School Specialty Announces Fiscal 2014 First Quarter Results

School Specialty Announces Fiscal 2014 First Quarter Results

- Combined First Quarter Revenues of $202.2 Million, But $22.0 Million of
Orders Shifted Into Second Quarter
- Combined Gross Margins Improve to 41.2 Percent in Quarter and SG&A Expenses
Decline 15.7 Percent vs. Last Year's First Quarter
- Combined FY14 Revenues Expected to be $620-$630 Million; Adjusted EBITDA
Expected to be $40-$44 Million
- Process Improvement Programs Underway to Generate $12-$15 Million of
Annualized Savings

GREENVILLE, Wis., Sept. 16, 2013 (GLOBE NEWSWIRE) -- School Specialty Inc.
("SSI" or "the Company"), a leading distributor of supplies, furniture and
both supplemental and curriculum products to the education marketplace, today
announced its fiscal 2014 first quarter results for the period ended July 27,
2013.

During the period January 28, 2013 through June 11, 2013, School Specialty,
Inc. and certain of its subsidiaries operated as debtors-in-possession under
bankruptcy jurisdiction. In accordance with Financial Standards Board
Accounting Standards Codification ("ASC") 852, for periods including and
subsequent to the filing of the Chapter 11 petition through the bankruptcy
emergence date of June 11, 2013, all expenses, gains and losses that result
from the reorganization were reported separately as reorganization items in
the Consolidated Statements of Operations. Net cash used for reorganization
items was disclosed separately in the Consolidated Statement of Cash Flows,
and liabilities subject to compromise were reported separately in the
Consolidated Balance Sheets.

As of June 11, 2013, the Company adopted fresh-start accounting in accordance
with ASC 852.The adoption of fresh-start accounting resulted in the Company
becoming a new entity for financial reporting purposes.Accordingly, the
financial statements on or prior to June 11, 2013 are not comparable with the
financial statements for periods after June 11, 2013.The consolidated
financial statements as of July 27, 2013 and for the seven weeks then ended
and any references to "Successor" or "Successor Company" show the financial
position and results of operations of the reorganized Company subsequent to
bankruptcy emergence on June 11, 2013.References to "Predecessor" or
"Predecessor Company" refer to the financial position and results of
operations of the Company prior to bankruptcy emergence.

Management believes that the presentation of Non-GAAP Financial Information,
referred to as the Combined Adjusted Results, are reconciled to the most
comparable GAAP measures and offer the best comparisons for the comparable
fiscal first quarter periods.For further information on the Company's Results
of Operations and related Balance Sheet and Cash Flow items, please refer to
the Company's Form 10-Q for the period ending July 27, 2013 on file with the
Securities and Exchange Commission.Additionally, given the significant
seasonality inherent in SSI's business, as well as order timing considerations
between quarters, management believes that first half fiscal 2014 results are
most useful to determine operating trends and financial performance.

First Quarter Financial Results

Combined adjusted revenues for the three months ended July 27, 2013 were
$202.2 million, compared with $252.1 million in the comparable prior year
period, a decline of 19.8%.The decline in revenue was in both the Educational
Resources and Accelerated Learning business segments, and was primarily due to
the uncertainty caused by the Company's Chapter 11 reorganization and that
approximately $22.0 million of first quarter orders were processed later and
shifted into the second quarter.Additionally, approximately $5.0 million of
the decline was related to large curriculum orders in the prior year's first
quarter, which were not expected to recur in the current year.Adjusting for
both events, revenues for the comparable periods were down 9.1%. Bookings
since the end of the first quarter have been tracking higher, and the Company
expects revenues in the second quarter to be generally in line with last year.

Combined adjusted gross profit margin for the three months ended July 27, 2013
was 41.2% as compared with 41.1% for the Predecessor Company's three months
ended July 28, 2012.This improvement was primarily driven by higher gross
margins in the Educational Resources segment, due to the favorable mix between
product lines, partially offset by lower margins in the Accelerated Learning
segment due to higher product development costs and product mix.The Company
remains focused on enhancing its margin structure and believes this can be
achieved through continued product innovation and better supply chain
efficiencies.As a result of improvements year-to-date and with the expected
product mix on a go-forward basis this fiscal year, the Company expects gross
margins will trend generally in line with recent years.

