UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29,August 31, 2000 Commission File No. 0-19860
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3385513
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 BROADWAY, NEW YORK, NEW YORK 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 343-6100
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 X No _
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE NUMBER OF SHARES OUTSTANDING
OF EACH CLASS AS OF MARCH 31, 2000
Common Stock, $.01 par value 16,164,307Title Number of shares outstanding
OF EACH CLASS AS OF SEPTEMBER 30, 2000
------------- ------------------------
Common Stock, $.01 par value 16,339,996
Class A Stock, $.01 par value 828,100
SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29,AUGUST 31, 2000
INDEX
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
PAGE(S)
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three
and
Nine Months Ended February 29,August 31, 2000 and February 28, 1999 1
Condensed Consolidated Balance Sheet at February 29,August 31, 2000,
February 28,and 1999 and May 31, 19992000 2
Condensed Consolidated Statement of Cash Flows for the NineThree Months
Ended February 29,August 31, 2000 and February 28, 1999 3
Notes to Condensed Consolidated Financial Statements 44-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1110-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 1815
PART II - OTHER INFORMATION
Item 4. Legal Proceedings 19Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 2017
SIGNATURES 2118
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
=================================================== ================================== ================= ================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
=================================================== ================ ================= ================= ================AUGUST 31,
================================================================================
2000 1999
2000 1999
=================================================== ================ ================= ================= ================================================================================================
REVENUES $ 312.8362.1 $ 267.3 $ 1,000.6 $ 820.7182.5
Operating costs and expenses:
Cost of goods sold 155.6 133.5 500.7 406.6184.9 110.8
Selling, general and administrative expenses 143.1 123.6 427.9 360.1175.3 99.8
Depreciation 5.1 4.2 14.4 12.46.2 4.6
Goodwill and trademark amortization 1.3 1.1 3.5 3.9
Non-recurring charge - - 8.5 -
- --------------------------------------------------- ---------------- ----------------- ----------------- ----------------2.5 0.9
-----------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 305.1 262.4 955.0 783.0368.9 216.1
Operating income 7.7 4.9 45.6 37.7loss (6.8) (33.6)
Interest expense, net (4.5) (4.6) (14.6) (14.5)9.7 4.4
- --------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Income--------------------------------------------------------------------------------
Loss before income taxes 3.2 0.3 31.0 23.2
Provision for(16.5) (38.0)
Benefit from income taxes 1.2 0.1 11.3 8.85.9 14.4
- --------------------------------------------------- ---------------- ----------------- ----------------- ------------------------------------------------------------------------------------------------
NET INCOMELOSS $ 2.0(10.6) $ 0.2 $ 19.7 $ 14.4
=================================================== ================ ================= ================= ================(23.6)
================================================================================
Net incomeloss per Class A and Common Share:
Basic $ 0.12(0.62) $ 0.01 $ 1.18 $ 0.88(1.43)
Diluted $ 0.11(0.62) $ 0.01 $ 1.16 $ 0.86
=================================================== ================ ================= ================= ================(1.43)
================================================================================
SEE ACCOMPANYING NOTES
1
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================= ====================== ====================== =======================
FEBRUARY 29,==================================================================================================================
AUGUST 31, 2000 MAY 31, 2000 AUGUST 31, 1999
FEBRUARY 28, 1999
================================================= ====================== ====================== =========================================================================================================================================
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5.68.2 $ 5.99.0 $ 1.6
Accounts2.9
Trade accounts receivable less allowance for
doubtful accounts 183.8 136.4 129.2296.3 153.7 142.2
Installment sale receivables less allowance for
doubtful accounts 64.5 - -
Inventories, net 319.5 227.4 267.6423.6 290.7 315.1
Deferred income taxes 41.9 41.8 48.163.1 57.2 55.5
Prepaid and other deferred expenses 29.6 22.7 24.2current assets 88.0 29.1 35.6
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 580.4 434.2 470.7943.7 539.7 551.3
Property, plant and equipment, net 166.0 152.2 143.0200.1 176.4 153.7
Prepublication costs 99.7 95.3 88.2137.9 116.1 95.4
Goodwill and trademarks 294.9 66.4 70.4
Other assets and deferred charges 154.3 160.6 170.1107.5 84.6 92.7
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,000.41,684.1 $ 842.3983.2 $ 872.0
================================================== ========== ======== =========963.5
=================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit and current portion of long term debt $ 21.223.1 $ 18.08.7 $ 15.722.0
Accounts payable 131.7 97.0 105.5227.6 129.7 151.4
Accrued royalties 56.8 23.7 35.679.6 32.8 32.8
Deferred revenue 23.6 6.7 21.818.3 10.3 14.8
Other accrued expenses 61.5 66.4 55.7141.4 104.3 53.2
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 294.8 211.8 234.3490.0 285.8 274.2
NONCURRENT LIABILITIES:
Long-term debt 281.2 248.0 277.9740.2 241.1 329.0
Other noncurrent liabilities 23.7 21.131.1 26.3 22.0
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 304.9 269.1 299.9771.3 267.4 351.0
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value -- -- --- - -
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.2 0.2 0.2
Additional paid-in capital 223.0 212.3 211.5224.8 222.7 213.1
Accumulated other comprehensive loss:
Foreign currency translation adjustment (7.6) (5.7)(12.9) (11.1) (6.1)
Retained earnings 211.1 191.4 169.0232.2 242.8 167.9
Less shares of Common Stock
held in treasury (26.0) (36.8)(21.5) (24.6) (36.8)
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 400.7 361.4 337.8422.8 430.0 338.3
- -------------------------------------------------- ---------- -------- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,000.41,684.1 $ 842.3983.2 $ 872.0
================================================== ========== ======== ========963.5
=================================================================================================================
=================================================================================================================
SEE ACCOMPANYING NOTES
2
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
(AMOUNTS IN MILLIONS)
================================================================================================================
NINE===============================================================================================
THREE MONTHS ENDED FEBRUARY 29, FEBRUARY 28,
============================================================================ =================== ===============AUGUST 31,
===============================================================================================
2000 1999
============================================================================ =================== ==============================================================================================================
NET CASH PROVIDED BYUSED IN OPERATING ACTIVITIES $ 42.7(88.9) $ 45.1(62.3)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Prepublication costs (35.3) (28.8)Business acquisition-related payments,
net of cash acquired (396.4) -
Additions to property, plant and equipment (28.8) (18.1)(11.8) (6.2)
Prepublication costs (8.5) (10.3)
Royalty advances (17.1) (18.1)(5.9) (5.6)
Production costs (8.1) (11.9)
Business and trademark acquisition-related payments(5.1) (3.7)
Other (2.8) (0.2)
(15.7)
Other (1.4) (3.1)
- ---------------------------------------------------------------------------- ------------------- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (90.9) (95.7)(430.5) (26.0)
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Borrowings under Grolier Facility 350.0 -
Borrowings under Loan Agreement and Revolver 282.4 213.1213.9 120.8
Repayments of Loan Agreement and Revolver (249.3) (178.9)(64.8) (39.8)
Borrowings under lines of credit 48.3 49.330.5 10.7
Repayments of lines of credit (49.9) (42.9)(15.2) (6.7)
Proceeds from the exercise of stock options and
related tax benefits 17.0 0.05.2 0.8
Other (0.6) 6.5(1.0) (0.5)
- ---------------------------------------------------------------------------- ------------------- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 47.9 47.1518.6 85.3
- ---------------------------------------------------------------------------- ------------------- --------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (0.3) (3.5)(0.8) (3.0)
Cash and cash equivalents at beginning of period 9.0 5.9
5.1
- ---------------------------------------------------------------------------- ------------------- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5.68.2 $ 1.6
============================================================================ =================== ===============2.9
===============================================================================================
===============================================================================================
SEE ACCOMPANYING NOTES
3
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which include the
accounts of Scholastic Corporation and all wholly ownedits wholly-owned subsidiaries (the
"Company"), including the consolidated accounts of Grolier Incorporated and its
subsidiaries since its acquisition on June 22, 2000 (see Note 3). These
financial statements have not been audited, but reflect those adjustments
consisting of normal recurring items which management considers necessary for a
fair presentation of financial position, results of operations and cash flow.
