School Specialty (SCOO) 8-K School Specialty Reports Record Fiscal 2004 First Quarter Results

Exhibit 99.1

SCHOOL SPECIALTY, INC.

W6316 Design Drive

Greenville, WI 54942

David Vander Zanden	Mary Kabacinski
President & CEO	Executive VP & CFO
(920) 882-5602	(920) 882-5852

FOR IMMEDIATE RELEASE

TUESDAY, AUGUST 12, 2003

SCHOOL SPECIALTY REPORTS RECORD FISCAL 2004 FIRST QUARTER RESULTS

NET INCOME UP 13 PERCENT

Highlights

•      Operating margin expands by 100 basis points to 16 percent

•      Diluted EPS grows 12 percent to $1.21

•      Sale of $133 million convertible subordinated notes completed

•      Fiscal 2004 revenue and earnings guidance confirmed

Greenville, WI, August 12, 2003—School Specialty, Inc. (NASDAQ:SCHS), the largest direct marketer of supplemental educational products to schools and teachers for pre-kindergarten through twelfth grade, today reported record first quarter fiscal 2004 financial results. Revenues were $304.4 million, an increase of 2.1% over fiscal 2003’s first quarter and net income increased 13.3 percent from $24.0 million to $27.1 million.

Record First Quarter Financial Performance

Revenues for the first quarter of fiscal 2004 rose 2.1 percent to $304.4 million from $298.0 million in the first quarter last year. The growth in revenues is primarily attributable to acquired businesses, offset by a modest decline in revenues in the traditional segment. Gross margin expanded 20 basis points to 42.0 percent of revenues from 41.8 percent of revenues. The gross margin expansion is primarily related to a higher percentage of proprietary products in the product mix, partially offset by a decline in traditional segment gross margin reflecting the current competitive pricing environment, primarily in the bid and furniture portions of the traditional business.

Operating income for the quarter increased 9.2 percent to $49.1 million from $44.9 million. Selling, general and administrative expenses (SG&A), as a percent of revenues, decreased 80 basis points from 26.7 percent to 25.9 percent. The reduction in SG&A resulted from successful off-season integration efforts and a reduction in selling expenses, partially offset by expenses associated with new initiatives and acquired operations. Earnings before interest and other, taxes, depreciation and amortization (EBITDA) grew 9.9 percent from $48.6 million to $53.4 million. As a percent of revenues, EBITDA expanded by 120 basis points.

“We are very satisfied with our first quarter results,” said Dave Vander Zanden, President and Chief Executive Officer. “The current economic and funding environment in certain states has resulted in some margin pressure, primarily on bid business and the traditional business’s furniture lines. Additionally, the partial installation of our new enterprise system and the related training has extended our shipping cycle 2 to 3 days in the first quarter. As a result, we are entering our second quarter with a higher level of open orders than last year. Our associates continue to effectively manage this environment, and I am very pleased with the results of our efforts.”

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School Specialty, Inc.

Add 1

Sale of Convertible Subordinated Notes

During the quarter, we sold $110 million of convertible subordinated notes due 2023. The notes, which provide for a contingent conversion feature, carry an annual cash interest rate of 3.75 percent and, depending on the market price of the notes, could be subject to an upward adjustment commencing August 1, 2008. After the end of fiscal 2004’s first quarter, the underwriters exercised their over-allotment option, and we sold an additional $23 million of the notes, for total proceeds from the offering of $133 million. “We used the proceeds of the convertible subordinated debt offering to repay a portion of our floating rate bank debt,” said Mary Kabacinski, Executive Vice President and Chief Financial Officer. “We believe the offering strengthens our position in today’s uncertain interest rate environment and increases our financing flexibility as we pursue selective, accretive acquisition opportunities.”

Outlook

“We are pleased to confirm our fiscal 2004 guidance of revenues of $910 – $930 million, and diluted EPS of $2.18 – $2.28,” said Dave Vander Zanden. “Based on our current backlog, our assessment of anticipated order flow and gross margin analysis, we expect revenues for the August through October quarter to be up 5 to 7 percent and EPS to be up 4 to 5 percent for the same period.”

Internet Conference Call

Investors have the opportunity to listen to School Specialty’s fiscal 2004 first quarter conference call live over the Internet through Vcall atwww.vcall.com. The conference call begins today at 10:00 am Central Time. To listen, go to the Vcall website at least 15 minutes before the start of the call to register, download and install any necessary audio software. A replay will be available shortly after the call is completed and for the week that follows. A transcript will be available within two days of the call. The conference call will also be accessible through the General Investor Information Overview and Press Release pages of the School Specialty corporate web site atwww.schoolspecialty.com.

About School Specialty, Inc.

School Specialty, Inc., the “Educator’s Marketplace,” is the largest direct marketer of supplemental educational products to schools and teachers for pre-kindergarten through twelfth grade in the United States. School Specialty offers over 80,000 different products to more than 118,000 schools throughout the United States and Canada. The company mails over 40 million catalogs annually to customers, and serves its customers through approximately 2,500 employees, including over 500 salespeople. School Specialty has a unique approach to the market. The School Specialty brand focuses on serving administrators and procurement specialists through a national sales force. The company’s nine specialty brands—ClassroomDirect, Childcraft, abc School Supply, Sax Arts and Crafts, Frey Scientific, Brodhead Garrett, Teacher’s Video, Premier Agendas and Sportime—serve teachers and curriculum specialists with proprietary product offerings. For more information, visitwww.schoolspecialty.com.

Safe Harbor Statement

Statements in this release that are not strictly historical are “forward-looking,” including statements regarding future outlook and financial performance. Our actual results could differ materially from those anticipated in these forward-looking statements depending on various important factors. These important factors include those set forth in exhibit 99.4 of School Specialty’s Annual Report on Form 10-K for fiscal year 2003 and other documents filed with the Securities and Exchange Commission.

