School Specialty Inc. Annual Report 2000

FY2000 Annual Report · School Specialty Inc.

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More than

100

years of
experience
in education
commerce

annual report 2000

Changes in education and the explosion of virtual
learning environments has positioned the importance
of clicks within the education market. For School
Specialty over 100 years of practical experience
working with schools and teachers provides us the
unique opportunity to be the pre-eminent and
dominant education commerce resource. At the
heart of our organization is SERVICE and the growth
driven by conscious consideration of the best
resources for educators along with the most efficient
processes.This continuous growth of resource and
process has truly come full circle as products and
technology can now converge and the education
commerce solution will follow the leader...
School Specialty.

How
School
Specialty
Grows

As the largest and fastest-growing

supplier of non-textbook education
products in the U.S., School Specialty has
become “The Nation’s Education Resource”.
We achieved this leadership position by:
Offering name-brand products
through our traditional, leading specialty, and
Internet brands.
Providing one-stop shopping
with more than 72,000 products for
pre-kindergarten through 12th grade.

Using a multi-tiered marketing strategy
our 300 plus direct sales force reaches
171,500 district officials and 200,000
administrators at more than 112,000 schools.
We contact 3.1 million teachers across the
country by mailing 13 million catalogs.
We also use the Internet to reach these
customers with the additional benefit of reaching
consumers, such as parents and students.
Acquiring companies
that increase our present product offering and
account penetration.

Brands

Products / Markets
.Comprehensive selection of classroom

supplies, instructional materials,
educational games, art supplies, school
forms, educational software, physical
education equipment, audio-visual
equipment, school furniture, and indoor
and outdoor equipment marketed to
administrative decision makers

.Early childhood education products and

materials for pre-kindergarten through
third grade

.Art supplies and instructional materials,

including paints, brushes, paper, art
metals and glass, ceramics and crafts
for beginner through professional artists

.Laboratory supplies, equipment and
.Industrial arts/technical materials for

furniture for science classrooms

Market Advantage
.Largest furniture resale source in the U.S.
.Largest direct sales force in the market
.Custom programs for supply fulfillment and

project management

Milestones In 2000
. Decreased the number of call centers
.Integrated backroom operations and
.Increased direct sales force by 12%

catalogs of two companies

from six to two

.Over 1,000 proprietary/exclusive products from
.Offers one of the largest percentages of

Bird-in-Hand Woodworks (including
classroom furniture and equipment)

proprietary products in the company

.Introduced Classroom Designer, an

Internet tool which designs an early
childhood center using Childcraft
furniture

.Invested $2 million in production

facilities to increase capacity and
improve production

.Fully integrated into School Specialty s
.Significantly expanded sales force

operating system

professional artists

.Toll free Art Savvy Hotline staffed with
.Most comprehensive art catalog in the industry
.Offers value-added focus in biology, chemistry,
.Nation s oldest marketer of this product line

physics and earth science

classrooms

.Physical therapy, recreation, and occupa-

tional therapy products as well as prod-
ucts for physically challenged children

.Creates over 50 new proprietary products annually
.Sponsor of the National Physical Education

.Expanded branded product offering
.Reduced the number of catalog titles to

Teacher of the Year Program

improve market focus

.School forms, including student

assignment books, grade books, teacher
planners and other printed forms for
kindergarten through 12th grade

. Offers a line similar to School Specialty

through a fully-integrated e-commerce
website, supported by catalogs for
teachers and curriculum specialists

.Internet targets teachers plus home

school families, churches, parents and
consumers who want educational products

.Business-to-Business (B2B) exchange

that features 72,000 educational
products: 46,000 stocked at School
Specialty and the balance shipped
direct from manufacturers

.Targeted at administrative decision

makers

proprietary products in the company

.Offers one of the largest percentages of
.Offers customization
.Products are easy to order - and the format can
.A market leader
.Dominant internet site designed to attract

speed reimbursement for teachers

teachers and professionals

.First B2B offering in the education industry
.Ease of ordering
.Can search product categories for the best price

.Invested $1 million to improve printing

equipment

.Introduced SmartMatch: allows teachers
.Introduced SmartCart: allows teachers to

to find out what others across the coun-
try are buying by subject and grade level

fill one or more carts, save the informa-
tion while they get approval, then return
to execute their orders

.Signed agreement with Ariba allowing

the creation of an open business
exchange giving vendors of all sizes
access to schools

.Began marketing effort to position site
.At year end, there were 2,400 vendors

as The Education Commerce Solution

represented on the site, processing over
$100,000 in orders per day

Financial Highlights

(In thousands, except per share amounts)

Income Statement Data:
Revenues

Gross Profit
Operating Income Before One-Time Charges
One-Time Charges
Net Income

Per Share Amounts:

Basic
Diluted

Weighted Average Shares Outstanding:

Basic
Diluted

Results Prior to One-Time Charges:

Net Income

Per Share Amounts:

Basic
Diluted

Balance Sheet Data
Total Current Assets
Total Assets
Total Current Liabilities
Long Term Debt
Total Liabilities
Stockholders’ Equity

2000

$ 639,271
233,228
48,642
-
18,515

$ 1.06
1.06

17,429
17,480

$ 18,515

1.06
1.06

$ 201,924
454,849
84,906
144,789
229,856
224,993

% Change

22.5 %
29.6
37.9
-
108.1

73.8 %
76.7

18.6 %
17.8

53.6 %

29.3 %
30.9

1999

$521,704
179,921
35,262
5,274
8,896

0 .61
0 .60

14,690
14,840

$ 12,054

0.82
0.81

$189,046
437,708
73,193
161,691
235,021
202,687

Operating Income
(prior to one-time charges)
($ in mm)

Net Income
(prior to one-time charges)
($ in mm)

Revenues
($ in mm)

40% C A G R

$639
1

$522

$310

$48.6

$35.3

70% C A G R

$11.7

$19.7

77% C A G R

$18.5

$12.1

$7.7

$4.0

($1.9)

$192

$150

$4.9

3
3

4
4

1995 1997 1998 1999 2000

December 31 FYE April

To Our Stockholders:

Fiscal 2000 was a year of outstanding accomplishments. In absolute
terms, we increased net income by 108.1% to $18.5 million on a
revenue increase of 22.5% to $639.3 million. We were only able to
accomplish these results with full participation from all of our
associates and by having a solid focus on our strategic mission.

Dan Spalding
Chairman,
Chief Executive Officer

High tech teaching toys give
young executives a chance to
practice their telephone skills.

Mission Statement
W e s e r v e t h e e d u c a t i o n a l c o m m u n i t y
b y p r o v i d i n g q u a l i t y p r o d u c t s a n d s e r v i c e s
r e l i a b l y, a c c u r a t e l y a n d c o m p e t i t i v e l y.

W e c o m m i t t o t h e t e a m w o r k ,
p r o f e s s i o n a l i s m a n d m u t u a l t r u s t
a n d r e s p e c t i t t a k e s t o a c h i e v e a b s o l u t e
c u s t o m e r , a s s o c i a t e a n d s t o c k h o l d e r
s a t i s f a c t i o n .

We have and will continue to focus on the expectations of our
partners.

For our customers - schools and educators throughout this country:
we delivered an order fill rate of over 99% and implemented a new
24-hour delivery service. We added more than 7,000 new products,
mailed 3 million more catalogs and expanded our field sales force.

For our dedicated associates: we expanded our incentive compensa-
tion program to cover nearly all School Specialty associates and are
committed to conducting semi-annual associate satisfaction surveys.

For our stockholders: we are committed to solid financial perfor-
mance with higher returns on investment. Even in this world of
heavy investment in dot-coms and technology, we are not losing sight
of the importance of positive cash flow.

Goal 1

Long-Term Revenue Growth:

Our goal is to achieve a $1 billion run rate in revenues by the end of
fiscal 2002. While this is a significant challenge, our achievements
in fiscal 2000 and our growth strategies put us on target to accom-
plish this goal.

Growth through Multi-Tiered Marketing Strategy

We reach school district officials and building administrators
through our direct sales force. We reach teachers through the direct
mailing of millions of catalogs. In addition, all of our customers
have access to us through ClassroomDirect.com or JuneBox.com.

No one else in the industry can match the strength of our top-down,
bottom-up marketing strategy. We believe it is a key ingredient in
giving the company a 10% market share - four times larger than our
closest competitor.

Growth through Product Development
Both our high-margin specialty brands and traditional products and
services offer opportunities for growth.

We are especially committed to expanding our Specialty brands’
proprietary products because they command margins 10-20%
higher than other products.

SunPower KIDZ® is one example of a successful new proprietary specialty brand
product. Offered by Sportime, these popular bean bag characters are used for
physical education in grades K-6 to teach children how to throw and catch.

Growth through Acquisitions

Our acquisition strategy targets educational product companies
that: hold a lead position in their markets, increase product breadth
and market penetration while offering the potential for greater
operating efficiencies, and are fully accretive after integration.

Once acquired, companies go through our rigorous integration
process. This includes streamlining or discontinuing product lines,
eliminating redundant SG&A, integrating MIS, enhancing buying
power, improving balance sheet management, and consolidating
distribution.

Growth through Internet Advantage
In fiscal 2000, we began our Internet initiative in earnest. We bring
the strongest assets in the industry to our Internet initiative. Our
relationships with over 3,500 vendors will be leveraged to serve
our 16,000 school district customers in an electronic purchasing
environment introduced to them by our 300 person sales force.

Progress in 2000

We took a number of steps during the year to increase our marketing
effectiveness and efficiency:
• The direct sales force grew more than 10% to over 300 people at

year end. No one else in the industry has a sales team this large or
with this much experience.

• We mailed an additional 3 million catalogs during the year -
featuring over 72,000 SKUs - for a total of 13 million catalogs.

• We exceeded our goal of 10% of revenues from proprietary

products for the year.

Opportunities for 2001
In addition to capitalizing on our Internet opportunities, the following
strategies will help further refine our approach to the market this
year:

• We plan to increase our sales force by 15% to improve our

market penetration.

• We will accelerate our cross-selling efforts among specialty brands.
• We will continue to develop proprietary products. This year, we
will put a special focus on expanding offerings for middle and
high school students.

• Our aggressive acquisition program will continue as we fill the gap
between internal growth and our $1 billion revenue goal. We have
the capital and management resources to make acquisitions in this
highly fragmented industry. Our focus will be expanding product
offerings and enhancing opportunities in neighboring countries.

Goal 2

Expanding Margins:

School Specialty’s goal is to expand operating margins by 50 basis
points a year with an ultimate target of achieving 10%.

Progress in 2000
At 7.6%, operating margins expanded by 85 basis points as a result of :
• Successfully integrating Beckley Cardy and School Specialty,
including consolidating distribution and call centers across
the country.

• Using one central processing system, which handles 77%

of our transactions, and provides great economies of scale.

• Aggressively expanding proprietary products - particularly our
specialty brand product offering which represented 40% of total
revenues.

Opportunities for 2001

• We will upgrade our processing technology - including our

recently installed data warehousing system - to further automate
business processes and help increase return on investment.

• We will consolidate distribution centers. This includes merging

the Sax Arts & Crafts distribution center into the Appleton,
Wisconsin facility and moving Sportime’s Atlanta, Georgia
distribution center into our Mansfield, Ohio operation.

Goal 3

Cash Flow Equal to Net Income Plus
Amortization:

School Specialty generated $31 million in cash from operations in
fiscal 2000. We did this by focusing on managing our current assets
as well as controlling capital expenditures.

We supported a 23% increase in revenues with only a 1% increase in
working capital. We brought our debt to total capitalization ratio
from 46% to 42%, preparing the balance sheet for the next growth
opportunity.

Progress in 2000

We will reduce days’ sales outstanding through our Internet initia-
tives and look at maximizing inventory turns through using more
electronic transfer of information to our vendor partners.

Opportunities for 2001

David Vander Zanden
President,
Chief Operating Officer

Mary Kabacinski
Executive Vice President,
Chief Financial Officer

Goal 4

Internet Objective:

Summary

Outlook for a Strong 2001:

To be the pre-eminent and dominant e-commerce provider of educa-
tional materials to educators in the United States. We see the Internet
as a convergence of technology that can be used to expand our reach to
educators within school systems and further penetrate existing
accounts.

This is a particularly good time to be in our industry. In this election
year, strengthening education has become the #1 political issue. New
student enrollment is expected to reach 500,000. Expenditures per stu-
dent should rise 5%. All of these factors lead to recession resistance.

The rules haven’t changed-
it’s still about profits, operating costs,
customer retention and competition.

Positive market forces, combined with our growth goals and the strate-
gies for achieving them, should bring record revenues for School
Specialty in fiscal 2001. This should keep us on track to achieve our
objective of a $1 billion run rate in revenues by the end of fiscal 2002.

Progress in 2000

• ClassroomDirect.com is the largest and fastest growing Internet in-
itiative in our market place. We designed the site to be attractive
to the teacher as a professional, including 1) low prices on our
brand-name products, 2) value-added programs, such as soft-
ware they can download, and 3) the ability to remember
their orders while teachers are waiting for an approval to
purchase.

To ensure we maintain our market leadership - and that future growth

will be more profitable - requires that we invest in our Internet

division. In the near term it may seem that we are spending this
money on initiatives that cannibalize our existing customer

base. Don’t be fooled. We believe it will not be long before

e-commerce becomes the preferred way to purchase

products and services - and if we are not there first, some

other company will cannibalize our customers.

• With the help of our technology provider, Ariba, JuneBox
.com is evolving into a powerful business-to-business
(B2B) exchange. JuneBox will help School Specialty reach
beyond its original $6 billion market to serve the $84
billion total school spending market.

• The new technology enables JuneBox to automate and

integrate the internal and external commerce processes for buyers,
suppliers and value-added service providers. The technology Ariba
brings will allow school districts to, electron-
ically control teachers’ discretionary spending,
reduce district administrative costs for and
increase their control of product purchases, and
benefit from volume purchasing. Vendors like JuneBox
because 1) it can highlight their full product/service line,
2) it reduces their order cycles by up to 70%, 3) it increases the
efficiency of their order processing, and 4) it gives
them proprietary information about the customers
who purchase their products.

Strategies for 2001

When we developed the Internet division in 1999, it had a run rate of
less than $1 million. Today, it has become the fastest growing segment
of our business. As we watch revenues shoot up each quarter - 400%
between the third and fourth quarters of fiscal 2000 - we set the goal of
$30 million in revenues for fiscal 2001. The following strategies should
help us reach this target:

• We will add more proprietary branded products

to ClassroomDirect.

• We will benefit from the marketing program put

in place earlier in 2000, which offered product discounts and
successfully encouraged teachers to try ClassroomDirect.
• We will roll out the new JuneBox site, powered by Ariba, in
summer 2000. This will enable us to be a true exchange,
connecting vendors and schools directly.

• We will add new vendors to JuneBox, which will increase the

royalty fees - and, in some cases, order processing fees we receive.

• We will leverage our sales force, brands, catalogs and vast

customer base to continue this accelerated growth in Internet
business.

We strongly believe the winning business model of the
future will be developed by the companies that can fully
integrate the traditions of the “bricks” economy with the
strategies and technologies of those in the “clicks”
economy. Through their extraordinary efforts this past
year, our 2,400 associates have proven they can do this.

We greatly appreciate the continued support of our customers,
associates, suppliers, and stockholders.

We are glad to have you on our team at this
exciting time.

Dan Spalding
Chairman,
Chief Executive Officer

David Vander Zanden
President,
Chief Operating Officer

School Specialty, Inc.
July 24, 2000

Think inside the box... JuneBox

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

______________________________

FORM 10-K
______________________________

[(cid:252)]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934: For the fiscal year ended April 29, 2000

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

Commission File No. 000-24385

SCHOOL SPECIALTY, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

1000 North Bluemound Drive
Appleton, Wisconsin
(Address of principal executive offices)

39-0971239
(I.R.S. Employer
Identification No.)

54914
(Zip Code)

Registrant’s telephone number, including area code: (920) 734-5712

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value
(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes (cid:252) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the Registrant, as of July 1, 2000, was
approximately $314,659,898. As of such date, there were 17,464,505 of the Registrant’s shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be

held on August 29, 2000.

(Intentionally left blank)

Item 1. Business

PART I

Unless the context requires otherwise, all references to “School Specialty,” “we” or “our” refer to
School Specialty, Inc. and its subsidiaries. Our fiscal year ends on the last Saturday in April in each year.
In this Annual Report on Form 10-K (“Annual Report”), we refer to fiscal years by reference to the
calendar year in which they end (e.g. the fiscal year ended April 29, 2000 is referred to as “fiscal 2000”).
Note that fiscal 2000 had 53 weeks, while all other fiscal years reported and referenced represent 52 weeks.

Overview

School Specialty is the largest marketer of non-textbook educational supplies and furniture to

schools for pre-kindergarten through twelfth grade. We offer more than 72,000 items through an
innovative two-pronged marketing approach that targets both school administrators and individual
teachers. Our broad product range enables us to provide our customers with one source for virtually all of
their non-textbook school supplies and furniture needs.

We have grown significantly in recent years through internal growth and acquisitions. For the

fiscal year ended April 29, 2000, our revenues were $639.3 million and our operating income was $48.6
million, a 38% increase over fiscal 1999.

