School Specialty (SCOO) 8-K School Specialty Reports Fiscal 2005 Second Quarter Results

EXHIBIT 99.1

	FOR IMMEDIATE RELEASE
	TUESDAY, NOVEMBER 9, 2004
	Contact:
	David J. Vander Zanden	Mary Kabacinski
	President / CEO	EVP / CFO
	920-882-5602	920-882-5852
W6316 Design Drive, Greenville, WI 54942
P.O. Box 1579, Appleton, WI 54912-1579

SCHOOL SPECIALTY REPORTS FISCAL 2005 SECOND QUARTER RESULTS

Greenville, WI, November 9, 2004—School Specialty (NASDAQ:SCHS), the leading education company providing supplemental learning products to the preK-12 market, today reported second quarter and six months fiscal 2005 financial results.

The first six months of fiscal 2005 represent the back-to-school season. Revenues for the first six months of fiscal 2005 were a record $699.2 million, a 9.3 percent increase over fiscal 2004. Gross margin expanded 40 basis points to 41.7 percent.

Net income of $62.6 million for the six months of fiscal 2005 includes restructuring and bond redemption charges of $3.5 million with an after-tax effect of $2.2 million or $0.09 per diluted share. Net income, before those charges, is up 13.5 percent from fiscal 2004. Diluted earnings per share of $2.66, adjusted to $2.75 to reflect the effect of noted charges, is up 9.6 percent from last year.

“We are pleased with our performance in the fiscal 2005 back-to-school season,” said David J. Vander Zanden, President and Chief Executive Officer of School Specialty, Inc. “Our core business, excluding charges for plant closings and the bond redemption, delivered over 9 percent growth in each of our key metrics of revenue, operating income and earnings per share,” he added. “The added restructuring charges reflect one of our most aggressive integration efforts as we close seven warehouses this off-season. We have the talent and capability to aggressively integrate more this off-season, which will greatly reduce our future operating costs.”

Second Quarter Financial Performance

Revenues for the second quarter of fiscal 2005 rose 7.9 percent to $361.5 million from $335.1 million in the second quarter last year. The growth in revenues was attributable to acquired businesses and organic growth in both the traditional and specialty segments. Gross margin was 40.4 percent of revenues as compared to 40.5 percent of revenues in the second quarter of fiscal 2004. The change in gross margin was driven by a competitive pricing environment in our traditional segment, virtually offset by an increase in product mix to higher margin proprietary products in our specialty segment.

Operating income for the quarter was $55.4 million as compared to $54.0 million last year. Included in operating income was a $1.7 million restructuring charge to close our Agawam, Massachusetts distribution center and our Tempe, Arizona facility. Operating income excluding this charge was $57.1 million. Selling, general and administrative expenses (SG&A) as a percent of revenues, excluding the restructuring charge, was 24.7 percent as compared with 24.4 percent last year. The increase in the SG&A as a percent of revenues was primarily driven by an increase in revenue mix from the specialty segment, which generally has higher marketing costs than the traditional segment, and a higher SG&A structure for acquired businesses which have not yet been fully integrated. These increases were partially offset by reduced warehouse and transportation expense, resulting from our supply chain optimization efforts during this past off-season.

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Net income rose 2.3 percent from $29.9 million to $30.6 million. Excluding the restructuring charge of $1.7 million and the premium and fees related to the redemption of convertible debt of $1.8 million, net income rose to $32.7 million, a 9.5 percent increase over prior year net income. Diluted earnings per share was $1.30 as compared to $1.31 last year. Diluted earnings per share adjusted for the above noted charges was $1.39, a 6.1 percent increase over prior year.

Six Month Financial Performance

Revenues for the first six months of fiscal 2005 were a record $699.2 million as compared with $639.5 last year, representing growth of 9.3 percent. The increase in revenues was due to acquired businesses and organic growth in both the traditional and specialty segments. Gross margin expanded 40 basis points to 41.7 percent from 41.3 percent last year. The increase in gross margin was driven by a continued increase in mix of high margin proprietary products, partially offset by a competitive pricing environment for non-proprietary products, particularly in the traditional segment.