These financial statements should be read in conjunction with the consolidated
financial statements and related notes in the Report on Form 10-K for the fiscal
1999 Annual Report to
Stockholders.year ended May 31, 2000 as well as the Form 8-K filed in connection with
the acquisition of Grolier Incorporated (See Note 3).
The Company's business is closely correlated to the school year. Consequently,
the results of operations for the ninethree months ended February 29,August 31, 2000 and
February 28, 1999
are not necessarily indicative of the results expected for the full year. Due to
the seasonal fluctuations that occur, the February 28,August 31, 1999 condensed consolidated
balance sheet is included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. Actual results could differ from those estimates and
assumptions. Significant estimates that affect the financial statements include,
but are not limited to: book returns; recoverability of inventory;
recoverability of advances to authors; amortization periods; recoverability of
prepublication and film production costs; and recoverability of other long-lived
assets.
2. RECENT ACCOUNTING PRINCIPLES
Effective May 31, 1999,PRONOUNCEMENTS
The Company has adopted the Company adopted Statementprovisions of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures About SegmentsEITF Issue 00-10, "Accounting for
Shipping and Handling Fees and Costs". This consensus states that all shipping
and handling billings to a customer in a sale transaction represent the fees
earned for the goods provided and, accordingly, amounts billed related to
shipping and handling should be classified as revenue. Shipping and handling
costs are classified in cost of an Enterprise and
Related Information." This statement requires that public business enterprises
report certain information about operating segmentsgoods sold. Certain prior year amounts have
been reclassified in financial statements ofaccordance with the enterprise issued to shareholders. It also requires that public business
enterprises report certain information about their products and services,consensus.
In June 1998, the
geographic areas in which they operate, and their major customers. The required
disclosures are presented in Note 3 included herein.
The Financial Accounting Standards Board issued, in June 1998, Statement of
Financial Accounting Standards No. 133 (SFAS 133)("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires the Company
to recognize all derivatives to be
recordedas either assets or liabilities on the balance
sheet and measuring them at fair value and establishes special accounting
forvalue. Under SFAS 133, the following three different typesCompany is
required to adopt the provisions of hedges: hedges of changesthis standard in the fair
valuefirst quarter of
assets, liabilities, or firm commitments (fair value hedges); hedgesfiscal 2002. The Company does not expect, based upon its current assessment,
that the adoption of the variable cash flowsSFAS 133 will have a material impact on its financial
position, results of forecasted transactions (cash flow hedges); and
hedges of foreign currency exposures of net investments in foreign operations.
Though the accounting treatment and criteria for each of the three types of
hedges is unique, they all result in offsetting changes in fair valuesoperations or cash flows of bothflows.
In December 1999, the hedgeSecurities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides the hedged item recognizedSEC's views in earnings or in
accumulated comprehensive income in the same period. Changes in the fair value
of derivatives that do not meet the criteria of one of these three categories of
4
hedges are included in income.applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
required to adopt the provisions of SFAS 133SAB 101 no later than the fourth quarter of
fiscal 2001. The Company does not expect that the adoption of SAB 101 will have
a material impact on its financial position, results of operations or cash
flows.
4
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
In June 2000, the Accounting Standards Executive Committee issued Statement of
Position No. 00-2 ("SOP 00-2"), "Accounting by Producers or Distributors of
Films." SOP 00-2 replaces the Statement of Financial Accounting Standards No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films."
SOP 00-2 concluded that film costs should be accounted for under an inventory
model and discusses various topics such as revenue recognition, fee allocation
in multiple films, accounting for exploitation costs, and impairment assessment.
The Company is required to adopt the provisions of SOP 00-2 by the first quarter
of fiscal 2002. The Company does not expect that the adoption of SOP 00-2 will
have a material impact on its financial position, results of operations or cash
flows.
3. ACQUISITION OF GROLIER
On June 22, 2000, pursuant to a Stock Purchase Agreement dated as of April 13,
2000 and as amended, Scholastic Inc., a wholly-owned subsidiary of the Company,
acquired all of the issued and outstanding capital stock of Grolier Incorporated
("Grolier"), a Delaware corporation, for $400.0 in cash. The Company is
accounting for the acquisition under the purchase method of accounting.
The acquisition was financed by the Company using bank debt. Of the $400.0
Grolier purchase price, $350.0 was borrowed under a new credit facility (the
"Grolier Facility") entered into to finance the acquisition and $50.0 was
borrowed under the Company's existing Loan Agreement and Revolver. (See Note 5).
The unaudited pro forma results of the Company, giving effect to the acquisition
of Grolier assuming it was consummated at the beginning of the three-month
periods ended August 31, 2000 and August 31, 1999 are as follows:
THREE MONTHS ENDED AUGUST 31,
=============================================================================
2000 1999
=============================================================================
Revenues $ 397.7 $ 292.3
NET LOSS $ (7.3) $ (21.4)
- ----------------------------------------------------------------------
Net loss per Class A and Common Share:
Basic $ (0.43) $ (1.30)
Diluted $ (0.43) $ (1.30)
The following summarizes the preliminary allocation of the $396.4 purchase
price allocation, which includes the related transaction and financing costs,
to the net assets of Grolier acquired based upon a preliminary allocation as
follows:
Accounts receivable, net $104.9
Inventory 53.1
Other current assets 57.9
Property, plant and equipment, net 27.4
Goodwill / Other intangibles 231.8
Other assets 31.9
Current liabilities (98.7)
Long term liabilities ( 6.3)
Cash received upon acquisition of Grolier ( 5.6)
-------
Total purchase price $396.4
=======
5
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
3.This allocation of the purchase price is based on a preliminary valuation of
Grolier's assets and liabilities and is subject to change. The final
allocation of the purchase price will be based upon a comprehensive
evaluation of the fair value of Grolier's tangible and identifiable
intangible assets acquired and liabilities assumed.
4. SEGMENT INFORMATION
The Company is a global children's publishing and media company with
operations in the United States, the United Kingdom, Canada, Australia, New
Zealand, Mexico, Hong Kong, India, Ireland, Argentina and Argentina,Southeast Asia, and
distributes its products and services through a variety of channels,
including school book clubs, school book fairs, direct-to-home and trade.
The Company's operations are categorized in the following four segments:
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION; EDUCATIONAL PUBLISHING; MEDIA,
LICENSING AND ADVERTISING; and INTERNATIONAL. Such segment classification
reflects the nature of products and services consistent with the method by which
the Company's chief operating decision-maker assesses operating performance and
allocates resources.
