5.75% Notes due 2007
In January 2002, Scholastic Corporation issued $300.0 of 5.75% Notes (the “5.75% Notes”). The 5.75% Notes are not redeemable prior to maturity.senior unsecured obligations that mature on January 15, 2007. Interest on the 5.75% Notes is payable semi-annually on DecemberJuly 15 and June 15 of
each year.
CONVERTIBLE SUBORDINATED DEBENTURES
On August 18, 1995, the Company sold $110.0 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 are designated 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 FebruaryJanuary 15 of each year. The Debentures are redeemable at the option of the Company in
whole, but not in part,may, at any time, onredeem all or after August 15, 1998a portion of the 5.75% Notes at a redemption price (plus accrued interest to the date of redemption) equal to the greater of (i) 100% of the principal amount, plus accrued interest. Each Debenture is convertible, ator (ii) the holder's option any time prior to maturity, into Common Stocksum of the Company at
a conversion pricepresent values of $38.43 per share.
[LOGO] [GRAPHIC]25
The Debentures are subordinatedthe remaining scheduled payments of principal and interest discounted to the Loandate of redemption.
Interest Rate Swap Agreement
In February 2002, Scholastic Corporation entered into an interest rate swap agreement, designated as a fair value hedge as defined under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” whereby the RevolverCompany received a fixed interest rate payment from, and paid an amount based on a variable rate to, the counterparty based on a notional amount, in order to exchange the fixed rate payments on a portion of the 5.75% Notes for variable rate payments. In accordance with SFAS No. 133, the swap was considered perfectly effective and all changes in fair value were recorded to Other assets and Long-term debt. On May 28, 2003, $50.0 of the original $100.0 notional amount was settled and the Company received a payment of $5.4 from the counterparty. On November 3, 2003, the remaining $50.0 under the agreement was settled, and the Company received a payment of $3.8 from the counterparty. The cash received was used to fully reduce the Other asset previously established, and the corresponding credit is being amortized over the remaining term of the 5.75% Notes. LINES OF CREDIT
The Company's international subsidiaries had unsecured linesfair value of credit available
of $50.5 and $37.1this interest rate swap agreement was $5.6 at May 31, 2001 and 2000, respectively. There were $23.1 and
$8.5 outstanding under these credit lines at May 31, 2001 and 2000,
respectively. These lines2003.
5% Notes due 2013
On April 4, 2003, Scholastic Corporation issued $175.0 of credit5% Notes (the “5% Notes”). The 5% Notes are considered short-term in nature. The
weighted average interest ratessenior unsecured obligations that mature on April 15, 2013. Interest on the outstanding amounts were 7.45%5% Notes is payable semi-annually on April 15 and 6.40%October 15 of each year. The Company may at May 31, 2001any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and 2000, respectively.
interest discounted to the date of redemption.
4. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Commitments
The Company leases warehouse space, office space and equipment under various operating leases. Certain of these leases provide for rent increases based on price-level factors. In most cases, management expects that in the normal course of business leases will be renewed or replaced by other leases. The Company has no significant capitalized leases. Total rent expense relating to the Company'sCompany’s operating leases was $44.0, $35.9$47.8, $48.3 and $32.2$44.2 for the fiscal years ended May 31, 2001, 20002004, 2003 and 1999,2002, respectively. These rentals includeThe rent payments under the
terms of theare subject to escalation provisions and are net of sublease income. The aggregate minimum future annual rental commitments at May 31, 2001,2004 under all non-cancelable operating leases, totaling $345.9$304.9, are as follows: 2002 - $38.2;
2003 - $33.7; 2004 - $29.0; 2005 - $21.8;– $43.1; 2006 - $18.6;– $34.1; 2007 – $24.1; 2008 – $17.8; 2009 – $13.2; later years - $204.6.
– $172.6.
The Company had certain contractual commitments, principally relating to royalty advances, at May 31, 20012004 totaling $27.4.$18.7. The aggregate annual commitments are as follows: 2002 - $24.7; 2003 - $1.9; 2004
- - $0.4 ; 2005 - $0.4;– $14.8; 2006 - $0; later years - none.
CONTINGENCIES
As previously reported, three purported class action complaints were filed in
the United States District for the Southern District of New York against the
Company and certain officers seeking, among other remedies, damages resulting
from defendants' alleged violations of federal securities laws. The complaints
were consolidated. The Consolidated Amended Class Action Complaint (the
"Complaint") was served and filed on August 13, 1997. The Complaint was styled
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) 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. 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, with leave to amend the complaint. On June 1, 2001, the
Court of Appeals for the Second Circuit reversed the dismissal of the Second
Amended Consolidated Complaint and remanded the case for further proceedings.
The Company continues to believe that the litigation is without merit and will
continue to vigorously defend against it.
As previously reported, on February 1, 1999, two subsidiaries of the Company
commenced an action in the Supreme Court of the State Court of New York County
of New York against Parachute Press, Inc. ("Parachute"), the licensor of certain
publication and nonpublication rights to the Goosebumps 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, captioned
Scholastic Inc. and Scholastic Entertainment Inc. v. Parachute Press, Inc.,
Parachute Publishing, LLC, Parachute Consumer Products, LLC, and R.L. Stine
(Index No. 99/600512), 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 previously reported first Parachute action, Parachute Press,
Inc. v. Scholastic Inc., Scholastic Productions, Inc. and Scholastic
Entertainment Inc., 97 Civ. 8510 (JFK), 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. In August 2000, the
Court of Appeals for the Second Circuit vacated the dismissal and remanded the
case for further proceedings. The second action, captioned Parachute Press, Inc.
v. Scholastic Inc., Scholastic Productions, Inc. and Scholastic Entertainment
Inc. (Index No. 99/600507), was filed contemporaneously with the filing of the
Company's complaint on February 1, 1999 in the Supreme Court of the State Court
of New York County of New York. In its two complaints and 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 the 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 payment of royalties
set-off by Scholastic against amounts claimed by the Company. On July 21, 2000,
the Company and Parachute each filed motions for partial summary judgement in
the pending state court cases and on May 18, 2001, each party filed motions for
summary judgement in the federal court case. 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 repayment by
Parachute of a portion of the $15.3 advance already paid. The Company intends to
vigorously defend its position in these proceedings. The Company does not
believe that this dispute will have a material adverse effect on its financial
condition.
[GRAPHIC]26 [LOGO]
In addition to the above actions, various– $3.5; 2007 – $0.4.
Contingencies
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'sCompany’s consolidated financial position or results of operations.
46
5. ACQUISITION OF GROLIER
ACQUISITIONS
Fiscal 2004 Acquisitions
On June 22, 2000, Scholastic Inc. acquired all of the issued and outstanding
capital stock of Grolier, a Delaware corporation, for $400.0 in cash. The
acquisition was financed byJuly 1, 2003, the Company using bank debt,acquired certain assets of which $350.0 was
borrowed underTroll Holdings, Inc. (“Troll”), formerly a national school-based book club operator and publisher, for $4.0 in cash and the Grolier Facility and $50.0 was borrowed under the Company's
existing Loan Agreement. (See Note 3)
Through the purchaseassumption of Grolier,certain ordinary course liabilities. On August 8, 2003, the Company acquired the leading operatorstock of United StatesBTBCAT, Inc., which operates Back to Basics Toys (“Back to Basics”), a direct-to-home book clubs serving children primarily age fivecatalog business specializing in children’s toys, for $4.8 in cash. The assets and under andliabilities of each business acquired were adjusted to their fair values as of the leading print and on-line publisherdate of children's non-fiction and
reference products sold primarily to school libraries in the United States. The
acquisition, also expanded the Company's operations in the United Kingdom, Canada
and Southeast Asia.
