SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended August 31,November 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________________ to_________________________ to __________
Commission File Number: 0-19860
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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)
212-343-6100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO USERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Title of each class as of September 30,December 31, 1997
------------------- ---------------------------------------------------------
Common Stock, $.01 par value 15,379,03215,419,532
Class A Stock, $.01 par value 828,100
SCHOLASTIC CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED AUGUSTNOVEMBER 30, 1997
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Statement of Income for the Three
Months Ended November 30, 1997 and 1996 and for the Six Months
Ended November 30, 1997 and 1996 1
Consolidated Condensed Balance Sheet at November 30, 1997, May
31, 1997
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Condensed Statement of Operations for the Three
Months Ended August 31, 1997 and 1996 1
Consolidated Condensed Balance Sheet at August 31, 1997,
May 31, 1997 and August 31, 1996 2
Consolidated Condensed Statement of Cash Flows for the Three
Months Ended August 31, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8 - 9
SIGNATURES 10
and November 30, 1996 2
Consolidated Condensed Statement of Cash Flows for the Six
Months Ended November 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
(i)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONSINCOME
(Unaudited)
(Amounts in millions except per share data)
Three Months Ended
----------------------------
August 31, August 31,
1997 1996
---------- ----------
Revenues $ 166.6 $ 158.6
Operating costs and expenses:
Cost of goods sold 95.5 93.7
Selling, general and administrative expenses 82.3 80.6
Intangible amortization and depreciation 5.0 3.5
-------- -------
Total operating costs and expenses 182.8 177.8
Operating loss (16.2) (19.2)
Interest expense, net 5.1 3.4
-------- -------
Loss before benefit for income taxes (21.3) (22.6)
Benefit for income taxes 8.1 8.6
-------- -------
Net loss $ (13.2) $ (14.0)
======== =======
Net loss per share $ (0.81) $ (0.88)
Weighted average shares outstanding 16.2 15.9
Three Months Ended Six Months Ended
-------------------------- --------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues $ 354.8 $ 342.2 $ 521.4 $ 500.8
Operating costs and expenses:
Cost of goods sold 176.1 165.8 271.6 259.5
Selling, general and administrative expenses 125.5 106.7 207.9 187.3
Intangible amortization and depreciation 5.6 4.1 10.5 7.6
--------- --------- ---------- ---------
Total operating costs and expenses 307.2 276.6 490.0 454.4
Operating income 47.6 65.6 31.4 46.4
Interest expense, net 5.6 4.2 10.7 7.6
--------- --------- ---------- ---------
Income before provision for income taxes 42.0 61.4 20.7 38.8
Provision for income taxes 16.0 22.9 7.9 14.3
--------- --------- ---------- ---------
Net income $ 26.0 $ 38.5 $ 12.8 $ 24.5
========= ========== ========== =========
Primary earnings per share $ 1.59 $ 2.36 $ 0.79 $ 1.51
Fully diluted earnings per share $ 1.51 $ 2.21 $ 0.79 $ 1.47
Weighted average Class A, Common and
Class A Share and Common Share
Equivalents:
Primary 16.4 16.3 16.2 16.3
Fully diluted 17.8 17.8 16.2 17.8
SEE ACCOMPANYING NOTES
-1-1
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Amounts in millions)
August 31,November 30, 1997 May 31, 1997 August 31,November 30, 1996
---------------- ------------- ------------------------------------- ------------------- ----------------------
(Unaudited) (Unaudited)
ASSETS
ASSETS
Current assets:
Cash and cash equivalents $ 1.44.3 $ 4.9 $ 1.12.2