Combined adjusted selling, general and administrative (SG&A) expenses for the
three months ended July 27, 2013 were $63.3 million as compared to $75.1
million for the comparable year-ago period, a decline of $11.8 million or
15.7%.This decline was primarily a result of cost control measures instituted
by the Company as it continues to right-size the organization to lower costs
and improve productivity and efficiencies, as well as variable selling costs
associated with decreased revenues. As a percent of revenue, SG&A increased
from 29.8% for the three months ended July 28, 2012 to 31.3% for the three
months ended July 27, 2013.

Net interest expense for the fiscal 2014 first quarter was $6.1 million
compared to $10.0 million in the comparable prior year period, a decrease of
$3.9 million.The decrease in net interest expense was due primarily to prior
year interest associated with the Company's convertible notes, which were
subsequently discharged when the Company emerged from Chapter 11
reorganization.

The Company recorded a $104.9 million net restructuring gain for the three
months ended July 27, 2013.This consists of $161.9 million of cancellation of
indebtedness income, offset by $16.1 million of professional, financing and
other fees, and $40.9 million of fresh-start and other reorganization fees.

The provision for income taxes in the first quarter of fiscal 2014 was $1.9
million compared to $0.3 million in the comparable prior year period.

Adjusted earnings before income taxes, depreciation and amortization (EBITDA)
was $28.2 million in the fiscal 2014 first quarter as compared to $37.7
million in the comparable fiscal 2013 period, a decline of $9.5 million.This
decline was primarily related to the volume declines discussed previously,
partially offset by savings realized in the SG&A categories as a result of a
smaller workforce and the corresponding labor savings, as well as reductions
in catalog expenditures.Due to the timing of order fulfillment discussed
previously and booking trends observed since the end of the first quarter, we
anticipate a large percentage of this net decline being recovered in the
second quarter.

Net income for the first quarter of fiscal 2014 was $114.4 million compared
with $18.4 million in the comparable period last year.Current period results
include $102.3 million of net benefits from the composite of all
reorganization and post-bankruptcy-related items flowing through the income
statement during the Predecessor and Successor periods of the fiscal first
quarter.

"Our first quarter reflected the challenges resulting from our emergence from
Chapter 11 reorganization as we only officially emerged halfway through the
quarter.On the positive side, our bookings have shown significant improvement
since the end of the first quarter, and we recaptured some of those lost sales
opportunities in the second quarter," stated Jim Henderson, Chairman of the
Board and Interim President and CEO."While we're not in a robust educational
spending environment today, signs do point to increased funding and the uptick
in our order flow is a positive sign that our business has stabilized
consistent with our projections.Our balance sheet has also significantly
improved with our total debt cut in half post-emergence and we are focusing on
our working capital management to further improve cash
generation.Additionally, our process improvement initiatives should
strengthen our capital structure further, while freeing up resources to invest
in our business and our supply chain."

Henderson continued, "My focus as Chairman and as a senior leader of this
company is three-fold: to stabilize our business, improve our infrastructure
and return School Specialty to sustainable growth, with better and consistent
bottom-line performance."

Fiscal 2014 First Quarter Corporate Developments and Subsequent Events

  *Emergence from Chapter 11 Reorganization: On June 11, 2013, School
    Specialty completed its financial restructuring and officially emerged
    from its Chapter 11 reorganization.
    
  *New Financing Facilities: On June 11, 2013, School Specialty disclosed its
    new capital financing, securing a fully committed $175 million asset-based
    revolving credit facility led by Bank of America, N.A. and SunTrust Bank,
    along with a $145 million term loan facility led by Credit Suisse
    Securities (USA) LLC.
    
  *Changes in Senior Leadership: On July 22, 2013, School Specialty announced
    that Michael P. Lavelle would resign as President and CEO, which took
    effect on August 9, 2013 and that James R. Henderson, Chairman, would
    assume the role as Interim President and CEO, a position he currently
    holds while a search for a permanent replacement is
    underway.Additionally, David Vander Ploeg, the Company's CFO, announced
    that he would be retiring at calendar year end.
    