The Grolier acquisition has been accounted for underwith the purchase methodprice in excess of accounting and, accordingly, the fair market value assigned to goodwill.
The following summarizes the allocation of the aggregate purchase price of the fiscal 2004 acquisitions:
|
| | | | | | Value |
|
| Inventory | | | | | | $ 1.7 |
| Other current assets | | | | | | 1.0 |
| Goodwill | | | | | | 3.0 |
| Other intangibles | | | | | | 4.9 |
| Noncurrent deferred taxes | | | | | | 0.2 |
| Current liabilities | | | | | | (2.0) |
|
| Cash paid for acquisitions, net of cash received | | | | | | $ 8.8 |
|
The operating results of Groliereach fiscal 2004 acquisition have been included in the Company'sCompany’s consolidated results of operations since the daterespective dates of acquisition. The effect on operating results of including the acquired business operations on a pro forma basis would not be material.
Fiscal 2003 Acquisition
In fiscal 2003, the Company acquired all worldwide rights to the Goosebumps™ property from Parachute Press, Inc. and its affiliates (“Parachute”) and the parties settled all outstanding disputes between them. Under the agreement, the Company paid $9.7 to acquire all Parachute’s rights in the Goosebumps trademark, to publish existing and future Goosebumps books and to develop and exploit the property on a worldwide basis in all media, without future royalty obligations to Parachute.
Fiscal 2002 Acquisitions
During fiscal 2002, the Company completed the acquisitions of the stock or assets of the following companies: Troll Book Fairs LLC, a national school-based book fair operator; Tom Snyder Productions, Inc., a developer and publisher of interactive educational software and producer of television programming; Sandvik Publishing Ltd., d/b/a Baby’s First Book Club®, a direct marketer of age-appropriate books and toys for young children; Klutz, a publisher and creator of “books plus” products for children; Teacher’s Friend Publications, Inc., a producer and marketer of materials that teachers use to decorate their classrooms; and Nelson B. Heller & Associates, a publisher of business-to-business newsletters. The aggregate purchase price for these acquisitions, net of cash received, was $66.7. In addition to the initial purchase price paid for Klutz of $42.8, the purchase agreement provided for additional payments of up to $31.3 in 2004 and 2005, contingent upon the achievement of certain revenue thresholds. The Company does not expect to make any payment for 2004.
The assets and liabilities at the acquisiton dateof each business acquired were adjusted to their fair values based upon an independent valuation,as of the date of acquisition, with the excess purchase price overin excess of the fair market value assigned to goodwill.
The following summarizes the final allocation of the aggregate purchase price based upon an independent valuation,of the fiscal 2002 acquisitions:
|
| | | | | | Value |
|
| Accounts receivable | | | | | | $ 9.6 |
| Inventory | | | | | | 10.7 |
| Other current assets | | | | | | 6.1 |
| Property, plant and equipment | | | | | | 1.2 |
| Goodwill | | | | | | 31.5 |
| Other intangibles | | | | | | 0.4 |
| Noncurrent deferred taxes | | | | | | 18.6 |
| Other assets | | | | | | 0.4 |
| Current liabilities | | | | | | (11.8) |
|
| Cash paid for acquisitions, net of cash received | | | | | | $ 66.7 |
|
|
47
The allocation of the aggregate purchase price was finalized during fiscal 2003. The operating results of each fiscal 2002 acquisition have been included in the Company’s consolidated results of operations since the respective dates of acquisition. The effect on operating results of including the related transaction and financing costs:
- -------------------------------------------------------------------------------
VALUE
- -------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE $ 95.3
INVENTORY 45.5
OTHER CURRENT ASSETS 58.5
PROPERTY, PLANT AND EQUIPMENT, NET 18.9
GOODWILL AND OTHER INTANGIBLES 231.5
OTHER ASSETS 44.2
CURRENT LIABILITIES (85.3)
NON-CURRENT LIABILITIES (12.2)
- -------------------------------------------------------------------------------
CASH PAID FOR ACQUISITION, NET OF CASH RECEIVED $ 396.4
===============================================================================
The following summarizes the goodwill and other intangibles arising from the
acquisition of Grolier:
- -------------------------------------------------------------------------------
VALUE LIFE
- -------------------------------------------------------------------------------
GOODWILL $ 169.9 25 years
- ------------------------------------------
TITLES 29.8 25 years
MAJOR SETS 11.8 25 years
LICENSES 17.8 25 years
CUSTOMER LISTS 2.2 3 years
- ------------------------------------------
TOTAL OTHER INTANGIBLES 61.6
TOTAL GOODWILL AND
OTHER INTANGIBLES $ 231.5
==========================================
acquired business operations on a pro forma basis would not be material.
In connection with the Grolier acquisition,fiscal 2002 acquisitions, the Company established liabilities of approximately $17.7$3.2 at May 31, 2002, relating primarily to severance fringe benefits and related salary continuance as well as certainother exit costs associated with the
integration of certain of Grolier's operational and administrative functions.costs. As of May 31, 2001, approximately $14.72004, $0.2 of these reservesliabilities remained unpaid, whichunpaid.
6. INVESTMENT
In fiscal 2003, the Company entered into a joint venture with The Book People, Ltd., a direct marketer of books in the United Kingdom, to distribute books to the home under the Red House name and through schools under the School Link name. Accordingly, £5.9 (equivalent to $9.1 as of the date of the transaction) relating to Red House was recorded as an investment in the joint venture (see Note 7). The Company also acquired a 15% equity interest in The Book People Group, Ltd. for £12.0 (equivalent to $17.9 as of the date of the transaction) with a possible additional payment of £3.0 based on operating results and contingent on repayment of all borrowings under a £3.0 revolving credit facility established at the date of the transaction by the Company in favor of The Book People Group, Ltd. The revolving credit facility is available to fund the expansion of The Book People Group, Ltd. and for working capital purposes. As of May 31, 2004, £3.0 (equivalent to $5.5 at that date) was outstanding under the revolving credit facility. The equity investment in The Book People Group, Ltd. is included in Other within the Other Assets and Deferred Charges section of the Consolidated Balance Sheets.
7. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets with indefinite lives are expected to be substantially paid during fiscal 2002.
reviewed for impairment annually, or more frequently if impairment indicators arise.
The following table reflects unaudited pro forma resultssummarizes the activity in Goodwill for the years ended of operations of the
Company, giving effectMay 31:
|
| | | | | 2004 | | 2003 |
|
| Beginning balance | | | | $ 246.0 | | $ 256.2 |
| Additions due to acquisitions | | | | 3.0 | | 0.4 |
| Investment in joint venture | | | | — | | (9.1) |
| Other adjustments | | | | 1.3 | | (1.5) |
|
| Ending balance | | | | $ 250.3 | | $ 246.0 |
|
| |
The following table summarizes Other intangibles subject to the acquisition of Grolier as if it was consummatedamortization as of May 31:
|
| | | | | 2004 | | 2003 |
|
| Customer lists | | | | $ 2.9 | | $ 2.9 |
| Accumulated amortization | | | | (2.7) | | (2.5) |
|
| Net customer lists | | | | 0.2 | | 0.4 |
|
| Other intangibles | | | | 4.0 | | 3.9 |
| Accumulated amortization | | | | (2.4) | | (2.3) |
|
| Net other intangibles | | | | 1.6 | | 1.6 |
|
| Total | | | | $ 1.8 | | $ 2.0 |
|
Amortization expense for Other intangibles totaled $0.3, $0.5 and $1.0 for the first dayfiscal years ended May 31, 2004, 2003 and 2002, respectively. Amortization expense for these assets is currently estimated to total $0.3 for each of the fiscal periods endedyears ending May 31, 20012005 and 2006, and $0.2 for each of the fiscal years ending May 31, 2000,2007 through 2009. The weighted average amortization periods for these assets by major asset class are two years and adjusted13 years for the effectscustomer lists and other intangibles, respectively.