Accounts receivable less allowance for
doubtful accounts 117.1168.3 100.5 123.3184.9
Inventories:
Paper 10.713.3 8.1 17.116.6
Books and other 252.5237.6 213.9 225.9
Deferred taxes 36.5 30.2 30.8222.6
Prepaid and other deferred expenses 34.3 38.7 18.458.1 68.9 40.9
-------- ------- ---------------- ---------
Total current assets 452.5481.6 396.3 416.6467.2
Property, plant and equipment, net 132.2134.3 134.0 116.0122.1
Prepublication costs 99.797.5 102.1 103.1
Goodwill and trademarks 66.5 67.8 41.2
Royalty advances 47.6 43.4 26.1102.9
Other assets and deferred charges 43.1 40.8 39.3160.1 152.0 119.1
-------- ------- ---------------- ---------
$ 841.6873.5 $ 784.4 $ 742.3811.3
======== ======= ================ =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 10.68.5 $ 5.0 $ 24.825.1
Accounts payable 97.987.0 74.2 70.264.3
Accrued royalties 19.423.0 12.2 28.523.4
Deferred revenue 15.734.9 9.0 13.834.1
Other current liabilities 56.569.7 80.2 56.865.5
-------- ------- ---------------- ---------
Total current liabilities 200.1223.1 180.6 194.1212.4
Noncurrent liabilities:
Long-term debt 341.0322.2 287.9 248.8252.4
Other noncurrent liabilities 18.0 18.4 23.818.4 24.0
-------- ------- ---------------- ---------
Total noncurrent liabilities 359.0340.6 306.3 272.6276.4
Commitments and Contingencies -- -- --contingencies - - -
Stockholders' equity:
Class A Stock,stock, $.01 par value 0.0 0.0 0.0
Common Stock,stock, $.01 par value 0.2 0.2 0.2
Additional paid-in capital 204.2 203.8 203.8 195.9202.3
Accumulated earnings 117.8143.8 131.0 116.5155.1
Less shares held in treasury (36.8) (36.8) (36.8)
Foreign currency translation adjustment (2.5)(1.6) (0.7) (0.2)1.7
-------- ------- ---------------- ---------
Total stockholders' equity 282.5309.8 297.5 275.6322.5
-------- ------- ---------------- ---------
$ 841.6873.5 $ 784.4 $ 742.3811.3
======== ======= ================ =========
SEE ACCOMPANYING NOTES
-2-2
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in thousands)millions)
ThreeSix Months Ended
------------------------------
August 31, August 31,-----------------------------
November 30, November 30,
1997 1996
------------ ---------------------
Net cash used inprovided by (used in) operating activities $(42.9) $(52.1)$5.1 $ (26.6)
Cash flows from investing activities:
Royalty advances paid (6.7) (3.9)(13.4) (8.0)
Prepublication cost expenditures (5.5) (4.8)
Production cost expenditures (3.5) (3.6)(11.6) (11.5)
Additions to property, plant and equipment (2.5) (4.7)(8.5) (13.0)
Production cost expenditures (7.7) (6.2)
Business acquisition related payments (0.4) (10.8)
Other, net (1.2) (0.8)
------ ------(1.7) (1.4)
------- -------
Net cash used in investing activities (19.4) (17.8)(43.3) (50.9)
Cash flows from financing activities:
Borrowings under loan agreement and revolver 100.2 112.1$ 165.9 $ 152.2
Principal paydowns on loan agreement and revolver (47.3) (50.2)(131.8) (86.8)
Borrowings under lines of credit 12.5 9.224.2 17.8
Principal paydowns on lines of credit (6.6) (5.5)(20.8) (15.3)
Other, net 0.0 1.1
------ ------0.1 7.5
------- -------
Net cash provided by financing activities 58.8 66.737.6 75.4
Effects of exchange rate changes on cash 0.0 0.0
------ ------------- -------
Decrease in cash and cash equivalents (3.5) (3.2)(0.6) (2.1)
Cash and cash equivalents at beginning of period 4.9 4.3
------ ------------- -------
Cash and cash equivalents at end of period $ 1.44.3 $ 1.1
====== ======2.2
======= =======
Supplemental information:
Income taxes paid $ 0.71.4 $ 0.99.7
Interest paid $ 8.110.0 $ 4.16.8
SEE ACCOMPANYING NOTES
-3-3
SCHOLASTIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed 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 1996/1997 Annual Report to shareholders.Stockholders.
