—  Fourth Quarter Consolidated organic revenue growth of 2 percent
— Educational Resources grows 2 percent; Accelerated Learning grows 4
percent
— Fiscal 2012 guidance issued


GREENVILLE, Wis., June 16, 2011 (GLOBE NEWSWIRE) — School Specialty (Nasdaq:SCHS) today reported fiscal fourth quarter and year-end results with revenue growth in both segments, despite continuing budget pressures facing pre-kindergarten through grade 12 educators. Revenue for the final quarter of School Specialty’s 2011 fiscal year grew 8.8 percent compared to last year’s fourth quarter, reaching $127.4 million. Excluding the additional week in this year’s fourth quarter, revenue was $119.3 million, an increase of 2 percent. Consistent with the seasonally slow fourth quarter, the company reported a fourth quarter loss of $22.6 million compared with a loss of $13.7 million in same period last year. The loss in the current-year fourth quarter includes pre-tax special charges related to an equity-method investment impairment of $6.9 million and a $1.9 million loss on exchange of debt. Excluding these special charges, the net loss for the fourth quarter was $17.2 million. Loss per share in the quarter was $1.20. Excluding special charges loss per share was $0.91 versus a prior-year loss of $0.73.


“We are cautiously optimistic with the business trends we saw in the fourth quarter,” said Chief Executive Officer David J. Vander Zanden. “With state income and sales tax revenues starting to exceed most states’ internal projections, we believe education budgets should stabilize and could lead to greater budget visibility and spending confidence on the part of educators for the remainder of the calendar year.


“During the fourth quarter we saw improvement in order volume both in supplies, which met our expectations, and furniture, which exceeded our expectations since that category has been the most impacted by reductions in spending and construction projects. Orders received subsequent to year end show loose furniture up 2 percent and supplies down 2 percent to prior year. Our margins in consumables continued to be impacted by pricing pressures. However, we expect this margin degradation to lessen as we proceed through the selling season and begin to grow as we implement new programs. Our fourth quarter furniture margins did show modest improvement from prior quarter levels, and we expect this improvement to continue through the heavy delivery season for furniture.


“Our Accelerated Learning Group reported revenue growth in the fourth quarter of about 4 percent after adjusting for the incremental week in fiscal 2011, led by our science, math and health categories. Science is building good momentum, with better prospects for state adoptions this year compared to the last selling season. We expect these trends to continue through the busy season.”


Fourth Quarter Financial Results

  —  Revenue for the fourth quarter of fiscal 2011 was $127.4 million, an
increase of 8.8 percent compared with $117.0 million in last year’s
fourth quarter. Excluding an incremental week in the fourth quarter of
fiscal 2011 (14 weeks) as compared to the fourth quarter of fiscal 2010
(13 weeks), revenue increased by 2 percent. The revenue increase
reflects growth across both company segments.
— Gross profit was $49.0 million compared with $50.8 million in last
year’s fourth quarter. Consolidated gross margin declined 490 basis
points to 38.5 percent, primarily due to one-time credits realized in
fiscal 2010 and pricing discounts required in consumables and furniture.
The company expects the rate of decline to lessen substantially over the
next several quarters. In addition, product mix within the Accelerated
Learning segment contributed to the decline, and is also expected to
improve.
— As expected, selling, general and administrative expenses increased to
$71.2 million from the prior year’s $64.7 million, primarily due to the
additional week in the current-year fourth quarter, higher volumes, and
increased transportation and marketing costs in Educational Resources.
— A non-cash charge of $6.9 million was recorded in the fourth quarter of
fiscal 2011 related to an impairment of the company’s 35 percent
ownership interest in an unconsolidated affiliate. Macro-economic
conditions affecting school spending levels have impacted the results of
this investment which led to a decreased valuation.
— Fourth quarter net interest expense was $6.9 million, a decrease of $0.8
million from last year’s fourth quarter due to a reduction in non-cash
interest related to convertible debt.
— During the quarter $100 million of outstanding 3.75% convertible
subordinated debentures was exchanged and refinanced with new
debentures. Expenses of $1.9 million associated with this convertible
debt exchange were recognized in the current-year’s fourth quarter.
— Net loss in the fourth quarter was $22.6 million ($1.20 per share)
compared to a loss of $13.7 million ($0.73 per share) in the same period
last year. Excluding the special charges described above, net loss in
fiscal 2011’s fourth quarter was $17.2 million ($0.91 per share).