Our “top down” marketing approach targets school administrators at the state, regional and local

levels using our network of over 300 sales representatives and our School Specialty general supply and
furniture catalogs. Our “bottom up” approach seeks to reach individual teachers and curriculum
specialists primarily through the mailing of our ClassroomDirect.com general supply catalog and our
seven different specialty catalogs. In January 2000, we mailed over 13 million catalogs to more than
three million teachers and curriculum specialists.

We also use the Internet to market and sell our products, building on the proven two-pronged

marketing approach. “ClassroomDirect.com” is a fully integrated e-commerce website targeted to
teachers and offering over 13,000 items for sale. “JuneBox.com” offers one-stop shopping for all of
School Specialty’s products on-line and also provides a community forum and content aimed at
educators. In the summer of 2000, JuneBox.com will be open to unrelated vendors creating a purchasing
portal for schools.

School Specialty was incorporated as a wholly owned subsidiary by U.S. Office Products in
Delaware in February 1998 to hold its Educational Supplies and Products Division. The predecessor to this
business was incorporated in 1959 and acquired by U.S. Office Products in 1996. In June, 1998, U.S.
Office Products distributed to its shareholders all of the Common Stock of School Specialty in a “spin-off”
transaction. At the same time as this spin-off, School Specialty sold 2,375,000 shares of Common Stock in
an initial public offering and a concurrent offering to several of its officers and directors. On April 16,
1999, School Specialty sold 2,400,000 shares of Common Stock in a secondary public offering, and sold an
additional 151,410 shares on May 17, 1999 to cover over-allotments. Our Common Stock is listed on the
Nasdaq National Market under the symbol “SCHS.” Our principal offices are located at 1000 North
Bluemound Drive, Appleton, Wisconsin 54914, and our telephone number is (920) 734-2756. Our world
wide general website address is www.schoolspecialty.com. Information contained in any of our websites is
not deemed to be a part of this Annual Report.

Industry Overview

The school supply market consists of the sale of non-textbook school supplies, furniture and
equipment to school districts, individual schools, teachers and curriculum specialists who purchase products
for school and classroom use. The National School Supply Equipment Association estimates that annual
sales of non-textbook educational supplies and equipment to the school supply market are approximately
$6.1 billion. Of this amount, over $3.6 billion is sold through institutional channels and the remaining $2.5
billion is sold through retail channels.

According to the U.S. Department of Education, there are approximately 16,000 school districts,

110,000 public and private elementary and secondary schools and 3.1 million teachers in the United States.
School supply procurement decisions are made at the school district level by administrators and curriculum
specialists, at the school building level by principals and at the classroom level by teachers. Some school
supplies are purchased directly from manufacturers while others are purchased through marketing firms
such as us. We estimate that there are over 3,400 marketers of non-textbook school supplies and equipment,
the majority of which are family or employee owned businesses that operate in a single geographic region
and have annual revenues under $20 million. We believe that the increasing demand for single source
suppliers, prompt order fulfillment and competitive prices, and the related need for suppliers to invest in
automated inventory and electronic ordering systems, is accelerating the trend toward consolidation in our
industry.

The demand for school supplies is driven primarily by the level of the student population and, to a

lesser extent, expenditures per student. Student population is a function of demographics, while
expenditures per student are also affected by government budgets and the prevailing political and social
attitudes towards education. According to U.S. Department of Education estimates, student enrollment in
kindergarten through twelfth grade public and private schools began growing in 1986, reaching a record
level of nearly 53 million students in 1998. Current projections by the U.S. Department of Education
indicate that student enrollment will continue to grow to nearly 55 million within three years. The U.S.
Department of Education also projects that expenditures per student in public elementary and secondary
schools will continue to rise. Expenditures of $272 billion in 1997 are projected to increase to $341 billion
by the year 2001. These projected increases in expenditures include a projected increase in total per student
spending from $5,961 per student in 1997 to $7,179 by the year 2001. We believe that the current political
and social environment is favorable for education spending.

Recent Acquisitions

Audio Graphic Systems. In May, 1999, we acquired Audio Graphic Systems (Audio Graphics).

Audio Graphics is a business that specializes in the sale of audio-visual equipment to schools. We paid $2.4
million for Audio Graphics, of which $1.2 million was paid in cash and $1.2 million in shares of Common
Stock (an aggregate of 57,151shares were issued). The cash portion of the purchase price was financed
through borrowings under our credit facility. During calendar 1999, Audio Graphics had revenues of
approximately $13 million.

Internet Initiative

Because more schools and teachers are connecting to the Internet, we have aggressively pursued

sales opportunities through this rapidly growing channel. By establishing an early presence on the
Internet, we believe we have gained a significant competitive advantage and valuable brand recognition.
Our goal is to become the leading marketer of school supplies and furniture over the Internet. This may
also permit us to expand our customer base over time to include individuals and other non-traditional
customers.

In January 1999, we launched the first phase of our Internet initiative with the opening of our

fully integrated e-commerce website ClassroomDirect.com. The site offers access to over 13,000 stock
keeping units with digital pictures of most items. Although currently teacher focused, the site could be
adapted to a more consumer based format. In February 2000, we signed an agreement with America
Online, Inc. (AOL) for placement in the Shop@AOL on-line shopping destination with the goal to increase
visibility with both teachers and consumers. The increasing demand by school administrators and teachers
for more information in making supply decisions, the lack of a wide variety of educational products in
stores and the growing importance of convenience make the Internet a viable, low cost channel for the
marketing of education supplies.

The second phase of our Internet initiative, launched in August 1999, JuneBox.com, offers an

education portal on the Internet. This portal is structured as an education mall offering our products for
sale and also provides a community forum and content aimed at educators. We believe that by providing
education related content and information, this portal will place us at the education community’s decision
point for supply and content which will strengthen our brands. In March 2000 we signed an agreement
with Ariba, Inc., one of the world’s leading providers of business-to-business e-commerce solutions, to
power JuneBox.com and facilitate the e-commerce marketplace for the procurement of school materials.
This site will eventually be expanded to include additional vendors offering one-stop on-line shopping for
all products purchased by schools and will also provide a community forum educators can visit to find
teaching tips, lesson plan help, product reviews and updates on current events affecting the education
market.

We attribute our strong competitive position to the following key attributes:

Strengths

Leading Market Position. We have developed our leading market position by emphasizing high

quality products, superior order fulfillment and exceptional customer service. We believe that our large
size and brand recognition have resulted in significant buying power, economies of scale and customer
loyalty.

Broad Product Line. Our strategy is to provide a full range of high quality products to meet the

complete supply needs of schools for pre-kindergarten through twelfth grade. With over 72,000 stock
keeping units ranging from classroom supplies and furniture to playground equipment, we provide
customers with one source for virtually all of their non-textbook school supply and furniture needs. Our
specialty brands enrich our general product offering and create opportunities to cross merchandise our
specialty products to our traditional customers. Specialty brands include the following:

Brand

Products

Childcraft ......................................................... Early childhood
Sax Arts and Crafts ........................................... Art supplies
Frey Scientific .................................................. Science
Sportime .......................................................... Physical education
Brodhead Garrett .............................................. Industrial arts
Gresswell ......................................................... Library
Hammond & Stephens ...................................... School forms
SmartStuff........................................................ Software

Innovative Two-Pronged Marketing Approach. School supply procurement decisions are made at

the district and school levels by administrators, and at the classroom level by curriculum specialists and
teachers. We market to both of these groups, addressing administrative decision makers with a “top

down” approach through our 300 person sales force and the School Specialty general supply and furniture
catalogs, and targeting teachers and curriculum specialists with a “bottom up” approach primarily through
the mailing of ClassroomDirect.com general supply catalogs and our seven different specialty catalogs to
over three million teachers each year. We utilize our customer database across our family of catalogs to
maximize their effectiveness and increase our marketing reach.

Internet Offering. Our primary e-commerce sites, JuneBox.com for administrative purchase

decisions and ClassroomDirect.com for teacher-based decisions, establish an early yet comprehensive
presence on the Internet which, we believe, will be a significant competitive advantage.

Stable Industry. Because the market for educational supplies is driven primarily by demographics

and government spending, we believe that our industry is less exposed to economic cycles than many
others.

Ability to Complete and Integrate Acquisitions. We have successfully completed over 20
acquisitions of companies since May 1996. We have established a 12-month integration process in which
a transition team is assigned to:

•

sell or discontinue incompatible business units,

reduce the number of stock keeping units,

eliminate redundant expenses,

integrate the acquired entity’s management information systems, and

exploit buying power.

To date, our integration efforts have focused on acquired traditional companies and certain
administrative and warehousing functions at our specialty divisions. We believe that through these
processes, we can rapidly improve the operating margins of the businesses we acquire.

Use of Technology. We believe that our use of information technology systems allows us to turn
inventory more quickly than our competitors, offer customers more convenient and cost effective ways of
ordering products and more precisely focus our sales and marketing campaigns.

Experienced and Incentivised Management. Our management team provides depth and
continuity of experience. In addition, management’s interests are aligned with those of our stockholders,
as many members of management own shares of our Common Stock and/or have been granted options to
purchase such Common Stock.

Growth Strategy

We use the following strategies to grow and enhance our position as the leading marketer of non-

textbook educational supplies and furniture:

Increase Revenues of Specialty and Proprietary Products. We believe we can increase our

margins by selling more specialty products and products for which we are the only supplier. Specialty
products accounted for approximately 40% of our revenues in fiscal 2000, compared to approximately
35% in fiscal 1999.

Expand Existing Traditional Business. We believe that we can also increase the revenues of our

traditional business by adding sales representatives in geographic markets in which we are

underrepresented and by cross merchandising our specialty products to our traditional customers. During
the September to December 1999 recruiting season, we added approximately 25 sales representatives to
select geographic locations to improve market penetration.

Leverage the Internet Channel. Because more schools and teachers are connecting to the
Internet, we are aggressively pursuing sales opportunities through this rapidly growing channel. By
establishing an early presence on the Internet, we believe we can gain a significant competitive advantage
and valuable brand recognition. Our goal is to become the leading marketer of school supplies and
furniture over the Internet. This may also permit us to expand our customer base over time to include
individuals and other non-traditional customers. We believe this strategy can be effective both as an
offensive tool, enhancing revenue at a low incremental cost, and as a defensive one, by preventing other
existing and prospective Internet competitors from establishing themselves in this market. The
establishment of early brand recognition will facilitate the establishment of our educational portal as the
key education related website.

Pursue Acquisitions. We believe that there are many attractive acquisition opportunities in our
highly fragmented industry. As a public company, we have greater access to capital for acquisitions than
many of our competitors. We will continue to pursue opportunities that complement our specialty
product offerings.

Improve Profitability. We improved our operating margin (as measured by our operating income

before non-recurring acquisition and restructuring costs divided by our revenues) from 3.2% in 1995 to
7.6% in fiscal 2000. We believe that we can further improve our operating margins in the traditional and
specialty segments by eliminating redundant expenses of acquired businesses, leveraging our overhead
costs, increasing our purchasing power and improving the efficiency of our warehousing and distribution.

Product Lines

We market two broad categories of products: general school supplies and specialty products

geared towards specific educational disciplines. Our general school supply products are offered to school
administrators by our sales force through our School Specialty catalog and to teachers and curriculum
specialists through direct mailings of our ClassroomDirect.com catalog. Our specialty products are
offered to teachers and curriculum specialists through direct mailings of our seven specialty catalogs. Our
specialty products enrich our general supply product offering and create opportunities to cross
merchandise our specialty products to our traditional customers. With over 72,000 stock keeping units
ranging from classroom supplies and furniture to playground equipment, we provide customers with one
source for virtually all of their non-textbook school supply and furniture needs.

Our general school supply product lines can be described as follows:

School Specialty. Through the School Specialty catalog, which is targeted to administrative

decision makers, we offer a comprehensive selection of classroom supplies, instructional materials,
educational games, art supplies, school forms (such as reports, planners and academic calendars),
educational software, physical education equipment, audio-visual equipment, school furniture and indoor
and outdoor equipment. We believe we are the largest school furniture resale source in the United States.
We have been granted exclusive franchises for certain furniture lines in specific territories and we enjoy
significant purchasing power in open furniture lines. We enhance our furniture offering with a custom
design and contract management service called Projects by Design. Projects by Design is a rapidly
growing segment of our traditional business.

ClassroomDirect.com. ClassroomDirect.com offers its customers substantially the same products

as those offered through the School Specialty catalog but focuses on reaching teachers and curriculum
specialists directly through its mail-order catalogs and fully integrated Internet e-commerce website. The
Internet site targets the traditional catalog market and other consumers interested in educational products,
such as home school families, churches and parents.

Our specialty brands offer product lines for specific educational disciplines, as follows:

Childcraft. Childcraft markets early childhood education products and materials. Childcraft also

markets over 1,000 proprietary or exclusive products manufactured by its Bird-in-Hand Woodworks
subsidiary, including wood classroom furniture and equipment such as library shelving, cubbies, easels,
desks and play vehicles.

Sax Arts and Crafts. Sax Arts and Crafts is a leading marketer of art supplies and art instruction

materials, including paints, brushes, paper, ceramics, art metals and glass, leather and wood crafts. Sax
Arts and Crafts offers customers a toll free “Art Savvy Hotline” staffed with professional artists to
respond to customer questions.

Frey Scientific. Frey Scientific is a leading marketer of laboratory supplies, equipment and
furniture for science classrooms. Frey Scientific offers value added focus in the biology, chemistry,
physics and earth science areas.

Sportime. Sportime is a leading marketer of physical education, athletic and recreational

products. Sportime’s catalog product offering includes catalogs from early childhood through middle
school as well as targeted products for physically challenged children.

Brodhead Garrett. Brodhead Garrett is the nation’s oldest marketer of industrial arts/technical

materials to classrooms. Brodhead Garrett’s product line includes such various items as drill presses,
sand paper, lathes and robotic controlled arms.

Gresswell. Gresswell markets library-related products in the U.K., including furniture, and media
display and storage. Gresswell’s dedicated sales and design team helps customers plan, design and install
library projects using computer assisted design equipment.

Hammond & Stephens. Hammond & Stephens is a leading publisher of school forms, including

student assignment books, record books, grade books, teacher planners and other printed forms for
kindergarten through twelfth grade.

SmartStuff. SmartStuff is the developer of FoolProof® Internet, a comprehensive Internet security

and web management solution for schools and FoolProof® security software, a desktop software security
program which limits access by children to selected programs and applications on desktop computers.

Our merchandising managers, many of whom have prior experience in education, continually

review and update the product lines for each operating division. The merchandising managers convene
customer focus groups and advisory panels to determine whether current offerings are well-received and
to anticipate future demand. The merchandising managers also travel to product fairs and conventions
seeking out new product lines. This annual review process results in an organic reshaping and expansion
of the educational materials we offer.

Sales and Marketing

Our Two-Pronged Approach. We believe we have developed a substantially different sales and

marketing model from that of traditional school supply and school furnishings marketing companies in
the United States. Our strategy is to use two separate marketing approaches (“top down” and “bottom
up”) to reach all the prospective purchasers in the school system.

Traditional Business. Our national marketing model has over 300 sales representatives operating

within 17 regions supported by regional managers and two regional customer service and sales support
call centers. We believe our national structure provides for effective sales management, resulting in
higher regional penetration, and achieves significant cost savings through focused distribution and call
centers.

We have a broad customer base and no single customer accounted for more than 2% of sales

during fiscal 2000, 1999 and 1998. Schools typically purchase school supplies and furniture based on an
established relationship with relatively few suppliers. We establish and maintain our relationship with
our traditional customers by assigning accounts within a specific geographic territory to a local area sales
representative who is supported by a centrally located customer service team. Our customer service
representatives call on existing traditional customers frequently to ascertain and fulfill their school supply
needs. The representatives maintain contact with these customers throughout the order cycle and assist in
processing orders.

Our primary compensation program for sales representatives is based on commissions as a

percentage of gross profit on sales. For new and transitioning sales representatives, we offer salary and
expense reimbursement until the representative is moved to a full commission compensation structure.

Specialty Business. We generally use direct mail catalogs to reach our broader customer base.
We distribute seven major specialty catalogs, one for each of our Childcraft, Sax Arts and Crafts, Frey
Scientific, Sportime, Brodhead Garrett, Gresswell and Hammond & Stephens lines. For each product
line, a major catalog containing all product offerings is distributed toward the end of the calendar year so
that it is available for school buyers at the beginning of the year. During the year, various catalog
supplements are distributed to coincide with the peak school buying season in June through September
and following the start of school in the fall. Our SmartStuff brand uses a combination of marketing
brochures, outside field sales and telemarketing to reach its customer base.

Internet Business. We offer two e-commerce sites, JuneBox.com and ClassroomDirect.com to
facilitate on-line purchases and shorten the order cycle for administrators and teachers. Both traditional
and specialty products are available on these sites.

Pricing. Pricing for our general and specialty product offerings varies by product and market

channel. We generally offer a negotiated discount from catalog prices for supplies from our School
Specialty catalog and respond to quote and bid requests. The pricing structure of specialty products
offered through direct marketing is generally not subject to negotiation.

Distribution

We aggregate and distribute products through seven primary distribution centers (DCs). Each DC

has specific primary and back-up geographic responsibility and carries all traditional stock items. The
distribution system is designed to minimize split shipments and freight charges as well as manage
seasonal peaks.