Scholastic Corporation, together with its subsidiaries and affiliates (the
"Company"), is among the leading publishers and distributors of children's
books, classroom and professional magazines and other educational materials.materials,
with its principal operations in the United States, Canada, the United Kingdom,
Australia, New Zealand, Mexico and India. The Company distributes most of its
products directly to children and teachers in elementary and secondary schools
and as a result its business cycle is closely correlated to the normal school
year.
The results of operations for the threesix months ended August 31,November 30, 1997 and 1996
are not indicative of the results expected for the full fiscal year. Due to the
seasonal fluctuations that occur, the prior year's August 31November 30 balance sheet is
included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying
consolidated condensed 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 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 costs and litigation reserves.
2. LONG TERM DEBT
The Company has a loan agreement (the "Loan Agreement") with certain banks which
provides for revolving credit loans and letters of credit in the amount of
$135.0 million, with a right, in certain circumstances, to increase such amount
to $160.0 million. The Loan Agreement expires on May 31, 2000. At August 31,November 30,
1997, the amount available of $135.0 million was reduced by letters of credit
outstanding in the amount of $1.0 million, and the aggregate amount of
borrowings was $85.0$63.0 million.
The Company has a Revolving Loan Agreement (the "Revolver") with Sun Bank,
National Association, which provides for revolving credit loans in an aggregate
principal amount of up to $35.0 million. At August 31,November 30, 1997, the aggregate
amount of borrowings was $17.5$20.6 million.
On December 23, 1996, the Company issued $125.0 million of 7%7.0% 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. The proceeds (including accrued interest) from the
issuance of the Notes were $123.9 million after deducting an underwriting
discount and other related offering costs. The Company utilized the net proceeds
primarily to repay amounts outstanding under the Loan Agreement and the
Revolver.
4
On August 18, 1995, the Company sold $110.0 million of 5.0% Convertible
Subordinated Debentures due August 15, 2005 (the "Debentures") under Regulation
S and Rule 144A of the Securities Act of 1933. The Debentures are listed on the
Luxembourg Stock Exchange and the portion sold under Rule 144A is designated
-4-
for
trading in the Portal system of the National Association of Securities Dealers,
Inc. 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 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.
3. 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. The litigation is in the
early stages and the Company believes that such litigation is without merit and
plans to vigorously defend against it.
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
material to the consolidated financial position of the Company.
-5-4. SUBSEQUENT EVENT
Effective January 1, 1998, the Company sold its SOHO Group, including Home
Office Computing(R) magazine, to CurtCo Freedom Group for approximately $19.0
million and the assumption of certain liabilities pursuant to a definitive
agreement dated as of December 11, 1997. Net proceeds were used to reduce debt.
The Company estimates that the transaction will result in a pre-tax gain of
approximately $10.0 million.
5
SCHOLASTIC CORPORATIONITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter ended August 31,November 30, 1997 increased to $354.8 million (up
4%) from $158.6$342.2 million to
$166.6 million, or 5%, versusin the comparable quarter of the prior fiscal year.
Revenues improved primarily due to a $6.8$11.8 million or 6%, increase (up 5%) in domestic
book publishing, resulting from strong sales in book clubs, continued shipments
of Scholastic's instructional publishing reading program, SCHOLASTIC LITERACY PLACE(R)Scholastic Literacy
Place(R), combined withand increased sales of new trade publishing properties, including
ANIMORPHS(TM), DEAR AMERICA(TM),Animorphs(R) and SCHOLASTIC CHILDREN'S DICTIONARY(TM)Dear America(R), which partially offset a decrease in domestic
GOOSEBUMPS(R)Goosebumps(R) sales. International revenues increased by 11%10% versus the
comparable quarter of the prior fiscal year mainly due to the favorable effect
of last year. This increase is attributed to strong growth in
the United Kingdom, including improved trade sales and additional revenues from
theyear's Red House acquisition in January 1997.as well as revenue growth from book club
and trade sales of properties other than Goosebumps. Revenues for the six months
ended November 30, 1997 totaled $521.4 million, a 4% increase over revenue
reported for the six months ended November 30, 1996.
