School Specialty Announces Fiscal 2014 Second Quarter Results

School Specialty Announces Fiscal 2014 Second Quarter Results

  *Second Quarter Revenues Increased 3.7% Compared to the Prior Year
  *Strong Cash Generation and ABL Fully Repaid Shortly After End of Quarter
  *Process Improvement Programs Ongoing and Expected to Generate Anticipated
    FY14 Savings
  *Management Reiterates Revenue and EBITDA Guidance

GREENVILLE, Wis., Dec. 16, 2013 (GLOBE NEWSWIRE) -- School Specialty Inc.
(OTCQB:SCOO) ("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 second quarter and six month
results for the period ended October 26, 2013.

Commenting on the Company's performance, Jim Henderson, School Specialty's
Chairman, and Interim President and Chief Executive Officer stated, "Our
second quarter came in mostly as anticipated and we're tracking to plan
through the first half of the year. We recognized the business that was
delayed last quarter and successfully executed on higher order flow in the
second quarter, and in our peak selling season. We feel comfortable with our
prior revenue and EBITDA guidance for FY14 and our balance sheet and cash
generation continues to improve. While business challenges remain, our end
markets appear to have stabilized, we're executing on our plan and we're
carrying out the process improvement initiatives we previously discussed.
Assuming economic conditions continue to improve, I believe the steps we're
taking now will position us for sustainable growth and profitability in the
years ahead."

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 court jurisdiction. In accordance with Financial Accounting
Standards Board Accounting Standards Codification ("ASC") 852,
Reorganizations, for periods including and subsequent to the filing of the
Chapter 11 petition through the bankruptcy emergence date of June 11, 2013
(the "Effective Date"), 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 October 26, 2013 and for the twenty weeks then
ended and any references to "Successor" or "Successor Company" relate to 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 the 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 six month period.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 October 26, 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.

Second Quarter Financial Results

Revenues for the three months ended October 26, 2013 were $245.6 million, an
increase of 3.7% or $8.7 million over $236.9 million reported for the
Predecessor Company and for the comparable three months ended October 27,
2012.This increase was driven by higher revenues in the Distribution segment
(formerly referred to as "Educational Resources"), as the Company saw
increases in both its supplies and furniture businesses, up $10 million and $2
million over the comparable year-ago period, respectively.This increase was
partially offset by a $2.8 million decline in Curriculum (formerly referred to
as "Accelerated Learning") revenues, which were adversely impacted by
decreased school spending for agenda products of approximately $6 million
during the quarter.Sales of Science-based curriculum products were up
approximately $3 million during the quarter as well.As expected, total second
quarter sales were positively impacted by the growing backorders the Company
experienced towards the end of its fiscal first quarter.

Gross profit margin for the three months ended October 26, 2013 was 37.9% as
compared to 39.1% for the Predecessor Company's three months ended October 27,
2012.This decline of 120 basis points is due to lower vendor rebates for the
comparable quarter as well as a shift in product mix, particularly the lower
sales of Curriculum products as a percentage of overall sales.Consistent with
prior statements, the Company expects gross margins to trend generally in line
with recent years.

Selling, general and administrative (SG&A) expenses for the three months ended
October 26, 2013 were $71.7 million as compared to $67.4 million for the
comparable year-ago period, an increase of $4.3 million.This increase was
driven by higher corporate G&A expenses due to approximately $2.6 million of
bankruptcy-related and other non-recurring costs, specifically transportation
and warehouse costs related to the processing of incremental backorders and
consulting fees associated with the design and implementation of process
improvement programs.Also, additional SG&A expense was incurred as furloughs
from the prior year were not continued this year.SG&A expenses within the
Distribution and Curriculum segments were up $0.3 million and $1.1 million
respectively for the comparable fiscal 2014 and fiscal 2013 periods, with both
segments impacted by depreciation and amortization associated with the
fresh-start valuation adjustments recorded as of the Effective Date, and other
variables such as transportation and warehouse expenses.Additionally, the
Company recorded $2.2 million of restructuring charges during the fiscal 2014
second quarter, which consisted of severance related costs and expenses
associated with the shutdown of printing plants and professional fees related
to the Company's restructuring.

Operating income for the three months ended October 26, 2013 was $19.2 million
as compared to operating income of $25.3 million for the three months ended
October 27, 2012.

Net interest expense decreased $4.7 million, from $9.3 million in the second
quarter of fiscal 2013 to $4.6 million in the second quarter of fiscal
2014.This decrease was due primarily to $3.8 million of interest expense
associated with the Company's convertible debt in the second quarter of fiscal
2013, of which $2.3 million was non-cash interest expense, as well a reversal
of interest expense recorded in conjunction with the Bayside term loan
resulting from the final settlement between Bayside and the Company.These
decreases were partially offset by higher interest expense on the Company's
term loan for the comparable period due to higher average borrowings.

