Investment Considerations

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2 Investment Considerations Schools Specialty s unique attributes provide significant earnings stability and predictability Clear market leader in attractive, fragmented industry Largest product offering and premier brands Unparalleled customer reach and relationships Proven ability to acquire, integrate and improve performance Low risk, highly diversifiable business mix Consistent financial performance with strong cash conversion 2

3 K-12 Education Spending Has Grown Steadily, Even During Recessions Strong, reliable industry growth expected to continue $450 billion industry in 2003, estimated to have grown to $500 billion in 2004 Supplemental education products market is approximately $7.3 billion Expenditures per student have never decreased year-over-year Historically, budget cuts have not significantly impacted supplemental product expenditures TOTAL U.S. K-12 EDUCATION EXPENDITURES BY DRIVER 60 $12,000 # of Students in Millions ,000 8,000 6,000 4, $ Spending per Student 2,000 Student Enrollment Expenditures per Student Recession Source: National Center for Education Statistics. 3

4 Market Position Clear market leader in attractive fragmented $7.3 billion industry 15% share of the total $7.3 billion supplemental educational market 3300 competitors largely private, regional companies Advantages of significant scale Multi-channel distribution capabilities Superior breadth of product offering Purchasing power Ability to manage seasonality Fixed cost leverage 67% of EBITDA from franchises with #1 market position and over 90% from a Top 2 market position #1 Position 67% #2 Position 23% Other 10% 4

5 Leading Brands Across Product Segments Revenue EBITDA Academic agendas built on character education Early childhood reading and literacy products and materials Art supplies and instructional materials Specialty 57% of PF LTM 10/29/05 Specialty 72% of PF LTM 10/29/05 EBITDA Supplemental educational products and materials for teachers Health, nutrition and physical education products Literature, workbooks and early childhood curriculum programs Laboratory supplies for science and industrial arts classrooms Inquiry-based hands-on science programs (FOSS) Educational videos and DVDs for educators and published materials for character education and special events Multimedia, audio-visual and presentation equipment Essentials 43% of PF LTM 10/29/05 Essentials 28% of PF LTM 10/29/05 EBITDA Supplemental educational products and furniture for public and private schools. Aggregation of product selection and delivery 5

6 Unparalleled Customer Reach and Relationships Sell products to > 80% of all schools and reach nearly all 3.6 million teachers Target Markets: Essentials Specialty Top Down Approach Bottom Up Approach 17.4K school districts 115.5K schools 3.6MM teachers 115.5K schools Leading third party brands Private label Curriculum-focused brands Proprietary products 4MM catalogs mailed in FY salespeople School Specialty Online 48MM catalogs mailed in FY salespeople Branded Websites Brands: Product Lines: Marketing / Distribution: 6

7 Operating Strategy Continue to evolve towards higher-value, curriculum focused products while improving operating efficiencies Organic Growth Leverage leading brands to grow in excess of the market Increased focus on faster growth specialty segments Leverage leading sales force, technology infrastructure and internet capabilities to drive further penetration in under penetrated states and large school districts Increased Operating Efficiency Increase sourcing of products from overseas Increase sophistication and effectiveness of direct marketing operations Reduce working capital and delivery times by improving supply chain efficiency Continue infrastructure consolidation Acquisitions Selectively acquire and integrate high potential specialty companies 7

8 Increasing Focus on the Specialty Segment and Proprietary Products Since 1997, School Specialty has continually shifted its product mix towards specialty and proprietary products Specialty Essentials (a) LTM 10/29/065 (b) Revenue by Segment 82% 18% 60% 40% 43% 57% EBITDA by Segment ) 71% 29% 47% 53% 28% 72% Proprietary Product Mix < 5% 20% - 25% > 35% EBITDA Margin 7.2% 7.8% 11.4% (a) Adjusted for one-time charge and a full year impact from the acquisition of The Guidance Channel and Delta Education. 8

9 Diversified Business Mix Low risk, highly diversified business mix CUSTOMER BREAKDOWN (BY DISTRICT) PRODUCT BREAKDOWN (e) Top 10 5% (a) Top 100 6% Other 95% Other 94% STATE BREAKDOWN (c) SUPPLIER BREAKDOWN (e) Other 26% % Other 88% (d) Top 10 12% % Top 5 36% (b) (a) (b) (c) (d) (e) Largest customer is New York City Department of Education - $16.5 million of FY 2005 revenue, 1.7% total. Customers in the state of California represent the greatest percentage of FY 2005 revenues ($92.5 million). Does not reflect Delta Education acquisition; Delta Education s sales to top 10 states represented 43% of Delta Education s revenues in 2004 and 4% PF combined. Top supplier is Binney & Smith - $17.2 million of FY 2005 payments, 2.8% of total. Based on Education Essentials, Sax, Sportime, Frey and School Specialty Publishing and Delta Education. 9