The following tables settable sets forth the Company's segment information for the periods
indicated:
CHILDREN'S MEDIA,
BOOK MEDIA,LICENSING
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTIONAND PUBLISHING ADVERTISING DOMESTIC INTERNATIONAL OVERHEAD(1)OVERHEAD CONSOLIDATED
========================== ============== ============ ============= ============ ============= ============ =============DISTRIBUTION (1)
=======================================================================================================================
THREE MONTHS ENDED
FEBRUARY 29,AUGUST 31, 2000
========================== ============== ============ ============= ============ ============= ============ ====================================================================================================================================
Revenues $ 200.5206.6 $ 40.093.7 $ 24.210.2 $ 264.7310.5 $ 48.151.6 $ 0.0 $ 312.8362.1
Depreciation 0.9 0.31.1 0.4 1.6 0.9 2.6 5.10.8 2.3 1.0 2.9 6.2
Amortization (2) 3.4 7.2 2.4 13.0 0.54.3 11.3 3.3 18.9 0.7 0.0 13.519.6
Royalty advance expense 4.14.5 0.3 0.2 0.2 4.55.0 0.0 0.0 4.55.0
Segment profit/(loss) 7.5 14.8 (9.8) 12.5 (1.8) (17.5) (6.8)
(3)
35.4 (10.5) (2.6) 22.3 0.7 (15.3) 7.7Segment assets 787.3 369.6 59.9 1,216.8 240.1 227.2 1,684.1
Long-lived assets (4) 245.8 198.9 37.8 482.5 70.6 149.6 702.7
Expenditures for
long-lived assets (4) 8.5 7.6(5) 9.0 6.0 22.1 1.0 8.9 32.0
========================== ============== ============ ============= ============ ============= ============ =============6.9 21.9 0.8 8.6 31.3
=======================================================================================================================
THREE MONTHS ENDED
FEBRUARY 28,AUGUST 31, 1999
========================== ============== ============ ============= ============ ============= ============ =============
Revenues $ 162.5 $ 32.9 $ 30.7 $ 226.1 $ 41.2 $ 0.0 $ 267.3
Depreciation 0.7 0.3 0.1 1.1 1.0 2.1 4.2
Amortization (2) 3.1 6.3 5.4 14.8 0.4 0.0 15.2
Royalty advance expense 2.8 0.2 0.6 3.6 0.0 0.0 3.6
Segment profit/(loss)(3) 25.8 (10.8) 1.1 16.1 (1.4) (9.8) 4.9
Expenditures for
long-lived assets (4) 8.7 10.4 2.9 22.0 0.1 4.9 27.0
- ------------------------- -------------- ------------ ------------- ----------- -------------- ------------ -------------
TABLES AND NOTES CONTINUED ON THE FOLLOWING PAGE
6
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
3. SEGMENT INFORMATION (continued)
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING DOMESTIC INTERNATIONAL OVERHEAD(1) CONSOLIDATED
========================== ============== ============ ============= ============ ============= ============ =============
AS OF AND FOR THE NINE
MONTHS ENDED FEBRUARY
29, 2000
========================== ============== ============ ============= ============ ============= ============ ====================================================================================================================================
Revenues $ 632.777.8 $ 147.256.9 $ 73.78.9 $ 853.6143.6 $ 147.038.9 $ 0.0 $ 1,000.6182.5
Depreciation 2.7 0.8 0.9 4.4 2.7 7.3 14.40.2 0.2 1.3 0.9 2.4 4.6
Amortization (2) 10.1 21.1 7.6 38.8 1.43.4 7.0 1.6 12.0 0.3 0.0 40.212.3
Royalty advance expense 17.2 0.7 1.0 18.9 1.24.2 0.1 0.2 4.5 0.5 0.0 20.15.0
Segment profit/(loss) (14.7) 0.5 (7.2) (21.4) (3.7) (8.5) (33.6)
(3) 115.5 (16.2) (11.3) 88.0 1.4 (43.8) 45.6
Segment assets 435.7 191.1 49.4 676.2 147.2 177.0 1,000.4399.8 184.7 58.4 642.9 141.2 179.4 963.5
Long-lived assets (5) 94.6 98.1 30.0 222.7 54.6 118.2 395.5(4) 97.0 95.7 27.3 220.0 56.8 109.0 385.8
Expenditures for
long-lived assets (4) 27.4 25.2 15.4 68.0 3.4 17.9 89.3
========================== ============== ============ ============= ============ ============= ============ =============
AS OF AND FOR THE NINE
MONTHS ENDED FEBRUARY
28, 1999
========================== ============== ============ ============= ============ ============= ============ =============
Revenues $ 470.1 $ 143.0 $ 72.1 $ 685.2 $ 135.5 $ 0.0 $ 820.7
Depreciation 2.3 0.7 0.5 3.5 2.6 6.3 12.4
Amortization (2) 9.3 18.2 12.9 40.4 1.6 0.0 42.0
Royalty advance expense 10.9 0.2 2.2 13.3 0.0 0.0 13.3
Segment profit/(loss) (3) 70.8 0.4 (4.5) 66.7 (1.7) (27.3) 37.7
Segment assets 352.8 159.2 50.3 562.3 147.7 162.0 872.0
Long-lived assets (5) 96.9 89.6 25.2 211.7 56.1 102.3 370.1
Expenditures for
long-lived assets (4) 26.9 21.5 15.1 63.5 5.5 7.9 76.9
- ------------------------- -------------- ------------ ------------- ----------- -------------- ------------ -------------8.1 7.6 5.3 21.0 1.1 3.7 25.8
(1) OVERHEAD INCLUDES UNALLOCATEDALL DOMESTIC CORPORATE-RELATED ITEMS ANDNOT ALLOCATED TO
REPORTABLE SEGMENTS. AS IT RELATES TO THE SEGMENT PROFIT/(LOSS), UNALLOCATED
EXPENSES NOT ALLOCATED TO REPORTABLE
SEGMENTS INCLUDINGINCLUDE COSTS RELATED TO THE MANAGEMENT OF CORPORATE ASSETS, NET
INTEREST EXPENSE, PROVISION FOR INCOME TAXES, AND A PRE-TAX $8.5 MILLION
NON-RECURRING CHARGE PRIMARILY RELATED TO THE ESTABLISHMENT OF A LITIGATION
RESERVE.ASSETS.
UNALLOCATED ASSETS ARE PRINCIPALLY COMPRISED OF DEFERRED INCOME TAXES AND
PROPERTY, PLANT AND EQUIPMENT RELATED TO THE COMPANY'S HEADQUARTERS IN THE
METROPOLITAN NEW YORK AREA, AND ITS NATIONAL SERVICE OPERATION LOCATED IN
MISSOURI.MISSOURI AND THE GROLIER FACILITIES LOCATED IN CONNECTICUT.
(2) INCLUDES AMORTIZATION OF GOODWILL, INTANGIBLE ASSETS, AND PREPUBLICATION AND
PRODUCTION COSTS.
(3) SEGMENT PROFIT/(LOSS) REPRESENTS EARNINGS BEFORE INTEREST AND INCOME TAXES.
(4) INCLUDES PURCHASES OF PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION AND PRODUCTION COSTS, AND ROYALTY ADVANCES.
(5) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL AND
TRADEMARKS, ROYALTY ADVANCES AND PRODUCTION COSTS.
7(5) INCLUDES PURCHASES OF PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION AND
PRODUCTION COSTS, AND ROYALTY ADVANCES. THIS AMOUNT EXCLUDES THE
EXPENDITURES FOR LONG-LIVED ASSETS AS PART OF THE GROLIER ACQUISITION.
6
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (AMOUNTS IN
MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
4.5. DEBT
Long-termThe following table sets forth the Company's debt consistedbalances as of the following:dates
indicated:
============================================== ======================== ======================== =====================
FEBRUARY 29,================================================================================================
AUGUST 31, 2000 MAY 31, 2000 AUGUST 31, 1999
FEBRUARY 28, 1999
============================================== ======================== ======================== =====================================================================================================================
Lines of Credit $ 23.1 $ 8.5 $ 22.0
Grolier Facility 350.0 - -
Loan Agreement and Revolver $ 43.0 $ 10.0 $ 39.5154.7 5.6 90.5
7% Notes due 2003, net of discount 124.8 124.8 124.8
Convertible Subordinated Debentures 110.0 110.0 110.0
Other debt 3.4 3.4 3.60.7 0.9 3.7
- ---------------------------------------------- ------------------------ ------------------------ ---------------------------------------------------------------------------------------------------------------------
TOTAL DEBT 281.2 248.2 277.9763.3 249.8 351.0
Less current portion 0.0 (0.2) 0.0
============================================== ======================== ======================== =====================of long-term debt
and lines of credit (23.1) (8.7) (22.0)
================================================================================================
TOTAL LONG-TERM DEBT $ 281.2740.2 $ 248.0241.1 $ 277.9
============================================== ======================== ======================== =====================329.0
================================================================================================
GROLIER FACILITY. The June 22, 2000 acquisition of Grolier for $400.0 was
financed by the Company using bank debt. To finance the Grolier acquisition,
$350.0 was borrowed under the Grolier Facility, and the remaining $50.0 was
borrowed under the Company's existing Loan Agreement and Revolver (as discussed
below). Scholastic Inc. is the borrower and the Company is the guarantor under
the $350.0 Grolier Facility, dated June 22, 2000. The Grolier Facility is a one
year facility, which may be extended at the Company's discretion for an
additional year. Borrowings bear interest at the prime rate, or 0.39% to 1.10%
over LIBOR (as defined). The Grolier Facility also provides for a facility fee
ranging from 0.085% to 0.25%. The amounts charged vary based on the Company's
credit rating. Based on the Company's current credit rating, the interest rate
and facility fee charged are 0.575% over LIBOR and 0.125%, respectively. The
Grolier Facility contains certain financial covenants related to debt and
interest coverage ratios (as defined) and limits dividends and other
distributions.
