School Specialty Inc.: Announces its fiscal 2015 second quarter


Results and Provides Corporate Updates



GREENVILLE, Wis., Dec. 4, 2014 (GLOBE NEWSWIRE) — School Specialty,
Inc. (OTCQB:SCOO) (“School Specialty” or “the Company”), a leading
distributor of supplies, furniture and both supplemental and curriculum
products to the education marketplace, today announced its fiscal 2015
second quarter and six month results for the period ended October 25,
2014. The Company also announced today changes in its senior leadership
team and provided updates on its outlook for fiscal 2015.



Joseph M. Yorio, President and Chief Executive Officer of School
Specialty stated, “Our revenues through the first half of the year came
in a little below expectations as some school construction project
orders were delayed, growth in sales of technology products were not as
strong as expected and initiatives to drive sales in the early
childhood market have yet to take hold. Despite this, we have been very
successful in executing our strategy as revenues increased throughout
our core public school districts, and across many of our targeted
geographies and product categories. Transactional product sales were
up, and we had solid year-over-year growth in our e-tail and retail
channels. Our customer relationships remain strong and we believe we
are positioned for modest growth in the second half of the year and
more growth next year with the improvements in our sales force
structure and product assortment, and with opportunities in new
markets.”



Second Quarter Financial Results (compares three months ended October
25, 2014 and October 26, 2013)


— Revenues were $238.7 million, a decline of 2.8% as compared to revenues
of $245.6 million, which includes $1.7 million of revenues from printing
plants that were divested in last year’s third quarter. Distribution
segment revenues decreased 3.3% or $7.0 million, which includes the
divestiture of printing plants, and Curriculum segment revenues, were up
0.2% or $0.1 million. Sales of the Company’s student planners and agendas
product line declined approximately $0.9 million year-over-year in the
second quarter and approximately $2.8 million of the decline was related
to timing of furniture sales related to various school construction
projects the Company believes to have shifted into the second half of
fiscal 2015. The remaining product lines within the Company’s
Distribution segment were down $1.6 million or 1.4%.


— Gross profit margin was 36.4% as compared to 38.0%. Distribution segment
gross margin was 34.2% as compared to 35.6%, and Curriculum segment gross
margin was 51.1% as compared to 54.3%. Lower sales and margins of student
planners and agendas, higher product development amortization and product
mix shift adversely impacted consolidated gross profit margins and was
partially offset by higher margin curriculum products.


— Selling, general and administrative (SG&A) expenses were $67.9
million as compared to $71.7 million, a decrease of $3.8 million or 5.3%.
SG&A attributable to the Distribution and Curriculum segments
decreased $4.4 million and Corporate SG&A increased $0.6 million.
Lower depreciation and amortization expense and declines in marketing
costs and compensation related expenses led to lower SG&A within the
business segments, partially offset by additional outbound transportation
costs as a result of the ongoing distribution center consolidation. The
increase in Corporate SG&A is related primarily to improvements in
implementation costs such as consulting fees and warehouse implementation
costs associated with transitioning the majority of fulfillment
activities to the Company’s Mansfield, OH distribution center.


— The Company recorded $1.9 million of charges related primarily to
severance and lease termination estimates as compared to $2.2 million of
bankruptcy-related restructuring charges.


— Operating income was $17.0 million as compared to operating income of
$19.2 million. Net income was $11.9 million or net income per share of
$11.92 compared with net income of $14.7 million and net income per share
of $14.70.


— Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA) was $30.2 million as compared to $32.9 million.



Six Month Financial Results (compares six months ended October 25, 2014
and combined six months ended October 26, 2013)



As a result of the emergence from bankruptcy occurring six weeks into
fiscal 2014, management believes that the presentation of Non-GAAP
Financial Information – Combined Results for the first six months of
fiscal 2014 offers a useful non-GAAP normalized comparison to GAAP
results of the Successor Company for the six months ended October 25,
2014. 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.