Operating income year-to-date is up 9.2 percent or $9.5 million. Excluding restructuring charges of $1.7 million, operating income was $114.2 million as compared to $103.1 million, up $11.2 million or 10.8 percent. SG&A as a percent of revenues, excluding restructuring charges, was 25.4 percent as compared to 25.1 percent last year. The increase in SG&A as a percent of revenues was driven by an increase in revenue mix from the specialty segment and a higher SG&A structure for acquired businesses which have not yet been fully integrated, partially offset by reduced warehouse and transportation costs.

Net income was $62.6 million, an increase of 9.7 percent over last year of $57.0 million. Net income, excluding noted charges, was $64.7 million, a 13.5 percent or $7.7 million increase over prior year. Diluted earnings per share was $2.66, a 6.0 percent increase over prior year of $2.51. Diluted earnings per share prior to noted charges was $2.75, a 9.6 percent increase over prior year.

Executive Talent Added

In November 2004, Dave Johnson will join School Specialty in the newly-created position of Executive Vice President of Direct Marketing. Johnson developed extensive direct marketing experience over a fifteen-year career with Lands’ End, a $1.6 billion Wisconsin based direct merchant of traditionally styled casual clothing, domestics and soft luggage now owned by Sears, Roebuck and Co. (NYSE: S). His most recent position of Vice President, Direct Marketing, included responsibility for Lands’ End’s U.S. consumer business consisting of five catalog titles, as well as the Business Outfitters (business to business) market, mailing operations, corporate analytics, database marketing, market research, customer acquisition and merchandising analysis.

“We are pleased to add Dave Johnson to our executive team,” said David Vander Zanden. “Our primary marketing channel for the specialty segment, now over half our revenue base, is catalog driven. Dave’s depth of experience and proven success in the direct market channel will enhance our ability to bring our proprietary product offering to the most receptive educators,” he added.

Other Events in Second Quarter

School Specialty completed the acquisition of the assets of Guidance Channel, a $20 million education company providing guidance and prevention materials for at-risk youth as well as play therapy tools to address the social and emotional needs of children. The transaction closed on September 1, 2004 for a cash purchase price of approximately $19 million.

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School Specialty completed the redemption of its six percent convertible subordinated notes. Of the $149.5 million aggregate principal amount, $34.8 million in principal amount was redeemed and $114.7 million in principal amount was converted into 3,550,828 shares of School Specialty common stock.

“The successful execution of our convertible note redemption strengthens our capital structure bringing our debt to total capitalization ratio to its current level of approximately 30 percent and enhancing our flexibility for future growth,” said Mary M. Kabacinski, Executive Vice President and Chief Financial Officer of School Specialty.

Outlook

“With the season behind us, we are confirming our earlier fiscal 2005 revenue guidance of $980 million to $1 billion representing growth of 8 to 10 percent. We are now targeting diluted EPS at $2.25 to $2.35 before restructuring and bond charges of $0.09 per diluted share, a 16 to 21 percent increase over fiscal 2004,” said Vander Zanden. “The tighter guidance range reflects the season as delivered and the pricing environment in our traditional segment.”

“Looking forward to fiscal 2006, we believe K-12 funding will continue to improve. We are, therefore, planning a 4 to 7 percent internal revenue growth rate bringing our targeted revenues, excluding acquisitions, to $1.02 billion to $1.07 billion for fiscal 2006. We expect growth in diluted EPS to $2.45 to $2.70 per diluted share.”

Internet Conference Call

Investors have the opportunity to listen to School Specialty’s fiscal 2005 second 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., is an education company serving the preK-12 education market by providing products, services and ideas that enhance student achievement and development to educators and schools across the United States. School Specialty’s family of brands serve more than 118,000 schools throughout the United States and Canada with a comprehensive range of more than 85,000 products and services. The Company reaches customers through more than 40 million catalogs mailed annually, multiple commerce sites and through its staff of over 2,800 associates including 500 sales representatives. With a focus on the education industry, School Specialty family brands include School Specialty Education Essentials, School Specialty Children’s Publishing, Classroom Direct, Childcraft, abc School Supply, Sax Arts & Crafts, Frey Scientific, Premier Agenda, Sportime, Califone and Teacher’s Video. Each serves educators and curriculum specialists in curriculum-specific and proprietary product offerings developed with and inspired by educators. For more information, visitwww.schoolspecialty.com.

