School Specialty (SCOO) 8-K School Specialty Reports Fiscal 2012 First Quarter Results

Exhibit 99.1

	FOR IMMEDIATE RELEASE THURSDAY, AUGUST 25, 2011
	Contact: David Vander Ploeg Executive VP and CFO 920-882-5854

W6316 Design Drive, Greenville, WI 54942

P.O. Box 1579, Appleton, WI 54912-1579

SCHOOL SPECIALTY REPORTS FISCAL 2012 FIRST QUARTER RESULTS                

^¡  First quarter revenues increase 9 percent; organic revenue grows 2 percent

^¡  Diluted earnings per share of $0.72; includes $0.05 refinancing charge

^¡  Full year guidance confirmed

Greenville, WI, August 25, 2011—School Specialty (NASDAQ: SCHS) today reported fiscal 2012 first quarter financial results. Revenue for the first quarter was $276.1 million compared with $253.0 million in the first quarter of the prior fiscal year, an increase of 9 percent. On a comparable shipment week basis, first quarter revenue increased approximately $5 million, or 2 percent. Approximately $18 million of the revenue increase was attributable to timing of shipments.

Net income was $13.6 million, including refinancing charges net of tax of $1.1 million, compared with a net loss of $331.6 million in last year’s first quarter, which included an impairment charge of $344.9 million. Diluted earnings per share, including refinancing charges, was $0.72 in this year’s first quarter compared with a loss per share of $17.58 last year, including the impairment charge. Excluding impairment and refinancing charges, diluted earnings per share increased 10 percent to $0.77 per share in the first quarter of fiscal 2012 from $0.70 per share in last year’s first quarter. Earnings before interest, tax, depreciation and amortization (“EBITDA”) increased 4 percent to $40.3 million in this year’s first quarter.

“Growth in revenues in the first quarter marked the second consecutive quarter of improvement in a challenging school budget environment,” said Chief Executive Officer David J. Vander Zanden. “Both the Educational Resources and Accelerated Learning segments contributed to the revenue increase in the quarter. State budget and tax collection trends currently suggest that for most states, the worst may be over, and that stabilization and potential improvement in fiscal 2012 actual state performance against budgets should help stem education budget pressure.”

“Our business and shipment cycle makes it important to review the combined results of the first two quarters to accurately evaluate performance of the business,” cautioned Vander Zanden. “Due to the extra shipping week last fiscal year, our busiest week over the summer has moved from its traditional place in quarter two to the last week of quarter one.”

Vander Zanden concluded, “We remain firmly committed to improving gross margins and controlling costs for the balance of the year in order to improve operating performance, and believe that in the long term, shareholders will benefit from this improved operating leverage as education spending increases to meet growing student populations and new curriculum adoptions.”

First Quarter Financial Results

• Revenue for fiscal 2012’s first quarter was $276.1 million, compared with $253.0 million in fiscal 2011’s first quarter, an increase of $23.1 million, or 9 percent. Approximately $18 million of this increase was related to the shift in the high volume shipping weeks between the first and second quarter as described above. Organic revenue growth, after adjusting for shift in weeks between the first and second quarter, was 2 percent. The Educational Resource segment had organic revenue growth of 1 percent and the Accelerated Learning segment had organic revenue growth of 3 percent.

• Gross profit was $111.3 million compared with $108.1 million in last year’s first quarter. Consolidated gross margin declined 240 basis points to 40.3 percent, compared with the prior year’s 42.7 percent. The decline in gross margin was related primarily to pricing discounts and product and freight cost increases within the Educational Resources segment, partially offset by a favorable product mix.

• Selling, general and administrative (SG&A) expenses increased $2.0 million to $79.8 million compared with the prior year’s $77.8 million. The increase is primarily related to incremental variable costs associated with the higher volume and the expense associated with the company’s incremental investment in catalogs for this back-to-school season. Full-time headcount was down 5 percent at the end of the first quarter, on a year-over-year comparison.

• Interest expense in the first quarter was $7.9 million compared with last year’s $8.1 million. Interest expense in the first quarter of fiscal 2012 included $0.7 million of accelerated debt issuance cost amortization related to debt refinancings. First quarter fiscal 2012 interest expense includes $2.5 million of non-cash interest expense related to the company’s convertible debt, compared to $3.4 million of non-cash interest expense in last year’s first quarter.