During the third quarter of fiscal 2013, the Company recorded a $25.1 million
prepayment charge related to the acceleration of the obligations under the
Bayside term loan credit agreement.The $25.1 million early termination fee
plus approximately $1.3 million of potential interest expense was placed in an
escrow account and released to Bayside early in the second quarter of fiscal
2014.Shortly thereafter, the parties reached an agreement whereby the early
termination fee was fixed at $21 million.As such, Bayside would retain $21
million and refund the Company $5.4 million of excess amounts funded into the
escrow.The refund took place in the fiscal second quarter of 2014, of which
$4.1 million was a partial refund of the early termination fee and the
remainder was a refund of interest expense.

The Company recorded $3.4 million of expenses for reorganization items in the
second quarter of fiscal 2014, which consisted primarily of fees associated
with activities as part of the Reorganization Plan.

Net income for the second quarter of fiscal 2014 was $14.7 million compared
with $14.1 million in the comparable period last year.On a diluted per share
basis, net income was $14.70 for the three months ended October 26, 2013 as
compared to $0.75 in the three months ended October 27, 2012.

Adjusted earnings before income taxes, depreciation and amortization (EBITDA)
was $32.9 million in the fiscal 2014 second quarter as compared to $34.2
million in the comparable fiscal 2013 period.

Process Improvement Program Update

The Company's Process Improvement Program, which launched during the fiscal
2014 second quarter, has gained traction and management reiterated its prior
financial projections related to this program:

  *$3-$5 million in FY14 savings.
  *Over $20 million in one-time cash generation in FY14.
  *Longer-term annualized savings targeted at $12-$15 million.

The Company also confirmed today that Phase I and some Phase II roll-out
initiatives are underway and tracking in line with plan:

  *Distribution Center consolidation underway; expected to be completed by
    March 2014.
  *Warehouse Reconfiguration underway; part of ongoing continuous improvement
    program to improve customer experience.
  *SKU rationalization program underway; 11,000 SKU's removed from inventory
    and systems; refocused line-up for 2014 with improved customer interface.
  *Customer Care enhancements underway; visualization and process mapping
    programs in development with increased investments in technology.
  *S&OP refinement underway; process mapping completed; rolled out across
    multiple function areas and locations; full integration planned in FY14.
  *Market segmentation and process mapping of sales, marketing and
    merchandising expected to be part of phase II – January 2014 roll-out.

Mr. Henderson continued, "We've done a lot in a relatively short period of
time, and I'm proud of the School Specialty team.Our organization really
understands the needs of our educational system and cares about our teachers
and students.With the improvements and savings from our Process Improvement
Program, we will be in a better position to invest in our business and
continuously improve – whether it's our products, services or
technology.Coupled with the anticipated uptick in general educational
spending, further adoption of Common Core Standards and Next Generation
Science Standards, and the anticipated growth in supplemental instructional
materials we feel the Company will be better positioned to take advantage of
positive trends in our market in FY15 and beyond."

Six Month Financial Results

Non-GAAP combined results for the six months ended October 26, 2013 include
results of operations for the Successor Company for the twenty weeks ended
October 26, 2013 and the Predecessor Company for the six weeks ended June 11,
2013.These results are compared to the Predecessor Company for the six months
ended October 27, 2012.

Combined revenues for the six months ended October 26, 2013 were $447.8
million, an 8.4% decline from revenues of $489.0 million in the comparable
year ago period.Distribution segment combined revenues decreased 7.8% and
Curriculum segment combined revenues declined by 9.7%, when comparing the
fiscal 2014 and fiscal 2013 six month periods.Within Curriculum,
approximately $5 million of the decline was related to large curriculum orders
in two states which were not expected to recur in the current year, as well as
approximately $8.5 million related to our student planners and agenda
products. Revenues through the first half of the year are tracking in line
with Company projections.

Combined gross profit margin for the six months ended October 26, 2013 was
39.4% as compared to 40.1% for the Predecessor Company's six months ended
October 27, 2012.This decline of 70 basis points is due to a combination of
reduced vendor rebates in the current year, as well as higher product
development amortization in the Company's Curriculum segment.

Combined selling, general and administrative (SG&A) expenses for the six
months ended October 26, 2013 were $136.3 million as compared to $142.5
million for the comparable year-ago period, a decrease of $6.2 million.This
decrease was primarily a result of cost improvement programs the Company has
and continues to implement, as well as variable selling costs associated with
decreased revenues.Additionally, the Company recorded $3.6 million of
restructuring charges during the fiscal 2014 six month period, which consisted
of severance related costs and expenses associated with the shutdown of
printing plants.