— Revenues were $438.1 million, a decline of 2.2% as compared to $447.8
million, which includes $4.3 million of revenues from printing plants
that were divested in fiscal 2014. Distribution segment revenues
decreased 3.6% or $13.8 million, including the divestiture of printing
plants. The student planner and agenda products accounted for $8.2
million of the decline, while the remaining categories in the
Distribution segment were down $2.3 million, or 1.1%. Additionally, the
Company’s furniture business was up $1.0 million compared to the prior
year. Curriculum segment revenues increased 6.9%, or $4.1 million,
primarily related to the adoption of a state science curriculum in Texas
during the first quarter of fiscal 2015.


— Gross profit margin was 37.7% as compared to 39.4%. Distribution segment
gross margin was 35.5% as compared to 37.2%, and Curriculum segment gross
margin was 51.1% as compared to 53.9%. As with the three month results,
lower sales and margins of student planners and agendas, higher product
development amortization and product mix shift adversely impacted
consolidated gross profit margins in the first half of fiscal 2015 and
was partially offset by higher margin curriculum products.


— Selling, general and administrative (SG&A) expenses were $129.8
million as compared to $136.3 million, a decrease of $6.5 million or
4.8%. SG&A attributable to the Distribution and Curriculum segments
decreased $8.4 million and Corporate SG&A increased $1.9 million.
Driving the declines in the business segments were lower marketing costs,
compensation and benefit costs, as well as lower depreciation and
amortization expenses for the comparable six month periods. This was
partially offset by additional outbound freight costs related to the
Company’s DC consolidation initiatives, as well as higher Corporate
SG&A expenditures associated with the implementation of various
Process Improvement Programs and restructuring initiatives.


— The Company recorded $2.1 million of restructuring charges related
primarily to severance and adjustments to estimated lease termination
costs associated with a prior year closure of a distribution center as
compared to $3.6 million of bankruptcy-related restructuring charges.


— Operating income was $33.5 million as compared to operating income of
$36.7 million. Net income was $22.9 million or net income per share of
$22.94 compared with net income of $107.7 million and net income per
share of $35.66.


— Adjusted EBITDA was $57.4 million as compared to Adjusted EBITDA of $61.2
million.


Executive Leadership Updates



The Company announced today changes in its executive leadership team.


Todd Shaw, who joined in July 2014 as Vice President, Operational
Excellence and Continuous Improvement and was later given the added
responsibilities of merchandising and supply chain management, has been
promoted to Executive Vice President, Operations. Mr. Shaw will now
lead all Operations, including management of the distribution
centers/warehouses, supply chain, procurement, transportation,
logistics, customer service, and merchandising functions. Additionally,
as part of the Company’s continued operational realignment initiatives,
Joe Geltz, previously a senior member of the operational team with
Staples and Corporate Express, has joined School Specialty as Sr.
Director of Distribution Center Operations based out of the Company’s
Mansfield distribution center.



The Company also announced that Bodie Marx, who joined School Specialty
as General Manager of Science in October 2013, has been appointed
Senior Vice President of Curriculum Sales, responsible for all
curriculum products. Mr. Marx has over 35 years of experience in the
industry, having most recently served as a Senior Vice President with
McGraw-Hill School Publishing. The Company is in the advanced stages of
identifying an executive to assume the role of Executive Vice President
and Chief Sales Officer, a new position which will assume managerial
responsibility for the entire sales organization, including both the
Distribution and Curriculum business segments, and expects this role to
be filled in January 2015.



As previously announced in October 2014, Ryan Bohr joined School
Specialty as its new Executive Vice President and Chief Financial
Officer. Kevin Baehler, who was named Interim Chief Financial Officer
in January 2014, was named Senior Vice President and Chief Accounting
Officer as part of this transition.



Mr. Yorio added, “The changes to the leadership team have added a
significant amount of relevant experience and proven execution ability.
Many members of the team we have and are continuing to assemble have
worked together for years and I am confident that collectively, we have
the right skill sets, expertise and vision to continue our
transformation and drive value for our customers and our shareholders.”



Financial Outlook



The Company today provided updates to its outlook for fiscal 2015.
Management estimates that revenues will be approximately $625 million –
$640 million for fiscal 2015, as compared to $630.7 million reported in
the prior year, which includes $4.3 million of revenues from printing
plants that were divested. The updated top-line forecast is based on
lower revenues through the first half of the fiscal year and the
potential that not all of the shortfall, including certain timing
related items, can be recovered in the second half of the fiscal year.