As a percentage of revenue, cost of goods sold decreased from 59.1% to 57.3%
compared toincreased 1.2% for the quarter
and 0.3% for the six months ended November 30, 1997 versus comparable periods in
the prior year first quarter.fiscal year. The decreaseincrease in cost of goods sold over the prior fiscal
year periods can be primarily attributed to changes in the Company's sales mix,
including lower levels of high margin Goosebumps licensing and trade book sales.
Selling, general, and administrative expense as a percentage of revenue
is due to a changeincreased 4.2% for the quarter and 2.5% for the six months ended November 30,
1997 versus comparable periods in product mix, lower paper, printing
and binding costs due to market conditions and improved purchasing terms as well
as modifying product specifications to lower costs. Selling, general and
administrative expenses as a percentage of revenue decreased modestly versus the prior fiscal year. The operating lossprimary factors for
this increase were increased promotion costs in book clubs, increased selling
and payroll costs in book fairs to support growth and the effect of the
acquisition of Red House in January 1997.
Operating income for the quarter ended August 31,November 30, 1997 decreased 16% from a
loss of $19.2$65.6
million in the corresponding quarter of the prior fiscal year to $47.6 million.
The decrease includes a lossreduction of $16.2approximately $27.0 million in
this fiscal year. The net lossof operating
profit associated with the lower level of Goosebumps revenues. Operating income
for the six months ended November 30, 1997 decreased $15.0 million, or 32.3%,
versus the six months ended November 30, 1996, also as a result of lower
Goosebumps revenues.
Net income for the quarter ended August 31,November 30, 1997 was $13.2$26.0 million or $0.81 net loss per share, versus
$14.0$38.5 million or $0.88 net loss
per share, in the comparable quarter in the prior fiscal year. Scholastic's firstPrimary
earnings per share in the quarter is traditionally a lossended November 30, 1997 decreased to $1.59
from $2.36, and fully diluted earnings per share decreased to $1.51 from $2.21,
in the comparable quarter last fiscal year. Net income for the six months ended
November 30, 1997 was $12.8 million versus $24.5 million in the comparable
period duelast fiscal year. Primary earnings per share decreased to significantly lower revenues$0.79 from
$1.51, and fully diluted earnings per share decreased to $0.79 from $1.47, in
the Company's school-based book club, book fair and classroom magazine
businesses, which operate at a substantially lower level duringcomparable six month period in the summer
months and incur a higher level of operating expenses as a percentage of
revenue.prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The decreasesCompany had a net decrease in the Company's cash and cash equivalents were comparable during the first quartersix month
period ended November 30, 1997 of $0.6 million, compared to a net decrease
during the comparable period in the prior fiscal 1998 and 1997. During the first quarteryear of each of
these fiscal years, cash$2.1 million. Cash
provided by financing and operating activities funded operatingthe net cash used in
investing activities during the six months ended November 30, 1997. Operating
and investing activities.activities were funded by financing activities during the six
months ended November 30, 1996.
For the first quarter of fiscal 1998six months ended November 30, 1997 and 1997,1996, net cash provided by
financing activities was $58.8$37.6 million and $66.7$75.4 million, respectively.
Financing activities consisted primarily consisted of borrowings and paydowns under the
Loan Agreement and the Revolver. Borrowings under the Loan Agreement and the
Revolver, as well as the issuance of the Notes andin the Debentures1997 fiscal year, have
been a primary source of the Company's liquidity.