Combined operating income for the six months ended October 26, 2013 was $36.7
million as compared to operating income of $53.8 million for the six months
ended October 27, 2012.

Combined interest expense decreased $8.6 million, from $19.3 million for the
six months ended October 27, 2012 to $10.7 million for the six months ended
October 26, 2013.This decrease was due primarily to $7.4 million of interest
expense on the Company's convertible debt for the six months ended October 27,
2012, of which $4.5 million was non-cash interest expense.Additionally,
interest expense for the six months ended October 27, 2012, included $2.5
million of debt issuance cost writes-offs, as compared to zero in the current
year, associated with the debt refinancing completed in May 2012.These
decreases were partially offset by higher interest expense on the Company's
term loans for the comparable periods due to higher average borrowings,
partially offset by a decrease in the borrowing rate.

During the third quarter of fiscal 2013, the Company recorded a $25.1 million
prepayment charge related to the acceleration of the obligations under the
Bayside term loan credit agreement.The $25.1 million early termination fee
plus approximately $1.3 million of potential interest expense was placed in an
escrow account and released to Bayside early in the second quarter of fiscal
2014.Shortly thereafter, the parties reached an agreement whereby the early
termination fee was fixed at $21 million.As such, Bayside would retain $21
million and refund the Company, $5.4 million of excess amounts funded into the
escrow.The refund took place in the fiscal second quarter of 2014, of which
$4.1 million was a partial refund of the early termination fee and the
remainder was a refund of interest expense.

In the six months ended October 26, 2013, the Company recorded an $80.2
million net reorganization gain.This consists of $162.4 million of
cancellation of indebtedness income related to the settlement of prepetition
liabilities and changes in the Predecessor Company's capital structure related
to the Reorganization Plan, offset by $30.2 million of fresh start
adjustments, $21.4 million of cancellation of debt upon the issuance of
equity, $18.5 million of professional, financing and other fees, $7.0 million
of contract rejections and $5.1 million of other reorganization adjustments.

Combined net income for the six month period ended October 26, 2013 was $107.7
million compared with $32.5 million in the comparable period last year.On a
diluted per share basis, net income was $35.66 for the six months ended
October 26, 2013 as compared to $1.72 for the six months ended October 27,
2012.

Combined adjusted earnings before income taxes, depreciation and amortization
(EBITDA) was $61.2 million in the fiscal 2014 six month period as compared to
$71.8 million in the comparable fiscal 2013 period.This decline was primarily
related to lower sales volumes for the comparable six month periods, partially
offset by savings realized in SG&A.

Market Outlook

Based on year-to-date performance and the market outlook for the remainder of
the year, the Company today reiterates its prior guidance.Management believes
that revenues will be approximately $620-$630 million, trending towards the
mid to high-end of that range.Adjusting for public company expenses of
approximately $2 million, which were not part of the reorganization plan, the
Company continues to project Adjusted EBITDA of $40-$44 million.
Additionally, 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 be approximately $18 million.

Mr. Henderson concluded, "We continue to make strides in strengthening our
balance sheet and remain focused on cash generation, two of our top corporate
priorities.I'm also pleased to report that shortly after the end of the
quarter, we fully repaid our ABL and lowered our interest payments.With
further improvements expected in terms of working capital management and cash
generation in addition to the operational savings we expect to generate as a
result of Phase I of the Process Improvement Program, we should be able to
generate better returns in fiscal 2015, especially if market conditions
continue to improve. We're realigning our business to become a better
resource for our customers, and all of us at School Specialty remain focused
on enhancing long-term value."

School Specialty intends to publish 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 headings "Process Improvement Program Update" and "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.

                             –Tables to Follow –

SCHOOL SPECIALTY, INC.
CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited / Non-GAAP
                                                                               
                                                                                           
                           Successor  Predecessor Successor  Predecessor Non-GAAP   Predecessor
                            Company   Company    Company   Company    Combined   Company
                            Three      Three       Twenty     Six Weeks   Six Months Six Months
                            Months     Months      Weeks      Ended       Ended      Ended
                           Ended      Ended       Ended      June 11,   October   October 27,
                            October   October    October   2013        26, 2013   2012
                            26, 2013   27, 2012    27, 2013
                                                                               