• During the first quarter of fiscal 2012, $57.5 million of outstanding 3.75% convertible subordinated debentures were exchanged and refinanced with new debentures. Expenses of $1.1 million associated with this convertible debt exchange were recognized in the current year’s first quarter.

• Net income was $13.6 million in the first quarter of fiscal 2012 compared with a net loss of $331.6 million last year’s first quarter. Diluted earnings per share in this year’s first quarter were $0.72 compared with a loss per share of $17.58 last year. Current year net income included $1.1 million of debt refinancing charges, or $0.05 per diluted share. Last year’s net loss included a non-cash goodwill and other intangible asset impairment charge of $344.9 million, or $18.28 per share.

• Free cash flow declined in the first quarter of fiscal 2012 by $44.8 million compared to fiscal 2011’s first quarter. This expected decline was a result of the planned early inventory purchases made during the company’s fourth quarter of fiscal 2011 and the subsequent payments of the related accounts payable.

Outlook

School Specialty is confirming its fiscal 2012 guidance of the following:

• Revenue of $755 million to $780 million, representing flat to positive 3.5 percent growth, on a normalized 52-week comparison.

• EBITDA of $53 million to $59 million, representing margins of 7.0 percent to 7.5 percent.

• Loss per share of $0.35 to $0.10.

• Free cash flow 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 2012 first quarter financial results. The conference call begins today, August 25, 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 atwww.schoolspecialty.com, and a replay of the call will be available.

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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, prospects, or asset values, 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 30, 2011, 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.

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SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

Unaudited

	Three Months Ended
	July 30,   2011		July 24,   2010
Revenues	$	276,084	$	252,984
Cost of revenues		164,808		144,912
Gross profit		111,276		108,072
Selling, general and administrative expenses		79,776		77,848
Impairment charge		-		411,390
Operating income/(loss)		31,500		(381,166)
Other expense:
Interest expense		7,912		8,130
Expense assocated with convertible debt exchange		1,090		-
Income/(loss) before provision for income taxes		22,498		(389,296)
Provision for (benefit from) income taxes		8,928		(57,669)
Income/(loss) before investment in unconsolidated affiliate	$	13,570	$	(331,627)
Equity in losses of unconsolidated affiliate		(20)		-
Net income/(loss)	$	13,550	$	(331,627)
Weighted average shares outstanding:
Basic		18,873		18,864
Diluted		18,925		18,864
Net Income/(Loss) per Share:
Basic	$	0.72	$	(17.58)
Diluted	$	0.72	$	(17.58)
Earnings before interest, taxes, depreciation, amortization and impairment charges (EBITDA) reconciliation:
Net income (loss)	$	13,550	$	(331,627)
Equity in losses of unconsolidated affiliate		20		-
Provision for / benefit from income taxes		8,928		(57,669)
Loss on convertible debt exchange		1,090		-
Impairment of goodwill and intangible assets		-		411,390
Depreciation and amortization expense		7,218		6,988
Amortization of development costs		1,602		1,537
Net interest expense		7,912		8,130
EBITDA	$	40,320	$	38,749

See accompanying notes to condensed consolidated financial statements.

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SCHOOL SPECIALTY, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In Thousands)

Unaudited

	July 30,   2011		April 30,   2011		July 24,   2010
ASSETS
Current assets:
Cash and cash equivalents	$	3,927	$	9,821	$	8,586
Accounts receivable		194,507		67,442		177,888
Inventories		121,526		111,266		126,828
Deferred catalog costs		11,206		16,639		10,268
Prepaid expenses and other current assets		15,584		14,516		16,115
Deferred taxes		-		-		9,866
Total current assets		346,750		219,684		349,551
Property, plant and equipment, net		62,268		65,571		64,672
Goodwill		129,091		129,390		126,786
Intangible assets, net		153,218		155,889		163,541
Other		36,063		36,383		33,134
Deferred taxes long-term		8,887		10,227		-
Investment in unconolidated affiliate		20,380		20,400		28,299
Total assets	$	756,657	$	637,544	$	765,983
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities - long-term debt	$	42,765	$	98,243	$	133,809
Accounts payable		125,554		85,639		126,169
Accrued compensation		8,903		7,972		10,764
Deferred revenue		4,348		3,600		5,466
Deferred taxes		-		4,454		-
Accrued income taxes		13,856		11,855		4,264
Other accrued liabilities		37,583		25,428		37,458
Total current liabilities		233,009		237,191		317,930
Long-term debt-less current maturities		306,926		198,036		201,587
Deferred taxes		-		-		27,867
Other liabilities		688		688		1,423
Total liabilities		540,623		435,915		548,807
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
24,300,545; 24,290,345 and 24,290,345 shares issued, respectively		24		24		24
Capital paid-in excess of par value		442,764		441,335		437,513
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		25,818		26,390		21,113
(Accumulated deficit)		(65,935)		(79,483)		(54,837)
Total shareholders’ equity		216,034		201,629		217,176
Total liabilities and shareholders’ equity	$	756,657	$	637,544	$	765,983