LOAN AGREEMENT. The Company and Scholastic Inc. (a wholly owned subsidiary)
are joint and several borrowers
under aan amended and restated loan agreement with certain banks, which was amended and restated effective
August 11, 1999 and amended June 22, 2000 (the "Loan Agreement"). The Loan
Agreement, which expires on August 11, 2004, provides for aggregate borrowings
of up to $170.0 (with a right in certain circumstances to increase it to
$200.0) including the issuance of up to $10.0 in letters of
credit (of which $1.0 was outstanding at February 29, 2000). Interest under this facility is either at the prime rate or 0.325% to
0.90% over LIBOR (as defined). There is a facility fee ranging from 0.10% to
0.30% and a utilization fee ranging from 0.05% to 0.15% if borrowings exceed 33%
of the total facility. The amounts charged vary based upon the Company's credit
ratings.rating. Based on the Company's current credit ratings,rating, the interest rate,
facility fee and utilization fee are 0.475% over LIBOR, 0.150%, and 0.075%,
respectively. The Loan Agreement contains certain financial covenants related to
debt and interest coverage ratios (as defined) and limits dividends and other
distributions.
REVOLVER. The Company and Scholastic Inc. are joint and several borrowers under
a Revolving Loan Agreementrevolving loan agreement with SunTrust Bank, which was amended and
restateda bank, effective November 10, 1999 and amended
June 22, 2000 (the "Revolver") and. The Revolver, which expires on August 11, 2004,
provides for revolving credit loans of up to $40.0 and expires on August 11, 2004.$40.0. Interest under this facility
is at the prime rate minus 1% or 0.325% to 0.90% over LIBOR (as defined). There
is a facility fee ranging from 0.10% to 0.30%. The amounts charged vary based
upon the Company's credit ratings.rating. Based on the Company's current credit ratings,rating,
the interest rate and facility fee are 0.475% over LIBOR and 0.150%,
respectively. The Revolver hascontains certain financial covenants related to debt
and interest coverage ratios (as defined) and limits dividends and other
distributions.
7
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (AMOUNTS IN
MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
7% NOTES DUE 2003. In December 1996, the Company issued $125.0 of 7% Notes due
2003 (the "Notes"). The Notes are unsecured and unsubordinated obligations of
the Company and will mature on December 15, 2003. The Notes are not redeemable
prior to maturity. Interest on the Notes is payable semi-annually on December 15
and June 15 of each year.
CONVERTIBLE SUBORDINATED DEBENTURES. In August 1995, the Company sold $110.0 of
5.0% Convertible Subordinated Debentures due August 15, 2005 (the "Debentures").
Interest on the Debentures is payable semi-annually on August 15 and February 15
of each year. The Debentures are redeemable at the option of the Company, in
whole, but not in part, at any time on or after August 15, 1998 at 100% of the
8
principal amount plus accrued interest. Each Debenture is convertible, at the
holder's option, any time prior to maturity, into Common Stock of the Company at
a conversion price of $76.86 per share.
9
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
5.6. CONTINGENCIES
The Company and certain officers have been named as defendants in litigation
which alleges, among other things, violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, resulting from
purportedly materially false and misleading statements to the investing public
concerning the financial condition of the Company. On January 26, 2000, an order
was entered granting the Company's motion to dismiss plaintiffs' Second Amended
Consolidated Complaint without leave to further amend the complaint. Previously,
on December 14, 1998, an order was entered granting the Company's motion to
dismiss plaintiffs' First Amendment Consolidated Complaint and granting
plaintiffswith leave to amend
the complaint. In dismissing both complaints, which alleged substantially
similar claims, the court held that plaintiffs failed to state a claim upon
which relief can be granted. On February 25, 2000, plaintiffs
filed a Notice of Appeal in connection withPlaintiffs have appealed the most recent dismissal.
The Company continues to believe that the litigation is without merit and will
continue to vigorously defend against it.
On February 1, 1999, two subsidiaries of the Company commenced an action in the
Supreme Court of the State of New York in New York County against Parachute
Press, Inc. ("Parachute"), the licensor of certain publication and
nonpublication rights to the GOOSEBUMPS-Registered Trademark-GOOSEBUMPS(R) series, certain affiliated Parachute
companies and R.L. Stine, individually, alleging material breach of contract and
fraud in connection with the agreements under which such GOOSEBUMPS rights are
licensed to the Company. The issues in the case are also, in part, the subject
of two litigations commenced by Parachute following repeated notices from the
Company to Parachute of material breaches by Parachute of the agreements under
which such rights are licensed and the exercise by the Company of its
contractual remedies under the agreements. The first Parachute action, in which
two subsidiaries of the Company are defendants and counterclaim plaintiffs, was
commenced in the federal court for the Southern District of New York on November
14, 1997 and was dismissed for lack of subject matter jurisdiction on January
29, 1999. Parachute filed anOn appeal, the Court of Appeals for the dismissal.Second Circuit vacated the
dismissal and remanded the case for further proceedings. The second Parachute
action was filed contemporaneously with the filing of the Company's complaint on
February 1, 1999 in the Supreme Court of the State of New York in New York
County. In its two complaints, and in its counterclaims, Parachute alleges that
the exercise of contractual remedies by the Company was improper and seeks
declaratory relief and unspecified damages for, among other claims, alleged
breaches of contract and acts of unfair competition. Damages sought by Parachute
include the payment of a total of approximately $36.1 of advances over the term
of the contract (of which approximately $15.3 had been paid at the time the
first Parachute litigation began) and payments of royalties set-off by
Scholastic against amounts claimed by the Company. The Company is seeking
declaratory relief and damages for, among other claims, breaches of contract,
fraud and acts of unfair competition. Damages sought by the Company include lost
profits and disgorgement of certain payments
8
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
received by Parachute. Discovery, which has been consolidatedOn July 21, 2000, the Company and Parachute each filed
motions for partial summary judgement in the litigations, is continuing.state court cases. The Company
intends to vigorously pursue its claims against Parachute and the other named
defendants and to vigorously defend its position against the new lawsuit
and the appeal.in these proceedings. The
Company does not believe that this dispute will have a material adverse effect
on its financial condition.
The Company is also engaged in various legal proceedings incident to its normal
business activities. In the opinion of the Company, none of such proceedings is
materialaddition to the above actions, various claims and lawsuits arising in the
normal course of business are pending against the Company. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of the Company.
10
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
6.operations.
7. COMPREHENSIVE INCOME/(LOSS)LOSS
The following table sets forth the comprehensive income/(loss)loss for the periods
indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
===================================================== ================= ================ ================= =================AUGUST 31,
==========================================================================================
2000 1999
2000 1999
===================================================== ================= ================ ================= ===========================================================================================================
Net incomeloss $ 2.0(10.6) $ 0.2 $ 19.7 $ 14.4
Other comprehensive(23.6)
Comprehensive loss:
Foreign currency translation adjustment
net of provision for income taxes (0.9) (0.9) (1.1) (0.8)(1.8) (0.2)
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME/(LOSS)LOSS $ 1.1(12.4) $ (0.7) $ 18.6 $ 13.6
===================================================== ================= ================ ================= =================(23.8)
==========================================================================================
7. EARNINGS8. LOSS PER SHARE
Basic earningsloss per share is computed by dividing net incomeloss by the weighted-average
number of shares outstanding during the period. Diluted earningsloss per share is
calculated to give effect to potentially dilutive stock options and convertible
debentures that were outstanding during the period. The following table
summarizes the reconciliation of the numerators and denominators for the Basic
and Diluted earningsloss per share ("EPS") computations:computations for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
====================================================== ================= ================ ================= ================AUGUST 31,
================================================================================ ===================
2000 1999
2000 1999
====================================================== ================= ================ ================= ================================================================================================ ===================
Net income for EPSloss $ 2.0(10.6) $ 0.2 $ 19.7 $ 14.4(23.6)
Weighted-average shares Class A and Common
shares outstanding for basic EPS 16.8 16.4 16.6 16.3
Effect of stock options 0.6 0.5 0.4 0.4
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
WEIGHTED-AVERAGE SHARES FOR DILUTED EPS 17.4 16.9loss per share 17.0 16.7
====================================================== ================= ================ ================= ================16.5
================================================================================ ===================
Net incomeloss per Class A and Common Share:
Basic $ 0.12(0.62) $ 0.01 $ 1.18 $ 0.88(1.43)
Diluted $ 0.11(0.62) $ 0.01 $ 1.16 $ 0.86(1.43)
Note:
The effect of the 5.0% Convertible Subordinated Debentures, the shares issuable
pursuant to employee stock plans and warrants on the weighted-average shares
outstanding for diluted EPS was anti-dilutive and not included in the
calculation.