There remains great optimism in the potential for higher revenue growth
in the coming year as a result of ongoing improvements in product
assortment and innovation, the newly implemented sales coverage model
and new initiatives the Company expects to introduce over the coming
year. The Company also today is reaffirming its Adjusted EBITDA
guidance of $48 million – $54 million for fiscal 2015, as a result of
continued efficiency improvements and lower operating expenses. Capital
expenditures are still anticipated to be approximately $17 million –
$19 million.



Mr. Yorio concluded, “We continue to implement changes at all levels of
our organization and across all departments to be more competitive in
the marketplace and to deliver an unparalleled level of service for our
customers. Operationally, we still have significant room for
improvement, both in terms of cost management and our processes. We
intend to continue to invest in our DC’s, our systems and across our
supply chain to become quicker and more efficient. New sourcing,
procurement and merchandising initiatives are expected to drive
innovation in our future offerings; all of these areas are critical to
improving our financial performance. Furthermore, I am focused on
unlocking the collective potential and vision of the team members
across our organization as the depth of industry knowledge and
expertise of our people is truly unmatched. I look forward to providing
further updates on our operational and financial successes as the year
progresses.”



School Specialty intends to publish an accompanying presentation on its
financial results shortly. The Company will be hosting a conference
call and webcast on Friday, December 5, 2014 at 10 a.m. Eastern Time.
Speaking from management will be Joseph M. Yorio, School Specialty’s
President and Chief Executive Officer and Ryan M. Bohr, the Company’s
Executive Vice President and Chief Financial Officer.



Conference Call Information


— Toll-free number: 877-266-0479 / International number: 920-663-6267 /
Conference ID: 41343384


Replay Information




— Replay number: 855-859-2056 / International replay number: 404-537-3406 /
Conference ID: 41343384



For those who will be unable to participate, a teleconference replay
will be available approximately two hours after the completion of the
call and will last for one week (12/5/14 – 12/12/14). Interested
parties can also participate on the live webcast or can access the
archived call shortly thereafter, by visiting the School Specialty
website in the Investor Relations section at
http://investors.schoolspecialty.com.



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 School Specialty’s
future financial condition, results of operations, expectations, plans,
or prospects, including the information under the heading “Financial
Outlook”, constitute forward-looking statements. Forward-looking
statements also include those preceded or followed by the words
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,”
“may,” “plans,” “projects,” “should,” “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
26, 2014, which factors are incorporated herein by reference. Any
forward-looking statement in this release speaks only as of the date in
which it is made. 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



Predecessor

Non-GAAP

Successor Company Successor Company Company Combined


—————————————————————————-




Three Months Three Months Six Months Twenty Six Weeks Six Months


Ended Ended Ended Weeks Ended Ended Ended


October 25, October 26, October October 26, June 11, October


2014 2013 25, 2014 2013 2013 26, 2013


—————————————————————————-



Revenues $ 238,670 $ 245,629 $ 438,139 $ 389,128 $ 58,697 $ 447,825


Cost of revenues 151,848 152,424 272,751 236,165 35,079 271,244


—————————————————————————-


Gross profit 86,822 93,205 165,388 152,963 23,618 176,581


Selling, general and administrative
expenses 67,893 71,713 129,835 108,819 27,473 136,292


Facility exit costs and restructuring 1,929 2,249 2,062 3,605 — 3,605


—————————————————————————-


Operating income (loss) 17,000 19,243 33,491 40,539 (3,855) 36,684


Other expense (income):

Interest expense 5,206 4,605 10,481 7,426 3,235 10,661


Change in fair value of interest rate
swap 42 622 29 622 — 622


Refund of early termination fee — (4,054) — (4,054) — (4,054)


Reorganization items, net — 3,367 271 4,647 (84,799) (80,152)


—————————————————————————-


Income before provision for (benefit
from) income taxes 11,752 14,703 22,710 31,898 77,709 109,607


