School Specialty Reports Third Quarter And Nine-Month Results

Further details concerning the amendment will be contained in a Form 8-K to be filed by the company within the next few days with the Securities and Exchange Commission. 

Outlook

School Specialty is maintaining its prior guidance for fiscal 2011:

• Revenue of $735 million to $770 million,
• Loss per share of $0.30 to $0.60; which includes the non-cash charge of $0.32 related to convertible debt, but excludes the non-cash impairment of $18.28 per share, and
• Free cash flow of $50 million to $60 million.

Conference Call

School Specialty will host a conference call to discuss its fiscal 2011 third quarter financial results. The conference call begins today, February 17, 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		Nine Months Ended
	January 22, 2011	January 23, 2010	January 22, 2011	January 23, 2010
Revenues	$ 89,859	$ 103,126	$ 634,723	$ 779,639
Cost of revenues	56,910	60,708	376,179	451,325
Gross profit	32,949	42,418	258,544	328,314
Selling, general and administrative expenses	59,169	65,009	216,335	239,706
Impairment Charge	--	--	411,390	--
Operating income/(loss)	(26,220)	(22,591)	(369,181)	88,608
Other (income) expense:
Interest expense	6,365	7,527	21,241	22,827
Interest income	--	(22)	--	(33)
Income/(Loss) before provision for income taxes	(32,585)	(30,096)	(390,422)	65,814
Provision for (benefit from) income taxes	(13,385)	(11,886)	(57,832)	25,998
Income/(loss) before investment in unconsolidated affiliate	$ (19,200)	$ (18,210)	$ (332,590)	$ 39,816
Equity in (losses) of unconsolidated affiliate	(950)	(241)	(1,085)	(241)
Net income/(loss)	$ (20,150)	$ (18,451)	$ (333,675)	$ 39,575
Weighted average shares outstanding:
Basic	18,870	18,849	18,868	18,838
Diluted	18,870	18,849	18,868	18,901
Net Income Per Share:
Basic	$ (1.07)	$ (0.98)	$ (17.68)	$ 2.10
Diluted	$ (1.07)	$ (0.98)	$ (17.68)	$ 2.09

SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
Unaudited
	January 22, 2011	April 24, 2010	January 23, 2010
ASSETS
Current assets:
Cash and cash equivalents	$ 1,667	$ 21,035	$ 23,459
Accounts receivable	70,767	72,734	92,894
Inventories	80,747	99,910	89,844
Deferred catalog costs	16,597	13,593	10,619
Prepaid expenses and other current assets	13,329	14,318	11,267
Refundable income taxes	--	1,539	--
Deferred taxes	9,867	9,867	9,805
Total current assets	192,974	232,996	237,888
Property, plant and equipment, net	64,383	66,607	65,332
Goodwill	127,694	540,248	536,975
Intangible assets, net	158,205	166,552	167,449
Development costs and other	34,352	33,118	28,019
Investment in unconsolidated affiliate	27,215	28,299	29,046
Total assets	$ 604,823	$ 1,067,820	$ 1,064,709
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities - long-term debt	$ 193,375	$ 132,397	$ 131,013
Accounts payable	64,045	47,954	25,145
Accrued compensation	6,949	7,501	9,915
Deferred revenue	4,112	4,312	5,141
Accrued income taxes	19,204	--	7,837
Other accrued liabilities	26,266	30,905	32,872
Total current liabilities	313,951	223,069	211,923
Long-term debt - less current maturities	60,395	199,742	197,935
Deferred taxes	10,751	92,398	92,427
Other liabilities	1,423	1,423	913
Total liabilities	386,520	516,632	503,198
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 24,277,777 shares issued, respectively	24	24	24
Capital paid-in excess of par value	438,818	436,959	437,811
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	22,984	24,052	19,799
(Accumulated deficit)/Retained earnings	(56,886)	276,790	290,514
Total shareholders' equity	218,303	551,188	561,511
Total liabilities and shareholders' equity	$ 604,823	$ 1,067,820	$ 1,064,709