11
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
8. NON-RECURRING CHARGE
The operating results for the nine months ended February 29, 2000 include a
$8.5 non-recurring charge primarily related to the establishment of a
litigation reserve following an adverse decision in a lawsuit, which was
received on December 10, 1999. The case, SCHOLASTIC INC. AND SCHOLASTIC
PRODUCTIONS, INC. V. ROBERT HARRIS AND HARRIS ENTERTAINMENT, INC., involves
stock appreciation rights allegedly granted to Mr. Harris in 1990 in
connection with a joint venture formed primarily to produce motion pictures.
Although the Company disagrees with the judge's decision and is appealing the
ruling, the Company has recorded $6.7 to fully reserve with respect to the
case. The $8.5 charge also includes an unrelated non-recurring expense of
$1.8 relating to the liquidation of certain stock options.
9. SUBSEQUENT EVENT
On April 13, 2000, the Company entered into a definitive agreement with
Lagardere S.C.A. of France to acquire Grolier, Inc. ("Grolier") for $400
million in cash. Grolier is the leading provider of U.S. direct mail-to-home
and e-commerce book clubs for children through age 5, the leading on-line and
print publisher of children's reference products (including major
encyclopedias) sold primarily to U.S. school libraries and has international
operations in the United Kingdom, Canada and Southeast Asia. Grolier also
publishes trade books under the Orchard Books, Children's Press and Franklin
Watts imprints, sold both to libraries and the trade. Grolier's fiscal 1999
revenues were approximately $450 million and earnings before interest, taxes,
depreciation and amortization were approximately $45 million. The
transaction, which is subject to certain regulatory approvals, is expected to
close by early June 2000. The Company plans to finance the acquisition
initially through bank debt, under a committed facility, and subsequently
through an offering of debt or a combination of debt and equity. The Company
intends to account for the acquisition under the purchase method of
accounting.
129
SCHOLASTIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
================================================================================
RESULTS OF OPERATIONS - CONSOLIDATED
Revenues for the quarter ended February 29,August 31, 2000 increased approximately 17%nearly doubled to $312.8$362.1 million
from $267.3$182.5 million in the comparable quarter of the prior fiscal year. For the nine months ended February 29, 2000, revenues increased
approximately 22% to $1,000.6 million from $820.7 millionThis
increase in revenue over the prior fiscal
year period. The increases in revenue for the three and nine-month periods were
drivenperiod was primarily bydue to the
Company's CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment,and EDUCATIONAL PUBLISHING
segments, which waswere up 23% over165.6% and 64.7%, respectively. This revenue increase
also reflected the prior year quarter and 35% over the prior
year-to-date period. This segment accounted for 64% and 63%results of the Company's
revenuesGrolier Incorporated ("Grolier") for the three and nine-month periods ended February 29,period
subsequent to its acquisition by the Company on June 22, 2000 respectively, as compared to 61% and 57%, respectively,of $65.9 million
in the corresponding
prior fiscal year periods.total revenues.
As a percentage of sales, cost of goods sold for the threethree-month period ended
August 31, 2000, decreased from 60.7% in the year ago period to 51.1% due to
the mix of products sold and nine-month
periods ended February 29, 2000, remained a constant percentage from the
comparable periods of the prior fiscal year.lower postage and fulfillment costs. Selling,
general and administrative expenses also remained constant for the three-month period and decreased 1% as a percentage of sales decreased from
54.7% to 48.4% due primarily to the rate of revenue increase for the nine-month period ended February 29, 2000.
Operating expenses forquarter
significantly exceeding the nine months included a non-recurring charge of $8.5
million primarily related to the establishment of a litigation reserve following
an adverse decisionnon-variable increase in a lawsuit. The case, which the Company is appealing,
involves stock appreciation rights allegedly granted in 1990 in connection with
a joint venture formed primarily to produce motion pictures. The charge also
includes an unrelated non-recurring expense of $1.8 million relating to the
liquidation of certain stock options.selling, general and
administrative expenses.
The operating profitloss for the quarter ended February 29,August 31, 2000 increased 57%decreased to $7.7$6.8
million from a profit of $4.9compared to $33.6 million in the same quarteryear ago period. These improvements
primarily reflect the success of the prior
fiscal year. Operating profitHARRY POTTER(TM) hardcover and paperback
releases, higher educational sales and the inclusion of Grolier results.
These improvements were partially offset by an increase in unallocated
corporate overhead charges of $9.2 million primarily due to the inclusion of
Grolier in the current period results and the impact of the timing of the
recognition of certain overhead expenses.
Net loss for the nine-month periodquarter ended February 29,August 31, 2000 excluding the non-recurring charge, was up 44%decreased 55.1% to $54.1$10.6
million when compared to
the same period in the prior year. Inclusive of the charge, the year-to-date
operating profit was up approximately 21% to $45.6($0.62 per share) from $23.6 million from $37.7 million($1.43 per share) in the prior
year period. These increases reflect increased revenuesDuring Scholastic's first quarter, which runs from June through
August and during which most schools are not in CHILDREN'S
BOOK PUBLISHING AND DISTRIBUTION primarily due to strong trade sales, led by the
HARRY POTTER-TM- AND POKEMON-TM- books, strong results in book clubs and fairs,
and the effect of implementing cost-cutting/margin improvement plans across the
Company.
Net income for the quarter ended February 29, 2000, increased $1.8 million to
$2.0 million, or $.11 per diluted share, compared to net income of $0.2 million,
or $.01 per diluted share, in the comparable quarter of the prior year. Net
income for the nine months ended February 29, 2000, increased 37% to $19.7
million or $1.16 per diluted share compared to the same nine-month period in the
prior fiscal year. Excluding the non-recurring charge (and the related
tax-effect), net income increased 74% to $25.1 million or $1.47 per diluted
share for the nine months when compared to the same period in the prior fiscal
year.
SUBSEQUENT EVENT
On April 13, 2000,session the Company entered intogenerally
records its lowest quarterly revenues and incurs a definitive agreement with
Lagardere S.C.A. of France to acquire Grolier, Inc. ("Grolier") for $400
million in cash. Grolier is the leading provider of U.S. direct mail-to-home
and e-commerce book clubs for children through age 5, the leading on-line and
print publisher of children's reference products (including major
encyclopedias) sold primarily to U.S. school libraries and has international
operations in the United Kingdom, Canada and Southeast Asia. Grolier also
publishes trade books under the Orchard Books, Children's Press and Franklin
Watts imprints, sold both to libraries and the trade. Grolier's fiscal 1999
revenues were approximately $450 million and earnings before interest, taxes,
depreciation and amortization were approximately $45 million. The
transaction, which is subject to certain regulatory approvals, is expected to
close by early June 2000. The Company plans to finance the acquisition
initially through bank debt, under a committed facility, and subsequently
through an offering of debt or a combination of debt and equity. The Company
intends to account for the acquisition under the purchase method of
accounting.
13
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================seasonal loss.