48
The following table summarizes Other intangibles not subject to amortization as of amortization of goodwillMay 31:
|
| | | | | 2004 | | 2003 |
|
| Net carrying value by major class: | | | | |
| Titles | | | | $ 31.0 | | $ 31.0 |
| Licenses | | | | 17.2 | | 17.2 |
| Major sets | | | | 11.4 | | 11.4 |
| Trademarks and other | | | | 17.5 | | 12.6 |
|
| Total | | | | $ 77.1 | | $ 72.2 |
|
Trademarks and other increased interest
expense on debt relatedby $4.9, relating to the acquisition. This information does not
necessarily reflect the actual results of operations that would have occurred
had the purchase been made at the beginning of the periods presented, nor is it
necessarily indicative of future results of operations of the combined
companies.
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
REVENUES $ 1,997.9 $ 1,844.5
NETfiscal 2004 Troll and Back to Basics acquisitions.
8. INCOME 37.5 34.2
NET INCOME PER CLASS A
AND COMMON SHARE:
BASIC $ 1.08 $ 1.02
DILUTED $ 1.04 $ 1.01
[LOGO] [GRAPHIC]27
6. INCOME TAXES
The provisions for income taxes for the fiscal years ended May 31 are based on earnings/ (losses)earnings before taxes and Cumulative effect of accounting change as follows:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
UNITED STATES $ 50.0 $ 82.4 $ 63.0
NON-UNITED STATES 7.1 (2.0) (4.1)
- -------------------------------------------------------------------------------
$ 57.1 $ 80.4 $ 58.9
===============================================================================
|
| | | 2004 | | 2003 | | 2002 | |
|
| United States | | $ 89.9 | | $ 81.8 | | $ 144.7 | |
| Non-United States | | 0.6 | | 8.3 | | 8.6 | |
|
| | | $ 90.5 | | $ 90.1 | | $ 153.3 | |
|
| |
The provisions for income taxes attributable to earnings before Cumulative effect of accounting change for the fiscal years ended May 31 consist of the following components:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
FEDERAL
CURRENT $ 26.9 $ 37.6 $ 21.3
DEFERRED (13.5) (12.8) (2.6)
- -------------------------------------------------------------------------------
$ 13.4 $ 24.8 $ 18.7
===============================================================================
STATE AND LOCAL
CURRENT $ 4.0 $ 4.2 $ 2.7
DEFERRED (2.8) (2.4) 0.2
- -------------------------------------------------------------------------------
$ 1.2 $ 1.8 $ 2.9
===============================================================================
INTERNATIONAL
CURRENT $ 5.0 $ 2.3 $ 0.2
DEFERRED 1.2 0.1 0.3
- -------------------------------------------------------------------------------
$ 6.2 $ 2.4 $ 0.5
===============================================================================
TOTAL
CURRENT $ 35.9 $ 44.1 $ 24.2
DEFERRED (15.1) (15.1) (2.1)
- -------------------------------------------------------------------------------
$ 20.8 $ 29.0 $ 22.1
===============================================================================
|
| | | 2004 | | 2003 | | 2002 |
|
| Federal |
| Current | | $ 18.9 | | $ 11.5 | | $ 29.4 |
| ��Deferred | | 6.2 | | 13.4 | | 15.4 |
|
| | | $ 25.1 | | $ 24.9 | | $ 44.8 |
|
| State and local |
| Current | | $ 4.7 | | $ 3.4 | | $ 3.7 |
| Deferred | | 0.8 | | 0.9 | | 2.0 |
|
| | | $ 5.5 | | $ 4.3 | | $ 5.7 |
|
| International |
| Current | | $ 5.6 | | $ 4.3 | | $ 3.5 |
| Deferred | | (4.1) | | (2.0) | | 0.6 |
|
| | | $ 1.5 | | $ 2.3 | | $ 4.1 |
|
| Total |
| Current | | $ 29.2 | | $ 19.2 | | $ 36.6 |
| Deferred | | 2.9 | | 12.3 | | 18.0 |
|
| | | $ 32.1 | | $ 31.5 | | $ 54.6 |
|
| |
The provisions for income taxes attributable to continuing operationsearnings before Cumulative effect of accounting change for the fiscal years ended May 31 differ from the amount of tax determined by applying the federal statutory rate as follows:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
COMPUTED FEDERAL
STATUTORY PROVISION $ 20.0 $ 28.1 $ 20.6
STATE INCOME TAX PROVISION,
NET OF FEDERAL INCOME
TAX BENEFIT 0.8 1.2 1.9
DIFFERENCE IN EFFECTIVE
TAX RATES ON EARNINGS OF
FOREIGN SUBSIDIARIES 1.8 0.2 (0.1)
CHARITABLE CONTRIBUTIONS (1.6) (0.8) (0.5)
OTHER - NET (0.2) 0.3 0.2
- -------------------------------------------------------------------------------
TOTAL PROVISION FOR
INCOME TAXES $ 20.8 $ 29.0 $ 22.1
===============================================================================
EFFECTIVE TAX RATES 36.5% 36.1% 37.5%
===============================================================================
The undistributed earnings of foreign subsidiaries at May 31, 2001 are $15.4.
Any remittance of foreign earnings would not result in any significant
additional tax.
|
| | | 2004 | | 2003 | | 2002 |
|
| Computed federal statutory provision | | $ 31.7 | | $ 31.5 | | $ 53.7 |
| State income tax provision, net of federal income tax benefit | | 3.6 | | 2.8 | | 3.6 |
| Difference in effective tax rateson earnings of foreign subsidiaries | | (3.0) | | (1.4) | | (0.7) |
| Charitable contributions | | — | | (1.4) | | (1.8) |
| Other – net | | (0.2) | | 0.0 | | (0.2) |
|
| Total provision for income taxes | | $ 32.1 | | $ 31.5 | | $ 54.6 |
|
| Effective tax rates | | 35.5% | | 35.0% | | 35.6% |
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes as determined under enacted tax laws and rates. The tax effects of these items that give rise to deferred tax assets and liabilities as of May 31 for the indicated fiscal years are as follows:
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS:
TAX UNIFORM CAPITALIZATION $ 26.1 $ 28.0
INVENTORY RESERVES 23.1 14.2
ALLOWANCE FOR DOUBTFUL ACCOUNTS 22.4 4.8
OTHER ACCOUNTING RESERVES 23.4 8.0
POST-RETIREMENT, POST-EMPLOYMENT
AND PENSION OBLIGATIONS 11.6 7.6
THEATRICAL MOTION PICTURE
ACCOUNTING - 2.5
PREPAID EXPENSES (11.8) -
DEPRECIATION (11.7) (4.8)
OTHER - NET (4.4) (5.3)
- -------------------------------------------------------------------------------
TOTAL NET DEFERRED TAX ASSETS $ 78.7 $ 55.0
===============================================================================
|
| | | | | 2004 | | 2003 |
|
| Net deferred tax assets: |
| Tax uniform capitalization | | | | $ 24.2 | | $ 24.3 |
| Inventory reserves | | | | 18.5 | | 16.7 |
| Allowance for doubtful accounts | | | | 21.5 | | 19.6 |
| Other accounting reserves | | | | 13.5 | | 18.4 |
| Post-retirement, post-employment and pension obligations | | | | 13.6 | | 21.3 |
| Tax carryforwards | | | | 5.7 | | 5.1 |
| Prepaid expenses | | | | (11.0) | | (15.2) |
| Depreciation and amortization | | | | (23.9) | | (10.7) |
| Other – net | | | | (1.5) | | (1.5) |
|
| Total net deferred tax assets | | | | $ 60.6 | | $ 78.0 |
|
Net deferred tax assets of $78.7$60.6 at May 31, 20012004 and $55.0$78.0 at May 31, 20002003 include $1.0$4.0 and $1.1$1.2 in Other assetsaccrued expenses at May 31, 2004 and $(11.6)2003, respectively, and $(3.3)$13.9 and $3.1 in Other noncurrent liabilities at May 31, 20012004 and 2000,2003, respectively.