In the three months of June, July and
August, the Company experiences negative cash flows due to the seasonality of
the business, and as a consequence its borrowings increase during these months.6
Cash used in investing activities was $19.4$43.3 million and $17.8$50.9 million for the
first quartersix months of fiscal 1998 and 1997, respectively. Investing activities
primarily consist of royalty advances, prepublication and production cost
expenditures, and payments for capital expenditures.expenditures, and in the 1997 fiscal year,
payments for business and trademark acquisitions.
Royalty advances increased $2.8$5.4 million to $6.7$13.4 million induring the first quartersix
months of fiscal 1998 versus $3.9
millionover the comparable period in the first quarter ofprior fiscal 1997.year. This
increase reflects primarily the impactpayments during fiscal 1998 of advances under an
extension, entered into in November 1996, of the agreement to publish
GOOSEBUMPS.Goosebumps. Capital expenditures decreased $2.2 million from $4.7$4.5 million to $2.5$8.5 million for the
first quarter ofsix months ended November 30, 1997 over the comparable prior fiscal 1998. Cash used in prepublicationyear period.
Prepublication and production costs expenditures increased modestly fromduring the
first quartersix months of fiscal 1997.1998 over the comparable prior year period. Business
acquisition related payments in the prior period relate to the Company's
acquisition of Lectorum Publications Inc. on September 4, 1996 and the Company's
investment in Gallimard S.A.
The Company believes its existing cash position, combined with funds generated
from operations and funds available under the Loan Agreement and the Revolver,
will be sufficient to finance its ongoing working capital requirements for the
remainder of the fiscal year.
-6-
foreseeable future.
RECENT ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." This
statement specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. The Company is required to adopt the provisions of SFAS 128 for
the quarter ended February 28, 1998. The principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are related to
the exclusion of common stock equivalents in the determination of basic earnings
per share and the market price at which common stock equivalents are calculated
in the determination of diluted earnings per share. In accordance with the
provisions of SFAS 128, both basic and diluted earnings per share are $(0.81) at
August 31,$1.61 and $1.51
for the quarter ended November 30, 1997, respectively, and $2.41 and $2.21 for
the quarter ended November 30, 1996, respectively. Basic and diluted earnings
per share are $0.79 for the six months ended November 30, 1997, and $(0.88) at August 31,$1.54 and
$1.48, respectively, for the six months ended November 30, 1996.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, (SFAS 130), "Reporting Comprehensive
Income." This statement establishes the standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The Company is required to adopt the provisions of SFAS
130 for the fiscal year ended May 31, 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments of
an Enterprise and Related Information." This statement requires that public
business enterprises report certain information about operating segments, their
products and services, the geographic areas in which they operate and their
major customers. The Company is required to adopt the provisions of SFAS 128131 for
the quarterfiscal year ended February 28, 1998May 31, 1999 and does not expect thesuch adoption of SFAS 131 to have a
material effect on its Results of Operations.
-7-7
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5.
These items, which would be answeredITEM 1. LEGAL PROCEEDINGS
Three purported class action complaints were filed in the negative,United States
District Court for the Southern District of New York against Scholastic
Corporation and certain officers during the 1997 fiscal year, seeking, among
other remedies, damages resulting from defendants' alleged violations of federal
securities laws. The complaints have now been omitted.
Item 6. Exhibitsconsolidated. The Consolidated
Amended Class Action Complaint (the "Consolidated Complaint"), served and Reportsfiled
on August 13, 1997, is styled as a class action on behalf of all persons who
purchased Company Common Stock from December 10, 1996 through February 20, 1997.
The Consolidated Complaint 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 purported materially false and misleading statements to the
investing public concerning the financial condition of the Company.
Specifically, the Consolidated Complaint alleges 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. The litigation is still in the early stages. During the second quarter of
fiscal 1998, the Company filed a motion to dismiss. The Company believes that
the suit is without merit and intends to vigorously defend against this action.