Revenues                    $245,629 $236,866  $389,128 $58,697   $447,825 $489,005
Cost of revenues            152,424   144,166     236,165    35,079      271,244    292,708
Gross profit                93,205     92,700      152,963    23,618      176,581    196,297
Selling, general and        71,713    67,364      108,819    27,473      136,292    142,480
administrative expenses
Restructuring charges       2,249     --         3,605      --         3,605      --
Operating income            19,243     25,336      40,539     (3,855)     36,684     53,817
Other expense:                                                                  
Impairment long-term asset  --        1,414      --        --         --        1,414
Interest expense            4,605     9,315      7,426     3,235      10,661    19,281
Change in fair value of     622       --         622       --         622       --
interest rate swap
Refund of early termination (4,054)   --         (4,054)   --         (4,054)   --
fee
Reorganization items, net   3,367     --         4,647     (84,799)   (80,152)  --
Income before provision for 14,703     14,607      31,898     77,709      109,607    33,122
income taxes
Provision for income taxes  6          343         258        1,641       1,899      602
Income before income of     14,697     14,264      31,640     76,068      107,708    32,520
unconsolidated affiliate
Income of unconsolidated    --        (137)      --        --         --        (18)
affiliate
Net income                  $14,697  $14,127   $31,640  $76,068   $107,708 $32,502
                                                                               
                                                                               
Adjusted Earnings before
interest, taxes,
depreciation,amortization,
bankruptcy-related                                                              
costs,restructuring and
impairmentcharges (EBITDA)
reconciliation:
Net income                  $14,697  $14,127                        $107,708 $32,502
Equity in (income)/losses   --        137                             --        (18)
of unconsolidated affiliate
Provision for income taxes  6         343                             1,899     602
Reorganization items, net   3,367     --                              (80,152)  --
Impairment long-term asset  --        1,414                           --        1,414
Bankruptcy related          2,249     --                              3,605     --
restructuring costs
Bankruptcy-related costs    2,568     --                              3,807     --
incl in SG&A
Change in fair value of     622       --                              622       --
interest rate swap
Early termination fee       (4,054)   --                              (4,054)   --
Depreciation and            6,613     6,969                           12,463    13,985
amortization expense
Amortization of development 2,199     1,926                           4,596     3,994
costs
Net interest expense        4,605     9,315                           10,661    19,281
Adjusted EBITDA             $32,872  $34,231                        $61,155  $71,760


SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In Thousands, Except Share Data)
                                                           
                             Successor        Predecessor Company
                              Company
                             October 26, 2013 April 27, 2013 October 27, 2012
ASSETS                                                      
Current assets:                                             
Cash and cash equivalents     $10,671        $20,769      $5,577
Restricted cash               0                26,302         2,708
Accounts receivable, less
allowance for doubtful        122,180          58,942         119,275
accounts of $2,176, $926 and
$2,597, respectively
Inventories                   67,744           92,582         84,769
Deferred catalog costs        3,433            8,924          3,377
Prepaid expenses and other    14,087           29,901         13,371
current assets
Assets held for sale          2,928            --            --
Refundable income taxes       5,024            9,793          3,520
Deferred taxes                --              --            4,797
Total current assets          226,067          247,213        237,394
Property, plant and           37,567           39,209         50,836
equipment, net
Goodwill                      25,535           --            41,093
Intangible assets, net        46,681           110,306        119,120
Development costs and other   36,847           30,079         35,807
Deferred taxes long-term      51               51             390
Investment in unconsolidated  715              715            9,882
affiliate
Total assets                  $373,463       $427,573     $494,522
                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)               
Current liabilities:                                        
Current maturities -          $5,334         $198,302     $10,833
long-term debt
Accounts payable              25,763           22,897         63,770
Accrued compensation          13,144           7,197          10,974
Deferred revenue              3,088            2,237          3,481
Accrued fee for early         0                25,000         --
termination of long-term debt
Other accrued liabilities     19,310           21,905         20,423
Total current liabilities     66,639           277,538        109,481
Long-term debt - less current 152,227          --            284,519
maturities
Other liabilities             2,107            925            587
Liabilities subject to        --              228,302        --
compromise
Total liabilities             220,973          506,765        394,587
                                                           
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 --               446,232        445,059
of par value
Predecessor treasury stock,
at cost, 5,420,210 and        --              (186,637)      (186,637)
5,420,210 shares,
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,   1                --            --
2,000,000 shares authorized;
1,000,004 shares outstanding
Successor capital in excess   120,955          --            --
of par value
Accumulated other             (106)            22,381         22,486
comprehensive income (loss)
Retained earnings             31,640           (361,192)      (180,997)
(accumulated deficit)
Total stockholders' equity    152,490          (79,192)       99,935
(deficit)
Total liabilities and
stockholders' equity          $373,463       $427,573     $494,522
(deficit)

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

School Specialty, Inc.
 
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