7.
49
The undistributed earnings of foreign subsidiaries at May 31, 2004 were $22.7. Any remittance of foreign earnings would not result in any significant additional tax.
At May 31, 2004, the Company had a charitable deduction carryforward of $7.2, which expires in the fiscal year ending 2008, and foreign operating loss carryforwards of $10.7, which do not have expiration dates.
The Company had tax reserves totaling $8.3 and $8.0 at May 31, 2004 and 2003, respectively.
9. CAPITAL STOCK AND STOCK OPTIONS
On September 23, 2000, the Company's stockholders approved an increase in the
total number
Scholastic Corporation has authorized capital stock of shares authorized to be issued by the Company to 74,500,000
shares: 70,000,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"); 2,500,000 shares of Class A Stock, par value $0.01 per share (the "Class“Class A Stock"Stock”); 70,000,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”); and 2,000,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"“Preferred Stock”).
Pursuant to the 2-for-1 Stock Split, on January 16, 2001, shareholders of record
as of December 29, 2000 received one additional share of
Class A and Common Stock or Class A
Stock for each share held on the record date. All outstanding rights under stock
options and stock purchase plans to acquire the Company's Common Stock and under
the Company's 5% Convertible Subordinated Debentures due 2005 were adjusted to
give effect to the 2-for-1 Stock Split.
At May 31, 2001, 33,632,047 shares of Common Stock,2004, 1,656,200 shares of Class A Stock and no shares of Preferred Stock were issued and outstanding, and 55,31937,930,986 shares of Common Stock were designated as Treasury Stock.outstanding. At May 31, 2001, the
Company2004, Scholastic Corporation had reserved for issuance 11,375,96011,794,154 shares of Common Stock. Of these shares, 6,278,9849,387,702 shares were reserved for issuance under the Company's stock
optionCompany’s stock-based plans (including shares available for grant and stock options currently outstanding), 1,656,200 shares were
[GRAPHIC]28 [LOGO]
reserved for issuance upon conversion of the Class A Stock 578,428and 750,252 shares were reserved for future issuances under the Company's Management and Employee Stock
Purchase Plans, and 2,862,348 shares were reserved for issuance upon conversion
of the Convertible Debentures.
COMMON AND CLASS A STOCK
Company’s employee stock purchase plans.
The only voting rights vested in the holders of Common Stock, except as required by law, are the election of such number of directors as shall equal at least one-fifth of the members of the Board of Directors. The holders of Class A Stock are entitled to elect all other directors and to vote on all other matters. Holders of Class A Stock and Common Stock are entitled to one vote per share on matters on which they are entitled to vote. The holders of Class A Stock have the right, at their option, to convert shares of Class A Stock into shares of Common Stock on a share-for-share basis.
With the exception of voting rights and conversion rights, and as to the rights of holders of Preferred Stock if issued, the Class A Stock and the Common Stock are equal in rank and are entitled to dividends and distributions, when and if declared by the Board of Directors. The CompanyScholastic Corporation has not paid any cash dividends since its public offering in 1992 and has no current plans to pay any dividends on its Common or Class A Stock or Common Stock.
PREFERRED STOCK
Preferred Stock
The Company's authorized Preferred Stock may be issued in one or more series, with limited voting rights, with the rights of each series, including voting rights, to be determined by the Board of Directors before each issuance. To date, no shares of Preferred Stock have been issued.
STOCK OPTIONS
In fiscal 1996,
50
Stock Options
At May 31, 2004, the Company adoptedmaintained three stockholder-approved employee stock-based benefit plans: the Scholastic Corporation 1992 Stock Option Plan (the “1992 Plan”), under which no further awards can be made; the Scholastic Corporation 1995 Stock Option Plan (the "1995
Plan"“1995 Plan”), which; and the Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”). The 1995 Plan provides for the grantissuance of two types of options to purchase Company stock: incentive stock options, which qualify for special treatment under the Internal Revenue Code, and options that are not so qualified, called non-qualified stock options. The 2001 Plan provides for the issuance of non-qualified stock options, and
incentive stock options. The 1995 Plan supplemented the 1992 Stock Option Plan
(the "1992 Plan").options, restricted stock and other stock-based awards. At May 31, 2001,2004, non-qualified stock options to purchase 5,099,904594,956; 4,219,256; and 743,9002,894,875 shares of Common Stock were outstanding under the 1992 Plan, 1995 Plan and 1992 Plans,2001 Plan, respectively; 111,180 and no19,990 and 1,095,125 shares of Common Stock were available for additional awards under the 1995 and 1992 Plans, respectively. On July 18, 2001,
the Board of Directors authorized, subject to the approval of the holders of the
Class A Stock, the Scholastic Corporation 2001 Stock Incentive Plan (the "2001
Plan"), which provides for the issuance of up to 4,000,000 shares of Common
Stock in connection with the grant of stock options, restricted stock and other
stock-based awards. The 2001 Plan, will be submittedrespectively.
The Company also maintains two stockholder-approved stock option plans for outside directors: the approval of the
holders of the Class A Stock at the Company's annual meeting of stockholders to
be held on September 20, 2001.
In fiscal 1998, the Company adopted the stockholder approved 19971992 Outside Directors'Directors’ Stock Option Plan (the "1997 Directors'“1992 Directors’ Plan”), under which no further awards can be made, and the 1997 Outside Directors’ Stock Option Plan"Plan (the “1997 Directors’ Plan”), which provides
for the grant of non-qualified options to purchase Common Stock, with 360,000
shares originally reserved for issuance. This plan. The 1997 Directors’ Plan, as amended, provides for the automatic grant of options to non-employee directors on the date of each Januaryannual stockholders’ meeting of non-qualified stock options to purchase 3,0006,000 shares of Common Stock. The 1997 Directors' Option Plan supplemented the 1992 Outside
Directors' Stock Option Plan (the "1992 Directors' Option Plan"). At May 31, 2001,2004, options to purchase 162,000311,500 and 30,00012,000 shares of Common Stock were outstanding under the 1997 Directors’ Plan and options on 132,000the 1992 Directors’ Plan, respectively, and zero240,000 shares of Common Stock were available for additional awards under the 1997 and 1992 Directors' Option Plans,
respectively.Directors’ Plan. In January 2001 and 2000,September 2003, options were awarded under the 1997 Directors' OptionDirectors’ Plan at an exercise pricesprice of $43.88 and $30.39, respectively.