  *Organizational Alignment: Over the past few weeks, the Company has
    instituted various changes, which include the consolidation of its
    Distribution Center network, the exiting of Commercial Printing plant
    operations, and further alignment in its Supplies and Furniture
    distribution operations.While there will be cost savings as a result of
    these events, changes were not solely driven by cost reductions, but
    rather, the early stages of a Process Improvement Program to generate
    customer, supply chain and operational efficiencies.
    
  *Process Improvement Program: With full Board of Directors support, School
    Specialty has kicked-off a Process Improvement Program designed to better
    align the Company's operating groups, enhance systems and processes and
    drive efficiency throughout the organization – all done in an effort to
    improve the customer experience.Moving into fiscal year 2015, the Company
    anticipates significant operational improvements, cost savings and
    innovation enhancements as a result.The majority of initiatives will be
    gradual and done after the heavy school selling season has ended and will
    always be done with 100% customer satisfaction in mind. In addition,
    management has identified further operational initiatives that will be
    pursued in multiple phased efforts once the initial Process Improvement
    Program has been completed.

Mr. Henderson added, "Over the coming year, we'll be realigning our operations
focused on one thing – becoming better.We have strong talent throughout SSI
and our brands remain strong.Our nationwide distribution and partner network
is perhaps our biggest strength and this is something we will grow and
capitalize on.There will be some organizational enhancements, which will
encompass more LEAN principles but the most important element of this change
will be better customer support.With one of the largest assortment of
products servicing the educational markets, and the distribution network to
reach every school across the country, opportunities are there for the
taking.We'll be more focused on delivering our customers the products they
need with an unparalleled customer experience.All of us at School Specialty
remain focused on increasing stakeholder value."

Market Outlook

During the Company's Chapter 11 reorganization, filings were made with the
U.S. Bankruptcy Court with respect to the Company's fiscal year 2014 financial
outlook.The Company had projected revenues of $645 million and Adjusted
EBITDA of $44 million in those filings.Based on year-to-date performance and
the market outlook for the remainder of the year, the Company believes that
revenues will be approximately $620-$630 million, which implies growth over
the budget after the 2014 fiscal first quarter decline.Additionally,
adjusting for public company expenses of approximately $2 million, which were
not part of the reorganization plan, the Company is projecting Adjusted EBITDA
of $40-$44 million.

The cumulative effect of the initial process improvement program initiatives
are expected to generate annualized cost savings of $12-$15 million, with
one-time cash generation in excess of $20 million.Restructuring charges in
fiscal 2014 are expected to be in the range of $12-$14 million and capital
expenditures, originally budgeted at $19 million, are expected to
beapproximately $16-$17 million.

School Specialty intends to publish a letter to shareholders with an
accompanying presentation on its financial results later this week.The
Company will not be hosting a teleconference, but management will be available
to address questions after the filing of this supplemental information. This
information will also be available on our website, www.schoolspecialty.com in
the Investor Relations section.

About School Specialty, Inc.

School Specialty is a leading distributor of innovative and proprietary
products, programs and services to the education marketplace. The Company
designs, develops, and provides educators with the latest and very best school
supplies, furniture and both curriculum and supplemental learning resources.
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.

Statement Concerning Forward-Looking Information

Any statements made in this press release about future financial conditions,
results of operations, expectations, plans, or prospects, including the
information in the heading "Market 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 27, 2013, 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 COMBINED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited / Non-GAAP
                                                 
                          Successor   Predecessor  Non-GAAP     Predecessor
                           Company    Company     Combined     Company
                           Seven Weeks Six Weeks    Three Months Three Months
                          Ended       Ended        Ended        Ended
                           July 27,   June 11,    July 27,    July 28, 2012
                           2013        2013         2013
                                                             
Revenues                   $143,499  $58,697    $202,196   $252,139
Cost of revenues           83,741      35,079       118,820      148,542
Gross profit               59,758      23,618       83,376       103,597
Selling, general and       35,867      27,473       63,340       75,116
administrative expenses
Bankruptcy related         2,595       --          2,595        --
restructuring charges
Operating income           21,296      (3,855)      17,441       28,481
Other expense:                                                
Interest expense           2,821       3,235        6,056        9,966
Reorganization items, net  1,280       (106,174)    (104,894)    --
Income before provision    17,195      99,084       116,279      18,515
for income taxes
Provision for income taxes 252         1,641        1,893        259
Income before income of    16,943      97,443       114,386      18,256
unconsolidated affiliate
Income of unconsolidated   --         --          --          119
affiliate
Net income                 $16,943   $97,443    $114,386   $18,375
                                                             