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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 99.2 of School Specialty’s Annual Report on Form 10-K for fiscal year 2004 and other documents filed with the Securities and Exchange Commission.

-Financial Tables Follow-

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School Specialty, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

Unaudited

	Three Months Ended				Six Months Ended
	October 23, 2004		October 25, 2003		October 23, 2004		October 25, 2003
Revenues	$	361,458	$	335,066	$	699,217	$	639,496
Cost of revenues		215,249		199,201		407,604		375,702
Gross profit		146,209		135,865		291,613		263,794
Selling, general and administrative expenses		89,102		81,867		177,389		160,738
Restructuring costs		1,689		—		1,689		—
Operating income		55,418		53,998		112,535		103,056
Interest expense and other		4,008		5,051		9,078		9,650
Premium paid and fees for convertible debt redemption		1,839		—		1,839		—
Income before provision for income taxes		49,571		48,947		101,618		93,406
Provision for income taxes		19,012		19,066		39,059		36,383
Net income	$	30,559	$	29,881	$	62,559	$	57,023
Weighted average shares outstanding:
Basic		21,734		18,796		20,409		18,703
Diluted		23,923		24,021		24,217		23,885
Per share amounts:
Basic	$	1.41	$	1.59	$	3.07	$	3.05
Diluted	$	1.30	$	1.31	$	2.66	$	2.51
Earnings before interest and other, taxes, depreciation, amortization and premium paid and fee expense on convertible debt redemption (EBITDA) reconciliation:
Net income	$	30,559	$	29,881	$	62,559	$	57,023
Provision for income taxes		19,012		19,066		39,059		36,383
Interest expense and other		4,008		5,051		9,078		9,650
Depreciation and amortization expense		4,452		4,567		8,785		8,903
Premium paid and fees for convertible debt redemption		1,839		—		1,839		—
EBITDA	$	59,870	$	58,565	$	121,320	$	111,959

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School Specialty, Inc.

Consolidated Condensed Balance Sheets

(In thousands)

	October 23, 2004		April 24, 2004		October 25, 2003
	(Unaudited)				(Unaudited)
Assets
Cash and cash equivalents	$	7,649	$	2,369	$	16,699
Accounts receivable		167,453		52,995		153,829
Inventories		119,810		139,786		76,027
Prepaid expenses and other current assets		29,889		28,069		20,965
Deferred taxes		5,757		5,757		4,324
Total current assets		330,558		228,976		271,844
Property and equipment, net		62,933		65,294		60,638
Goodwill and other intangible assets, net		536,166		517,696		485,387
Other		17,675		20,641		13,319
Total assets	$	947,332	$	832,607	$	831,188
Liabilities and Shareholders’ Equity
Current maturities - long-term debt	$	63,476	$	524	$	557
Accounts payable		65,299		58,225		50,915
Other current liabilities		64,919		38,226		59,879
Total current liabilities		193,694		96,975		111,351
Long-term debt		149,988		314,104		299,912
Deferred taxes and other		43,127		42,553		28,546
Total liabilities		386,809		453,632		439,809
Shareholders’ equity		560,523		378,975		391,379
Total liabilities & shareholders’ equity	$	947,332	$	832,607	$	831,188

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School Specialty, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Unaudited