$30.88. On September 23, 2003, the Class A Stockholders approved an increase in the number of shares of Common Stock available for issuance under the 1997 Directors’ Plan of 270,000 shares.
Generally, options granted under the various plans may not be exercised for a minimum of one year after the date of grant and expire ten years and one day
after the date of grant.
[LOGO] [GRAPHIC]29
The following table sets forth activity under the various stock option plansactivity for the three fiscal years ended May 31:
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING - BEGINNING OF YEAR 5,568,966 $ 22.05 5,435,994 $ 19.94 5,235,318 $ 19.21
GRANTED 1,724,000 32.81 1,310,200 26.04 666,800 21.82
EXERCISED (1,170,012) 20.68 (1,046,228) 15.90 (411,226) 14.08
CANCELLED (87,150) 30.16 (131,000) 23.67 (54,898) 17.70
- -----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING - END OF YEAR 6,035,804 $ 25.28 5,568,966 $ 22.05 5,435,994 $ 19.94
===================================================================================================================================
EXERCISABLE - END OF YEAR 3,588,804 $ 22.47 3,180,814 $ 21.17 3,327,442 $ 19.23
- -----------------------------------------------------------------------------------------------------------------------------------
|
| | | 2004 | | 2003 | | 2002 |
|
| | | | | Weighted | | | | Weighted | | | | Weighted |
| | | | | Average | | | | Average | | | | Average |
| | | | | Exercise | | | | Exercise | | | | Exercise |
| | | Options | | Price | | Options | | Price | | Options | | Price |
|
| Outstanding – beginning of year | | 6,852,258 | | $ 28.65 | | 5,539,712 | | $ 27.58 | | 6,035,804 | | $ 25.28 |
| Granted | | 1,599,000 | | 27.90 | | 1,392,240 | | 32.69 | | 692,000 | | 42.62 |
| Exercised | | (197,296) | | 23.23 | | (59,694) | | 21.49 | | (911,292) | | 22.07 |
| Cancelled | | (221,375) | | 32.89 | | (20,000) | | 34.31 | | (276,800) | | 32.79 |
|
| Outstanding – end of year | | 8,032,587 | | $ 28.52 | | 6,852,258 | | $ 28.65 | | 5,539,712 | | $ 27.58 |
|
| Exercisable – end of year | | 5,279,912 | | $ 27.43 | | 4,669,518 | | $ 26.05 | | 4,083,962 | | $ 24.52 |
|
51
The following table sets forth information as of May 31, 20012004 regarding weighted average exercise prices and weighted average remaining contractual lives andfor the
remaining outstanding stock options, under the various stock option plans, sorted by range of exercise price:
- -----------------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
OPTIONS WEIGHTED AVERAGE REMAINING NUMBER WEIGHTED AVERAGE
PRICE RANGE NUMBER EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 13.16 - $ 17.55 48,000 $ 16.83 2.3 years 48,000 $ 16.83
$ 17.56 - $ 21.94 2,317,824 18.29 6.5 years 1,885,024 18.31
$ 21.95 - $ 26.33 1,166,080 25.45 7.7 years 891,880 25.40
$ 26.34 - $ 30.71 765,900 29.52 5.3 years 739,900 29.56
$ 30.72 - $ 35.10 1,401,000 31.76 9.0 years 24,000 33.24
$ 35.11 - $ 43.88 337,000 37.23 9.6 years - -
- -----------------------------------------------------------------------------------------------------------------------------------
Under the provisions of SFAS 123, the
|
| | | Options Outstanding | | Options Exercisable |
|
| | | | | | | Weighted | | | | |
| | | | | | | Average | | | | Weighted |
| | | | | Weighted | | Remaining | | | | Average |
Options | | | | | Average | | Contractual | | Number | | Exercise |
Price Range | | | Number | | Exercise Price | | Life | | Exercisable | | Price |
|
| $ 15.73 — $ 20.97 | | 1,663,666 | | $ 18.36 | | 3.5years | | 1,663,666 | | $ 18.36 |
| $ 20.98 — $ 26.21 | | 1,292,281 | | 25.28 | | 6.2 years | | 992,856 | | 25.42 |
| $ 26.22 — $ 31.45 | | 2,211,400 | | 28.32 | | 7.0 years | | 727,900 | | 29.45 |
| $ 31.46 — $ 36.69 | | 2,117,990 | | 33.60 | | 7.0 years | | 1,391,990 | | 32.93 |
| $ 36.70 — $ 41.94 | | 131,750 | | 38.30 | | 6.1 years | | 80,500 | | 38.18 |
| $ 41.95 — $ 47.18 | | 533,500 | | 43.03 | | 7.5 years | | 354,000 | | 43.12 |
| $ 47.19 — $ 52.42 | | 82,000 | | 49.99 | | 7.6 years | | 69,000 | | 49.88 |
|
Employee Stock Purchase Plan
The Company applies APB 25 and related
interpretations in accounting for its stock option plans. In accordance with APB
25, no compensation expense was recognized because the exercise price of the
Company's stock options was equal to the market price of the underlying stock on
the date of grant and the exercise price and number of shares subject to grant
were fixed. During fiscal 2000, the Company recordedmaintains an expense of $1.8 relating
to the liquidation of certain stock options.
If the Company had elected to recognize compensation expense based on the fair
value of the options granted at the date of grant and in respect to shares
issuable under the Company's employee stock purchase plans as prescribed by SFAS
123, net income and diluted earnings per share for the three fiscal years ended
May 31 would have been reduced to the pro forma amounts indicated in the table
below:
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME - AS REPORTED $ 36.3 $ 51.4 $ 36.8
NET INCOME - PRO FORMA $ 24.0 $ 43.7 $ 27.7
DILUTED EARNINGS PER SHARE -
AS REPORTED $ 1.01 $ 1.48 $ 1.10
DILUTED EARNINGS PER SHARE -
PRO FORMA $ 0.67 $ 1.27 $ 0.84
- -----------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC]30 [LOGO]
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the weighted average assumptions for the
three fiscal years ended May 31 as follows:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
EXPECTED DIVIDEND YIELD 0.00% 0.00% 0.00%
EXPECTED STOCK
PRICE VOLATILITY 44.5% 41.7% 40.9%
RISK-FREE INTEREST RATE 6.03% 5.80% 5.24%
EXPECTED LIFE OF OPTIONS 5 years 5 years 5 years
- -------------------------------------------------------------------------------
The weighted average fair value of options granted during fiscal 2001, 2000 and
1999 were $15.59, $11.42 and $9.45 per share, respectively. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized over the
options' vesting period. The pro forma information above is not likely to be
representative of the effects on reported net income for future years as options
are generally granted each year and vest over several years and only include
grants on or subsequent to June 1, 1997.
EMPLOYEE STOCK PURCHASE PLAN
In fiscal 2000, the Company implemented the Employee Stock Purchase Plan ("ESPP"(“ESPP”), which is offered to eligible U.S.United States employees. The ESPP permits participating employees to purchase Common Stock, through after-tax payroll deductions, the
Company's Common Stockon a quarterly basis at a 15% discount from the lower of the closing price value of the Common Stock on NASDAQ on the first or last business day of each fiscal quarter. During fiscal 2001,2004, 2003 and 2002, the Company issued 55,630121,256; 131,417; and 71,073 shares under the ESPP at a weighted average price of $28.41$25.01, $25.54 and $35.87 per share.