Fiscal 2011 Financial Results

  —  Revenue for fiscal 2011 was $762.1 million compared with $896.7 million
last year, a decline of 15.0 percent. Excluding $17.5 million of revenue
in fiscal 2010 from School Specialty Publishing, which was sold prior to
last year’s third quarter, consolidated revenue declined 13.3 percent.
The decline in revenue was due to K-12 education budget pressures
resulting in reduced spending by schools, a significant decline in
furniture sales as a result of fewer construction projects, and various
performance challenges within the Educational Resources segment.
— Gross profit for the year was $307.5 million compared with $379.1
million last year. Gross margin declined 190 basis points to 40.4
percent versus last year’s 42.3 percent. Most of the reduction was due
to competitive pricing pressures within the Educational Resources
segment.
— Selling, general and administrative expenses declined to $287.6 million
(37.7 percent of revenue), from the prior year’s $304.5 million (34.0
percent of revenue). The expense decrease is primarily attributable to
lower revenue, general cost reductions, operational consolidations and a
divestiture.
— Non-cash impairment charges totaling $418.3 million, or $349.1 million
net of tax, were recorded in fiscal 2011 associated with impairment of
goodwill and other indefinite-lived intangible assets, and the charge
associated with the decreased valuation of the company’s ownership
interest in its unconsolidated affiliate. The tax benefit associated
with the impairment was negatively impacted by the portion of the
goodwill that is non-deductible for tax purposes.
— Full-year net interest expense decreased $2.3 million to $28.2 million
from last year’s $30.5 million. This decrease was attributable to the
reduction in non-cash interest expense primarily due to the retirement
of $133.0 million of convertible debt early in the company’s second
quarter.
— Earnings before interest, taxes, depreciation and amortization
(“EBITDA”), was $53.1 million in fiscal 2011 as compared to $106.6
million in fiscal 2010. The decrease is related to a combination of the
revenue declines and the reduction in gross margin.
— Fiscal 2011’s net loss was $356.3 million ($18.88 per share), including
the non-cash impairment and debt exchange charges, compared to net
income of $25.9 million ($1.37 per diluted share) in the same period
last year. Excluding the net of tax impact of all special charges, net
loss was $5.9 million ($0.31 per share).
— Free cash flow for fiscal 2011 was $35.2 million. Free cash flow was
impacted by the company’s increased inventory investments of nearly $11
million over earlier plans due to early buying opportunities and
business growth.


Outlook


For fiscal 2012, School Specialty is expecting:

  —  Revenue to be in the range of $755 million to $780 million, representing
flat to positive 3.5 percent growth, on a normalized 52-week comparison.
— EBITDA to be in the range of $53 million to $59 million, representing
margins of 7.0 percent to 7.5 percent.
— Loss per share to be in the range of $0.35 per share to $0.10 per share.
This range reflects a charge of $0.25 per share for non-cash interest
related to the convertible debt.
— Free cash flow to be in the range of $5 million to $15 million, which
includes one-time deferred tax payments of approximately $30 million.


Conference Call


School Specialty will host a conference call to discuss its fiscal 2011 financial results. The conference call begins today, June 16, 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.

                        -Financial Tables Follow-

                                    SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited

Three Months Ended Fiscal Year Ended
———————— ————————

April 30, April 24, April 30, April 24,
2011 2010 2011 2010
———– ———– ———— ———-

Revenues $ 127,355 $ 117,039 $ 762,078 $ 896,678

Cost of revenues 78,378 66,205 454,557 517,530
———– ———– ———— ———-
Gross profit 48,977 50,834 307,521 379,148
Selling, general and administrative
expenses 71,225 64,745 287,560 304,451
Impairment of goodwill and intangible
assets — — 411,390 —
———– ———– ———— ———-
Operating income (loss) (22,248) (13,911) (391,429) 74,697

Other (income) expense:
Interest expense 6,916 7,705 28,157 30,532
Interest income — (33) — (66)
Impairment of equity-method
investment 6,861 — 6,861 —

Loss on convertible debt exchange 1,920 — 1,920 —
———– ———– ———— ———-
Income (loss) before provision for
income taxes (37,945) (21,583) (428,367) 44,231
Provision for (benefit from) income
taxes (15,299) (8,320) (73,132) 17,678
———– ———– ———— ———-
Income (loss) before investment in
unconsolidated affiliate $ (22,646) $ (13,263) $ (355,235) $ 26,553
———– ———– ———— ———-
Equity in (losses) earnings of
unconsolidated affiliate 47 (460) (1,038) (701)
———– ———– ———— ———-

Net income (loss) $ (22,599) $ (13,723) $ (356,273) $ 25,852
=========== =========== ============ ==========

Weighted average shares outstanding:
Basic 18,868 18,859 18,870 18,843
Diluted 18,868 18,859 18,870 18,874