	Six Months Ended
	October 23, 2004			October 25, 2003
Cash flows from operating activities:
Net income	$	62,559		$	57,023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		8,785			8,903
Amortization of development costs		1,932			429
Amortization of debt fees and other		818			1,401
Loss on redemption of convertible debt		1,839			—
Gain on disposal or impairment of property and equipment		(35	)		(4	)
Restructuring costs, net of payments		1,130			(167	)
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):
Accounts receivable		(112,621	)		(108,525	)
Inventories		23,443			32,757
Deferred catalog costs		1,994			9,010
Prepaid expenses and other current assets		(2,504	)		(3,944	)
Accounts payable		5,264			(8,093	)
Accrued liabilities		25,153			24,921
Net cash provided by operating activities		17,757			17,711
Cash flows from investing activities:
Cash paid in acquisitions, net of cash acquired		(19,149	)		(9,558	)
Additions to property and equipment		(4,994	)		(3,081	)
Investment in development costs		(2,730	)		(2,021	)
Proceeds from business disposition		193			—
Proceeds from disposal of property and equipment		32			1,123
Net cash used in investing activities		(26,648	)		(13,537	)
Cash flows from financing activities:
Proceeds from bank borrowings		358,000			259,400
Repayment of debt and capital leases		(309,667	)		(385,348	)
Proceeds from convertible debt offering		—			133,000
Redemption of convertible debt		(34,843	)		—
Premium paid on redemption of convertible debt		(1,195	)		—
Payment of debt fees and other		—			(3,979	)
Proceeds from exercise of stock options		1,876			7,063
Net cash provided by financing activities		14,171			10,136
Net increase in cash and cash equivalents		5,280			14,310
Cash and cash equivalents, beginning of period		2,369			2,389
Cash and cash equivalents, end of period	$	7,649		$	16,699
Free cash flow reconciliation:
Net cash provided by operating activities	$	17,757		$	17,711
Additions to property and equipment		(4,994	)		(3,081	)
Investment in development costs		(2,730	)		(2,021	)
Proceeds from disposal of property and equipment		32			1,123
Net borrowings under accounts receivable securitization facility		—			(4,000	)
Free cash flow	$	10,065		$	9,732

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School Specialty, Inc.

Segment Analysis - Revenues and Gross Profit/Margin Analysis

2nd Quarter, Fiscal 2005

(In thousands)

Unaudited

Segment Revenues and Gross Profit/Margin Analysis-QTD

	2Q05-QTD			2Q04-QTD			Change $			Change %		% of Revenues
												2Q05-QTD		2Q04-QTD
Revenues
Traditional	$	180,942		$	179,129		$	1,813		1.0	%	50.1	%	53.5	%
Specialty		180,516			155,937			24,579		15.8	%	49.9	%	46.5	%
Total Revenues	$	361,458		$	335,066		$	26,392		7.9	%	100.0	%	100.0	%
	2Q05-QTD			2Q04-QTD			Change $			Change %		% of Gross Profit
												2Q05-QTD		2Q04-QTD
Gross Profit
Traditional	$	54,153		$	58,922		$	(4,769	)	-8.1	%	37.0	%	43.4	%
Specialty		92,056			76,943			15,113		19.6	%	63.0	%	56.6	%
Total Gross Profit	$	146,209		$	135,865		$	10,344		7.6	%	100.0	%	100.0	%
Segment Gross Margin Summary-QTD
	2Q05-QTD			2Q04-QTD
Gross Margin
Traditional		29.9	%		32.9	%
Specialty		51.0	%		49.3	%
Total Gross Margin		40.4	%		40.5	%
Segment Revenues and Gross Profit/Margin Analysis-YTD
	2Q05-YTD			2Q04-YTD			Change $			Change %		% of Revenue
												2Q05-YTD		2Q04-YTD
Revenues
Traditional	$	343,725		$	338,066		$	5,659		1.7	%	49.2	%	52.9	%
Specialty		355,492			301,430			54,062		17.9	%	50.8	%	47.1	%
Total Revenues	$	699,217		$	639,496		$	59,721		9.3	%	100.0	%	100.0	%
	2Q05-YTD			2Q04-YTD			Change $			Change %		% of Gross Profit
												2Q05-YTD		2Q04-YTD
Gross Profit
Traditional	$	108,466		$	111,684		$	(3,218	)	-2.9	%	37.2	%	42.3	%
Specialty		183,147			152,110			31,037		20.4	%	62.8	%	57.7	%
Total Gross Profit	$	291,613		$	263,794		$	27,819		10.5	%	100.0	%	100.0	%
Segment Gross Margin Summary-YTD
	2Q05-YTD			2Q04-YTD
Gross Margin
Traditional		31.6	%		33.0	%
Specialty		51.5	%		50.5	%
Total Gross Margin		41.7	%		41.3	%

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