RESULTS OF OPERATIONS - SEGMENTS
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION
The Company's CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment includes the
publication and distribution of children's books in and from the United States
through its school book clubs, continuity programs, school book fairs and the
trade channel. This segment includes Grolier's direct-to-home book clubs and
trade sales in the United States of children's books through
its school-based book club (including home continuity programs), book fair and
trade channels.in the current fiscal period.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================AUGUST 31,
=================================================================
2000 1999
2000 1999
============================== ===================== ===================== ==================== =====================================================================================
Revenue $ 200.5206.6 $ 162.5 $ 632.7 $ 470.177.8
Operating Profit 35.4 25.8 115.5 70.8(Loss) 7.1 (14.7)
- ------------------------------ --------------------- --------------------- -------------------- -------------------------------------------------------------------------------------
OPERATING MARGIN 17.7% 15.9% 18.3% 15.1%3.4% *
* - NOT MEANINGFUL
Revenues in the CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment for the
thirdfirst quarter of fiscal 2000 were up 23%more than doubled to $200.5$206.6 million from $162.5$77.8
million in the comparable quarter of the prior fiscal year. Year-to-dateThe increase was
primarily due to strong trade sales of the new HARRY POTTER hardcover and
paperback releases, strong HARRY POTTER backlist sales and sales of other
Scholastic properties including I SPY(TM), DEAR AMERIca(R), ROYAL DIARIES,
CAPTAIN UNDERPANTS(TM) anD CLIFFOrd(R). Harry Potter trade revenues were up 35% at $632.7exceeded
$90.0 million in the first quarter of fiscal 2000 as compared to the same period of$15.0 million
in the prior year. As a result,year period. Also contributing to the increase was $39.9 million
from Grolier's direct-to-home book clubs.
10
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Operating margin for Children's Book Publishing and Distribution improved by
$21.8 million to an operating results improved approximately 37% to
$35.4profit of $7.1 million for the quarter and approximately 63%as
compared to an operating loss $14.7 million for the nine months ended
February 29, 2000 when comparedsame prior year period.
This improvement primarily results from the strong trade revenues attributed
to the same period in the prior fiscal year.
The increased revenue reflects the impact of continued strong trade sales
volume of Scholastic properties including HARRY POTTER DEAR
AMERICA-Registered Trademark-, I SPY-TM-, ROYAL DIARIES, CAPTAIN
UNDERPANTS-TM-, POKEMON AND EVERWORLD-TM-. Additionally, revenues intitles and the Company's book clubsbenefit of lower postage and book fair were up approximately 12% over the prior
year quarter. Book club and book fair revenues benefited from continuing
improvements in product marketing and selection. These improvements resulted
in a higher level of book club orders, increased fair count and higher
revenue per book club order and per book fair.fulfillment
costs.
EDUCATIONAL PUBLISHING
The Company's EDUCATIONAL PUBLISHING segment includes the publication and
distribution of K-12grades K to 12 textbooks, supplemental materials, (including professional
books), classroom
magazines, teaching resources and instructional technology for corein and supplemental use infrom the
United States to schools and librarieslibraries. This segment includes Grolier
Publishing, which includes print and on-line children's non-fiction and
reference products in the United States.current fiscal period.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================AUGUST 31,
===================================================================
2000 1999
2000 1999
============================== ===================== ===================== ==================== =======================================================================================
Revenue $ 40.093.7 $ 32.9 $ 147.2 $ 143.056.9
Operating Profit (Loss) (10.5) (10.8) (16.2) 0.414.8 0.5
- ------------------------------ --------------------- --------------------- -------------------- ---------------------------------------------------------------------------------------
OPERATING MARGIN * * * 0.3%15.8% 0.9%
* - NOT MEANINGFUL
Revenues in the EDUCATIONAL PUBLISHING segment for the quarter increased approximately 22%64.6%
to $40.0$93.7 million with an operating lossprofit of $10.5$14.8 million as compared to
revenues of $32.9$56.9 million and an operating lossprofit of $10.8$0.5 million in the
comparable quarter of the prior fiscal year. The increase in revenue improvement is due
principally to 14
growth from READ 180!-TM-, SCHOLASTIC READING COUNTS!-TM-, Paperback and
professional publishing, and supplemental teaching products.
15
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
RESULTS OF OPERATIONS - SEGMENTS (CONTINUED)
The operating loss for the fiscal 2000 quarter reflects the impact of
increased marketing and promotional costscore curriculum revenues related to the Texas reading
adoption to be delivered in the summer of 2000. On a year-to-date basis,
revenues for the period ended February 29, 2000 increased approximately 3% to
$147.2 million, from $143.0 million for the comparable period of the prior
fiscal year reflecting the growth of READ 180!, SCHOLASTIC READING COUNTS!,
and paperback and professional publishing, partially offset by lower order
levels for SCHOLASTIC LITERACY
PLACE-Registered Trademark-. The year-to-date
operating loss for the period ended February 29,PLACE(R) 2000 reflects the increased
costs related tosales in the Texas reading adoption and certain costsin open territories.
Increased sales of READ 180(TM), SCHOLASTIC READING COUNTS!(TM) and supplemental
teaching products, as well as approximately $12.0 million in additional revenues
from Grolier print and on-line reference sales to libraries also contributed to
increased revenues.
Operating profit for the quarter improved by $14.3 million over the prior year
period, primarily reflecting the impact of product shipments to fulfill orders
from the Texas Reading adoption and open market sales of SCHOLASTIC LITERACY
PLACE 2000. The benefits of the revenue increases were partially offset by
increased amortization related to the
rollout of the Company's READ 180! software.certain capitalized prepublication costs
along with increased sampling expenses.
MEDIA, LICENSING AND ADVERTISING
The Company's MEDIA, LICENSING AND ADVERTISING segment includes the production
and distribution in the United States of entertainmentprogramming and consumer products (including children's
television programming, videos, CD-ROM's, feature films and motion pictures), Internetnon-book products)
and internet services,
CD-ROM-based products and Scholastic-branded licensed properties, as well as advertising and promotional activities.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================AUGUST 31,
===================================================================
2000 1999
2000 1999
============================== ===================== ===================== ==================== =======================================================================================
Revenue $ 24.210.2 $ 30.7 $ 73.7 $ 72.18.9
Operating Profit (Loss) (2.6) 1.1 (11.3) (4.5)Loss (9.8) (7.2)
- ------------------------------ --------------------- --------------------- -------------------- ---------------------------------------------------------------------------------------
OPERATING MARGIN * 3.6% * *
* - NOT MEANINGFUL
11
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
MEDIA, LICENSING AND ADVERTISING revenues decreased 21%increased 14.6% to $24.2$10.2 million in
the thirdfirst quarter of fiscal 20002001 as compared to the prior year quarter. Forquarter,
principally due to the nine
months ended February 29, 2000, revenues increased approximately 2% to $73.7
million from $72.1 million for the same periodlaunch of the prior fiscal year.new animated series CLIFFORD THE BIG RED
DOG(TM) and the delivery of thrEE ROYAL DIARies specials. For the quarter ended
February 29,August 31, 2000, thethis segment recognized an operating loss of $2.6$9.8 million as
compared to a profit of $1.1 million in the same period of the
prior fiscal year. On a year-to-date basis, the operating loss grew to $11.3
million from an operating loss of $4.5$7.2 million in the same period of the prior fiscal year. These
results reflect increasedthe impact of planned increases in promotional, editorial and
other operating costs associated with Scholastic internetthe continued development and reduced TV
production revenues.
16
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
RESULTS OF OPERATIONS - SEGMENTS (CONTINUED)
INTERNATIONALof
Scholastic.com.