Net Income (Loss) Per Share:
Basic $ (1.20) $ (0.73) $ (18.88) $ 1.37
Diluted $ (1.20) $ (0.73) $ (18.88) $ 1.37

Earnings before interest, taxes,
depreciation, amortization and
impairment charges (EBITDA)
reconciliation:
Net income (loss) $ (22,599) $ (13,723) $ (356,273) $ 25,852
Equity in (losses) earnings of
unconsolidated affiliate (47) 460 1,038 701
Provision for income taxes (15,299) (8,320) (73,132) 17,678
Loss on convertible debt exchange 1,920 — 1,920 —
Impairment of equity-method
investment 6,861 — 6,861 —
Impairment of goodwill and intangible
assets — — 411,390 —
Depreciation and amortization expense 7,090 6,964 27,832 26,847
Amortization of development costs 1,496 875 5,334 5,067

Net interest expense 6,916 7,672 28,157 30,466
———– ———– ———— ———-

EBITDA $ (13,662) $ (6,072) $ 53,127 $ 106,611
=========== =========== ============ ==========


SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)

April 30, April 24,
2011 2010
———– ————
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 9,821 $ 21,035
Accounts receivable, net 67,442 72,734
Inventories, net 111,266 99,910
Deferred catalog costs 16,639 13,593
Prepaid expenses and other
current assets 14,516 14,318
Refundable income taxes — 1,539

Deferred taxes — 9,867
———– ————
Total current assets 219,684 232,996
Property, plant and
equipment, net 65,571 66,607
Goodwill 129,390 540,248
Intangible assets, net 155,889 166,552
Other 36,383 33,118
Deferred taxes – long-term 9,676 —
Investment in unconsolidated
affiliate 20,400 28,299
———– ————

Total assets $ 636,993 $ 1,067,820
=========== ============

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities –
long-term debt $ 95,207 $ 132,397
Accounts payable 85,639 47,954
Accrued income taxes 14,089 —
Accrued compensation 7,972 7,501
Deferred revenue 3,600 4,312
Deferred taxes 1,973 —

Other accrued liabilities 25,428 30,905
———– ————
Total current liabilities 233,908 223,069
Long-term debt – less current
maturities 201,073 199,742
Deferred taxes and other — 92,398

Other liabilities 383 1,423
———– ————

Total liabilities 435,364 516,632
———– ————

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 and 24,280,097
shares issued, respectively 24 24
Capital paid-in excess of
par value 441,335 436,959
Treasury stock, at cost –
5,420,210 and 5,420,210
shares, respectively (186,637) (186,637)
Accumulated other
comprehensive income 26,390 24,052
Retained earnings
(accumulated deficit) (79,483) 276,790
———– ————

Total shareholders’ equity 201,629 551,188
———– ————
Total liabilities and
shareholders’ equity $ 636,993 $ 1,067,820
=========== ============

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited

Fiscal Year Ended
————————

April 30, April 24,
2011 2010
———— ———-
Cash flows from operating activities:
Net income (loss) $ (356,273) $ 25,852
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and intangible asset
amortization expense 27,832 26,847
Amortization of development costs 5,334 5,067
Investment in unconsolidated affiliate 1,038 701
Amortization of debt fees and other 2,162 2,420
Share-based compensation expense 2,846 2,448
Impairment of goodwill and intangible
assets 411,390 —
Impairment of equity-method investment 6,861 —
Loss on convertible debt exchange 1,920 —
Deferred taxes (92,090) 5,981
Loss on disposal of property, equipment
and other — 652
Non-cash convertible debt deferred
financing costs 9,999 13,062
Changes in current assets and
liabilities (net of assets acquired and
liabilities assumed in business
combinations):
Accounts receivable 5,783 29,008
Inventories (11,297) 13,586
Deferred catalog costs (3,046) 1,944
Prepaid expenses and other current
assets 1,347 1,417
Accounts payable 38,430 (9,267)

Accrued liabilities 7,774 (7,659)
———— ———-
Net cash provided by operating
activities 60,010 112,059
———— ———-

Cash flows from investing activities:
Cash paid in acquisitions, net of cash
acquired (360) (11,700)
Additions to property, plant and
equipment (15,789) (13,832)
Acquisition of intangible and other
assets — (1,800)
Proceeds from note receivable — 700
Investment in product development costs (9,052) (10,035)
Proceeds from disposal of property, plant
and equipment — 2,083