Purchasing and Inventory Management

We manage our inventory by continually reviewing daily inventory levels compared to a running
90-day inventory for the previous year, adjusted for incoming orders. We constantly refine the focus of
inventory products through our automated inventory management system to pursue the optimum level of
scope and depth of product offered. Inventory forecasts are made daily for all stock keeping units by
assessing anticipated demand by adjusting historical demand levels to account for current order activity
and available stock as well as the expected lead time from the supplier. The forecast allows inventory
purchases to respond quickly to high seasonal demand while keeping off-season inventory to a minimum.
The information systems for all of our distribution centers are connected to allow transfer of inventory
between facilities to fill regional demand. In addition, all orders can be redirected to the distribution
center which is the primary stocking location for a product. Our inventory management results in
inventory turnover that management believes is higher than average industry turnover rates and reduces
the level of discontinued, excess and obsolete inventory compared to businesses that we have acquired.

We believe our large size enhances our purchasing power with suppliers resulting in lower
product costs than most of our competitors. Further, we believe that this purchasing power leverage will
increase with additional acquisitions which, in turn, should improve our operating margins.

We believe that the primary determinants of customer satisfaction in the educational supply

industry are the completeness and accuracy of shipments received and the timeliness of delivery. We
continue to invest in sophisticated computer systems to automate the order taking, inventory allocation
and management, and order shipment processes. As a result, we have been able to provide superior order
fulfillment to our customers. In addition, we have developed an order management system, JuneBox Off-
Line, which allows schools to customize their orders and enter them electronically and provides historical
usage reports to schools useful for their budgeting process. While this system currently only accounts for
approximately 6% of our traditional supply sales, we believe it will become more significant as schools
upgrade their technology and use of computers. During the academic year, we seek to fill orders within
24 hours of receipt of the order at a 95% fill rate and a 99.5% order accuracy rate. During the summer
months, we shift to a production environment and schedule shipments to coincide with the start of the
school year. During the summer months our objectives are to meet a 100% fill rate at a 99.5% order
accuracy rate. Our average order fill rate for June, July and August 1999 exceeded 98%. We define “fill
rate” as the percentage of line items in a customer’s order that are initially shipped to the customer in
response to the order by the requested ship date.

During the peak shipping season between June 1 and September 30, each of our distribution

centers contracts with local common carriers to deliver our product to schools and school warehouses.
ClassroomDirect.com and Sax Arts and Crafts rely on carriers such as Roadway Package Service, United
Parcel Service and the U.S. Postal Service for distribution to customers.

Information Systems

We believe that through the utilization of technology in areas such as (1) purchasing and
inventory management, (2) customer order fulfillment and (3) database management, we are able to turn
inventory more quickly than competitors, offer customers more convenient and cost effective ways of
ordering products and more precisely focus our sales and marketing campaigns.

We use two principal information systems. In the traditional and certain specialty businesses, we

use a specialized distribution software package used primarily by office products and paper marketers.
This software package is referred to as the Software for Distributors System (the “SFD system”). This
software offers a fully integrated process from sales order entry through customer invoicing, and

inventory requirements planning through accounts payable. Our system provides information through
daily automatic posting to the general ledger and integrated inventory control. We have made numerous
enhancements to this process that allow greater flexibility in addressing the seasonal requirements of the
industry and meeting specific customer needs.

The remaining specialty divisions use a mail order and catalog system provided by Smith-

Gardner & Associates. The Mail-Order and Catalog System (“MACS”) meets the unique needs of the
direct marketing approach with extensive list management and tracking of multiple marketing efforts.
The system provides complete and integrated order processing, inventory control, warehouse
management and financial applications.

Our software and hardware allow for continued incremental growth as well as the opportunity to

integrate new client-server and other technologies into the information systems.

Competition

We operate in a highly competitive environment. The market is especially competitive on a

regional basis, but we believe our heaviest competition is coming from alternate channel competitors such
as office product contract stationers and superstores. Their primary advantages over us are size, location,
greater financial resources and buying power. Their primary disadvantage is that their product mix covers
only 15% to 20% of the school’s needs (measured by volume). In addition, our competitors do not offer
special order fulfillment software, which we believe is increasingly important to adequately service
school needs. We believe we compete favorably with these companies on the basis of service and product
offering.

Employees

As of July 1, 2000, we had approximately 2,400 full-time employees. To meet the seasonal
demands of our customers, we employ many seasonal employees during the late spring and summer
seasons. Historically, we have been able to meet our requirements for seasonal employment. As of July
1, 2000, approximately 35 full-time employees were members of the Teamsters Labor Union at our Sax
Arts and Crafts’ New Berlin, Wisconsin facility. We consider our relations with our employees to be
very good.

Forward-Looking Statements

Statements in this Annual Report which are not strictly historical are “forward-looking”
statements. In accordance with the Private Securities Litigation Reform Act of 1995, we can obtain a
“safe-harbor” for forward-looking statements by identifying those statements and by accompanying those
statements with cautionary statements which identify factors that could cause actual results to differ
materially from those in the forward-looking statements. Accordingly, the following information contains
or may contain forward-looking statements: (1) information included or incorporated by reference in this
Annual Report, including, without limitation, statements made under Item 1, Business and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, including,
without limitation, statements with respect to growth plans and projected revenues, operating profits,
earnings and costs; (2) information included or incorporated by reference in our future filings with the
Securities and Exchange Commission including, without limitation, statements with respect to growth
plans and projected revenues, operating profits, earnings and costs; and (3) information contained in
written material, releases and oral statements issued by, or on behalf of, School Specialty including,
without limitation, statements with respect to growth plans and projected revenues, operating profits,
earnings and costs. Our actual results may differ materially from those contained in the forward-looking

statements identified above. Factors which may cause such a difference to occur include, but are not
limited to, the following:

Potential Liabilities Related to Spin-Offs. We became a public company in June 1998 when U.S.

Office Products distributed all of our shares and the shares of three other companies to its shareholders
and we sold additional shares of our stock in a public offering. In connection with these distributions
(known as the “spin-offs”), we and the other three companies whose shares were distributed each agreed
with U.S. Office Products that if any of us took any action or failed to act in a way that materially caused
the distributions to be taxable, then U.S. Office Products could require any of us to pay to it the full
amount of the tax losses it suffered as a result of the distributions. We and the three other spin-off
companies also agreed that if the distributions became taxable for any other reason, we would each pay to
U.S. Office Products a portion of its tax losses based on the relative aggregate value of each company’s
common stock immediately after the distributions. We also agreed with the other three spin-off
companies that if one or more of us materially caused the distributions to be taxable and any of the other
companies were required to pay tax losses under the agreement to U.S. Office Products, then the company
or companies that materially caused the distributions to be taxable would reimburse the other companies
for such payments.

In addition, we and the other three spin-off companies each agreed with U.S. Office Products to

pay a portion of the securities law and general liabilities of U.S. Office Products arising prior to the
distributions and, if any of the spin-off companies fails to pay its portion, to pay a portion of the unpaid
amount. The maximum aggregate amount we can be required to pay for all shared liabilities is limited by
the agreement to $1.75 million (including as a result of defaults by the other spin-off companies). U.S.
Office Products has been named as a defendant in various class action lawsuits relating to the
distributions that allege, among other things, violations of the federal securities laws.

Material Amount of Goodwill. Approximately $192.7 million, or 42%, of our total assets as of
April 29, 2000 represents intangible assets, the significant majority of which is goodwill. Goodwill is the
amount by which the costs of an acquisition accounted for using the purchase method exceeds the fair
value of the net assets we acquire. We are required to record goodwill as an intangible asset on our
balance sheet and to amortize it over a period of years. We generally amortize goodwill for each
acquisition on a straight line method over a period of 40 years. Even though it reduces our net income for
accounting purposes, amortization of goodwill may not be deductible for tax purposes. In addition, we
are required to periodically evaluate whether we can recover our remaining goodwill from the
undiscounted future cash flows that we expect to receive from the operations of the acquired companies.
If these undiscounted future cash flows are less than the carrying value of the associated goodwill, the
goodwill is impaired and we must reduce the carrying value of the goodwill to equal the discounted future
cash flows and take the amount of the reduction as a charge against our income. Reductions in our net
income caused by the amortization or write down of goodwill could materially adversely affect our results
of operations.

Dependence on Growth of Student Population and School Expenditures. Our growth strategy and

profitability also depend on growth in the student population and expenditures per student in public and
private elementary and secondary schools. The level of student enrollment is largely a function of
demographics, while expenditures per student are also affected by government budgets and the prevailing
political and social attitudes towards education. Any significant and sustained decline in student
enrollment and/or expenditures per student could have a material adverse effect on our business, financial
condition and results of operations.

Seasonality of Our Business. Our educational supply businesses are highly seasonal. Because
most of our customers want their school supplies delivered before or shortly after the commencement of

the school year, we make most of our sales from May to October. As a result, we usually earn more than
100% of our annual net income in the first six months of our fiscal year and operate at a loss in our third
and fourth fiscal quarters. This seasonality causes our operating results to vary considerably from quarter
to quarter.

Dependence on Key Suppliers and Service Providers. We depend upon a limited number of

suppliers for some of our products, especially furniture. We also depend upon a limited number of
service providers for the delivery of our products. If these suppliers or service providers are unable to
provide the products or services that we require or materially increase their costs (especially during our
peak season of June through September), this could impair our ability to deliver our products on a timely
and profitable basis and could have a material adverse effect on our business, financial condition and
results of operations. As we seek to reduce the number of our suppliers and to minimize duplicative lines
as part of our business strategy, we are likely to increase our dependence on remaining vendors.

Reliance on Key Personnel. Our business depends to a large extent on the abilities and continued

efforts of current executive officers and senior management, including Daniel P. Spalding, our Chief
Executive Officer. We are also likely to depend heavily on the executive officers and senior management
of businesses that we acquire in the future. If any of these people become unable or unwilling to continue
in his or her present role, or if we are unable to attract and retain other qualified employees, our business
could be adversely affected. Although we have employment contracts with most executive officers, we
do not have employment agreements with our senior management. We do not have and do not intend to
obtain key man life insurance covering any of our executive officers or other members of senior
management.

Competition. The market for school supplies is highly competitive and fragmented. We estimate

that over 3,400 companies market educational materials to schools for pre-kindergarten through twelfth
grade as a primary focus of their business. We also face increasing competition from alternate channel
marketers, including superstores and office product contract stationers, that have not traditionally focused
on marketing school supplies. These competitors are likely to continue to expand their product lines and
interest in school supplies. Some of these competitors have greater financial resources and buying power
than we do. We believe that the educational supplies market will consolidate over the next several years,
which is likely to increase competition in our markets and in our search for attractive acquisition
candidates.

Dependence on Our Systems. We believe that one of our competitive advantages is our
information systems, including our proprietary PC-based customer order management system, JuneBox
Off-Line. We have integrated the operations of almost all of our divisions and subsidiaries and their
information systems are linked to host systems located at our headquarters in Appleton, Wisconsin and at
two other locations. If any of these links disrupted or become unavailable, this could materially and
adversely affect our business, results of operations and financial condition.

Several of our recently-acquired divisions and/or subsidiaries as well as Gresswell (our U.K.

subsidiary) use predecessor information systems. With the exception of Gresswell, we intend to convert
the information systems of these businesses to one of our host systems as soon as practicable. However,
none of these businesses has a backup computer system or backup extra communication lines. Even
though we have taken precautions to protect ourselves from events that could interrupt the operations of
these businesses and intend to do so for other businesses we acquire in the future, we cannot be sure that a
fire, flood or other natural disaster affecting their systems would not disable the system or prevent the
system from communicating with our other businesses. The occurrence of any of these events could have
a material adverse effect on our results of operations and financial condition.

Absence of Dividends. We do not expect to pay cash dividends on our Common Stock in the
foreseeable future. In addition, our ability to pay dividends may be restricted from time to time by the
financial covenants contained in our credit agreements and debt instruments. Our current credit facility
contains restrictions on, and in some circumstances may prevent, our payment of dividends.

Leverage. As of April 29, 2000, we had $161.9 million of bank debt outstanding. In addition,

our leverage could increase over time. Our credit facility permits us to incur additional debt under certain
circumstances and we expect to borrow under our credit facility for general corporate purposes, including
working capital and for acquisitions.

Our ability to meet our debt service obligations depends on our future performance. Our future

performance is influenced by general economic conditions and by financial, business and other factors
affecting our operations, many of which are beyond our control. If we are unable to service our debt, we
may have to delay our acquisition program, sell our equity securities, sell our assets, or restructure and
refinance our debt.

We cannot give our stockholders any assurance that, if we are unable to service our debt, it is likely to
have a material adverse effect on the company.

Item 2. Properties

Our corporate headquarters are located in an owned facility at 1000 North Bluemound Drive,

Appleton, Wisconsin, a combined office and warehouse facility of approximately 120,000 square feet. We
lease or own the following principal facilities:

Locations

Agawam, Massachusetts ..................................
Atlanta, Georgia ..............................................
Birmingham, Alabama.....................................
Bowling Green, Kentucky................................
Fremont, Nebraska..........................................
Fresno, California............................................
Hoddesdon, England .......................................
Lancaster, Pennsylvania ...................................
Lancaster, Pennsylvania ...................................
Lufkin, Texas .................................................
Mansfield, Ohio ..............................................
New Berlin, Wisconsin ....................................
Salina, Kansas ................................................
__________

Approximate
Square
Footage

Owned/
Leased

163,300
77,000
180,365
42,000
95,000
163,200
47,500
73,000
204,000
140,000
323,000
97,500
123,000

Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Owned

Lease Expiration

—

January 6, 2002
November 30, 2006
June 30, 2001
June 30, 2003
November 1, 2009
September 24, 2006
December 31, 2002
February 28, 2009
—
—

March 31, 2002

—

The 73,000 square foot Lancaster, Pennsylvania facility is used for manufacturing and the Fremont,

Nebraska facility is used for production of school forms.

We believe that our properties, as enhanced for our ongoing expansion, are adequate to support our
operations for the foreseeable future. We regularly review the utilization and consolidation of our facilities.

Item 3. Legal Proceedings

We are, from time to time, a party to legal proceedings arising in the normal course of business.

Our management believes that none of these legal proceedings will materially or adversely affect our
financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted during the quarter ended April 29, 2000 to a vote of our security

holders.

EXECUTIVE OFFICERS OF THE REGISTRANT

As of July 10, 2000, the record date of our 2000 Annual Meeting of Stockholders, the following

persons served as executive officers of School Specialty:

Name and Age
of Officer

Daniel P. Spalding
Age 45

Mr. Spalding became Chairman of the Board and Chief Executive Officer of
School Specialty in February 1998. From 1996 to February 1998, Mr.
Spalding served as President of the Educational Supplies and Products
Division of U.S. Office Products. From 1988 to 1996, he served as President,
Chief Executive Officer and a director of School Specialty’s predecessor.
Prior to 1988, Mr. Spalding was an officer of JanSport, a manufacturer of
sports apparel and backpacking equipment. Mr. Spalding was a co-founder of
JanSport and served as President and Chief Executive Officer from 1977 to
1984. Mr. Spalding has been a director of the National School Supply and
Equipment Association since 1992 and completed his term as the
association’s Chairman in November 1997.

David J. Vander Zanden
Age 45

Mr. Vander Zanden became the President and Chief Operating Officer of
School Specialty in March 1998. From 1992 to March 1998, he served as
President of Ariens Company, a manufacturer of outdoor lawn and garden
equipment. Mr. Vander Zanden has served as a director of School Specialty
since completion of the spin-off from U.S. Office Products in June 1998.

Mary M. Kabacinski
Age 51

Ms. Kabacinski, a Certified Public Accountant, has served as Executive Vice
President and Chief Financial Officer since August 1999. From 1989 to 1999,
she served as Executive Vice President and Chief Financial Officer for
Marquette Medical Systems, a manufacturer of medical devices.

Donald J. Noskowiak
Age 42

Mr. Noskowiak has served as Vice President Finance/Business Development
since August 1999. Mr. Noskowiak has been with School Specialty since
1992, and served as Chief Financial Officer from 1997 to August 1999.

Melvin D. Hilbrown
Age 52

Mr. Hilbrown has served as Executive Vice President of School Specialty and
Managing Director for Gresswell since completion of the spin-off from U.S.
Office Products in June 1998. Mr. Hilbrown joined School Specialty as
Managing Director of Gresswell with School Specialty’s acquisition of Don
Gresswell, Ltd. in 1997. He had been Managing Director of Gresswell since
1989.

Richard H. Nagel
Age 59

Mr. Nagel has served as Executive Vice President of School Specialty for Sax
Arts and Crafts since June 1998. Mr. Nagel joined School Specialty with the
acquisition of Sax Arts and Crafts in 1997. Mr. Nagel has been with Sax Arts
and Crafts since 1975.

Donald Ray Pate, Jr.
Age 37

Mr. Pate has served as Executive Vice President of School Specialty for
ClassroomDirect.com since June 1998. Mr. Pate joined School Specialty with
the acquisition of Re-Print in 1996, having served as President of Re-Print
since he acquired it in 1988.