The INTERNATIONAL segment consists ofincludes the publication and distribution of
products and services outside the United States by the Company's operations
located in the United Kingdom, Canada, Australia, New Zealand and Southeast Asia and
its newer businesses in Mexico, Hong Kong, India, Ireland and Argentina. In the current
fiscal period, the segment includes Grolier's direct-to-home operations in
the United Kingdom, Canada and Australia and the publication and distribution
of Grolier's reference products and services outside the United States,
principally in Southeast Asia.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================AUGUST 31,
=====================================================================
2000 1999
2000 1999
============================== ===================== ===================== ==================== =========================================================================================
Revenue $51.6 $ 48.1 $ 41.2 $ 147.0 $ 135.538.9
Operating Profit (Loss) 0.7 (1.4) 1.4 (1.7)Loss (1.8) (3.7)
- ------------------------------ --------------------- --------------------- -------------------- -----------------------------------------------------------------------------------------
OPERATING MARGIN 1.5% * 1.0% *
* - NOT MEANINGFUL
INTERNATIONAL revenues for the quarter ended February 29,August 31, 2000 increased 17%32.6%
to $48.1$51.6 million compared to $41.2from $38.9 million in the prior year quarter, benefitingquarter. Revenues
benefited from improvedan 11% increase in Canadian sales primarily in school book
clubs, and operating margins in the Company's Australian and
Canadian operations. On a year-to-date basis, revenues increased approximately
9% to $147.0 million compared to $135.5$13.9 million in the prior fiscal year period.
This improvement reflects strong performance in Canada'sGrolier reference and direct-to-home book club
and trade
businesses, and in Australia's book club and software businesses, which was
partially offset by weak sales in the United Kingdom.sales. Operating profitloss for the quarter improved $2.1$1.9 million over the prior
year period to $0.7 million,
reflecting improved revenues, which were partially offset by the
impact of revenue improvements and cost containment efforts. For
the nine months ended February 29, 2000, operating profit improved $3.1 million
to $1.4 million from a loss of $1.7 million for the prior year fiscal period,
reflecting primarily the net impact of revenue improvements and cost reductions.foreign exchange fluctuations.
SEASONALITY
The Company's school book clubs, school book fairs and most of its magazines
operate on a school-year basis; therefore, the Company's business is highly
seasonal. As a consequence, generally, the Company's revenues in the first and
third quarters of the fiscal year are lower than its revenues in the other two
fiscal quarters, and the Company generally experiences a substantial loss from operations in the first
quarter. Typically, school book clubclubs and school book fairfairs experience the
largest revenues are proportionately
larger in the second quarter of the fiscal year, while revenues from
the sale of instructional materials are largerhigher in the first quarter. LIQUIDITY AND CAPITAL RESOURCESThe
acquisition of Grolier will not substantially change the Company's historic
seasonality.
For the June through October time period, the Company experiences negative cash
flow due to the seasonality of its business. Historically, as a result of the
Company's business cycle, seasonal borrowings have increased during June, July
and August, andhave generally have peaked in September or October, and have been at
thetheir lowest point in May.
1712
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $0.3$0.8 million during the
nine-month periodquarter ended February 29,August 31, 2000, compared to a decrease of $3.5$3.0 million during the
comparable period in the prior fiscal year.
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company generated $42.7Cash flow used in operations was $90.9 million for the first quarter as a result
of cash from operating activities during the
nine-month period ended February 29, 2000 versus $45.1 millionworking capital increases to support business growth. Within working capital,
inventory levels increased reflecting a management decision in the comparablefourth
quarter of fiscal 2000 to accelerate paper purchases.
Cash outflows for investing activities were $428.5 million for the quarter,
largely as a result of the $400.0 million acquisition of Grolier
Incorporated. Additional spending principally consisted of capital
expenditures, production cost expenditures, royalty advances and
pre-publication expenditures. Capital expenditures, including capitalized
interest, totaled $11.8 million for the first quarter of fiscal 2001,
increasing $5.6 million over the same period in fiscal 2000 largely as a
result of the expansion of the Company's corporate headquarters and the
continued investment in the development of the Company's e-commerce strategy.
Production costs increased $1.4 million over the same period of the prior
fiscal year. Improvements in operating results were more
than offset by increased inventory and accounts receivable requirements.
Inventory levels increasedyear as a result of higher sales volumesthe new CLIFFORD and accelerated
purchasing to better ensure high levels of customer service.
Cash used in investing activities was $90.9 million and $95.7 millionROYAL DIARIES television
shows. Payments for the
nine months February 29, 2000 and February 28, 1999, respectively. Investing
activities consisted primarily of prepublication cost expenditures, capital
expenditures, royalty advances and production cost expenditures.increased slightly to $5.9 million from
$5.6 million. Prepublication cost expenditures increased $6.5decreased $1.8 million to $35.3 million for the nine months
ended February 29, 2000 over the comparable period of the prior year largely due
to the planned revision of SCHOLASTIC LITERACY PLACE and the spending on the
Company's new READ 180! program.
Capital expenditures increased $10.7 million to $28.8$8.5
million in the current year reflectingfiscal year.
The Company believes its existing cash position, combined with funds generated
from operations and available under the constructionamended Loan Agreement and the Revolver
will be sufficient to finance its ongoing working capital requirements for the
remainder of the fiscal year.
FINANCING
To finance the June 22, 2000 acquisition of Grolier, the Company borrowed $350.0
million under a new office facility. Royalty advances
decreased $1.0credit facility (the "Grolier Facility") and borrowed the
remaining $50.0 million under the Company's existing Loan Agreement and
Revolver. The Grolier Facility is a one year facility, which may be extended at
the Company's discretion for an additional year. The weighted-average interest
rate under the Grolier Facility for the nine months ended February 29,period June 22, 2000 over the same
period in the prior fiscal year to $17.1 million. Production costs decreased
$3.8 million to $8.1 million for the nine months ended February 29,through August 31,
2000 as
compared to the same period in the prior fiscal year, due to a reduction in the
number of shows being produced. Business and trademark acquisition-related
payments for the prior fiscal year were primarily related to the acquisition of
certain assets of Pages Book Fairs, Inc. and Quality Education Data.
FINANCINGwas 7.4%.
The Company maintains two unsecured credit facilities, the Loan Agreement and
the Revolver, which provide for aggregate borrowings of up to $210.0 million
(with a right, in certain circumstances, to increase to $240.0 million),
including the issuance of up to $10.0 million in letters of credit. Both the
Loan Agreement and the Revolver expire on August 11, 2004. The Company uses
these facilities for
various purposes including the funding ofto fund seasonal cash flow needs and other working capital
requirements. At February 29,August 31, 2000, the Company had $43.0$154.7 million in borrowings
outstanding. The weighted-average interest rateoutstanding under these facilities for the nine-month period was 6.6%.
The Loan Agreement was amended and restated on August 11, 1999, principally
to extend the expiration dateat a weighted average interest rate of the facility to August 11, 2004 and expand
the facility from $135.0 million to $170.0 million (with a right, in certain
circumstances, to increase to $200.0 million)7.3%. In addition, on November 10,
1999, the Company amended and restated the Revolver to increase the amount
available thereunder to $40.0 million and extend its expiration date to be
concurrent with the Loan Agreement.
In addition, unsecured lines of credit available to the Company's United
Kingdom, Canadian, Southeast Asian and Australian operations totaled $39.5$50.7
million at February
29,August 31, 2000. These lines are used primarily to fund 18
local working
capital needs in those countries.needs. At February 29,August 31, 2000, $21.2$23.1 million in borrowings were outstanding. Underoutstanding
under these lines the weighted-average interest
rate for the nine months ended was 6.1%.
The Company believes its existing cash position, combined with funds generated
from operations and funds available under the two credit facilities and other lines of credit will be sufficient to finance its ongoing working capital
requirements for the remainderat a weighted-average interest of the fiscal year.
199.3%.
13
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
In connection with the acquisition of Grolier, Inc., (See Item 2-MD&A-Results
of Operations-Subsequent Event), the Company plans to primarily finance the
$400 million purchase price initially through bank debt under a committed
facility and subsequently through an offering of debt or a combination of
debt and equity. The Company does not anticipate any difficulties in
obtaining permanent financing.
ACQUISITIONS
In the ordinary course of business, the Company explores domestic and
international expansion opportunities, including potential niche and
strategic acquisitions. As part of this process, the Company engages with
interested parties in discussions concerning possible transactions. The
Company will continue to evaluate such opportunities and prospects.