                                                             
Adjusted Earnings before
interest, taxes,
depreciation,
amortization,                                                 
bankruptcy-related
restructuring and
impairment charges
(EBITDA) reconciliation:
Net income                                        $114,386   $18,375
Equity in (income)/losses
of unconsolidated                                 --         (119)
affiliate
Provision for income taxes                        1,893       259
Reorganization items, net                         (104,894)   --
Bankruptcy related                                2,595       --
restructuring costs
Share-based compensation                          --         119
expense
Depreciation and                                  5,849       7,016
amortization expense
Amortization of                                   2,396       2,068
development costs
Net interest expense                              6,056       9,966
Adjusted EBITDA                                   $28,281    $37,684



SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except Share Data)
                                                              
                                      Successor  Predecessor
                                       Company    Company
                                      July 27,   April 27, 2013 July 28, 2012
                                       2013
ASSETS                                                         
Current assets:                                                
Cash and cash equivalents              $9,787   $20,769      $5,542
Restricted cash                        25,820     26,302         2,708
Accounts receivable, less allowance
for doubtful accounts of $2,176, $926  138,879    58,942         178,293
and $2,597, respectively
Inventories                            104,868    92,582         112,467
Deferred catalog costs                 5,793      8,924          7,773
Prepaid expenses and other current     26,667     29,901         11,050
assets
Refundable income taxes                5,334      9,793          3,580
Deferred taxes                         --        --            4,797
Total current assets                   317,148    247,213        326,210
Property, plant and equipment, net     46,309     39,209         54,238
Goodwill                               23,661     --            41,010
Intangible assets, net                 47,427     110,306        121,627
Development costs and other            38,042     30,079         40,274
Deferred taxes long-term               51         51             390
Investment in unconsolidated affiliate 715        715            10,019
Total assets                           $473,353 $427,573     $593,768
                                                              
LIABILITIES AND STOCKHOLDERS' EQUITY                           
(DEFICIT)
Current liabilities:                                           
Current maturities - long-term debt   $62,229  $198,302     $79,444
Accounts payable                       49,124     22,897         103,099
Accrued compensation                   7,597      7,197          10,723
Deferred revenue                       2,605      2,237          3,354
Accrued fee for early termination of   25,582     25,000         --
long-term debt
Other accrued liabilities              34,467     21,905         26,027
Total current liabilities              181,604    277,538        222,647
Long-term debt - less current          152,932    --            285,508
maturities
Other liabilities                      925        925            587
Liabilities subject to compromise      --        228,302        --
Total liabilities                      335,461    506,765        508,742
                                                              
Commitments and contingencies                                  
                                                              
Stockholders' equity (deficit):                                
Predecessor preferred stock, $0.001
par value per share, 1,000,000 shares  --        --            --
authorized; none outstanding
Predecessor common stock, $0.001 par
value per share, 150,000,000 shares    --        24            24
authorized; 24,599,159 and 24,597,856
shares issued, respectively
Predecessor capital in excess of par             446,232       444,456
value
Predecessor treasury stock, at cost,
5,420,210 and 5,420,210 shares,        --        (186,637)      (186,637)
respectively
Successor preferred stock, $0.001 par
value per share, 500,000 shares        --        --            --
authorized; none outstanding
Successor common stock, $0.001 par
value per share, 2,000,000 shares      1          --            --
authorized; 1,000,004 shares
outstanding
Successor capital in excess of par     120,955    --            --
value
Accumulated other comprehensive income (7)        22,381         22,308
(loss)
Retained earnings (accumulated         16,943     (361,192)      (195,125)
deficit)
Total stockholders' equity (deficit)   137,892    (79,192)       85,026
Total liabilities and stockholders'    $473,353 $427,573     $593,768
equity (deficit)

CONTACT: Glenn Wiener
         IR@SchoolSpecialty.com
         Tel: 212-786-6011

School Specialty, Inc.
 
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