Provision for (benefit from) income taxes (171) 6 (227) 258 1,641 1,899


—————————————————————————-


Net income $ 11,923 $ 14,697 $ 22,937 $ 31,640 $ 76,068 $ 107,708


============================================================================



Weighted average shares outstanding:

Basic 1,000 1,000 1,000 1,000 18,922


Diluted 1,000 1,000 1,000 1,000 18,922



Net Income per Share:

Basic $ 11.92 $ 14.70 $ 22.94 $ 31.64 $ 4.02 $ 35.66


Diluted $ 11.92 $ 14.70 $ 22.94 $ 31.64 $ 4.02 $ 35.66


Adjusted Earnings before interest,
taxes, depreciation,
amortization, bankruptcy-related
costs, restructuring and impairment
charges (EBITDA) reconciliation:

Net income $ 11,923 $ 14,697 $ 22,937 $ 107,708


Provision for (benefit from) income
taxes (171) 6 (227) 1,899


Reorganization items, net — 3,367 271 (80,152)


Restructuring costs 1,929 2,249 2,062 3,605


Restructuring-related costs incl in
SG&A 3,164 2,568 5,706 3,807


Change in fair value of interest rate
swap 42 622 29 622


Early termination fee — (4,054) — (4,054)


Depreciation and amortization expense 4,683 6,613 9,052 12,463


Amortization of development costs 3,278 2,199 6,949 4,596


Net interest expense 5,206 4,605 10,481 10,661


Stock-based compensation 141 — 141 —


—————————————- ———–


Adjusted EBITDA $
30,195 $ 32,872 $ 57,401 $ 61,155


======================================== ===========



SCHOOL SPECIALTY, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Thousands, Except Share Data)



Successor Company


——————————————



October 25, April 26, October 26,


2014 2014 2013
————————————

——
ASSETS

Current assets:

Cash and cash equivalents

$ 10,253 $ 9,008 $ 10,671
Accounts receivable, less allowance for doubtful accounts of $1,145, $984
and $2,228, respectively

117,990 62,631 122,180


Inventories 70,147 93,387 67,744


Deferred catalog costs 2,351 8,057 3,433


Prepaid expenses and other current assets 16,498 18,043 14,087


Refundable income taxes 554 — 5,024


Assets held for sale 2,200 2,200 2,928


——————————————


Total current assets
219,993 193,326 226,067


Property, plant and equipment, net 37,618 39,045 37,567


Goodwill 21,588 21,588 25,535


Intangible assets, net 46,009 48,251 46,681


Development costs and other 32,034 36,646 36,847


Deferred taxes long-term 13 48 51


Investment in unconsolidated affiliate 715 715 715


——————————————


Total assets
$ 357,970 $ 339,619 $ 373,463


==========================================



LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities – long-term debt $ 10,273 $ 12,388 $ 5,334


Accounts payable 36,348 42,977 25,763


Accrued compensation 12,046 8,966 13,144


Deferred revenue 2,928 2,613 3,088


Other accrued liabilities 14,640 14,460 19,310


——————————————


Total current liabilities
76,235 81,404 66,639


Long-term debt – less current maturities 156,510 153,987 152,227

Other liabilities 807 1,171 2,107


——————————————


Total liabilities
233,552 236,562 220,973


——————————————



Stockholders’ equity:

Preferred stock, $0.001 par value per share, 500,000 shares authorized;
none outstanding
— — —


Common stock, $0.001 par value per share, 2,000,000 shares authorized;
1,000,004 shares outstanding
1 1 1


Capital in excess of par value
119,533 120,955 120,955


Accumulated other comprehensive loss (568) (414) (106)


Retained earnings (accumulated deficit) 5,452 (17,485) 31,640


——————————————


Total stockholders’ equity
124,418 103,057 152,490


——————————————


Total liabilities and stockholders’ equity
$ 357,970 $ 339,619 $ 373,463


==========================================


CONTACT: Company Contact

Ryan Bohr

Ryan.Bohr@SchoolSpecialty.com

Tel: 920-882-5868



Company Contact

Glenn Wiener

IR@SchoolSpecialty.com

Tel: 212-786-6011