MANAGEMENT STOCK PURCHASE PLAN
In fiscal 2000,share, respectively. At May 31, 2004, there were 454,683 shares authorized to be issued under the ESPP.Management Stock Purchase Plan
The Company implemented themaintains a Management Stock Purchase Plan ("MSPP"(“MSPP”), which allows certain members of senior management to defer up to 100% of their annual cash bonus payment in the form of restricted stock units ("RSUs"(“RSUs”). For fiscal 2001, theThe RSUs are purchased by the employee at a 15% discount from the lowest closing price of the Company's Common Stock on NASDAQ during the fiscal quarter in which such bonuses are payable and are converted into shares of the Company's Common Stock on a one-for-one basis at the end of the applicable deferral period. Effective June 1, 2002, the MSPP was amended to increase the discount on the purchase of RSUs to 25% from 15%. During fiscal 2001,2004, 2003 and 2002, the Company allocated 27,3300 RSUs, 62,071 RSUs, and 45,301 RSUs to participants under the MSPP at a weighted average price of $22.61$0, $25.22 and $30.60 per RSU, resulting in an expense of $0.1.
8.$0.4, $0.5 and $0.2, respectively. Effective December 18, 2002, the MSPP was amended to allow certain additional management personnel to purchase RSU’s at a discount rate of 10%.
10. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has a defined benefit pensioncash balance retirement plan (the "U.S. Pension Plan"“Pension Plan”), which covers the majority of the U.S.United States employees who meet certain eligibility requirements. The Company funds all of the contributions for the Pension Plan. Benefits generally are based on the Company’s contributions and interest credits allocated to participants accounts based on years of benefit service and on career average
compensation. Effective June 1, 1999, the U.S. Pension Plan was converted to a
cash balance plan which is funded entirely by contributions from the Company. In
prior years, the U.S. Pension Plan was funded by contributions from both
participants and the Company.
As a result of the acquisition of Grolier, the Grolier Defined Benefit Plan (the
"Grolier Plan"), which covered substantially all its U.S. employees, was merged
into the Company's U.S. Pension Plan in January, 2001. The results of the
combination are reflected in the following tables.annual pensionable earnings. It is the Company'sCompany’s policy to fund the minimum amount required by the Employee Retirement Income Security Act ("ERISA"(“ERISA”) of 1974, as amended.
The Company's U.K. operation
Scholastic Ltd., an indirect subsidiary of Scholastic Inc. located in the United Kingdom, has a defined
52
benefit pension plan (the "U.K.“U.K. Pension Plan"Plan”) whichthat covers certain United Kingdomits employees who meet various eligibility requirements. Benefits are based on years of service and on a percentage of compensation near retirement. The U.K. Pension Plan is funded by contributions from the U.K. subsidiaryScholastic Ltd. and its employees.
The Company's
Grolier Canadian operationLtd., an indirect subsidiary of Scholastic Inc. located in Canada, provides a defined benefit pension plan (the "Grolier“Grolier Canada Pension Plan"Plan”) whichthat covers a majority ofits employees who meet certain eligibility requirements. All full time employees are eligible to participate in the plan after two years of employment. The Company'sGrolier Ltd.’s contributions to the fund have been suspended due to an actuarial surplus. Employees are not required to contribute to the fund.
The Company’s pension plans have different measurement dates as follows: for the Pension Plan – May 31, 2004; for the U.K. Pension Plan and the Grolier Canada Pension Plan – March 31, 2004.
Post-Retirement Benefits
The Company provides certain Post-Retirement Benefits to retired United States-based employees (the "U.S. Post-Retirement
Benefits"“Post-Retirement Benefits”) consisting of certain healthcare and life insurance benefits that the
Company provides to retired U.S. employees.benefits. A majority of the Company's U.S.these employees may become eligible for these benefits if they reach normal retirement age while working for the Company. [LOGO] [GRAPHIC]In fiscal 2004, the Company amended the Post-Retirement Benefits by changing the prescription drug co-pay schedule for Medicare-eligible participants to be the same as for non-Medicare eligible participants. The impact of this amendment was to reduce the benefit obligation by $2.8. In fiscal 2003, the Company amended the Post-Retirement Benefits by increasing the participants’ contribution rate. The impact of this amendment was to reduce the benefit obligation by $8.6. The balance of these two amendments was recorded as unrecognized prior service cost and will be amortized over 141/2 years. At May 31, 2004, the unrecognized prior service cost remaining was $10.1.
The following table sets forth the change inweighted average actuarial assumptions utilized to determine the benefit obligation and plan assets
and reconciliation of funded status underobligations for the U.S. Pension Plan, the U.K. Pension Plan and the Grolier Canada Pension Plan (collectively the “Pension Plans”) at May 31:
|
| | | | Post-Retirement |
| | Pension Benefits | | Benefits |
|
| | | 2004 | | 2003 | | 2004 | | 2003 |
|
Weighted average assumptions used to
determine benefit obligations: |
| Discount rate | | 6.5% | | 6.0% | | 6.7% | | 6.0% |
| Rate of compensation increase | | 4.0% | | 4.0% | | — | | — |
Weighted average assumptions used to
determine net periodic benefit cost: | | | | | |
| Discount rate | | 6.0% | | 7.3% | | 6.0% | | 7.3% |
| Expected long-term return on plan assets | | 8.9% | | 8.9% | | — | | — |
| Rate of compensation increase | | 4.0% | | 4.0% | | — | | — |
|
To develop the expected long-term rate of return on assets assumption for its pension plans, the Company, with the assistance of its actuaries, considers historical returns and future expectations. Over the 15-20 year periods ending May 31, 2003, the returns on the portfolio, assuming it was invested at the current target asset allocation in the prior periods, would have been a compounded annual average of 10%-12%. Considering this information and the U.S.potential for lower future returns due to a generally lower interest rate environment, the Company selected an assumed weighted average long-term rate of return of 8.9% for all plans.