Ronald E. Suchodolski
Age 54

Michael J. Killoren
Age 43

Brian E. Chapin
Age 48

Peter S. Savitz
Age 51

Garett H.D. Reid
Age 60

Mr. Suchodolski has served as Executive Vice President of School Specialty
for Childcraft since 1998. Mr. Suchodolski joined School Specialty with the
acquisition of Childcraft in 1997. Mr. Suchodolski was Vice President of
Childcraft in 1995 and 1996 and was Director of Childcraft’s school division
from 1984 to 1989. From 1989 to 1993, Mr. Suchodolski was President of the
Judy/Instructo Division of Paramount, and from 1993 to 1995, Mr.
Suchodolski served as Senior Vice President of Sales and Marketing for
Paramount Publishing’s Supplementary Materials Division.

Mr. Killoren has served as Executive Vice President and Chief Information
Officer of JuneBox.com, Inc., since June 2000. From 1999 through June
2000, Mr. Killoren served as Vice President and Chief Information Officer of
School Specialty. Mr. Killoren was Chief Operating Officer of School
Specialty Distribution from 1997 to 1999 and Vice President Operations from
1992 to 1997. Mr. Killoren joined School Specialty in 1980.

Mr. Chapin has served as Executive Vice President of School Specialty for
SmartStuff since School Specialty acquired SmartStuff in March 1999. Mr.
Chapin served as President of SmartStuff since he founded it in 1993.

Mr. Savitz has served as Executive Vice President of School Specialty for
Sportime since School Specialty acquired Sportime in February 1999. Mr.
Savitz has been with Sportime since 1972.

Mr. Reid has served as Executive Vice President of School Specialty for Frey
Scientific since School Specialty acquired National School Supply Company
(Beckley-Cardy) in August 1998. Mr. Reid served as Vice President of
Marketing and Sales in Science & Media with the Beckley-Cardy Group since
1989.

Joseph F. Franzoi IV
Age 45

Mr. Franzoi has served as Corporate Counsel since June 1998 and became a
part-time employee of JuneBox.com, Inc., in June 2000. Mr. Franzoi has
practiced corporate law with Franzoi and Franzoi, S.C., from 1980 to the
present, concentrating in the area of mergers and acquisitions.

Daniel P. Spalding and Michael J. Killoren are cousins.

The term of office of each executive officer is from one annual meeting of the Board of Directors

until the next annual meeting of the Board of Directors or until a successor for each is selected.

There are no arrangements or understandings between any of our executive officers and any other

person (not an officer or director of School Specialty acting as such) pursuant to which any of our executive
officers were selected as an officer of School Specialty.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information

Our Common Stock has traded under the symbol “SCHS” on the Nasdaq National Market since

June 10, 1998. There was no market for the Common Stock prior to that date. The table below sets forth
the reported high and low closing sale prices for shares of the Common Stock on the Nasdaq National
Market during the indicated quarters.

Fiscal quarter ended
July 24, 1999 ............................................................................
October 23, 1999.......................................................................
January 22, 2000.......................................................................
April 29, 2000...........................................................................

Fiscal quarter ended
July 25, 1998 ............................................................................
October 24, 1998.......................................................................
January 23, 1999.......................................................................
April 24, 1999...........................................................................

High

Low

$19.3125
17.3750
16.6250
23.1250

$14.3125
11.8750
12.1250
14.1250

High

Low

$17.8750
17.0000
25.0625
25.8750

$14.3750
10.6250
13.8750
17.7500

Holders

As of July 1, 2000, there were 2,609 record holders of the Common Stock.

Historical Dividends

We have not declared or paid any cash dividends on our Common Stock to date. We currently

intend to retain our future earnings, if any, to finance the growth, development and expansion of our
business. Accordingly, we do not expect to pay cash dividends on our Common Stock in the foreseeable
future. In addition, our ability to pay dividends may be restricted or prohibited from time to time by
financial covenants in our credit agreements and debt instruments. Our current credit facility contains
restrictions on, and in some circumstances may prevent, our payment of dividends.

Item 6. Selected Financial Data

SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except per share data) (1)(2)

Fiscal Year Ended _
(53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
April 26,
1997

April 24,
1999

April 29,
2000

April 25,
1998

Statement of Income Data:
Revenues................................................ $639,271
Cost of revenues ..................................... 406,043
Gross profit .......................................... 233,228
Selling, general and administrative
184,586
expenses..............................................
Non-recurring acquisition costs ...............
—
Restructuring costs ................................ —
48,642
Operating income (loss) ........................
13,151
Interest expense (net)..............................
Other (income) expense ..........................
1,856
Income (loss) before provision for
(benefit from) income taxes.................
Provision for (benefit from) income
taxes (3) .............................................
15,120
Net income (loss)................................ $ 18,515

33,635

Net income (loss) per share:
Basic .................................................... $ 1.06
Diluted ................................................. $ 1.06
Weighted average shares outstanding:
Basic ....................................................
Diluted .................................................

17,429
17,480

$521,704
341,783
179,921

144,659
—
5,274
29,988
12,601
(228)

$310,455
202,870
107,585

87,846
—
3,491
16,248
5,373
156

$191,746
126,862
64,884

53,177
1,792
194
9,721
4,197
(196)

Four
Months
Ended
April 30,
1996

$ 28,616
18,591
10,025

11,917
1,122
—
(3,014)
1,455
67

Fiscal Year Ended
(52 Weeks)
December 31,
1995

$150,482
98,233
52,249

47,393
—
2,532
2,324
5,536
(18)

17,615

10,719

5,720

(4,536)

(3,194)

8,719
$ 8,896

5,480
$ 5,239

(2,412)
$ 8,132

139
$ (4,675)

173
$ (3,367)

$ 0.61
$ 0.60

$ 0.40
$ 0.39

$ 0.81
$ 0.80

$ (0.54)
$ (0.53)

$ (0.51)
$ (0.50)

14,690
14,840

13,284
13,547

10,003
10,196

8,611
8,789

6,562
6,669

April 29,
2000

April 24,
1999

April 25,
1998

April 26,
1997

April 30,
1996

December 31,
1995

Balance Sheet Data:
Working capital (deficit) ......................... $117,018
Total assets............................................. 454,849
Long-term debt....................................... 144,789
Total debt ............................................... 162,180
Stockholders’ equity (deficit) .................. 224,993
__________

$115,853
437,708
161,691
173,285
202,687

$ 47,791
223,729
63,014
83,302
106,466

$ 14,491
87,685
33,792
60,746
16,329

$ (3,663)
54,573
15,031
40,918
(4,267)

$ (1,052)
54,040
15,294
39,783
(620)

(1) The historical financial information of School Specialty, Inc., a Wisconsin corporation, and The
Re-Print Corp., both of which were acquired by U.S. Office Products in business combinations
accounted for under the pooling-of-interests method in May 1996 and July 1996, respectively, have
been combined on a historical cost basis in accordance with generally accepted accounting principles
(“GAAP”) to present this financial data as if the two companies had always been members of the
same operating group. All business acquisitions since July 1996 have been accounted for under the
purchase method. The financial information of the businesses acquired in business combinations
accounted for under the purchase method is included from the dates of their respective acquisitions.

(2) Certain amounts previously reported have been reclassified to conform with the fiscal 2000
presentation. These reclassifications have no effect on net income or net income per share.

(3) Results for the fiscal year ended April 26, 1997 include a benefit from income taxes of $2.4 million
which primarily resulted from the reversal of a $5.3 million valuation allowance in the quarter ended
April 26, 1997. The valuation allowance had been established in 1995 to offset the tax benefit from
net operating loss carryforwards included in our deferred tax assets, because at the time it was not
likely that such tax benefit would be realized. The valuation allowance was reversed subsequent to
our being acquired by U.S. Office Products, because it was deemed “more likely than not,” based on
improved results, that such tax benefit would be realized.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this Management’s Discussion and Analysis of Financial Condition and Results

of Operations together with the consolidated financial statements and related notes, included elsewhere
in this Annual Report.

Overview

We are the largest marketer of non-textbook educational supplies and furniture to schools for pre-
kindergarten through twelfth grade. We offer more than 72,000 items through an innovative two-pronged
marketing approach that targets both school administrators and individual teachers. Our broad product
range enables us to provide our customers with one source for virtually all of their non-textbook school
supplies and furniture needs. We have grown significantly in recent years both through internal growth
and acquisitions.

Revenues have increased from $150.5 million in fiscal 1995 to $639.3 million in fiscal 2000.

This increase is driven primarily by internal growth and acquisitions. Our revenues for fiscal 2000 were
$639.3 million and our operating income before restructuring costs was $48.6 million, which represented
compound annual increases of 40% and 70%, respectively, compared to our historical results for fiscal
1995.

Our gross margin has improved in recent years primarily due to acquisitions and increased buying

power. We have acquired many specialty businesses, which tend to have higher gross margins than our
traditional business. In addition, our acquisitions of both specialty and traditional businesses have
increased our buying power, resulting in reduced costs of the products we purchase.

Our operating margins have also improved significantly over the last several years. This
improvement reflects our recent acquisitions of specialty companies which typically have higher
operating margins than our traditional businesses. In addition, through the integration of acquired
businesses, we have been able to further improve our operating margins by eliminating redundant
expenses, leveraging overhead costs and improving purchasing power. While we have already achieved
significant operating margin improvements from the acquisitions we have made to date, we believe there
are still opportunities to eliminate redundant expenses.

Our effective tax rate is higher than the federal statutory tax rate of 35%, due primarily to non-

deductible goodwill amortization and state taxes.

Our business and working capital needs are highly seasonal with peak sales levels occurring from

May through October. During this period, we receive, ship and bill the majority of our orders so that
schools and teachers receive their merchandise by the start of each school year. Our inventory levels
increase in May through June in anticipation of the peak shipping season. The majority of shipments are
made between May and October and the majority of cash receipts are collected from September through
December. As a result, we usually earn more than 100% of our annual net income in the first six months
of our fiscal year and operate at a loss in our third and fourth fiscal quarters.

Results of Operations

The following table sets forth certain information as a percentage of revenues on a historical basis

concerning our results of operations for fiscal 2000, fiscal 1999, and fiscal 1998.

Revenues ....................................................................
Cost of revenues ........................................................
Gross profit.............................................................
Selling, general and administrative expenses..........
Restructuring and strategic restructuring
acquisition costs.........................................................
Operating income ...................................................
Interest expense, net ..................................................
Other expense ............................................................
Income before provision for income taxes...............
Provision for income taxes........................................
Net income ................................................................

April 29, 2000
(53 Weeks)
100.0%
63.5
36.5
28.9

Fiscal Year Ended
April 24, 1999
(52 Weeks)
100.0%
65.5
34.5
27.7

April 24, 1998
(52 Weeks)
100.0%
65.3
34.7
28.3

—
7.6
2.1
0.2
5.3
2.4
2.9%

1.0
5.8
2.4
—
3.4
1.7
1.7%

1.1
5.3
1.8
0.1
3.4
1.8
1.6%

Consolidated Historical Results of Operations

Year Ended April 29, 2000 (53 weeks) Compared to Year Ended April 24, 1999 (52 weeks)

Revenues

Revenues increased 22.5% from $521.7 million for fiscal 1999 to $639.3 million for fiscal 2000.

This increase is primarily due to internal growth on existing business and the inclusion of revenues from the
six companies acquired in business combinations accounted for under the purchase method of accounting
since the beginning of fiscal 1999.

Gross Profit

Gross profit increased 29.6% from $179.9 million, or 34.5% of revenues, in fiscal 1999 to $233.2

million, or 36.5% of revenues, in fiscal 2000. The increase in gross profit as a percentage of revenues
was due primarily to (1) a shift in product mix to increased revenue from the specialty business, where
proprietary products generate higher gross margins than the traditional business, (2) an improvement in
traditional business gross margins, driven primarily by more favorable pricing and the elimination of less
profitable products from our product offering, and (3) an improvement in specialty business gross margin,
which was driven by more favorable product mix and contributions from Sportime, which was acquired in
February of fiscal 1999, and has higher gross margins than most of our other businesses. These increases
were slightly offset by contributions from the Internet business, which as a group has lower gross margins
than our other businesses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include selling expenses (the most significant

component of which is sales wages and commissions), operations expenses (which includes customer service,
warehouse and outbound transportation costs), catalog costs, general administrative overhead (which includes
information systems, accounting, legal, and human resources) and depreciation and amortization expense.

Selling, general and administrative expenses increased 27.6% from $144.7 million, or 27.7% of
revenues, in fiscal 1999 to $184.6 million, or 28.9% of revenues, in fiscal 2000. The increase in selling,
general and administrative expense is primarily due to an increase in revenue. The increase in selling,
general and administrative expense as a percent of revenue is primarily due to (1) a shift in revenue mix to
the specialty business, which has higher selling, general and administrative expenses than the traditional
business, (2) higher amortization expense due to goodwill amortization related to the six acquisitions we
have completed since the beginning of fiscal 1999, and (3) expenses related to expanding the Internet
business, which are incremental in fiscal 2000. These increases are offset by reduced selling, general and
administrative expenses in the traditional business, which is primarily due to the integration of Beckley-
Cardy and the restructuring of the traditional business, which began in the second quarter of fiscal 1999.

Restructuring Costs

During fiscal 1999, we recorded a strategic restructuring charge of $1.1 million in the first quarter

and $4.2 million in the second quarter, for a total of $5.3 million during fiscal 1999. The $1.1 million
charge related to a one-time, non-cash charge for compensation expense attributed to U.S. Office Product’s
stock option tender offer and the sale of shares of Common Stock to some of our executive management
personnel. The $4.2 million charge was to consolidate existing warehousing, customer service and sales
operations. Further details of the restructuring charge are discussed in the notes to consolidated financial
statements.

Net Interest Expense and Other Expenses

Net interest expense increased $0.6 million from $12.6 million, or 2.4% of revenues, in fiscal

1999, to $13.2 million, or 2.1% of revenues in fiscal 2000. The increase in net interest expense is
primarily attributed to the debt assumed and cash paid for the six companies acquired since the beginning
of fiscal 1999, partially offset by debt repaid from the net proceeds from our secondary offering in April
1999. Other expenses of $1.9 million for fiscal 2000 primarily represents the loss on the disposal of a
facility donated to a municipality and a non-cash impairment charge on a minority investment.

Provision for Income Taxes

Provision for income taxes for fiscal 2000 increased 73.4% or $6.4 million over fiscal 1999,
reflecting income tax rates of 45.0% and 49.5% in fiscal 2000 and fiscal 1999, respectively. The decrease
in the effective tax rate is primarily due to a decline in the effective state tax rate and a reduction in the
amount of non-deductible goodwill amortization. The higher effective tax rate, as compared to the
federal statutory rate of 35.0%, is primarily due to state income taxes and non-deductible goodwill
amortization.

Fiscal Year Ended April 24, 1999 Compared to Fiscal Year Ended April 25, 1998

Revenues

Consolidated revenues increased 68.0%, from $310.5 million for fiscal 1998 to $521.7 million for
fiscal 1999. This increase was due primarily to the inclusion of revenues of thirteen businesses acquired
since the beginning of fiscal l998 and internal growth on existing businesses.

Gross Profit

Gross profit increased 67.2%, from $107.6 million in fiscal 1998 to $179.9 million in fiscal 1999
primarily due to the acquisitions referred to above. Gross profit as a percent of revenues declined slightly
from 34.7% in fiscal 1998 to 34.5% in fiscal 1999. This decline was due primarily to a reduction in
traditional business gross margin, driven by the acquisition of Beckley-Cardy, which had lower gross
margins than our existing traditional business and an increase in lower margin bid revenues. These
reductions were offset by an increase in specialty business revenue, which typically has higher gross
margins than the traditional business.

Selling, General and Administrative Expense

Selling, general and administrative expenses increased 64.7%, from $87.8 million in fiscal 1998 to

$144.7 million in fiscal 1999, due primarily to the acquisitions referred to above. As a percentage of
revenues, these expenses declined 0.6% from 28.3% for fiscal 1998 to 27.7% for fiscal 1999. The decrease
in selling, general and administrative expenses as a percentage of revenues was the result of cost savings
attributable to the integration of companies acquired during fiscal 1998 and the consolidation of our
warehousing, sales and customer service operations under the restructuring of the traditional business which
began in the second quarter of fiscal 1999. These decreases were offset by increases attributable to the
acquisition of Beckley-Cardy in the second quarter of fiscal 1999 (which had higher selling, general and
administrative expenses as a percentage of revenues than our existing businesses) and higher depreciation
and amortization expenses due to the thirteen companies acquired since the beginning of fiscal 1998.

Restructuring Costs

During fiscal 1999, we recorded a strategic restructuring charge of $1.1 million in the first quarter

and $4.2 million in the second quarter, for a total of $5.3 million during fiscal 1999. The $1.1 million
charge related to a one-time, non-cash charge for compensation expense attributed to U.S. Office Product’s
stock option tender offer and the sale of shares of Common Stock to some of our executive management
personnel, net of underwriting discounts. The $4.2 million charge was to consolidate existing warehousing,
customer service and sales operations. Further details of the restructuring charge are discussed in the notes
to consolidated financial statements.

Net Interest Expense

Net interest expense increased 134.5%, from $5.4 million, or 1.8% of revenues, for fiscal 1998 to

$12.6 million, or 2.4% of revenues, for fiscal 1999. The increase in net interest expense is primarily
attributed to the debt assumed and cash paid for the thirteen companies acquired since the beginning of
fiscal 1998, offset by debt repaid from the proceeds from our secondary public offering in April 1999, our
initial public offering in June 1998, and the forgiveness of debt from U.S. Office Products in connection
with the spin-off.