YEARConsistent with this strategy. On June 22, 2000 READINESS DISCLOSURE
Commencing in July 1997, the Company initiated its Year 2000 program, which
consistedconsummated the
acquisition of the following three components relating to the Company's
operations: (i) information technology ("IT") computer systems and applications
which were judged to be potentially impacted by the Year 2000 problem and the
actions related thereto, (ii) non-IT systems and equipment which include
embedded technology which also could have been impacted by the Year 2000 problem
and actions related thereto and (iii) third party suppliers and customers with
which the Company has material relationships and which could adversely affect
the Company if such parties failed to be Year 2000 complaint and the actions
related thereto.
The Company completed its Year 2000 Readiness Program on a timely basis and
experienced no significant Year 2000 related problems to date with either its
internal operations or its material third party vendors. Similarly, there have
been no material Year 2000 impacts reported with respect to the Company's
products that we classified as Year 2000 ready. The Company estimates the total
cost of the Year 2000 program, including consulting fees, infrastructure and
facilities enhancements, and expenses related to internal staff, was
approximately $12.0Grolier for $400.0 million of which $4.0 million was incurred during the
current fiscal year. No additional material Year 2000 program costs are
anticipated.
All statements regarding Year 2000 Readiness are "Year 2000 Readiness
Disclosures" as defined by the Year 2000 Information and Readiness Disclosure
Act of October 19, 1998.
NON-RECURRING CHARGE
The year-to-date operating results include an $8.5 million non-recurring charge
primarily related to the establishment of a litigation reserve following an
adverse decision in a lawsuit originally filed in January, 1995. The case,
SCHOLASTIC INC. AND SCHOLASTIC PRODUCTIONS, INC. V. ROBERT HARRIS AND HARRIS
ENTERTAINMENT, INC., involves stock appreciation rights allegedly granted to Mr.
Harris in 1990 in connection with a joint venture formed primarily to produce
motion pictures. Although the Company disagrees with the judge's decision and is
appealing, the Company has recorded $6.7 million to fully
20
reserve with respect to the case. The $8.5 million charge also includes an
unrelated non-recurring expense of $1.8 million relating to the liquidation of
certain stock options.
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================cash.
FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements, which are subject
to various risks and uncertainties, including the conditions of the children's
book and instructional materials markets and acceptance of the Company's
products within those markets and other risks and factors identified in the
Company's Report on Form 10-K for the fiscal year ended May 31, 1999.
212000.
14
SCHOLASTIC CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================
The Company has operations in various foreign countries. In the normal course of
business, these operations are exposed to fluctuations in currency values.
Management does not considerbelieves that the impact of such currency fluctuations todo not represent a
significant risk toin the context of the Company's results ofcurrent international
operations. The Company does not generally enter into derivative financial
instruments in the normal course of business for material amounts, nor are such
instruments used for speculative purposes.
Market risks relating to the Company's operations result primarily from changes
in interest rates. The majorityAs a result of the financing related to the Grolier
acquisition, 69.2% of the Company's long-term debt bears interest at a fixed rate. However, the fair market value of the fixedvariable
rate debtand is sensitive to changes in interest rates. The Company is subject to
the risk that market interest rates will declineincrease and thereby increase the
interest rates currently being charged under the fixedvariable rate debt will exceeddebt. Under its
current policies, the then prevailing market rates. The Company does not generally utilize any interest rate derivative
instruments to manage its exposure to interest rate changes.
As of February 29,August 31, 2000, the balance outstanding under its revolving creditvariable rate
facilities was $64.2$528.5 million. The nine-monththree-month weighted-average interest rate
was 6.5%7.3%. A 15% increase or decrease in the average cost of the Company's
variable rate debt under the facilityvarious facilities at August 31, 2000 would not have a significant impact on
the Company's results of operations.
Additional information relating to the Company's outstanding financial
instruments is included in Item 2 - MD&A - Results of Operations - Subsequent
Event.
22operations by approximately $5.9 million annually on a
pre-tax basis.
15
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
ITEM 4. LEGAL PROCEEDINGSSUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
================================================================================
As previously reported, three purported class action complaintsOn August 14, 2000, the holders of the 828,100 shares of Class A Stock, $.01 par
value, (comprising all outstanding shares of Class A Stock) unanimously approved
by written consent, fixing the number of directors constituting the full Board
of Directors at 12. There were filedno abstentions or broker non-votes in the United States District for the Southern Districtconnection
with this matter. The Amended and Restated Certificate of New York againstIncorporation of the
Company and certain officers seeking, among other remedies, damages resulting
from defendants' alleged violationsprovides that the holders of federal securities laws. The complaints
were consolidated. The Consolidated Amendedshares of Class Action Complaint (the
"Complaint") was served and filed on August 13, 1997. The Complaint was styledA Stock, voting as a class,
action, IN RE SCHOLASTIC CORPORATION SECURITIES LITIGATION, 97 Civ.
II 2447 (JFK), on behalf of all persons who purchased Company common stock from
December 10, 1996 through February 20, 1997. The Complaint alleged, among other
things, violations of Sections 10(b) and 20 (a)have the right to fix the size of the Securities Exchange ActBoard of 1934 and Rule 10b-5 thereunder, resulting from purportedly materially false
and misleading statements to the investing public concerning the financial
conditionDirectors so long as it does not
consist of the Company. Specifically, the Complaint alleged misstatements and
omissions by the Company pertaining to adverse sales and returns of its popular
GOOSEBUMPS book series prior to the Company's interim earnings announcement on
February 20, 1997. On January 26, 2000, an order was entered granting the
Company's motion to dismiss plaintiffs' Second Amended Consolidated Complaint
without leave to further amend the complaint. Previously, on December 14, 1998,
an order was entered granting the Company's motion to dismiss plaintiffs' First
Amended Consolidated Complaint and granted plaintiffs leave to amend the
complaint. In dismissing both complaints, which alleged substantially similar
claims, the court held that plaintiffs failed to state a claim upon which relief
can be granted. On February 25, 2000, plaintiffs filed a Notice of Appeal in
connection with the most recent dismissal. The Company continues to believe that
the litigation is without merit and will continue to vigorously defend against
it.
23less than three nor more than 15 directors.
16
SCHOLASTIC CORPORATION
================================================================================
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
================================================================================
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.2 Bylaws3.3 Certificate of Amendment, effective as of September 19,
2000, to the Company,Company's Amended and Restated asCertificate
of March 16,
2000
10.6 Scholastic Corporation Employee Stock Purchase Plan, amended
and restated effective as of March 1, 2000Incorporation.
27.1 Financial Data Schedule as of and for the ninethree months
ended February 29,August 31, 2000
(b) Reports on Form 8-K filed during the quarter:
none.Amended Current Report on Forms 8-K filed on July 7, 2000 regarding
the consummation of the acquisition of Grolier Incorporated by
Scholastic Inc. on June 22, 2000.
- --------------------------------------------------------------------------------
2417
SCHOLASTIC CORPORATION
SIGNATURES
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHOLASTIC CORPORATION
(Registrant)
Date: April 14,October 16, 2000 /s/ RICHARD ROBINSONRichard Robinson
-----------------------------------
Richard Robinson
CHAIRMAN OF THE BOARD,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: April 14,October 16, 2000 /s/ KEVINKevin J. MCENERYMcEnery
-----------------------------------
Kevin J. McEnery
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
2518
SCHOLASTIC CORPORATION
FORM 10-Q FOR QUARTERLY PERIOD ENDED FEBRUARY 29,AUGUST 31, 2000
EXHIBIT INDEX
- ----------------- --------------------------------------------------------------
EXHIBIT================================================================================
Exhibit
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.2 Bylaws3.3 Certificate of Amendment, effective as of September 19, 2000,
to the Company,Company's Amended and Restated asCertificate of
March 16,
2000
10.6 Scholastic Corporation Employee Stock Purchase Plan, amended
and restated effective as of March 1, 2000Incorporation.
27.1 Financial Data Schedule as of and for the ninethree months ended
February 29,August 31, 2000
- --------------------------------------------------------------------------------