53
The following table sets forth changes in benefit obligation and plan assets, the reconciliation of funded status and the (decrease) increase in the minimum pension liability included in accumulated other comprehensive loss for the Pension Plans and the Post-Retirement Benefits for the two fiscal years ended May 31:
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Post-Retirement Benefits
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 34.5 $ 32.0 $ 14.6 $ 11.5
Service cost 5.1 4.6 0.3 0.7
Interest cost 7.3 2.1 1.4 0.8
Plan participants' contributions 0.5 - - -
Amendments (2.8) (0.9) - -
Actuarial (gains)/losses 3.7 (1.0) 0.8 2.9
Acquisition 63.0 - 2.7 -
Foreign currency exchange rate changes (1.7) (0.5) - -
Benefits paid (6.2) (1.8) (1.5) (1.3)
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 103.4 $ 34.5 $ 18.3 $ 14.6
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 26.6 $ 26.2 $ - $ -
Actual (loss)/gain return on plan assets (2.4) 1.4 - -
Company contributions 3.0 1.1 0.2 -
Plan participants' contributions 0.4 - - -
Acquisition 70.6 - - -
Foreign currency exchange rate changes 1.0 (0.3) - -
Benefits paid (6.2) (1.8) (0.2) -
- -----------------------------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 93.0 $ 26.6 $ 0.0 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
FUNDED STATUS
Underfunded status of the plan(s) $ (10.4) $ (7.9) $ (18.3) $ (14.6)
Unrecognized net actuarial loss 16.4 1.5 0.9 0.1
Unrecognized prior service cost (2.9) (0.2) (0.1) (0.2)
Unrecognized net asset obligation 0.6 0.7 - -
- -----------------------------------------------------------------------------------------------------------------------------------
ACCRUED BENEFIT ASSET/(LIABILITY) $ 3.7 $ (5.9) $ (17.5) $ (14.7)
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS
Prepaid benefit cost $ 3.3 $ - $ - $ -
Accrued benefit liability (6.0) (5.9) (17.5) (14.7)
Accumulated other comprehensive loss 5.6 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 2.9 $ (5.9) $ (17.5) $ (14.7)
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.6% 7.5% 7.5% 8.0%
Compensation increase factor 4.2% 4.6% - -
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets consist primarily of stocks, bonds, money market funds
|
| | | | | | | Post-Retirement |
| | | Pension Benefits | | Benefits |
|
| | | 2004 | | 2003 | | 2004 | | 2003 |
|
| Change in benefit obligation |
| Benefit obligation at beginning of year | | $ 131.2 | | $ 111.6 | | $ 28.8 | | $ 23.4 |
| Service cost | | 7.0 | | 5.9 | | 0.5 | | 0.5 |
| Interest cost | | 7.7 | | 7.7 | | 2.0 | | 1.8 |
| Plan participants’ contributions | | 0.5 | | 0.6 | | — | | — |
| Amendments | | — | | 0.2 | | (2.8) | | (8.6) |
| Actuarial (gains) losses | | (7.2) | | 11.8 | | 5.5 | | 13.9 |
| Foreign currrency exchange rate changes | | 3.2 | | 2.3 | | — | | — |
| Benefits paid | | (11.2) | | (8.9) | | (2.6) | | (2.2) |
|
| Benefit obligation at end of year | | $131.2 | | $131.2 | | $ 31.4 | | $ 28.8 |
|
| Change in plan assets |
| Fair value of plan assets at beginning of year | | $ 88.9 | | $ 87.3 | | $ — | | $ — |
| Actual gain (loss) on plan assets | | 15.8 | | (2.3) | | — | | — |
| Company contributions | | 19.4 | | 11.0 | | — | | — |
| Plan participants’ contributions | | 0.5 | | 0.4 | | — | | — |
| Administrative expenses | | (0.9) | | (0.8) | | — | | — |
| Foreign currrency exchange rate changes | | 2.2 | | 2.2 | | — | | — |
| Benefits paid | | (11.2) | | (8.9) | | — | | — |
|
| Fair value of plan assets at end of year | | $114.7 | | $ 88.9 | | $ — | | $ — |
|
| Funded status |
| Underfunded status of the plans | | $ (16.5) | | $ (42.3) | | $ (31.4) | | $ (28.8) |
| Unrecognized net actuarial loss | | 37.7 | | 54.0 | | 22.4 | | 18.9 |
| Unrecognized prior service cost | | (1.8) | | (2.1) | | (10.1) | | (8.1) |
| Unrecognized net asset obligation | | 0.2 | | 0.4 | | — | | — |
|
| Accrued benefit asset (liability) | | $ 19.6 | | $ 10.0 | | $(19.1) | | $(18.0) |
|
| Amounts recognized in the Consolidated Balance Sheets |
| Prepaid benefit cost | | $ 19.6 | | $ 8.8 | | $ — | | $ — |
| Accrued benefit liability | | (26.1) | | (43.3) | | (19.1) | | (18.0) |
| Intangible asset | | 0.1 | | 0.1 | | — | | — |
| Accumulated other comprehensive loss | | 26.0 | | 43.2 | | — | | — |
|
| Net amount recognized | | $ 19.6 | | $ 8.8 | | $(19.1) | | $(18.0) |
|
(Decrease) increase in minimum liability included
in other comprehensive income | | $ (17.2) | | $ 21.4 | | $ — | | $ — |
|
| |
The accumulated benefit obligation for all Pension Plans was $123.3 and U.S.
government obligations.
[GRAPHIC]32 [LOGO]
$125.5 at May 31, 2004 and 2003, respectively. Information with respect to the pension plansPension Plans with accumulated benefit obligationobligations in excess of plan assets wereis as follows for the fiscal years ended May 31:
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION $ 97.5 $ 34.5
ACCUMULATED BENEFIT OBLIGATION 90.2 31.5
FAIR VALUE OF PLAN ASSETS 84.5 26.6
WEIGHTED AVERAGE RETURN OF PLAN ASSETS 9.5% 9.1%
- -------------------------------------------------------------------------------
|
| | | | | 2004 | | 2003 | |
|
| Projected benefit obligations | | | | $ 124.0 | | $ 124.9 | |
| Accumulated benefit obligations | | | | 117.0 | | 118.9 | |
| Fair value of plan assets | | | | 106.6 | | 81.7 | |
|
54
The following table sets forth the components of the net periodic benefit costs under the U.S. Pension Plan, U.K. Pension Plan, Grolier Canada Pension PlanPlans and the U.S. Post-Retirement Benefits for the three fiscal years ended May 31:
- ---------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
PENSION BENEFITS POST-RETIREMENT BENEFITS
- ---------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
SERVICE COST $ 5.1 $ 4.6 $ 2.5 $ 0.3 $ 0.7 $ 0.5
INTEREST COST 7.3 2.1 1.9 1.4 0.8 0.8
EXPECTED RETURN ON ASSETS (9.7) (1.5) (0.9) - - -
NET AMORTIZATION AND DEFERRALS 0.1 0.1 0.3 - (0.1) (0.1)
RECOGNIZED NET ACTUARIAL (GAIN)/LOSS (0.2) (1.0) (1.4) - - -
- ---------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 2.6 $ 4.3 $ 2.4 $ 1.7 $ 1.4 $ 1.2
=====================================================================================================================
| | | | | | | | | | | | | |
|
| | | Pension Benefits | | Post-Retirement Benefits |
|
| | | 2004 | | 2003 | | 2002 | | 2004 | | 2003 | | 2002 |
|
| Components of Net Periodic Benefit Cost: |
| Service cost | | $ 7.0 | | $ 5.9 | | $ 4.7 | | $ 0.4 | | $ 0.5 | | $ 0.4 |
| Interest cost | | 7.7 | | 7.7 | | 7.4 | | 2.0 | | 1.8 | | 1.3 |
| Expected return on assets | | (8.0) | | (8.6) | | (8.8) | | — | | — | | — |
| Net amortization and deferrals | | 0.3 | | 0.1 | | (0.2) | | (0.8) | | (0.6) | | — |
| Curtailment loss | | — | | — | | 0.2 | | — | | — | | — |
| Decrease in valuation allowance | | (1.2) | | — | | — | | — | | — | | — |
| Recognized net actuarial loss | | 2.5 | | 1.2 | | 0.5 | | 2.0 | | 1.0 | | — |
|
| Net periodic benefit cost | | $ 8.3 | | $ 6.3 | | $ 3.8 | | $ 3.6 | | $ 2.7 | | $ 1.7 |
|
| |
Plan Assets
The Company’s investment policy is to actively manage, within acceptable risk parameters, certain asset classes where the potential exists to outperform the broader market.