Provision for Income Taxes

Provision for income taxes increased 59.1% from $5.5 million for fiscal 1998 to $8.7 million for

fiscal 1999, reflecting effective income tax rates of 49.5% and 51.1% for fiscal 1999 and fiscal 1998,
respectively. The higher effective tax rate, compared to the federal statutory rate of 35%, is primarily due
to state income taxes and non-deductible goodwill amortization.

Liquidity and Capital Resources

At April 29, 2000, we had working capital of $117.0 million. Our capitalization at April 29, 2000

was $386.9 million and consisted of bank debt of $161.9 million and stockholders’ equity of $225.0
million.

We currently have a five year secured $350 million revolving credit facility with Bank of
America, N.A. The credit facility has a $100 million term loan payable quarterly over five years
commencing in January 1999 and revolving loans which mature on September 30, 2003. The amount
outstanding as of April 29, 2000 under the credit facility was approximately $161.9 million, consisting of
$75.6 million outstanding under the revolving loan portion of the facility and $86.3 million outstanding
under the term loan portion of the facility. Borrowings under the credit facility are usually significantly
higher during our first and second quarters to meet the working capital needs of our peak selling season.
On October 28, 1998, we entered into an interest rate swap agreement with the Bank of New York
covering $50 million of the outstanding credit facility. The agreement fixes the 30 day LIBOR interest
rate at 4.37% per annum (floating LIBOR on April 29, 2000 was 6.18%) on the $50 million notional
amount and has a three year term that may be canceled by the Bank of New York on the second
anniversary. As of April 29, 2000, the effective interest rate on borrowings under our credit facility was
approximately 8.3% excluding the effect of the swap agreement and 7.8% including the effect of the swap
agreement. In fiscal 2000, we borrowed under the credit facility primarily for seasonal working capital
and capital expenditures. During fiscal 2000, we made certain immaterial changes to certain financial and
other covenants under our credit facility.

On April 16, 1999, we sold 2,400,000 shares of Common Stock in a public offering for $40.8
million in net proceeds. On May 17, 1999, we sold an additional 151,410 shares of Common Stock to
cover over-allotments for $2.2 million in net proceeds. The total proceeds were used to reduce
indebtedness outstanding under our credit facility.

On June 9, 1998, we sold 2,125,000 shares of Common Stock in a public offering for $30.6

million in net proceeds and we sold 250,000 shares of Common Stock in a concurrent offering directly to
certain executive officers of School Specialty for aggregate consideration of $3.6 million. In connection
with the offerings, we incurred approximately $1.5 million of expenses. The total net proceeds to us from
the offerings were $32.7 million. The net proceeds were used to reduce indebtedness outstanding under
our credit facility.

During fiscal 2000, net cash provided by operating activities was $31.1 million. This net cash

provided by operating activities during the period is indicative of the high seasonal nature of the business,
with sales occurring in the first and second quarter of the fiscal year and cash receipts in the second and
third quarters. Net cash used in investing activities was $27.3 million, including $1.3 million for
acquisitions, $17.3 million for additions to property and equipment and $8.7 million for other long term
assets. Investments in other long term assets include $3.0 million for a minority interest in A Better Way
of Learning which is an e-commerce fulfillment partner of School Specialty, $2.8 million for software
licensing to power JuneBox.com, our purchasing portal for schools, $1.7 million to purchase the net assets
of a division of a furniture manufacturer and a compilation of other long term investments.

Net payments of $9.4 million were made to reduce indebtedness under the credit facility, using
$2.2 million in proceeds from the issuance of Common Stock, as well as cash from operations and cash
on hand.

During fiscal 1999, net cash provided by operating activities was $27.6 million. Net cash used in

investing activities was $127.2 million, including $122.3 million for acquisitions and $4.9 million for
additions to property and equipment and other. Net cash provided by financing activities was $109.4
million. Borrowing under the credit facility included (1) $0.8 million used to fund the cash portion of the
purchase price of the Holsinger acquisition, (2) $3.7 million used to fund the purchase price of the
SmartStuff acquisition, (3) $23 million used to fund the purchase price of the Sportime acquisition, (4)
$16.5 million used to fund the cash portion of the purchase price of the Hammond & Stephens
acquisition, (5) $134.7 million used to fund the Beckley-Cardy acquisition consisting of $78.1 million for
the purchase price and $56.6 million for debt repayment, (6) $83.3 million used to repay the U.S. Office
Products debt in connection with the spin-off and (7) $67.8 million used for short-term funding of
seasonal working capital and the purchase of property and equipment. The $32.7 million net proceeds
from our initial public offering and concurrent offering to certain officers and directors and $40.6 million
of the net proceeds from our public offering in April 1999 were used to repay a portion of the funds
borrowed under the credit facility. U.S. Office Products contributed capital of $7.2 million as required
under the distribution agreement entered into with us in connection with the spin-off.

During fiscal 1998, net cash provided by operating activities was $3.7 million. Net cash used in

investing activities was $99.7 million, including $95.7 million for acquisitions and $4.0 million for
additions to property and equipment and other. Net cash provided by financing activities was $96.0
million, including $95.7 million provided by U.S. Office Products to fund the cash portion of the
purchase price and the repayment of debt assumed with the acquisition of the Fiscal 1998 Purchased
Companies, $81.3 million of which was considered a contribution of capital by U.S. Office Products,
partially offset by $8.4 million used to repay indebtedness.

Our anticipated capital expenditures for the next twelve months are expected to be $13 million.

The largest items include software development for our Internet initiative, computer hardware and
software and warehouse equipment.

We anticipate that our cash flow from operations and borrowings available from our existing

credit facility will be sufficient to meet our liquidity requirements for operations, including capital
expenditures, and our debt service obligations.

Fluctuations in Quarterly Results of Operations

Our business is subject to seasonal influences. Our historical revenues and profitability have

been dramatically higher in the first two quarters of our fiscal year (May-October) primarily due to
increased shipments to customers coinciding with the start of each school year.

Quarterly results also may be materially affected by the timing of acquisitions, the timing and

magnitude of costs related to such acquisitions, variations in our costs for the products sold, the mix of
products sold and general economic conditions. Moreover, the operating margins of companies we
acquire may differ substantially from our own, which could contribute to further fluctuation in quarterly
operating results. Therefore, results for any quarter are not indicative of the results that we may achieve
for any subsequent fiscal quarter or for a full fiscal year.

The following table sets forth certain unaudited consolidated quarterly financial data for fiscal

2000 (53 weeks) and fiscal 1999 (52 weeks). We derived this data from unaudited consolidated financial
statements.

First
(13 weeks)
Revenues....................................... $194,299
72,879
Gross profit...................................
24,564
Operating income (loss)...............
11,364
Net income (loss)..........................

Second
(13 weeks)
$231,588
82,913
26,701
12,184

Year Ended April 29, 2000
Third
(13 weeks)
$97,244
33,429
(2,245)
(3,032)

Fourth
(14 weeks)
$116,140
44,007
(378)
(2,001)

Total
(53 weeks)
$639,271
233,228
48,642
18,515

Per share amounts:
Basic...........................................
Diluted........................................

$ 0.65
$ 0.65

$ 0.70
$ 0.70

$ (0.17)
$ (0.17)

$ (0.11)
$ (0.11)

$ 1.06
$ 1.06

First
(13 weeks)
Revenues....................................... $126,657
Gross profit...................................
44,042
Operating income (loss)...............
13,326
6,563
Net income (loss)..........................

Second
(13 weeks)
$212,316
70,761
18,674
7,430

Year Ended April 24, 1999
Third
(13 weeks)
$85,359
28,093
(2,383)
(3,298)

Fourth
(13 weeks)
$97,372
37,025
371
(1,799)

Total
(52 weeks)
$521,704
179,921
29,988
8,896

Per share amounts:
Basic...........................................
Diluted........................................

Inflation

$ .45
$ .44

$ .51
$ .51

$ (.23)
$ (.23)

$ (.12)
$ (.12)

$ .61
$ .60

Inflation has and is expected to have only a minor affect on our results of operations and our

internal and external sources of liquidity.

Recent Accounting Pronouncements

In June, 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 137, which delays the adoption date of SFAS No. 133 and was issued in July,
1999, requires adoption of SFAS No. 133 for annual periods beginning after June 15, 2000. SFAS No.
133 establishes standards for recognition and measurement of derivatives and hedging activities. The
Company will implement this statement in fiscal year 2002 as required. The adoption of SFAS No. 133 is
not expected to have a material effect on the Company’s financial position or results of operations.

The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), in

December 1999, which provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements. On June 26, 2000, the SEC issued SAB No. 101B, which delayed implementation
of SAB No. 101. The Company will implement SAB No. 101 in the fourth quarter of fiscal year 2001 as
required by SAB No. 101B. The company is reviewing the requirements of SAB No. 101 and has not yet
determined the impact of this standard on its consolidated financial statements. It is not expected,
however, that SAB No. 101 will have a material effect on the Company’s financial position or results of
operations.

Year 2000

The Year 2000 issue exists because many computer systems and applications, including those

embedded in equipment and facilities, use two digit rather than four digit date fields to designate an
applicable year. As a result, the systems and applications may not properly recognize the Year 2000 or
process data which include it, potentially causing data miscalculations or inaccuracies or operational
malfunctions or failures.

Our systems, as well as those of our third party suppliers, made an uneventful transition from 1999

to 2000. No material disruptions occurred and operations continued without interruption in the new year.
While initial indications suggest that Year 2000 issues will not adversely affect our operations, we will
continue to monitor our systems, as well as those of our third party suppliers, to ensure Year 2000
compliance.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable,

equity securities and long-term debt. Market risks relating to our operations result primarily from changes
in interest rates. Our borrowings are primarily dependent upon LIBOR rates. The estimated fair value of
long-term debt approximates its carrying value at April 29, 2000.

We do not hold or issue derivative financial instruments for trading purposes. To manage interest

rate risk on the variable rate borrowings under the revolving portion of our credit facility, we entered into an
interest rate swap agreement during fiscal 1999. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources.” This interest rate swap
agreement has the effect of locking in, for a specified period, the base interest rate we will pay on the $50
million notional principal amount established in the swap. As a result, while this hedging arrangement is
structured to reduce our exposure to interest rate increases, it also limits the benefit we might otherwise have
received from any interest rate decreases. This swap is usually cash settled monthly, with interest expense
adjusted for amounts paid or received. Effects of this swap have been minor for the year ending April 29,
2000.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of School Specialty, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item

14(a)(1) on page 57 present fairly, in all material respects, the financial position of School Specialty, Inc.
and its subsidiaries at April 29, 2000, and April 24, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended April 29, 2000, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion, the financial statement
schedule listed in the accompanying index appearing under Item 14(a)(2) on page 57 presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
June 9, 2000

FINANCIAL STATEMENTS

SCHOOL SPECIALTY, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)

ASSETS
Current assets:
Cash and cash equivalents..........................................................................................................................
Accounts receivable, less allowance for doubtful accounts of $1,744 and

$2,234, respectively..................................................................................................................................
Inventories ..................................................................................................................................................
Prepaid expenses and other current assets..................................................................................................
Deferred taxes.............................................................................................................................................
Total current assets..............................................................................................................................

Property and equipment, net...........................................................................................................................
Intangible assets, net.......................................................................................................................................
Deferred taxes.................................................................................................................................................
Other .............................................................................................................................................................
Total assets..........................................................................................................................................

April 29,
2000

April 24,
1999

$ 4,151

$ 9,779

76,028
86,117
28,664
6,964
201,924

74,781
78,783
17,332
8,371
189,046

51,725
192,744

42,305
198,710
1,861 3,810
3,837
$ 437,708

6,595
$ 454,849

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities – long-term debt ...........................................................................................................
Accounts payable........................................................................................................................................
Accrued compensation...............................................................................................................................
Accrued restructuring.................................................................................................................................
Other accrued liabilities..............................................................................................................................
Total current liabilities ........................................................................................................................

$ 17,391
48,874
8,634
65
9,942
84,906

$ 11,594
37,050
8,410
2,752
13,387
73,193

Long-term debt...............................................................................................................................................
Other...............................................................................................................................................................
Total liabilities.....................................................................................................................................

144,789
161
229,856

161,691
137
235,021

Commitments and contingencies

Stockholders’ 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 shares authorized

and 17,464,505 and 17,229,197 shares issued and outstanding .........................................................
Capital paid-in excess of par value.............................................................................................................
Accumulated other comprehensive loss.....................................................................................................
Retained earnings .......................................................................................................................................
Total stockholders’ equity...................................................................................................................
Total liabilities and stockholders’ equity............................................................................................

17
196,012
(30)
28,994
224,993
$ 454,849

17
192,196
(5)
10,479
202,687
$ 437,708

See accompanying notes to consolidated financial statements.

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)

For the Fiscal Year Ended_________
April 24,
1999
(52 weeks)

April 25,
1998
(52 weeks)

April 29,
2000
(53 weeks)

Revenues ............................................................................................................................ $ 639,271
406,043
Cost of revenues.................................................................................................................
233,228
Gross profit..............................................................................................................
184,586
Selling, general and administrative expenses.....................................................................
Restructuring and strategic restructuring costs..................................................................
-
48,642
Operating income....................................................................................................

Other (income) expense:
13,342
Interest expense ..............................................................................................................
(191)
Interest income................................................................................................................
1,856
Other...............................................................................................................................
33,635
Income before provision for income taxes ......................................................................
Provision for income taxes.................................................................................................
15,120
Net income ......................................................................................................................... $ 18,515

$ 521,704
341,783
179,921
144,659
5,274
29,988

12,735
(134)
(228)
17,615
8,719
$ 8,896

$ 310,455
202,870
107,585
87,846
3,491
16,248

5,505
(132)
156
10,719
5,480
$ 5,239

Weighted average shares outstanding:
Basic .................................................................................................................................
Diluted..............................................................................................................................

17,429
17,480

14,690
14,840

13,284
13,547

Net income per share:
Basic ................................................................................................................................. $ 1.06
Diluted.............................................................................................................................. $ 1.06

$ 0.61
$ 0.60

$ 0.40
$ 0.39

See accompanying notes to consolidated financial statements.

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In Thousands)

Common Stock

S hares

Dollars

Capital
Paid-in
Excess of
Par Value

Accumulated
Other
Comprehensive
Income (Loss)

Divisional
Equity

Retained
Earnings
Deficit

Total
Stockholders’
Equity

Total
Comprehensive
Income (Loss)

$ 5,239
5,239

(9)
8,896
8,891

(25)

18,515

$ 18,490

Balance at April 26, 1997 .............................
Issuances of U.S. Office Products

common stock in conjunction
with acquisitions .............................

Capital contribution by U.S. Office

$ -

$19,985

$ -

$ (3,656)

$ 16,329

3,566

Products.................................................

-
Net income ................................................. -

-
-

81,332
-

-
-

-
5,239

81,332
5,239

Total comprehensive income .............
Balance at April 25, 1998 .............................
Shares distributed in spin-off from

U.S. Office Products............................

12,204

Capital contribution by U.S. Office

Products.................................................

Compensation charge for options

tendered in strategic
restructuring..........................................

Compensation expense from School

Specialty, Inc. stock purchase............

Issuances of common stock in

250
conjunction with acquisitions............
4,775
Issuances of common stock.....................
Cumulative translation adjustment ........
-
Net income ................................................. -

Total comprehensive income .............

Balance at April 24, 1999 ............................. 17,229
151

Issuances of common stock.....................
Issuance of common stock in

conjunction with stock option
exerc ises and related tax benefits ......

Issuance of common stock in

conjunction with acquisitions............

Retirement of common stock in

connection with odd-lot tender
offer........................................................
Cumulative translation adjustment ........

(27)
-

-
5
-
-

17
-

-
-

104,883

104,867

(104,883)

-
-
-
-

-
-

-
-
(9)
-

(5)
-

-
-

-
(25)

7,217

803

271

5,487
73,551
-
-

192,196
2,225

918

1,178

(505)
-

1,583

106,466

-
-
-
8,896

10,479
-

7,217

803

271

5,487
73,556
(9)
8,896

202,687
2,225

918

1,178

(505)
(25)

Net income .................................................

18,515

Total comprehensive income .............
Balance at April 29, 2000 .............................

17,465

$ 17

$ 196,012

$ (30)

$ 28,994

$224,993

See accompanying notes to consolidated financial statements.

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)

For the Fiscal Year Ended

April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

April 25,
1998
(52 weeks)

Cash flows from operating activities:
Net income............................................................................................................................... $ 18,515
Adjustments to reconcile net income to net cash

provided by operating activities:
Depreciation and amortization expense...............................................................................
Deferred taxes......................................................................................................................
Loss on disposal/impairment of fixed assets and other .......................................................
Amortization of loan fees and other ....................................................................................
Restructuring costs ..............................................................................................................
Changes in current assets and liabilities (net of assets

acquired and liabilities assumed in business combinations
accounted for under the purchase method):
Accounts receivable.........................................................................................................
Inventory..........................................................................................................................
Prepaid expenses and other current assets .......................................................................
Accounts payable.............................................................................................................
Accrued liabilities ............................................................................................................
Net cash provided by operating activities.................................................................