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
	Nine Months Ended
	January 22, 2011	January 23, 2010
Cash flows from operating activities:
Net income	$ (333,676)	$ 39,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangible asset amortization expense	20,742	19,882
Amortization of development costs	3,838	4,191
Amortization of debt fees and other	1,602	1,642
Share-based compensation expense	2,304	3,033
Impairment charge	411,390	--
Investment in unconsolidated affiliate	1,085	241
Deferred taxes	(82,094)	6,071
Loss (gain) on disposal of property, equipment and other	--	275
Non-cash convertible debt deferred financing costs	7,691	9,696
Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations):
Accounts receivable	2,332	8,773
Inventories	19,162	23,277
Deferred catalog costs	(3,004)	4,918
Prepaid expenses and other current assets	2,528	5,903
Accounts payable	15,883	(32,400)
Accrued liabilities	13,784	5,248
Net cash provided by operating activities	83,567	100,325
Cash flows from investing activities:
Cash paid in acquisitions, net of cash acquired	--	(11,700)
Additions to property, plant and equipment	(10,220)	(8,494)
Proceeds from disposal of discontinued operations	--	800
Investment in product development costs	(6,655)	(6,679)
Proceeds from disposal of property, plant and equipment	--	2,083
Investment in Noncontrolling Interest	--	(2,226)
Net cash used in investing activities	(16,875)	(26,216)
Cash flows from financing activities:
Proceeds from bank borrowings	632,600	304,400
Repayment of debt and capital leases	(585,660)	(356,803)
Redemption of convertible debt	(133,000)	--
Payment of debt and other	--	(238)
Proceeds from exercise of stock options	--	120
Net cash used in financing activities	(86,060)	(52,521)
Net (decrease)/increase in cash and cash equivalents	(19,368)	21,588
Cash and cash equivalents, beginning of period	21,035	1,871
Cash and cash equivalents, end of period	$ 1,667	$ 23,459
Free cash flow reconciliation:
Net cash used in operating activities	$ 83,567	$ 100,325
Additions to property and equipment	(10,220)	(8,494)
Investment in development costs	(6,655)	(6,679)
Proceeds from disposal of property and equipment	--	2,083
Free cash flow	$ 66,692	$ 87,235

School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
3rd Quarter, Fiscal 2011
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
					% of Revenues
	3Q11-QTD	3Q10-QTD	Change $	Change %	3Q11-QTD	3Q10-QTD
Revenues
Educational Resources	$ 69,785	$ 81,984	$ (12,199)	-14.9%	77.7%	79.5%
Accelerated Learning	19,907	21,007	(1,100)	-5.2%	22.2%	20.4%
Corporate and Interco Elims	167	135	32		0.1%	0.1%
Total Revenues	$ 89,859	$ 103,126	$ (13,267)	-12.9%	100.0%	100.0%
					% of Gross Profit
	3Q11-QTD	3Q10-QTD	Change $	Change %	3Q11-QTD	3Q10-QTD
Gross Profit
Educational Resources	$ 22,196	$ 30,044	$ (7,848)	-26.1%	67.4%	70.8%
Accelerated Learning	10,267	11,884	(1,617)	-13.6%	31.2%	28.0%
Corporate and Interco Elims	486	490	(4)		1.4%	1.2%
Total Gross Profit	$ 32,949	$ 42,418	$ (9,469)	-22.3%	100.0%	100.0%
Segment Gross Margin Summary-QTD
Gross Margin	3Q11-QTD	3Q10-QTD
Educational Resources	31.8%	36.6%
Accelerated Learning	51.6%	56.6%
Total Gross Margin	36.7%	41.1%
Segment Revenues and Gross Profit/Margin Analysis-YTD
					% of Revenue
	3Q11-YTD	3Q10-YTD	Change $	Change %	3Q11-YTD	3Q10-YTD
Revenues
Educational Resources	$ 432,897	$ 546,791	$ (113,894)	-20.8%	68.2%	70.1%
Accelerated Learning	201,325	233,573	(32,248)	-13.8%	31.7%	30.0%
Corporate and Interco Elims	501	(725)	1,226		0.1%	-0.1%
Total Revenues	$ 634,723	$ 779,639	$ (144,916)	-18.6%	100.0%	100.0%
					% of Gross Profit
	3Q11-YTD	3Q10-YTD	Change $	Change %	3Q11-YTD	3Q10-YTD
Gross Profit
Educational Resources	$ 143,046	$ 195,536	$ (52,490)	-26.8%	55.3%	59.6%
Accelerated Learning	113,485	130,944	(17,459)	-13.3%	43.9%	39.9%
Corporate and Interco Elims	2,013	1,834	179		0.8%	0.5%
Total Gross Profit	$ 258,544	$ 328,314	$ (69,770)	-21.3%	100.0%	100.0%
Segment Gross Margin Summary-YTD
Gross Margin	3Q11-YTD	3Q10-YTD
Educational Resources	33.0%	35.8%
Accelerated Learning	56.4%	56.1%
Total Gross Margin	40.7%	42.1%

CONTACT: David Vander Ploeg
         Executive VP and CFO
         920-882-5854
         
         Mark Fleming
         Investor Relations & Corp. Communications
         920-882-5646

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