-Financial Tables Follow-

-More-

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School Specialty, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

Unaudited

	Three Months Ended
	July 26,		July 27,
	2003		2002
Revenues	$	304,430	$	298,027
Cost of revenues		176,501		173,536
Gross profit		127,929		124,491
Selling, general and administrative expenses		78,871		79,553
Operating income		49,058		44,938
Interest expense and other		4,599		4,979
Income before provision for income taxes		44,459		39,959
Provision for income taxes		17,317		16,003
Net income	$	27,142	$	23,956
Weighted average shares outstanding:
Basic		18,611		18,158
Diluted		23,744		23,433
Net income per share:
Basic	$	1.46	$	1.32
Diluted	$	1.21	$	1.08
Earnings before interest and other, taxes, depreciation and amortization (EBITDA) reconciliation:
Net income	$	27,142	$	23,956
Provision for income taxes		17,317		16,003
Interest expense and other		4,599		4,979
Depreciation and amortization expense		4,335		3,627
EBITDA	$	53,393	$	48,565

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School Specialty, Inc. Consolidated Condensed Balance Sheets (In thousands)
	July 26, 2003		April 26, 2003		July 27 2002,
	(Unaudited)				(Unaudited)
Assets
Cash and cash equivalents	$	4,789	$	2,389	$	5,026
Accounts receivable		183,771		48,533		174,744
Inventories		135,223		109,419		106,439
Prepaid expenses and other current assets		21,335		27,436		18,321
Deferred taxes		4,324		4,324		7,341
Total current assets		349,442		192,101		311,871
Property and equipment, net		62,568		63,969		65,149
Goodwill and other intangible assets, net		483,579		474,312		426,067
Other		8,882		5,953		7,382
Total assets	$	904,471	$	736,335	$	810,469
Liabilities and Shareholders’ Equity
Current maturities—long-term debt	$	535	$	512	$	433
Accounts payable		109,959		57,355		104,012
Other current liabilities		52,792		35,625		58,409
Total current liabilities		163,286		93,492		162,854
Long-term debt		356,233		292,844		325,465
Deferred taxes		28,561		28,546		23,139
Total liabilities		548,080		414,882		511,458
Shareholders’ equity		356,391		321,453		299,011
Total liabilities & shareholders’ equity	$	904,471	$	736,335	$	810,469

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School Specialty, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Unaudited

	Three Months Ended
	July 26, 2003			July 27, 2002
Cash flows from operating activities:
Net income	$	27,142		$	23,956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		4,335			3,627
Amortization of debt fees and other		706			561
Restructuring related payments		(116	)		(111	)
(Gain) loss on disposal or impairment of property and equipment		(7	)		965
Net borrowings under accounts receivable securitization facility		4,000			—
Change in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations accounted for under the purchase method):
Accounts receivable		(138,981	)		(140,396	)
Inventories		(23,892	)		(8,308	)
Prepaid expenses and other current assets		4,865			9,388
Accounts payable		51,053			56,919
Accrued liabilities		17,826			16,738
Net cash used in operating activities		(53,069	)		(36,661	)
Cash flows from investing activities:
Cash paid in acquisitions, net of cash acquired		(9,558	)		(4,016	)
Additions to property and equipment		(1,659	)		(3,424	)
Proceeds from disposal of property and equipment		1,113			96
Net cash used in investing activities		(10,104	)		(7,344	)
Cash flows from financing activities:
Proceeds from bank borrowings		170,300			63,200
Repayment of debt and capital leases		(216,939	)		(23,353	)
Proceeds from convertible debt offering		110,000			—
Payment of debt fees and other		(3,123	)		(115	)
Proceeds from exercise of stock options		5,335			3,176
Net cash provided by financing activities		65,573			42,908
Net increase (decrease) in cash and cash equivalents		2,400			(1,097	)
Cash and cash equivalents, beginning of period		2,389			6,123
Cash and cash equivalents, end of period	$	4,789		$	5,026
Free cash flow reconciliation:
Net cash used in operating activities	$	(53,069	)	$	(36,661	)
Additions to property and equipment		(1,659	)		(3,424	)
Proceeds from disposal of property and equipment		1,113			96
Net borrowings under accounts receivable securitization facility		(4,000	)		—
Free cash flow	$	(57,615	)	$	(39,989	)

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School Specialty, Inc.

Segment Analysis - Revenues and Gross Profit/Margin Analysis

1st Quarter, Fiscal 2004

(In thousands)

Unaudited

Segment Revenues and Gross Profit/Margin Analysis-QTD
									% of Revenues
	1Q04-QTD		1Q03-QTD		Change $			Change %	1Q04-QTD	1Q03-QTD
Revenues
Traditional	$	158,937	$	162,207	$	(3,270	)	-2.0%	52.2%	54.4%
Specialty		145,493		135,820		9,673		7.1%	47.8%	45.6%
Total Revenues	$	304,430	$	298,027	$	6,403		2.1%	100.0%	100.0%
									% of Revenues
	1Q04-QTD		1Q03-QTD		Change $			Change %	1Q04-QTD	1Q03-QTD
Gross Profit
Traditional	$	52,762	$	56,312	$	(3,550	)	-6.3%	41.2%	45.2%
Specialty		75,167		68,179		6,988		10.2%	58.8%	54.8%
Total Gross Profit	$	127,929	$	124,491	$	3,438		2.8%	100.0%	100.0%
Segment Gross Margin Summary-QTD
Gross Margin	1Q04-QTD		1Q03-QTD
Traditional		33.2%		34.7%
Specialty		51.7%		50.2%
Total Gross Margin		42.0%		41.8%

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