Cash flows from investing activities:
Cash paid in acquisitions, net of cash acquired.......................................................................
Additions to property and equipment ......................................................................................
Investment in long term assets …............................................................................................
Net cash used in investing activities.........................................................................

11,839
5,746
2,096
671
-

844
(6,137)
(6,441)
9,943
(6,006)
31,070

(1,291)
(17,351)
(8,704)
(27,346)

Cash flows from financing activities:
Repayment of bank debt and capital leases.............................................................................
(198,192)
Proceeds from bank borrowings..............................................................................................
186,200
Proceeds from issuance of common stock..............................................................................
2,225
Repurchase of common stock..................................................................................................
(505)
Proceeds from exercise of stock options .................................................................................
920
Advances from (payments to) U.S. Office Products...............................................................
-
Capital contribution by U.S. Office Products..........................................................................
-
Capitalized loan fees................................................................................................................
-
Net cash provided (used in) by financing activities.................................................
(9,352)
Net increase (decrease) in cash and cash equivalents .................................................................
(5,628)
9,779
Cash and cash equivalents at beginning of period......................................................................
Cash and cash equivalents at end of period................................................................................. $ 4,151

$ 8,896

$ 5,239

9,604
468
-
762
5,274

4,561
-
-
78
2,491

13,583
1,374
(2,822)
(12,591)
3,075
27,623

(122,337)
(4,872)
(27)
(127,236)

(261,422)
355,700
73,556
-
-
(62,699)
7,217
(2,960)
109,392
9,779
-
$ 9,779

(3,586)
(6,666)
(717)
5,256
(2,932)
3,724

(95,670)
(3,558)
(514)
(99,742)

(8,372)
-
-
-
-
23,058
81,332
-
96,018
-
-
$ -

Supplemental disclosures of cash flow information:
Interest paid ............................................................................................................................. $ 13,215
Income taxes paid.................................................................................................................... $ 13,255

$ 11,151
$ 5,123

$ 35
$ 1,148

SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS—(Continued)
(In Thousands)

The Company issued common stock and cash in connection with certain business combinations accounted for under
the purchase method in the fiscal years ended April 29, 2000, April 24, 1999, and April 25, 1998. The fair values of the assets
and liabilities of the acquired companies are presented as follows:

Accounts receivable ................................................................................................
Inventories...............................................................................................................
Prepaid expenses and other current assets...............................................................
Property and equipment ..........................................................................................
Intangible assets.......................................................................................................
Other assets..............................................................................................................
Short-term debt........................................................................................................
Accounts payable ....................................................................................................
Accrued liabilities....................................................................................................
Long-term debt........................................................................................................
Other liabilities........................................................................................................
Net assets acquired..............................................................................................

The acquisitions were funded as follows:
Common stock.........................................................................................................
U.S. Office Products common stock.......................................................................
Cash paid, net of cash acquired...............................................................................
Total.....................................................................................................................

April 29,
2000
(53 weeks)

$ 2,091
1,434
65
178
2,214
13
-
(1,881)
(759)
(885)
-
$ 2,470

$ 1,178
-
1,292
$ 2,470

For the Fiscal Year Ended

April 24,
1999
(52 weeks)

$ 49,645
30,850
11,142
21,033
103,455
3,775
(832)
(25,853)
(7,564)
(57,599)
(228)
$127,824

$ 5,487
-
122,337
$127,824

April 25,
1998
(52 weeks)

$ 17,900
18,180
2,431
6,379
80,359
346
(1,850)
(9,400)
(9,089)
(6,020)
-
$ 99,236

$ -
3,566
95,670
$ 99,236

See accompanying notes to consolidated financial statements.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 1—BACKGROUND

School Specialty, Inc. (the "Company") is a Delaware corporation which was a wholly-owned subsidiary

of U.S. Office Products Company ("U.S. Office Products") until June 9, 1998. On June 9, 1998, U.S. Office
Products spun-off its Educational Supplies and Products Division (the "Education Division") as an independent
publicly owned company. This transaction was effected through the distribution of shares of the Company to U.S.
Office Products' shareholders (the "Distribution"). Prior to the Distribution, U.S. Office Products contributed its
equity interests in certain wholly-owned subsidiaries associated with the Education Division to the Company. U.S.
Office Products and the Company entered into a number of agreements to facilitate the Distribution and the
transition of the Company to an independent business enterprise. Additionally, concurrently with the Distribution,
the Company sold 2,125 shares in an initial public offering (the "IPO"). Following the IPO, management
purchased 250 shares.

NOTE 2—BASIS OF PRESENTATION

The accompanying consolidated financial statements and related notes to consolidated financial statements
include the accounts of School Specialty, Inc. and the companies acquired in business combinations accounted for
under the purchase method from their respective dates of acquisition and give retroactive effect to the results of the
pooled companies for all periods presented. For the periods prior to the Distribution, the consolidated financial
statements reflect the assets, liabilities, divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving assets and liabilities not specifically
identifiable to any particular business of U.S. Office Products, only those assets and liabilities that were transferred
to the Company were included in the Company's separate consolidated balance sheet. The Company's consolidated
statement of income includes all of the related costs of doing business, including an allocation of certain general
corporate expenses of U.S. Office Products which were not directly related to these businesses including certain
corporate executives' salaries, accounting and legal fees, departmental costs for accounting, finance, legal,
purchasing, marketing, and human resources as well as other general overhead costs. These allocations were based
on a variety of factors, dependent upon the nature of the costs being allocated, including revenues, number and size
of acquisitions and number of employees. Management believes these allocations were made on a reasonable
basis.

The consolidated statement of income does not include an allocation of interest expense on all debt

allocated to the Company. See Note 9 for further discussion of interest expense.

NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Definition of Fiscal Year

As used in these consolidated financial statements and related notes to consolidated financial statements,

“fiscal 2000”, “fiscal 1999” and “fiscal 1998” refer to the Company’s fiscal years ended April 29, 2000 (53
weeks), April 24, 1999 (52 weeks), and April 25, 1998 (52 weeks), respectively.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned

subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation.

Cash and Cash Equivalents

The Company considers temporary cash investments with original maturities of three months or less from

the date of purchase to be cash equivalents.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist
primarily of trade accounts receivable. Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers to reduce the risk of loss.

Inventories

Inventories are stated at the lower of cost or market with cost determined on a first-in, first-out (FIFO)

basis and consist primarily of products held for sale.

Property and Equipment

Property and equipment is stated at cost. Additions and improvements are capitalized. Maintenance and

repairs are expensed as incurred. Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the respective assets. The estimated useful lives range from twenty-five
to forty years for buildings and its components and three to fifteen years for furniture, fixtures and equipment.
Property and equipment leased under capital leases is being amortized over the lesser of its useful life or its lease
terms.

Intangible Assets

Intangible assets consist primarily of goodwill, which represents the excess of cost over the fair value of

net assets acquired in business combinations accounted for under the purchase method and non-compete
agreements. Substantially all goodwill is amortized on a straight line basis over an estimated useful life of forty
years, except for goodwill associated with a software subsidiary which is being amortized over fifteen years.
Identifiable intangible assets include trademarks, capitalized technology, and franchise agreements which are being
amortized over their estimated useful lives ranging from one to forty years.

Management periodically evaluates the recoverability of goodwill, which would be adjusted for a
permanent decline in value, if any, by comparing anticipated undiscounted future cash flows from operations to net
book value. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Based
upon its most recent assessment, the Company does not believe an impairment of long-lived assets exists at April
29, 2000.

Cost Investment

The Company uses the cost method to account for its investment in a less than 20%-held entity. Under

this method, the Company’s investment is stated at cost and is periodically evaluated to determine if a write
down of the investment is needed in order to properly state the investment at the lower of cost or market. In
connection with this evaluation, the Company took a $1,500 charge during the fourth quarter of fiscal 2000.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments including cash and cash equivalents,

accounts receivable, accounts payable, equity securities and long-term debt approximate fair value.

Income Taxes

Income taxes, during the period subsequent to the Distribution, have been computed utilizing the asset and

liability approach which requires the recognition of deferred tax assets and liabilities for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and liabilities.

As a division of U.S. Office Products, the Company did not file separate federal income tax returns but
rather was included in the federal income tax returns filed by U.S. Office Products and its subsidiaries from the
respective dates that the entities within the Company were acquired by U.S. Office Products. For purposes of the
consolidated financial statements, the Company's allocated share of U.S. Office Products' income tax provision
was based on the "separate return" method. Certain companies acquired in pooling-of-interests transactions elected
to be taxed as Subchapter S corporations and, accordingly, no federal income taxes were recorded by those
companies for periods prior to their acquisition by U.S. Office Products.

Revenue Recognition

Revenue is recognized upon the delivery of products or upon the completion of services provided to

customers as no additional obligations to the customers exist. Returns of the Company's product are considered
immaterial.

Cost of Revenues

Vendor rebates are recorded as a reduction in the cost of inventory and recognized as a reduction in cost

of revenues when such inventory is sold.

Advertising Costs

The Company expenses advertising costs when the advertisement occurs. Advertising costs are included

in the consolidated statement of income as a component of selling, general and administrative expenses.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Deferred Catalog Costs

Deferred catalog costs are amortized in amounts proportionate to revenues over the life of the catalog,

which is typically one to two years. Amortization expense related to deferred catalog costs is included in the
consolidated statement of income as a component of selling, general and administrative expenses. Such
amortization expense for the year ended April 29, 2000, April 24, 1999, and April 25, 1998 was $16,076, $12,146,
and $6,934, respectively.

Research and Development Costs

Research and development costs are charged to operations in the year incurred. Research and
development costs are included in the consolidated statement of income as a component of selling, general and
administrative expenses.

Internally Developed Software

During fiscal 1999 the Company adopted the American Institute of Certified Public Accountants
("AICPA") Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 requires computer software costs associated with internal use software
to be expensed as incurred until certain capitalization criteria are met.

Restructuring Costs

The Company records the costs of consolidating existing Company facilities into acquired operations,

including the external costs and liabilities to close redundant Company facilities and severance and relocation costs
related to the Company's employees in accordance with Emerging Issues Task Force (“EITF”) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring)".

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting

Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 137,
which delays the adoption date of SFAS No. 133 and was issued in July, 1999, requires adoption of SFAS No.
133 for annual periods beginning after June 15, 2000. SFAS No. 133 establishes standards for recognition and
measurement of derivatives and hedging activities. The Company will implement this statement in fiscal year
2002 as required. The adoption of SFAS No. 133 is not expected to have a material effect on the Company’s
financial position or results of operations.

The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), in

December 1999, which provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements. On June 26, 2000, the SEC issued SAB No. 101B which delayed implementation of SAB
No. 101. The Company will implement SAB No. 101 in the fourth quarter of fiscal year 2001 as required by
SAB No. 101B. The Company is reviewing the requirements of SAB No. 101 and has not yet determined the
impact of this standard on its consolidated financial statements. It is not expected, however, that SAB No. 101
will have a material effect on the Company’s financial position or results of operations.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Distribution Ratio

On June 9, 1998, the Company issued approximately 12,204 shares of its common stock to U.S. Office

Products, which then distributed such shares to its shareholders in the ratio of one share of Company common
stock for every nine shares of U.S. Office Products common stock held by each shareholder. The share data
reflected in the accompanying financial statements for the periods prior to the Distribution represents the historical
share data for U.S. Office Products for the period or as of the date indicated, retroactively adjusted to give effect to
the one for nine distribution ratio.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

NOTE 4—BUSINESS COMBINATIONS

In fiscal 2000, the Company acquired 100% of a company, which was accounted for under the purchase

method of accounting, for an aggregate purchase price of $2,353, consisting of $1,175 of cash and 57 shares of
common stock with a market value of $1,178, resulting in goodwill of $1,934, which will be amortized over 40
years. During fiscal 2000, the Company also purchased certain assets which represented a portion of another
existing business for $117. This transaction resulted in goodwill of $280. The results of these acquisitions have
been included in the Company’s results from their dates of acquisition. The pro-forma results of the later
transaction are not included in the table below due to immateriality.

In fiscal 1999, the Company made five acquisitions accounted for under the purchase method of
accounting for an aggregate purchase price of $127,824, consisting of $122,337 of cash and 250 shares of common
stock with a market value of $5,487. The total assets related to these five acquisitions were $219,900, including
goodwill of $103,455. The results of these acquisitions have been included in the Company's results from their
respective dates of acquisition.

In fiscal 1998, the Company made eight acquisitions accounted for under the purchase method of

accounting for an aggregate purchase price of $99,236, consisting of $95,670 of cash and U.S. Office Products
common stock with a market value of $3,566. The total assets related to these eight acquisitions were $125,595,
including goodwill of $80,359. The results of these acquisitions have been included in the Company's results from
their respective dates of acquisition.

The following presents the unaudited pro forma results of operations of the Company for the fiscal years
ended April 29, 2000, and April 24, 1999, and includes the Company's historical consolidated results of operations
and the results of the companies acquired in fiscal 2000 and fiscal 1999 as if all such purchase acquisitions had
been made at the beginning of fiscal 1999. The results presented below include certain pro forma adjustments to
reflect the amortization of intangible assets and the inclusion of a federal income tax provision on all earnings:

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

For the Fiscal Year Ended
April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

Revenues.............................................................. $ 639,271
18,236
Net income ..........................................................

$ 632,380
9,347

Net income per share:
Basic.................................................................. $
Diluted .............................................................. $

1.05
1.05

$
$

0.62
0.62

The unaudited pro forma results of operations are prepared for comparative purposes only and do not
necessarily reflect the results that would have occurred had the acquisitions occurred at the beginning of fiscal
1999 or the results which may occur in the future.

NOTE 5—RESTRUCTURING COSTS

During the fourth quarter of fiscal 1998, the Company incurred restructuring costs of $2,491 to close

redundant facilities and severance costs. This restructuring plan was completed by the end of fiscal 1999. The
Company also incurred a strategic restructuring charge during the fourth quarter of fiscal 1998 of $1,000. This
represented the transaction costs allocated to the Company under the distribution agreement entered into with
U.S. Office Products and the other spin-off companies.

During the first quarter of fiscal 1999, the Company incurred a strategic restructuring charge of

$1,074. This non-cash charge related to compensation expense attributed to the U.S. Office Product’s stock
option tender offer and sale of shares of Common Stock to some of the Company’s executive management
personnel. During the second quarter of fiscal 1999, the Company incurred restructuring costs of $4,200 to
consolidate existing warehousing, customer service and sales operations. During the fiscal years ended April
29, 2000, and April 24,1999, the Company terminated 43 and 152 employees, respectively, under this plan.

Selected information related to the restructuring reserve for closing redundant facilities and

consolidating existing warehousing, customer service and sales operations follows:

Facility
Closure and
Consolidation

Severance
and
Terminations

Other Asset
Write-downs
and Costs

Balance at April 26, 1997................................................
Additions......................................................................
Utilizations...................................................................
Balance at April 25, 1998................................................
Additions......................................................................
Utilizations...................................................................
Balance at April 24, 1999................................................
Additions......................................................................
Utilizations...................................................................
Balance at April 29, 2000................................................

-
728
(728)
-
1,300
(199)
$ 1,101
-
(1,084)
17

-
214
-
214
2,100
(1,029)
$ 1,285
-
(1,245)
40

151
$
1,549
(1,442)
258
800
(692)
366
-
(358)
8

Total

151
$
2,491
(2,170)
472
4,200
(1,920)
$ 2,752
-

(2,687)
$

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 6—PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

April 29,
2000

April 24,
1999

Deferred catalog costs ...................................................................................
Assets held for sale........................................................................................
Other ............................................................................................................
Total prepaid expenses and other current assets................................

$ 14,742
4,333
9,589
$ 28,664

$ 13,203
-
4,129
$ 17,332

Deferred catalog costs represent costs which have been paid to produce Company catalogs which will be

used in future periods. These deferred catalog costs will be expensed in the periods the catalogs are used.

NOTE 7—PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

............................................................................................................
Land
Projects in progress........................................................................................
Buildings and leasehold improvements........................................................
Furniture, fixtures, and other.........................................................................
Machinery and warehouse equipment...........................................................

Less: Accumulated depreciation...................................................................
Net property and equipment ..................................................................

April 29,
2000

April 24,
1999

2,540
2,954
26,635
17,848
14,660
64,637
(12,912)
$ 51,725

1,921
1,607
28,392
12,283
10,053
54,256
(11,951)

$ 42,305

Depreciation expense for the fiscal years ended April 29, 2000 (53 weeks), April 24, 1999 (52 weeks), and

April 25, 1998 (52 weeks) was $5,523, $4,948, and $2,500, respectively.

NOTE 8—INTANGIBLE ASSETS

Intangible assets consist of the following:

Goodwill.................................................................................................... $ 194,350
13,148
Other..........................................................................................................
207,498
(14,754)
Net intangible assets....................................................................... $ 192,744

Less: Accumulated amortization...............................................................

$ 195,060
13,037
208,097
(9,387)
$ 198,710

April 29,
2000

April 24,
1999

Amortization expense for the fiscal years ended April 29, 2000 (53 weeks), April 24, 1999 (52 weeks),

and April 25, 1998 (52 weeks) was $6,316, $4,656, and $2,061, respectively.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 9—CREDIT FACILITIES

Long-Term Debt

Long-term debt consists of the following:

Credit facility ................................................................................................
Capital lease obligations..............................................................................
Other debt ......................................................................................................