10 Leverage Capabilities to Drive Improvement in Market Penetration Focused sales and marketing efforts and nationwide support infrastructure have significantly increased the Company s share of state spend per student 1998 Penetration 2005 Penetration (a) D.C. D.C. Share Of Student Spend / State >15% 8% - 15% <8% Number of States (including DC) Change Note: Does not reflect the Delta Education acquisition. (a) School Specialty state sales divided by education expenditures per state. Expenditures per state are actual for 2003 with management estimated adjustment factor for the supplies and furniture market. Expenditures per state for 2005 are equal to 2003 levels, projected forward two years using each state s CAGR from 1998 through

11 Leading Provider of Educational Supplies Most comprehensive e-commerce solution in the industry All brands operate complete e-commerce websites 24% of all order lines placed over the internet in fiscal ,000 SKUs available 10,000 active organizations as customers System allows seamless purchase order management interfaced with school / district procurement systems via EDI Deeply embeds Company within supply chain systems of large school districts creating substantial barriers to entry and high switching costs Capability is cost prohibitive for almost all competitors ($ in millions) INTERNET REVENUE Revenue $ $50.0 $56.0 CAGR: 26.2% $69.2 $ % % of Total Revenue

12 Key Drivers of Increased Operational Efficiency Realization of potential annual cost savings over $10 million could drive substantial profitability and free cash flow growth Global Sourcing Strategy In 2005, products sourced from China generated $80 million of revenue Target is $660 million in revenue from products sourced from China by 2010 School Smart private label will improve Essentials margins Optimize Direct Marketing Operations Hired former VP of Direct Marketing at Lands End to improve quality of customer data and refine catalog strategy Optimize catalog mailings / designs Increase sales from targeted, multi-channel marketing Reduce costs from print contract and paper purchasing Supply Chain Efficiency Began strategic review of supply chain process in 2004 Identified cost savings opportunities in warehouse optimization, logistics optimization and product configuration / stocking Increased utilization of new distribution center in Mt. Joy, PA 12

13 School Smart Initiative Will Improve Education Essentials Margins School Smart will increase market share and improve margins in the Essentials business segment Certain non-proprietary Education Essentials products have experienced margin pressure over the last few years as a result of the tight school budget environment In response, the School Smart program was launched Over 1,000 products under the School Smart private label in fiscal 2006 Direct sourcing will result in cost savings of 25% - 35%, a portion of which will be passed on to customers to gain share ($ in millions) SCHOOL SMART REVENUE & PRODUCT OFFERINGS $120 2,320 2,500 1,700 additional products to be sourced under the School Smart private label by 2008 Increased sourcing should drive approximately 120 bps in Essentials EBITDA margin improvement by 2008, with the potential for further expansion by 2010 School Smart margins carry a 45% margin compared to 35% for consumables Revenue $34.0 1,002 $41.0 1,321 $60.1 $ and Beyond 2,000 1,500 1, Number of Products 13

14 Selectively Acquire and Integrate High Potential, Specialty Companies Long history of successful strategic acquisitions 14 companies since 2000 (including Delta Education) Focus on quality target companies #1 or #2 market position Focus on specialty companies with brand equity and proprietary products Enter into new educational disciplines and strengthen existing platforms Acquisition discipline Target purchase price multiple of < 9x LTM EBITDA (pre-synergies) Achieve bps of target EBITDA margin improvement within first two years Ongoing monitoring effort engenders multiple benefits to School Specialty Superior knowledge of competition by vertical More first looks / superior awareness of advantageous buying opportunities (e.g. motivated seller) Better ability to assess buy / build decisions in executing growth strategy PURCHASE MULTIPLE IMPROVEMENT 7.6x 5.9x 7.1x 4.4x 9.1x 7.7x 7.5x 6.0x Califone J.L. Hammett Premier Sportime At Close Year 1 EBITDA MARGIN IMPROVEMENT (2 YRS. POST ACQ) (a) Califone J.L. Hammett Premier Sportime (a) Califone has been under School Specialty s ownership for less than 2 years. 14