As described in the Company's Report on Form 8-K (a) Exhibits:
Exhibit
Number Descriptiondated November 19, 1997,
the Company is engaged in litigation with Parachute Press. The Company does not
expect that this dispute will have a material adverse effect on its financial
condition.
A number of Document
3 (a) Amendedlawsuits and Restated Certificateadministrative proceedings which have arisen in
the ordinary course of Incorporationbusiness are pending or threatened against the Company.
The Company believes there are meritorious defenses to substantially all such
claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Registrant. (1)
(b) By-lawsCompany was held on September 16,
1997 (the "Meeting"). The following sets forth the results of the Registrant. (2)
4 (a) Amended and Restated Loan Agreement dated April 11,
1995 amongproposals
presented at the Registrant and Citibank, N.A., as agent,
Marine Midland Bank, Chase Manhattan Bank, N.A., The
First National Bank of Boston and United Jersey Bank.
(3)
(b) Amendment to the Amended and Restated Loan
Agreement dated May 1, 1996. (4)
(c) Amendment to the Amended and Restated Loan
Agreement dated May 28, 1997. (5)
(d) Revolving Loan Agreement dated June 19, 1995
between the Registrant and Sun Bank, National
Association, as amended August 14, 1996 and May 30,
1997. (6)
(e) Overdraft Facility dated June 1, 1992, as amended
on October 30, 1995 between Scholastic Canada Ltd. and
CIBC. (6)
(f) Overdraft Facility dated June 24, 1993 between
Scholastic Ltd. (formerly known as Scholastic
Publications Ltd.) and Citibank, N.A. (6)
(g) Overdraft Facility dated May 14, 1992 as amended on
June 30 1995, between Scholastic Ltd. (formerly known
as Scholastic Publications Ltd.) and Midland Bank. (6)
(h) Overdraft Facility dated February 12, 1993, as
amended on January 31, 1995 between Scholastic
Australia Pty. Ltd. (formerly known as Ashton
Scholastic Pty. Ltd.) and National Australia Bank Ltd.
(6)
(i) Overdraft Facility dated April 20, 1993 between
Scholastic New Zealand Ltd., (formerly Ashton
Scholastic Ltd.) and ANZ Banking Group Ltd. (6)
(j) Indenture dated August 15, 1995, relating to $110
million of 5% Convertible Subordinated Debentures due
August 15, 2005 issuedMeeting voted upon by the Registrant. (7)
(k) Indenture dated December 15, 1996, relatingstockholders of the Company entitled
to $125
millionvote thereon:
Each of 7% Notes due December 15, 2003 issuedthe 828,100 shares of Class A Stock (comprising all outstanding
shares of Class A Stock) were voted in favor of:
* Setting the number of directors constituting the Board of Directors
at fifteen until the next annual meeting of the stockholders.
8
* Electing Richard Robinson, Rebeca M. Barrera, Helen V. Benham,
Frederic J. Bischoff, John Brademas, John C. Burton, Charles T. Harris
III, Andrew S. Hedden, Mae C. Jemison, Richard Krinsley, Augustus K.
Oliver and Richard M. Spaulding as directors to serve until the next
annual meeting of stockholders.
* Electing Ernst & Young as independent auditors for the fiscal year
ended May 31, 1998.
* Adopting the 1997 Outside Director's Stock Option Plan.
With respect to all matters voted on by the Registrant. (8)
(b) Reports on Form 8-K.
- None.
-8-holders of the Class A Stock,
there were no abstentions or broker non-votes.