Less: Current maturities ..............................................................................
Total long-term debt.........................................................................

April 29,
2000
$ 161,850
182
148
162,180
(17,391)
$ 144,789

April 24,
1999
$ 172,500
785
-
173,285
(11,594)
$ 161,691

On September 30, 1998, the Company entered into a five year secured $350,000 credit facility (the “credit

facility”) with a syndicate of financial institutions, led by Bank of America, N.A. as Agent, consisting of a
$250,000 revolving loan and a $100,000 term loan. Interest on borrowings under the credit facility accrued
through the third quarter of fiscal 1999 at a rate of, at the Company’s option, either (i) LIBOR plus 2.375% or (ii)
the lender’s base rate plus a margin of 0.75%, plus a fee of 0.475% on the unborrowed amount under the revolving
term loan. Subsequent to the third quarter of fiscal 1999, interest accrues at a rate of, at the Company’s option,
either (i) LIBOR plus an applicable margin of up to 2.000%, or (ii) the lender’s base rate plus an applicable margin
of up to 0.750%, plus a fee of up to 0.475% on the unborrowed amount under the revolving loan. The credit
facility is secured by substantially all of the assets of the Company and contains terms and covenants typical of
facilities of such size. The Company was in compliance with these covenants at April 29, 2000. At April 29,
2000, the balance outstanding under the credit facility was $161,850, including $75,600 and $86,250 outstanding
under the revolving and term loans, respectively, and included seven eurodollar contracts, expiring within 89 days,
totaling $151,250 at an average interest rate of 7.47% . The effective interest rate under the credit facility for fiscal
2000 was 7.89%, which includes the loan origination fee and commitment fee on unborrowed funds, and excludes
the effect of the interest rate swap agreement disclosed below.

To manage interest rate risk, the Company entered into an interest rate swap agreement on October 28,
1998, with the Bank of New York covering $50,000 of the outstanding borrowings under the credit facility. The
agreement fixes the 30 day LIBOR interest rate at 4.37% per annum on the $50,000 notional amount and has a
three year term that may be canceled by the Bank of New York on the second anniversary. The floating LIBOR
interest rate at April 29, 2000, was 6.18% and 4.91% at April 29. 2000, and April 24, 1999, respectively. The fair
market value of the swap agreement was $566 at April 29, 2000.

Maturities of Long-Term Debt

Maturities on long-term debt, including capital lease obligations, are as follows:

2001 ................................................................
2002 ................................................................
2003 ................................................................
2004 ................................................................
2005 ................................................................
Thereafter.........................................................
Total maturities of long-term debt .................

17,391
18,208
29,082
97,405
16
78
$ 162,180

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

The credit facility contains certain restrictive covenants, including limitations on the ability of the
Company to pay dividends or redeem stock well as limitations on incurring debt, capital expenditures, mergers or
consolidations, sale of assets and transactions with affiliates.

Payable to U.S. Office Products

On June 9, 1998, per the distribution agreement, the Company borrowed $83,300 from its line of credit to

repay the remaining amounts due to U.S. Office Products.The average outstanding long-term payable to U.S.
Office Products during the fiscal year ended April 24, 1999, was $6,871.

Interest was allocated to the Company by U.S. Office Products based upon the Company's average
outstanding payable (short-term and long-term) balance with U.S. Office Products at U.S. Office Products'
weighted average interest rate during such period. The Company's financial statements include allocations of
interest expense from U.S. Office Products totaling $158 and $5,414 during the fiscal years ended April 24, 1999,
and April 25, 1998, respectively.

NOTE 10—INCOME TAXES

The provision for income taxes consists of:

For the Fiscal Year Ended
April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

April 25,
1998
(52 weeks)

Income taxes currently payable:
Federal.....................................................................................$
State ........................................................................................

7,371
2,003
9,374
5,746
Total provision for income taxes ...........................................$ 15,120

Deferred income tax expense ........................................................

6,511
1,740
8,251
468
8,719

$ 3,646
907
4,553
927
$ 5,480

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Deferred taxes are comprised of the following:

April 29,
2000

April 24,
1999

Current deferred tax assets:
Inventory............................................................................ $
Allowance for doubtful accounts..............................................
Net operating loss carryforward ............................................
Accrued liabilities................................................................
Accrued restructuring...........................................................
Charitable contribution carryforward .....................................
Total current deferred tax assets ......................................

3,001
716
1,493
620
26
1,108
6,964

Long-term deferred tax assets (liabilities):
Net operating loss carryforward ...............................................
Property and equipment ..........................................................
Intangible assets .....................................................................
Unrealized loss on investment..................................................
Total long-term deferred tax assets (liabilities)..................
Net deferred tax assets ................................................... $

4,097
(1,200)
(1,636)
600
1,861
8,825

4,008
858
1,574
820
1,111
-
8,371

4,694
(476)
(408)
-
3,810
$ 12,181

The Company has net operating loss carryforwards of approximately $14,710, on a consolidated basis,

which expire during fiscal years 2011-2013. The carryforwards are also subject to an annual limitation on
utilization pursuant to IRS Code Section 382 of approximately $3,900.

The Company's effective income tax rate varied from the U.S. federal statutory tax rate as follows:

For the Fiscal Year Ended

April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

April 25,
1998
(52 weeks)

U.S. federal statutory rate ...........................................................
State income taxes, net of federal income tax benefit .....................
Non-deductible goodwill ............................................................
Non-deductible acquisition costs .................................................
Other........................................................................................
Effective income tax rate............................................................

35.0%
4.6
5.4
-
-
45.0%

35.0%
5.2
6.5
-
2.8
49.5%

34.0%
6.6
6.0
3.3
1.2
51.1%

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 11—OPERATING LEASE COMMITMENTS

The Company leases various types of retail, warehouse and office facilities and equipment, furniture and

fixtures under noncancelable lease agreements which expire at various dates. Future minimum lease payments
under noncancelable operating leases are as follows:

2001................................................................................................... $
2002...................................................................................................
2003...................................................................................................
2004...................................................................................................
2005...................................................................................................
Thereafter ...........................................................................................
Total minimum lease payments......................................................... $

4,483
4,236
3,358
2,217
1,754
1,670
17,718

Rent expense for the fiscal years ended April 29, 2000 (53 weeks), April 24, 1999 (52 weeks), and April

25, 1998 (52 weeks), was $5,535, $4,498, and $3,389, respectively.

NOTE 12—COMMITMENTS AND CONTINGENCIES

Litigation

Under the terms of the agreement entered into between the Company and U.S. Office Products in
connection with a strategic restructuring plan, the Company is obligated, subject to a maximum obligation of $1.75
million, to indemnify U.S. Office Products for certain liabilities incurred by U.S. Office Products prior to the
Distribution, including liabilities under federal securities laws (the “Indemnification Obligation”). This
Indemnification Obligation is reduced by any insurance proceeds actually recovered with respect to the
Indemnification Obligation and is shared on a pro rata basis with the other three divisions of U.S. Office Products
which were spun-off from U.S. Office Products in connection with the U.S. Office Products comprehensive
restructuring.

U.S. Office Products has been named a defendant in various class action lawsuits. These lawsuits

generally allege violations of federal securities laws by U.S. Office Products and other named defendants during
the months preceding the Strategic Restructuring Plan. The Company has not received any notice or claim from
U.S. Office Products alleging that these lawsuits are within the scope of the Indemnification Obligation, but the
Company believes that certain liabilities and costs associated with these lawsuits (up to a maximum of $1.75
million) are likely to be subject to the Company’s Indemnification Obligation. Nevertheless, the Company does
not presently anticipate that the Indemnification Obligation will have a material adverse effect on the Company.
Thus, due to the preliminary nature of this action, it is not possible at this time to assess the outcome of the claims.
In accordance with SFAS No. 5, “Accounting for Contingencies”, no provision has been recorded in the
accompanying financial statements.

The Company is, from time to time, a party to litigation arising in the normal course of its business.
Management believes that none of this litigation will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Postemployment Benefits

The Company has entered into employment agreements with several employees that would result in

payments to these employees upon a change of control or certain other events. No amounts have been accrued at
April 29, 2000, April 24, 1999 or April 25, 1998 related to these agreements, as no change of control has occurred.

Distribution

At the date of the Distribution, School Specialty, U.S. Office Products and the other spin-off companies

entered into a distribution agreement, tax allocation agreement, and an employee benefits agreement. The spin-off
companies entered into a tax indemnification agreement and may enter into other agreements, including
agreements relating to referral of customers to one another. These agreements provide, among other things, for
U.S. Office Products and School Specialty to indemnify each other from tax and other liabilities relating to their
respective businesses prior to and following the Distribution. Certain of the obligations of School Specialty and the
other spin-off companies to indemnify U.S. Office Products are jointly and severally. Therefore, if one of the other
spin-off companies fails to satisfy its indemnification obligations to U.S. Office Products when such a loss occurs,
School Specialty may be required to reimburse U.S. Office Products for all or a portion of the losses that otherwise
would have been allocated to other spin-off companies. In addition, the agreements allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not specifically related to the school supplies
business, between U.S. Office Products and the Company and the other spin-off companies. The terms of the
agreements that will govern the relationship between School Specialty and U.S. Office Products were established
by U.S. Office Products in consultation with School Specialty's management prior to the Distribution while School
Specialty was a wholly-owned subsidiary of U.S. Office Products.

NOTE 13—EMPLOYEE BENEFIT PLANS

On June 9, 1998, the Company implemented the School Specialty, Inc. 401(k) Plan (the “Company 401(k)
Plan”) which allows employee contributions in accordance with Section 401(k) of the Internal Revenue Code. The
Company matches a portion of employee contributions and all full-time employees are eligible to participate in the
Company 401(k) Plan after 90 days of service. In fiscal 2000 and fiscal 1999 the Company’s matching
contribution expense was $564 and $416, respectively. Prior to June 9, 1998 the Company participated in the U.S.
Office Products 401(k) Retirement Plan (the "401(k) Plan"), which was similar to the plan adopted by the
Company.

Certain subsidiaries of the Company had, prior to implementation of the Company 401(k) Plan, qualified

defined contribution benefit plans, which allow for voluntary pre-tax contributions by the employees. The
subsidiaries paid all general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees.

NOTE 14—STOCKHOLDERS’ EQUITY

Earnings Per Share

Basic EPS excludes dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

common stock. The following information presents the Company's computations of basic and diluted EPS for the
periods presented in the consolidated statement of income.

Income
Per Share
Shares
(Numerator) (Denominator) Amount

Fiscal 2000 (53 weeks):
Basic EPS..............................................................................
Effect of dilutive employee stock options .................................
Diluted EPS...........................................................................

$ 18,515
-
$ 18,515

17,429
51
17,480

$ 1.06

Fiscal 1999 (52 weeks):
Basic EPS..............................................................................
Effect of dilutive employee stock options .................................
Diluted EPS...........................................................................

$ 8,896
-
$ 8,896

14,690
150
14,840

$ 0.61

$ 0.60

Fiscal 1998 (52 weeks):
Basic EPS..............................................................................
Effect of dilutive employee stock options .................................
Diluted EPS...........................................................................

$ 5,239
-
$ 5,239

13,284
263
13,547

$ 0.40

$ 0.39

The Company had additional employee stock options outstanding during the periods presented that were

not included in the computation of diluted EPS because they were anti-dilutive.

Capital Contribution by U.S. Office Products

During fiscal 1999 and fiscal 1998, U.S. Office Products contributed $7,217 and $81,332, respectively, of
capital to the Company. The contribution reflects the forgiveness of intercompany debt by U.S. Office Products, as
it was agreed that the Company would be allocated only $80,000 of debt plus the amount of any additional debt
incurred after January 12, 1998, in connection with the acquisition of entities that became subsidiaries of the
Company. The total debt allocated to the Company at the time of the Distribution was $83,300.

Stock Offerings

On June 9, 1998, the Company issued 2,125 shares in conjunction with its IPO. In an offering
concurrent with the IPO, management acquired 250 shares. The total net proceeds to the Company from the
offerings was $32,736.

On April 16, 1999, the Company issued 2,400 shares in conjunction with a secondary public offering
receiving net proceeds of $40,820. On May 17, 1999, the underwriters of the Company’s secondary offering
exercised their over allotment option for 151 shares of Company stock at $17.25 per share for net proceeds of
$2,225.

Employee Stock Plans

On June 10, 1998, the Board of Directors approved the School Specialty, Inc. 1998 Stock Incentive

Plan (the “Plan”). The purpose of the Plan is to provide officers, key employees and consultants with
additional incentives by increasing their ownership interests in the Company. The maximum number of
options available for grant under the Plan, is equal to 20% of the Company’s outstanding common stock. The

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

maximum number of options available for grant in any fiscal year under the Plan is 1,200 shares. Prior to the
approval of the Plan, the Company had stock options outstanding under the U.S. Office Products 1994
Long-Term Compensation Plan. The Company replaced the options to purchase shares of common stock of
U.S. Office Products held by employees with options issued under the Plan to purchase shares of common
stock of the Company. In order to keep the option holders in the same economic position immediately before
and after the Distribution, the number of U.S. Office Products options held by Company personnel was
multiplied by 0.903 and the exercise price of those options was divided by 0.903 for purposes of the
replacement options. The vesting provisions and option period of the original grants were not changed. All
option data reflected below has been retroactively restated to reflect the effects of the Distribution.

The Company accounts for options issued in accordance with APB Opinion No. 25. Accordingly, because

the exercise prices of the options equal the market price on the date of grant, no compensation expense has
been recognized for the options granted. Had compensation cost for the Company's stock options been
recognized based upon the fair value of the stock options on the grant date under the methodology prescribed
by SFAS No. 123 “Accounting for Stock Based Compensation”, the Company's net income and net income per
share would have been impacted as indicated in the following table.

For the Fiscal Year Ended

April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

April 25,
1998
(52 weeks)

Net income (loss):
As reported .............................................................. $ 18,515
14,954
Pro forma..................................................................

8,896
(1,737)

$ 5,239
4,436

Net income (loss) per share:
As reported:
Basic ..................................................................... $ 1.06
Diluted................................................................... $ 1.06

Pro forma:

Basic ..................................................................... $ 0.86
Diluted................................................................... $ 0.86

$
$

0.61
0.60

(0.12)
(0.12)

$
$

0.40
0.39

0.33
0.33

The fair value of options granted (which is amortized to expense over the option vesting period in
determining the pro forma impact) is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:

For the Fiscal Year Ended
April 29, April 25, April 24,
1998
1999

2000

Expected life of option ................................................
Risk free interest rate ...................................................
Expected volatility of stock ..........................................

7 years
6.49%
67.14%

7 years
5.50%
59.00%

7 years
6.35%
44.10%

The weighted-average fair value of options granted was $11.45, $10.23, and $9.75 for fiscal 2000, 1999,

and 1998, respectively.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

A summary of option transactions follows:

Balance at April 26, 1997............................................
Granted...........................................................
Canceled.........................................................
Balance at April 25, 1998............................................

Options Outstanding
Weighted-
Average
Exercise

Options Exercisable
Weighted-
Average
Exercise

Options
211
257
(26)
442

Price Options Price
$ 26.93
18.01
25.45
46
21.83

$27.14

Granted...........................................................
Exercised ........................................................
Canceled.........................................................
Balance at April 24, 1999............................................

2,031
(82)
(25)
2,366

Granted...........................................................
Exercised ........................................................
Canceled.........................................................
Balance at April 29, 2000............................................

803
(55)
(50)
3,064

15.86
20.62
26.49
$ 16.70

16.23
16.21
20.20
$ 16.53

118

$23.39

1,973

$16.20

The following table summarizes information about stock options outstanding at April 29, 2000:

Options Outstanding
Weighted-
Average
Exercise
Price

Weighted-
Average
Life

Options

Options Exercisable

Range of Exercise Prices

$12.00 - $15.00
$15.50 - $15.50
$15.63 - $19.93
$21.78 - $29.43

325
1,748
798
193
3,064

9.14
8.11
9.01
7.13
8.40

$14.48
15.50
17.51
25.26
$16.53

--
1,724
145
104
1,973

Weighted-
Average
Exercise
Price

--
$15.50
17.33
26.34
$16.20

Options granted are generally exercisable beginning one year from the date of grant in cumulative
yearly amounts of 25% of the shares under option and generally expire ten years from the date of grant.
Options granted to directors and non-employee officers of the Company vest over a three year period, 20%
after the first year, 50% (cumulative) after year two and 100% (cumulative) after the third year.

As of the date of Distribution, Jonathan J. Ledecky, a member of the Company’s Board of Directors

and formerly the Chairman and Chief Executive Officer of U.S. Office Products, received 914,079 shares
under an option grant with an exercise price of $15.50. This grant represented 7.5% of the outstanding
Company stock as of the date of Distribution. The options were exercisable in full on June 10, 1999.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

Immediately following the effective date of the registration statements filed in connection with the IPO

and the Distribution, the Company's Board of Directors granted 850,083 options, covering 7% of the
outstanding shares of the Company's common stock, to certain executive management personnel (excluding
the 7.5% granted to Mr. Ledecky). The options granted were granted under the Plan and have a per share
exercise of $15.50 and were exercisable in full on June 10, 1999.

