additions to property, plant and equipment  (5,917)  (6,364)
Proceeds from disposal of discontinued operations  --  500
Investment in product development costs  (4,254)  (4,436)
Proceeds from disposal of property, plant and equipment  --  2,083
Net cash used in investing activities  (10,171)  (19,917)
     
Cash flows from financing activities:    
Proceeds from bank borrowings  449,400  283,700
Repayment of debt and capital leases  (386,761)  (301,433)
Redemption of convertible debt  (133,000)  --
Payment of debt and other  --  (238)
Proceeds from exercise of stock options  --  75
Net cash used in financing activities  (70,361)  (17,896)
     
Net (decrease)/increase in cash and cash equivalents  (12,930)  6,965
Cash and cash equivalents, beginning of period  21,035  1,871
Cash and cash equivalents, end of period  $ 8,105  $ 8,836
     
Free cash flow reconciliation:    
Net cash used in operating activities  $ 67,602  $ 44,778
Additions to property and equipment  (5,917)  (6,364)
Investment in development costs  (4,254)  (4,436)
Proceeds from disposal of property and equipment  --   2,083
Free cash flow  $ 57,431  $ 36,061
 
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
2nd Quarter, Fiscal 2011
(In thousands)
Unaudited
             
Segment Revenues and Gross Profit/Margin Analysis-QTD        
          % of Revenues
  2Q11-QTD 2Q10-QTD Change $ Change % 2Q11-QTD 2Q10-QTD
Revenues            
 Educational Resources  $ 187,693  $ 239,864  $ (52,171) -21.8% 64.3% 69.3%
 Accelerated Learning  104,019  106,610  (2,591) -2.4% 35.6% 30.8%
 Corporate and Interco Elims  167  (328)  495   0.1% -0.1%
 Total Revenues  $ 291,879  $ 346,146  $ (54,267) -15.7% 100.0% 100.0%
             
          % of Gross Profit
  2Q11-QTD 2Q10-QTD Change $ Change % 2Q11-QTD 2Q10-QTD
Gross Profit            
 Educational Resources  $ 58,740  $ 82,776  $ (24,036) -29.0% 50.0% 57.8%
 Accelerated Learning  57,903  59,693  (1,790) -3.0% 49.3% 41.7%
 Corporate and Interco Elims  879  636  243   0.7% 0.5%
 Total Gross Profit  $ 117,522  $ 143,105  $ (25,583) -17.9% 100.0% 100.0%
             
Segment Gross Margin Summary-QTD          
             
Gross Margin 2Q11-QTD 2Q10-QTD        
 Educational Resources 31.3% 34.5%        
 Accelerated Learning 55.7% 56.0%        
 Total Gross Margin 40.3% 41.3%        
 
 
             
Segment Revenues and Gross Profit/Margin Analysis-YTD        
          % of Revenue
  2Q11-YTD 2Q10-YTD Change $ Change % 2Q11-YTD 2Q10-YTD
Revenues            
 Educational Resources  $ 363,111  $ 464,807  $ (101,696) -21.9% 66.6% 68.7%
 Accelerated Learning  181,418  212,956  (31,538) -14.8% 33.3% 31.5%
 Corporate and Interco Elims  334  (1,250)  1,584   0.1% -0.2%
 Total Revenues  $ 544,863  $ 676,513  $ (131,650) -19.5% 100.0% 100.0%
             
          % of Gross Profit
  2Q11-YTD 2Q10-YTD Change $ Change % 2Q11-YTD 2Q10-YTD
Gross Profit            
 Educational Resources  $ 120,850  $ 165,492  $ (44,642) -27.0% 53.6% 57.9%
 Accelerated Learning  103,218  119,208  (15,990) -13.4% 45.8% 41.7%
 Corporate and Interco Elims  1,526  1,196  330   0.7% 0.4%
 Total Gross Profit  $ 225,594  $ 285,896  $ (60,302) -21.1% 100.1% 100.0%
             
Segment Gross Margin Summary-YTD          
             
Gross Margin 2Q11-YTD 2Q10-YTD        
 Educational Resources 33.3% 35.6%        
 Accelerated Learning 56.9% 56.0%        
 Total Gross Margin 41.4% 42.3%        
CONTACT:  School Specialty, Inc.
          David Vander Ploeg, Executive VP and CFO
            920-882-5854
          Mark Fleming, Communications & Investor Relations
            920-882-5646

School Specialty, Inc.

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