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SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Unaudited

	Three Months Ended
	July 30, 2011		July 24, 2010
Cash flows from operating activities:
Net income/(loss)	$	13,550	$	(331,627)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangible asset amortization expense		7,218		6,988
Amortization of development costs		1,602		1,537
Amortization of debt fees and other		1,062		625
Share-based compensation expense		517		827
Deferred taxes		(3,728)		(64,712)
Equity in losses of unconsolidated affiliate		20		-
Impairment charge		-		411,390
Expense associated with convertible debt exchange		1,090		-
Non cash convertible debt deferred financing costs		2,453		3,436
Changes in current assets and liabilities (net of assets acquired and liabilities assumed in business combinations):
Accounts receivable		(127,066)		(105,190)
Inventories		(10,259)		(26,921)
Deferred catalog costs		5,433		3,325
Prepaid expenses and other current assets		(1,069)		(259)
Accounts payable		39,793		77,721
Accrued liabilities		15,573		15,181
Net cash used in operating activities		(53,811)		(7,679)
Cash flows from investing activities:
Additions to property, plant and equipment		(1,265)		(2,410)
Investment in product development costs		(1,954)		(2,181)
Net cash used in investing activities		(3,219)		(4,591)
Cash flows from financing activities:
Proceeds from bank borrowings		176,500		35,400
Repayment of debt and capital leases		(123,887)		(35,579)
Payment of debt fees and other		(1,477)		-
Net cash provided by financing activities		51,136		(179)
Net decrease in cash and cash equivalents		(5,894)		(12,449)
Cash and cash equivalents, beginning of period		9,821		21,035
Cash and cash equivalents, end of period	$	3,927	$	8,586
Free cash flow reconciliation:
Net cash used in operating activities	$	(53,811)	$	(7,679)
Additions to property and equipment		(1,265)		(2,410)
Investment in development costs		(1,954)		(2,181)
Free cash flow	$	(57,030)	$	(12,270)

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School Specialty, Inc.

Segment Analysis - Revenues and Gross Profit/Margin Analysis

1st Quarter, Fiscal 2012

(In thousands)

Unaudited

Segment Revenues and Gross Profit/Margin Analysis-QTD
									% of Revenues
	1Q12-QTD		1Q11-QTD		Change $		Change %		1Q12-QTD		1Q11-QTD
Revenues
Educational Resources	$	186,064	$	175,418	$	10,646		6.1%		67.4%		69.3%
Accelerated Learning Group		89,853		77,399		12,454		16.1%		32.5%		30.6%
Corporate and Interco Elims		167		167		-				0.1%		0.1%
Total Revenues	$	276,084	$	252,984	$	23,100		9.1%		100.0%		100.0%
									% of Revenues
	1Q12-QTD		1Q11-QTD		Change $		Change %		1Q12-QTD		1Q11-QTD
Gross Profit
Educational Resources	$	60,437	$	62,110	$	(1,673)		-2.7%		54.3%		57.5%
Accelerated Learning Group		50,156		45,315		4,841		10.7%		45.1%		41.9%
Intercompany Eliminations		683		647		36				0.6%		0.6%
Total Gross Profit	$	111,276	$	108,072	$	3,204		3.0%		100.0%		100.0%
Segment Gross Margin Summary-QTD
Gross Margin	1Q12-QTD		1Q11-QTD
Educational Resources		32.5%		35.4%
Accelerated Learning Group		55.8%		58.5%
Total Gross Margin		40.3%		42.7%

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