Total options available for grant under the Plan are equal to 20% of the outstanding shares of the

Company's common stock.

NOTE 15—SEGMENT INFORMATION

During the third quarter of fiscal 2000, the Company modified its segment reporting by identifying

information for a third business segment, the Internet business segment. This segment includes business
generated by products supplied through the Internet and products supplied for use with the Internet. Effective
October 24, 1999, the Company began to separately track financial information for this segment, and assign
certain management personnel the responsibility for monitoring this information and focusing on the expansion
of the Company’s Internet business. The Company is unable to segregate information for the Internet business
segment for fiscal 1998, 1999, and the first two quarters of fiscal 2000; therefore, results for this segment prior
to the third and fourth quarters of fiscal 2000 are included in both the Traditional and Specialty business
segments.

The Company’s business activities are organized around three principal business segments,

Traditional, Specialty and Internet. Both internal and external reporting conform to this organizational
structure, with no significant differences in accounting policies applied. The Company evaluates the
performance of its segments and allocates resources to them based on revenue growth and profitability. While
the three segments serve a similar customer base, notable differences exist in products, gross margin and
revenue growth rate. Products supplied within the Traditional segment include consumables (consisting of
classroom supplies, instructional materials, educational games, art supplies and school forms), school furniture
and indoor and outdoor equipment. Products supplied within the Specialty segment target specific educational
disciplines, such as art, industrial arts, physical education, sciences, library and early childhood. The Internet
segment supplies products from both the Traditional and Specialty segments through the Internet. In addition,
the Internet segment includes products supplied for customer use with the Internet (i.e., filtering software for
the Internet).

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

The following table presents segment information.

For the Fiscal Year Ended
April 29,
2000
(53 weeks)

April 24,
1999
(52 weeks)

April 28,
1998
(52 weeks)

Revenues:
Traditional.................................................................
Specialty ...................................................................
Internet .....................................................................
Inter-company revenue elimination ..............................
Total...................................................................

$ 386,715
252,556
5,607
(5,607)
$ 639,271

$ 339,031
182,673
-
-
$ 521,704

$ 201,770
108,685
-
-
$ 310,455

Operating profit (loss) and income before taxes: (a)...........
Traditional.................................................................
Specialty ...................................................................
Internet .....................................................................
Total...................................................................
General corporate expense...........................................
One-time charges .......................................................
Interest expense and other ...........................................
Income before taxes .............................................

$ 34,653
28,573
(3,261)
59,965
11,323
-
15,007
$ 33,635

$ 21,222
20,944
-
42,166
6,904
5,274
12,373
$ 17,615

$ 10,348
11,054
-
21,402
1,663
3,491
5,529
$ 10,719

Identifiable assets (at year end):
Traditional.................................................................
Specialty ...................................................................
Internet .....................................................................
Total...................................................................
Corporate assets .........................................................
Total...................................................................

$ 246,006
174,603
10,039
430,648
24,201
$ 454,849

$ 247,204
164,320
-
411,524
26,184
$ 437,708

$ 121,475
98,252
-
219,727
4,002
$ 223,729

Depreciation and amortization:
Traditional.................................................................
Specialty ...................................................................
Internet .....................................................................
Total...................................................................
Corporate ..................................................................
Total...................................................................

Expenditures for property and equipment:
Traditional.................................................................
Specialty ...................................................................
Internet .....................................................................
Total ..................................................................
Corporate ..................................................................
Total...................................................................

6,129
4,499
711
11,339
500
$ 11,839

6,215
5,284
3,280
14,779
2,572
$ 17,351

6,043
3,058
-
9,101
503
9,604

782
2,326
-
3,108
1,764
4,872

2,433
1,814
-
4,247
314
4,561

2,847
447
-
3,294
264
3,558

(a) Operating profit is defined as operating income before nonrecurring acquisition and restructuring costs.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 16—QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for fiscal 2000 and fiscal 1999:

Fiscal Year Ended April 29, 2000

Third
First
(13 weeks) (13 weeks) (13 weeks) (14 weeks) (53 weeks)

Second

Fourth

Total

Revenues.............................................. $ 194,299
72,879
Gross profit...........................................
24,564
Operating income (loss) .........................
Net income (loss) ..................................
11,364
Per share amounts:
Basic ................................................. $
Diluted .............................................. $

0.65
0.65

$ 231,588
82,913
26,701
12,184

$ 97,244
33,429
(2,245)
(3,032)

$ 116,140
44,007

(378)
(2,001)

$ 639,271
233,228
48,642
18,515

$
$

0.70
0.70

$
$

(0.17)
(0.17)

$
$

(0.11) $
(0.11) $

1.06
1.06

Fiscal Year Ended April 24, 1999

First
Third
(13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)

Second

Fourth

Total

Revenues............................................ $ 126,657
44,042
Gross profit.........................................
13,326
Operating income (loss) .......................
Net income (loss) ................................
6,563
Per share amounts:
Basic ............................................... $
Diluted ............................................ $

0.45
0.44

$ 212,316
70,761
18,674
7,430

$ 85,359
28,093
(2,383)
(3,298)

$ 97,372
37,025
371

$ 521,704
179,921
29,988
(1,799) 8,896

$
$

0.51
0.51

$
$

(0.23)
(0.23)

$
$

(0.12)
(0.12)

$
$

0.61
0.60

The summation of quarterly net income per share may not equate to the calculation for the full fiscal year

as quarterly calculations are performed on a discrete basis.

NOTE 17—RELATED PARTY TRANSACTION

On October 1, 1999, the Company purchased a combined warehouse and distribution facility in

Appleton, Wisconsin. Previously, the Company leased this facility. The purchase price was $2,600, the fair
market value of the property as determined by an independent appraisal, and was paid to the owner of the
facility, which is a corporation owned by three shareholders, two of whom are related to certain executive
officers of the Company.

SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)

NOTE 18—SUBSEQUENT EVENTS

On June 30, 2000, the Company purchased the net assets of Global Video, Inc., for $32,000 plus a $3,000

targeted performance payment to be determined on or about the first anniversary of the transaction.

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 10. Directors and Executive Officers of the Registrant

PART III

(a)

(b)

(c)

Executive Officers. Reference is made to “Executive Officers of the Registrant” in Part I
hereof.

Directors. The information required by this Item is set forth in our Proxy Statement for the
Annual Meeting of Stockholders to be held on August 29, 2000, under the caption
“Election of Directors,” which information is incorporated by reference herein.

Section 16 Compliance. The information required by this Item is set forth in our Proxy
Statement for the Annual Meeting of Stockholders to be held on August 29, 2000, under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is
incorporated by reference herein.

Item 11. Executive Compensation

The information required by this Item is set forth in our Proxy Statement for the Annual Meeting of

Stockholders to be held on August 29, 2000, under the captions “Executive Compensation,” “Employment
Contracts and Related Matters,” “Director Compensation and Other Arrangements,” “Compensation
Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and “Performance
Graph,” which information is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is set forth in our Proxy Statement for the Annual Meeting of

Stockholders to be held on August 29, 2000, under the caption “Security Ownership of Management and
Certain Beneficial Owners,” which information is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is set forth in our Proxy Statement for the Annual Meeting

of Stockholders to be held on August 29, 2000, under the captions “Certain Relationships and Related
Transactions” and “Director Compensation and Other Arrangements.”

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

PART IV

(a)(1) Financial Statements.

Consolidated Financial Statements

Report of Independent Accountants

Consolidated Balance Sheet as of April 29, 2000, and April 24, 1999

Consolidated Statement of Operations for the fiscal years ended April 29, 2000 (53 weeks),
April 24, 1999 (52 weeks), and April 25, 1998 (52 weeks)

Consolidated Statement of Stockholders’ Equity for the fiscal years ended April 29, 2000
(53 weeks), April 24, 1999 (52 weeks), and April 25, 1998 (52 weeks)

Consolidated Statement of Cash Flows for the fiscal years ended April 29, 2000 (53
weeks), April 24, 1999 (52 weeks), and April 25, 1998 (52 weeks)

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedule.

Schedule for the fiscal years ended April 29, 2000 (53 weeks), April 24, 1999 (52 weeks), and April
25, 1998 (52 weeks): Schedule II – Valuation and Qualifying Accounts.

(a)(3) Exhibits.

See (c) below.

(b)

Reports on Form 8-K.

None.

(c)

Exhibits.

See the Exhibit Index, which is incorporated by reference herein.

(d)

Financial Statements Excluded from Annual Report to Shareholders.

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Appleton, State of Wisconsin, on July 11, 2000.

SCHOOL SPECIALTY, INC.

By: /s/ Daniel P. Spalding

Daniel P. Spalding, Chief Executive Officer

Each person whose signature appears below hereby constitutes and appoints Daniel P. Spalding

and Mary M. Kabacinski, and each of them, as his or her true and lawful attorney-in-fact and agent, with
full power of substitution, to sign on his or her behalf individually and in the capacity stated below and to
perform any acts necessary to be done in order to file any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith
and each of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

by the following persons in the capacities and on the dates indicated below.

Name

Title

Date

/s/ Daniel P. Spalding
Daniel P. Spalding

Chief Executive Officer (Principal
Executive Officer) and Director

/s/ Mary M. Kabacinski
Mary M. Kabacinski

Chief Financial Officer (Principal
Financial and Accounting Officer)

/s/ David J. Vander Zanden
David J. Vander Zanden

President, Chief Operating Officer
and Director

/s/ Jonathan J. Ledecky
Jonathan J. Ledecky

/s/ Rochelle Lamm
Rochelle Lamm

/s/ Leo C. McKenna
Leo C. McKenna

/s/ Jerome M. Pool
Jerome M. Pool

Director

July 11, 2000

INDEX TO EXHIBITS

Exhibit
Number

Document Description

3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12(a)

10.12(b)

10.13

10.14

10.15

Restated Certificate of Incorporation.1
Amended and Restated Bylaws.1
Form of Stock Certificate.1

Distribution Agreement among U.S. Office Products Company, Workflow Management,
Inc., Aztec Consulting, Inc., Navigant International, Inc. and School Specialty, Inc.2

Tax Allocation Agreement among U.S. Office Products Company, Workflow Management,
Inc., Aztec Technology Partners, Inc., Navigant International, Inc. and School Specialty,
Inc.1

Tax Indemnification Agreement among Workflow Management, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc. and School Specialty, Inc.2

Employee Benefits Agreement among Workflow Management, Inc., Aztec Technology
Partners, Inc., Navigant International, Inc. and School Specialty, Inc.2

Employment Agreement dated September 3, 1999 between Daniel P. Spalding and School
Specialty, Inc.3

Employment Agreement dated September 3, 1999 between Mary M. Kabacinski and
School Specialty, Inc.3

Employment Agreement dated September 3, 1999 between Donald J. Noskowiak and
School Specialty, Inc.3

Employment Agreement dated June 30, 1998 between Roger D. Pannier and School
Specialty, Inc.4

Employment Agreement dated March 2, 1999 between Peter Savitz and School Specialty,
Inc.4

Employment Agreement dated March 29, 1999 between Brian Chapin and School
Specialty, Inc.4

Employment Agreement dated July 26, 1996 between Donald Ray Pate, Jr. and The
Re-Print Corp.5

Employment Agreement dated June 27, 1997 between Richard H. Nagel and Sax Arts and
Crafts, Inc.5

Covenant Not to Compete Agreement dated June 27, 1997 between Richard H. Nagel and
Sax Arts and Crafts, Inc.9
Employment Agreement between David Vander Zanden and School Specialty, Inc.6
Employment Agreement between School Specialty, Inc. and Jonathan J. Ledecky.6

Amended Services Agreement dated as of June 8, 1998 between U.S. Office Products and
Jonathan J. Ledecky.7

10.16

Amended and Restated 1998 Stock Incentive Plan.

Exhibit
Number

Document Description

10.17

JuneBox.com, Inc. 2000 Equity Incentive Plan.

10.18

10.19

10.20

21.1

23.1

27.1

Amended and Restated Credit Agreement dated as of September 30, 1998 among School
Specialty, Inc., certain subsidiaries and affiliates of School Specialty, Inc., the lenders
named therein and Nationsbank, N.A., Bank One, Wisconsin and U.S. Bank National
Association.8

Lease dated as of June 30, 1998 between Roger D. Pannier and Pamela S. Pannier as lessor
and School Specialty, Inc. as lessee.

Lease dated as of July 1, 1990 between Larry Joseph and Peter Savitz Partners as lessor and
Select Service & Supply, Co., Inc. as lessee including Sublease Agreement and amendments
thereto.

Subsidiaries of School Specialty, Inc.

Consent of PricewaterhouseCoopers LLP.

Financial Data Schedule.

99.1
_____________________________

Schedule II - Valuation and Qualifying Accounts.

Incorporated by reference to School Specialty’s Pre-Effective Amendment No. 3 to the Registration
Statement on Form S-1 filed with the SEC on June 4, 1998; Registration No. 333-47509.

Incorporated by reference to School Specialty’s Pre-Effective Amendment No. 2 to the Registration
Statement on Form S-1 filed with the SEC on May 18, 1998; Registration No. 333-47509.

Incorporated by reference to School Specialty’s Form 10-Q for the period ended October 23, 1999, as
filed with the SEC on December 7, 1999.

Incorporated by reference to School Specialty’s Form 10-Q for the period ended July 24, 1999, as
filed with the SEC on September 7, 1999.

Incorporated by reference to School Specialty’s Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-1 filed with the SEC on May 6, 1998; Registration No. 333-46537.

Incorporated by reference to School Specialty’s Annual Report on Form 10-K filed with the SEC on
July 24, 1998.

Incorporated by reference to School Specialty’s Pre-Effective Amendment No. 4 to the Registration
Statement on Form S-1 filed with the SEC on June 9, 1998; Registration No. 333-47509.

Incorporated by reference to School Specialty’s Form 10-Q for the period ended January 23, 1999, as
filed with the SEC on March 1, 1999.

Incorporated by reference to School Specialty’s Registration Statement on Form S-1 filed with the
SEC on March 1, 1999; Registration No. 333-73103.

Directors Officers

Daniel P. Spalding
Chairman, Chief Executive Officer
School Specialty, Inc.

David J. Vander Zanden
President, Chief Operating Officer
School Specialty, Inc.

Daniel P. Spalding
Chairman,
Chief Executive Officer

David J. Vander Zanden
President,
Chief Operating Officer

Jonathan J. Ledecky
Former Chairman, Chief Executive Officer
Building O-N-E Services Corporation

Mary M. Kabacinski
Executive Vice President,
Chief Financial Officer

Leo C. McKenna
Financial Consultant

Rochelle Lamm
Chairman, Chief Executive Officer
Precision Marketing Partners, LLC

Jerome M. Pool
Former President
Jantzen, Inc.

Donald J. Noskowiak
Vice President Finance/
Business Development

Michael J. Killoren
Executive Vice President,
Chief Information Officer for
JuneBox.com

Melvin D. Hilbrown
Executive Vice President,
Managing Director for Gresswell

Investor Information

Corporate Headquarters
School Specialty, Inc.
1000 North Bluemound Drive
Appleton, Wisconsin 54914
Phone: 920-734-5712
920-882-5863
Fax:

Stock Listing
School Specialty’s common stock is
traded on Nasdaq under the symbol
SCHS.

Stockholder Information
For information about School Specialty,
including copies of annual reports,
forms 10-K and 10-Q and other available
information, please contact:
Mary M. Kabacinski
Executive Vice President and CFO
Phone: 920-882-5852
Fax:
920-882-5863
Email: mkabacinski@schoolspecialty.com

Dividend Policy
School Specialty’s present policy is to
retain earnings to finance its growth.
As a result, the company does not
expect to pay cash dividends in the
foreseeable future.

Annual Meeting
All stockholders are welcome to attend
School Specialty’s annual meeting. It
will be held at 10:00 a.m. Central Time
on August 29, 2000, at the Park Plaza
Paper Valley Hotel in Appleton,
Wisconsin.

Websites
Investor information can be found
under that title at School Specialty’s
website: www.schoolspecialty.com. You
also are invited to visit www.junebox.com
and www.classroomdirect.com to see how
School Specialty assists school business
officials, teachers and consumers who
purchase educational products and
materials.

Richard H. Nagel
Executive Vice President for
Sax Arts & Crafts

Donald Ray Pate, Jr.
Executive Vice President for
ClassroomDirect.com

Ronald E. Suchodolski
Executive Vice President for
Childcraft

Garett H.D. Reid
Executive Vice President for
Frey Scientific

Peter S. Savitz
Executive Vice President for
Sportime

Brian E. Chapin
Executive Vice President for
SmartStuff Software

Joseph F. Franzoi IV
Secretary and Corporate Counsel

Transfer Agent and Registrar
American Stock Transfer & Trust
Company
40 Wall Street
New York, New York 10005

Independent Auditors
PricewaterhouseCoopers, LLP
650 Third Avenue South, Suite 1300
Minneapolis, Minnesota 55402

Legal Counsel
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202

Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, Wisconsin 54952

School Specialty, Inc.
1000 North Bluemound Drive
Appleton, Wisconsin 54914
Phone: 920-734-5712
Fax: 920-882-5863
www.schoolspecialty.com