Holders of the Common Stock elected the following three nominees as
directors to serve until the next annual meeting of stockholders. Votes cast by
holders of the Common Stock were as follows:
Nominee For Withheld
------- --------- ----------
Ramon C. Cortines 11,904,040 1,362,043
Alonzo A. Crim 13,215,050 51,033
John G. McDonald 13,221,127 44,956
There were no abstentions or broker non-votes with respect to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description of Document
-------- -----------------------
3 (a) Amended and Restated Certificate of Incorporation of the Registrant. (1)
(b) By-laws of the Registrant. (2)
4 (a) Amended and Restated Loan Agreement dated April 11, 1995 among the Registrant and
Citibank, N.A., as agent, Marine Midland Bank, Chase Manhattan Bank, N.A., The First
National Bank of Boston and United Jersey Bank.(3)
(b) Amendment to the Amended and Restated Loan Agreement dated May 1, 1996. (4)
(c) Amendment to the Amended and Restated Loan Agreement dated May 28, 1997. (5)
(d) Amendment to the Amended and Restated Loan Agreement dated November 28, 1997.
(e) Revolving Loan Agreement dated June 19, 1995 between the Registrant and Sun Bank,
National Association, as amended August 14, 1996, May 30, 1997 and November 28, 1997.(6)
(f) Overdraft Facility dated June 1, 1992, as amended on October 30, 1995 between Scholastic
Canada Ltd. and CIBC. (6)
(g) Overdraft Facility dated June 24, 1993 between Scholastic Ltd. (formerly known as
Scholastic Publications Ltd.) and Citibank, N.A. (6)
9
(h) Overdraft Facility dated May 14, 1992, as amended on June 30 1995, between Scholastic
Ltd. (formerly known as Scholastic Publications Ltd.) and Midland Bank. (6)
(i) Overdraft Facility dated February 12, 1993, as amended on January 31, 1995 between
Scholastic Australia Pty. Ltd. (formerly known as Ashton Scholastic Pty. Ltd.) and National
Australia Bank Ltd. (6)
(j) Overdraft Facility dated April 20, 1993 between Scholastic New Zealand Ltd.,
(formerly Ashton Scholastic Ltd.) and ANZ Banking Group Ltd. (6)
(k) Indenture dated August 15, 1995, relating to $110 million of 5% Convertible Subordinated
Debentures due August 15, 2005 issued by the Registrant. (7)
(l) Indenture dated December 15, 1996, relating to $125 million of 7% Notes due December
15, 2003 issued by the Registrant. (8)
11 Statements re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
- Current Report on Form 8-K dated November 19, 1997, with
respect to the Company's litigation with Parachute Press, Inc.
- -------
Footnotes:
(1) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-46338) as filed with the Commission on March 12,
1992.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1(RegistrationS-1 (Registration No. 33-45022) as filed with the Commission on January 10,
1992 (the "1992 Registration Statement").1992.
(3) Incorporated by reference to the Company's Form 10-Q for the quarter ended
February 28, 1995 as filed with the Commission on April 13, 1995 (File
No. 0-19860).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Commission on August 28, 1996 (File No. 0-19860).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
as filed with the Commission on August 26, 1997 (File No. 0-19860).
(6) Such long-term debt does not individually amount to more than 10% of the
total assets of the Registrant and its subsidiaries on a Registrant and its consolidated
basis. Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such
instrument is not filed herewith. The Registrant hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange Commission upon
request.
(7) Incorporated by reference to the Company's Form 10-Q as filed with the
Commission on August 28, 1995 (File No. 0-19860).
(8) Incorporated by reference to the Company's Registration Statement on Form
S-3 (Registration No. 333-17365) as filed with the Commission on December
11, 1996.
-9-10
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: October 15, 1997January 14, 1998 /s/ Richard Robinson
---------------- --------------------------------------------
Chairman of the Board,
President, Chief Executive
Officer and& Director
Date: October 15, 1997January 14, 1998 /s/ Kevin J. McEnery
---------------- --------------------------------------------
Executive Vice President and
Chief Financial Officer
-10-11
SCHOLASTIC CORPORATION
Form 10-Q for the Quarterly Period Ended November 30, 1997
EXHIBIT INDEX
-------------
Exhibit Number Description of Document
- -------------- ----------------------------
4(d) Amendment to the Amended
and Restated Loan Agreement
dated November 28, 1997.
11 Statement re: Computation
of Per Share Earnings
27 Financial Data Schedule