15 Delta Education Acquisition Premier provider of educational programs focused on the science and elementary reading markets Leading publisher of highly differentiated instructional materials for the prek-12 market in the U.S. Three operating divisions Elementary Science develops, markets and publishes core and supplemental science materials for the prek-8 market Secondary Science develops core curriculum and supplemental materials for middle and high school students Elementary Reading publishes a diversified mix of supplemental reading products for the prek-8 market Exclusive publisher of Full-Option Science System ( FOSS ), the leading inquiry-based science education program developed in collaboration with the University of California at Berkeley Proven classroom effectiveness ($ in millions) (a) (b) TOTAL REVENUE $ $73 $88 $ % $81 $ E LTM 6/30/04 LTM 6/30/05 ($ in millions) (a) (b) TOTAL EBITDA $ CAGR: 18.8% CAGR: 24.9% $17 $20 $ % $21 $ E LTM 6/30/04 LTM 6/30/05 (a) Revenue and EBITDA reported on a pro forma basis as if all acquisitions had been made on 1/1/03. (b) Delta Education s fiscal year end is December

16 Financial Highlights Long track record of growing revenue and EBITDA both organically and through accretive acquisitions Financial resiliency in strong and weak market conditions Strong cash conversion profile due to low maintenance capital expenditure requirements Stable and predictable working capital cycle Excellent platform to consummate accretive acquisitions Strong internal controls (Sarbanes-Oxley compliant) 16

17 Consistent Financial Performance and Multiple Improvement Opportunities ($ in millions) ($ in millions) Revenue Organic Vs. Acquired Revenue Growth $ 1,800 1,500 CAGR: 9.7% 15% 13.4% 1, % 10.5% $1, % 8.4% $692.7 $767.4 $870.0 $907.5 $ % 4.8% 1.0% 4.3% 3.6% 300 $415.0 $480.9 $472.5 $468.5 $486.2 $ % PF LTM 10/29/05 Essentials Specialty -5% Total Revenue Growth (2.9%) (0.8%) Organic Revenue Growth 0 17

18 Consistent Financial Performance and Multiple Improvement Opportunities ($ in millions) EBITDA (a) ($ in millions) EBITDA-to-Cash Conversion (a) $ 160 CAGR: 21.1% 20% $120 $102 $106 $ % % $ % $ % 11.6% 11.6% $101.9 $105.7 $ % $ $69 75 $54 $90 $92 $97 50 $39 $ Cash EBITDA Cash Conversion (b) PF LTM(b) EBITDA EBITDA Margin 0 (a) (b) Excludes amortization of product development costs and interest related to the Receivables Facility. Adjusted for one-time 18

19 Predictable Working Capital Cycle $350MM in liquidity facilities provides ample coverage for working capital savings. Total Debt by Fiscal Year $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 F'02 F'03 F'04 F'05 F' /30 5/7 5/14 5/21 5/28 6/4 6/11 6/18 6/25 7/2 7/9 7/16 7/23 7/30 8/6 8/13 8/20 8/27 9/3 9/10 9/17 9/24 10/1 10/8 10/15 10/22 10/29 11/5 11/12 11/19 11/26 12/3 12/10 12/17 12/24 12/31 1/7 1/14 1/21 1/28 2/4 2/11 2/18 2/25 3/4 3/11 3/18 3/25 4/1 4/8 4/15 4/22 Millions of Dollars

20 Capital Structure (In Millions) Total Facility Outstanding 2Q 06 Outstanding 4Q 05 Bank Revolver $250.0 $174.5 $ 45.5 Term Loan Securitization Subordinated Convertible ( 03) Total Debt $583.0 $457.5 $225.7 Shareholder s Equity $604.4 $544.5 Debt: Total Capitalization = 43% 20

21 Visible and Predictable Free Cash FY Ended YTD YTD April 30, 2Q 06 2Q Net Income $ 55,164 $ 62,559 $ 43,001 Plus: Depreciation and other non-cash items 15,463 13,310 37,572 Change in working capital (18,240) (58,141) (24,032) Net cash provided by operating activities $ 52,387 $ 17,728 $ 56,541 Net additions to P&E (5,879) (4,933) (23,248) Intangible and other assets (1,275) - (1,710) Development costs (3,775) (2,730) (5,835) Free cash (a) $ 41,458 $ 10,065 $ 25,748 (a) See our fiscal 2005 annual report on form 10-K for a definition and reconciliation of these items to the comparable GAAP measure. 21

22 Investment Considerations Schools Specialty s unique attributes provide significant earnings stability and predictability Clear market leader in attractive, fragmented industry More than 7x larger than nearest competitor Largest product offering and premier brands Over 90,000 products, more than 35% of which are proprietary Unparalleled customer reach and relationships Over 52 million catalogs mailed in FY salespeople largest sales force in the industry Proven ability to acquire, integrate and improve performance Target bps of EBITDA margin improvement at acquired subsidiaries within the first two years Low risk, highly diversifiable business mix Top 10 customers represent less than 5% of revenue Consistent financial performance, strong cash conversion and multiple improvement opportunities Revenue and EBITDA have increased at a CAGR of 9.7% and 21.0%, respectively, between FY2001 and FY

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