Investment in Noncontrolling Interest — (2,226)
———— ———-

Net cash used in investing activities (25,201) (36,810)
———— ———-

Cash flows from financing activities:
Proceeds from bank borrowings 810,600 304,400
Repayment of debt and capital leases (720,068) (356,979)
Redemption of Convertible Debt (133,000) —
Proceeds from exercise of stock options — 117

Payment of debt fees and other (3,555) (3,623)
———— ———-

Net cash used in financing activities (46,023) (56,085)
———— ———-

Net increase in cash and cash equivalents (11,214) 19,164
Cash and cash equivalents, beginning of
period 21,035 1,871
———— ———-

Cash and cash equivalents, end of period $ 9,821 $ 21,035
============ ==========

Free cash flow reconciliation:
Net cash provided by operating activities $ 60,010 $ 112,059
Additions to property and equipment (15,789) (13,832)
Investment in development costs (9,052) (10,035)
Proceeds from disposal of property and
equipment — 2,083
———— ———-

Free cash flow $ 35,169 $ 90,275
============ ==========

School Specialty, Inc.
Segment Analysis – Revenues and Gross Profit/Margin Analysis
4th Quarter, Fiscal 2011
(In thousands)
Unaudited

Segment Revenues and Gross Profit/Margin
Analysis-QTD
————————————————–

% of Revenues
——————

Change
4Q11-QTD 4Q10-QTD Change $ % 4Q11-QTD 4Q10-QTD
———- ———- ———— —— ——– ——–
Revenues
Educational Resources $ 101,906 $ 94,258 $ 7,648 8.1% 80.0% 80.5%
Accelerated Learning 25,282 22,584 2,698 11.9% 19.9% 19.3%
Corporate and Interco
Elims 167 197 (30) 0.1% 0.2%
———- ———- ———— ——– ——–

Total Revenues $ 127,355 $ 117,039 $ 10,316 100.0% 100.0%
========== ========== ============ 8.8% ======== ========

% of Gross Profit
——————

Change
4Q11-QTD 4Q10-QTD Change $ % 4Q11-QTD 4Q10-QTD
———- ———- ———— —— ——– ——–
Gross Profit
Educational Resources $ 36,333 $ 37,476 $ (1,143) -3.0% 74.2% 73.7%
Accelerated Learning 12,383 12,498 (115) -0.9% 25.3% 24.6%
Corporate and Interco
Elims 261 860 (599) 0.5% 1.7%
———- ———- ———— ——– ——–

Total Gross Profit $ 48,977 $ 50,834 $ (1,857) 100.0% 100.0%
========== ========== ============ -3.7% ======== ========

Segment Gross Margin Summary-QTD
————————————–

Gross Margin 4Q11-QTD 4Q10-QTD
———- ———-
Educational Resources 35.7% 39.8%
Accelerated Learning 49.0% 55.3%
Total Gross Margin 38.5% 43.4%

——————————————————————————————–

——————————————————————————————–

Segment Revenues and Gross Profit/Margin
Analysis-YTD
————————————————–

% of Revenue
——————

Change
4Q11-YTD 4Q10-YTD Change $ % 4Q11-YTD 4Q10-YTD
———- ———- ———— —— ——– ——–
Revenues
Educational Resources $ 534,803 $ 641,048 $ (106,245) -16.6% 70.2% 71.5%
Accelerated Learning 226,607 256,157 (29,550) -11.5% 29.7% 28.6%
Corporate and Interco
Elims 668 (527) 1,195 0.1% -0.1%
———- ———- ———— ——– ——–

Total Revenues $ 762,078 $ 896,678 $ (134,600) 100.0% 100.0%
========== ========== ============ -15.0% ======== ========

% of Gross Profit
——————

Change
4Q11-YTD 4Q10-YTD Change $ % 4Q11-YTD 4Q10-YTD
———- ———- ———— —— ——– ——–
Gross Profit
Educational Resources $ 179,379 $ 233,011 $ (53,632) -23.0% 58.4% 61.5%
Accelerated Learning 125,868 143,442 (17,574) -12.3% 40.9% 37.8%
Corporate and Interco
Elims 2,274 2,695 (421) 0.7% 0.7%
———- ———- ———— ——– ——–

Total Gross Profit $ 307,521 $ 379,148 $ (71,627) 100.0% 100.0%
========== ========== ============ -18.9% ======== ========

Segment Gross Margin Summary-YTD
————————————–

Gross Margin 4Q11-YTD 4Q10-YTD
———- ———-
Educational Resources 33.5% 36.3%
Accelerated Learning 55.5% 56.0%
Total Gross Margin 40.4% 42.3%


This news release was distributed by GlobeNewswire, www.globenewswire.com


SOURCE: School Specialty, Inc.


CONTACT:


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