The total weighted average asset allocations for the Pension Plans at May 31 by asset category are as follows:
|
| | | | | 2004 | | 2003 |
|
| Small cap equities | | | | 17.0% | | 17.4% |
| International equities | | | | 9.2 | | 10.0 |
| Index fund equities | | | | 44.5 | | 42.7 |
| Bonds and fixed interest products | | | | 27.0 | | 28.4 |
| Real estate | | | | 0.1 | | — |
| Other | | | | 2.2 | | 1.5 |
|
| Total | | | | 100.0% | | 100.0% |
|
The Company’s investments include weighted average target asset allocations as follows:
|
| | | | | | | Grolier |
| | | | | U.K. | | Canada |
| | | Pension | | Pension | | Pension |
| | | Plan | | Plan | | Plan |
|
| Equity | | 70.0% | | 68.0% | | 35.0% |
| Debt and cash equivalents | | 30.0 | | 25.0 | | 65.0 |
| Real estate | | — | | 7.0 | | — |
|
| Total | | 100.0% | | 100.0% | | 100.0% |
|
Contributions
Scholastic Ltd. expects to contribute $0.8 to the U.K. Pension Plan and Scholastic expects to contribute $2.5 to its Post-Retirement Benefits in 2005.
55
Estimated Future Benefit Payments
The following table sets forth the expected future benefit payments under the Pension Plans and the Post-Retirement Benefits by fiscal year:
| | | | | | | |
|
| | | | | Post-Retirement |
| | | | |
|
| | | | | | | Medicare |
| | | Pension | | Benefit | | Subsidy |
| | | Benefits | | Payments | | Receipts |
|
| 2005 | | $ 7.8 | | $ 2.5 | | $ — |
| 2006 | | 7.6 | | 2.6 | | 0.1 |
| 2007 | | 8.6 | | 2.7 | | 0.3 |
| 2008 | | 8.5 | | 2.8 | | 0.3 |
| 2009 | | 8.9 | | 2.9 | | 0.3 |
| 2010-2014 | | 42.1 | | 14.8 | | 1.7 |
|
The 2003 Medicare Act introduced a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy of 28% to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit under Medicare Part D. In May 2004, the FASB issued FSP 106-2 to provide disclosure requirements and guidance in accounting for the impact of the federal subsidy provided by the 2003 Medicare Act. Based on this guidance, the Company has determined that the Post-Retirement Benefits provided to the portion of its post-65 retiree population that have retained a 100% Company-sponsored prescription drug coverage, are the actuarial equivalent of the benefits under Medicare. As a result, in fiscal 2004, the Company recognized a reduction of its accumulated Post-Retirementpost-retirement benefit obligation of $3.9 due to the federal subsidy under the 2003 Medicare Act. Pending any changes to the 2003 Medicare Act of the law, the effect of the subsidy on the measurement of net periodic Post-Retirement Benefits for the current period was determined using a discount ratereduction of 7.75%. Service cost and interest components were determined
using a discount rate of 7.0%. The$0.3.
Assumed health care cost trend rate assumed was 6.2%
with an annual decline of 1% until the rate reaches 5.0% in the year 2002. A
decrease of 1% in therates at May 31:
|
| | | | | 2004 | | 2003 |
|
| Health care cost trend rate assumed for the next fiscal year | | | | 11.0% | | 10.0% |
| Rate to which the cost trend is assumed to decline (the ultimate trend rate) | | | | 5.0% | | 5.0% |
| Year that the rate reaches the ultimate trend rate | | | | 2013 | | 2013 |
|
Assumed health care cost trend rate would resultrates have a significant effect on the amounts reported for the Company’s health care plans. A one percentage point change in decreases of
approximately $1.6 in the accumulated benefit obligation and $0.2 in the annual
net periodic post-retirement benefit cost. An increase of 1% in theassumed health care cost trend raterates would result in increases of approximately $1.1 inhave the accumulated benefit obligation and $0.1 in the annual net periodic
post-retirement benefit cost.
following effects:
|
| | | | | Increase | | (Decrease) | |
|
| Total service and interest cost | | | | $ 0.2 | | $ (0.1) | |
| Post-retirement benefit obligation | | | | 2.3 | | (1.5) | |
|
The Company also provides defined contribution plans for its U.S.-based employees other benefit plans
includingcertain eligible employees. In the United States, the Company sponsors a 401(k) Plan. Forretirement plan and has contributed $5.9, $5.8 and $4.7 for fiscal year 20012004, 2003 and 2000, the Company's
contributions for all plans were $5.2 and $3.8,2002, respectively. For its foreign
subsidiaries,internationally-based employees, the Company provides other defined contribution plans.
9.expenses under these plans totaled $2.3, $1.9 and $1.4 for fiscal 2004, 2003 and 2002, respectively.
56
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three years endingended May 31:
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME FOR BASIC EARNINGS PER SHARE $ 36.3 $ 51.4 $ 36.8
DILUTIVE EFFECT OF DEBENTURES - 3.5 -
ADJUSTED NET INCOME FOR DILUTED EARNINGS PER SHARE $ 36.3 $ 54.9 $ 36.8
WEIGHTED AVERAGE CLASS A AND COMMON SHARES OUTSTANDING
FOR BASIC EARNINGS PER SHARE 34.7 33.4 32.8
DILUTIVE EFFECT OF SHARES ISSUED PURSUANT TO EMPLOYEE STOCK PLANS 1.4 0.8 0.6
DILUTIVE EFFECT OF DEBENTURES - 2.9 -
DILUTIVE EFFECT OF WARRANTS - 0.0 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTED WEIGHTED AVERAGE CLASS A AND COMMON
SHARES FOR DILUTED EARNINGS PER SHARE OUTSTANDING 36.1 37.1 33.4
===================================================================================================================================
EARNINGS PER CLASS A AND COMMON SHARE:
BASIC $ 1.05 $ 1.54 $ 1.13
DILUTED $ 1.01 $ 1.48 $ 1.10
- -----------------------------------------------------------------------------------------------------------------------------------
For fiscal years 2001 and 1999,| (Amounts in millions, except per share data) |
|
| | | 2004 | | 2003 | | 2002 | |
|
| Net income for basic earningsper share | | $ 58.4 | | $ 58.6 | | $ 93.5 | |
| Dilutive effect of Debentures | | — | | — | | 2.1 | |
|
| Adjusted net income for dilutedearnings per share | | $ 58.4 | | $ 58.6 | | $ 95.6 | |
|
| Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share | | 39.4 | | 39.1 | | 36.7 | |
| Dilutive effect of Common Stock issued pursuant to stock-based benefit plans | | 0.7 | | 1.0 | | 1.6 | |
| Dilutive effect of Debentures | | — | | — | | 1.8 | |
|
| Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share | | 40.1 | | 40.1 | | 40.1 | |
|
| Earnings per share of Class A Stock and Common Stock: |
| Earnings before Cumulative effect of accounting change: |
| Basic | | $ 1.48 | | $ 1.50 | | $ 2.69 | |
| Diluted | | $ 1.46 | | $ 1.46 | | $ 2.51 | |
| Cumulative effect of accounting change (net of income taxes): |
| Basic | | $ — | | $ — | | $ (0.14) | |
| Diluted | | $ — | | $ — | | $ (0.13) | |
| Net income: |
| Basic | | $ 1.48 | | $ 1.50 | | $ 2.55 | |
| Diluted | | $ 1.46 | | $ 1.46 | | $ 2.38 | |
|
On January 11, 2002, pursuant to the effectexercise of the 5.0%Scholastic Corporation’s optional redemption rights, $109.8 of Scholastic Corporation’s 5% Convertible Subordinated Debentures were converted at the option of the holders into 2.9 million shares onof Common Stock and $0.2 were redeemed for cash.
12. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
On June 1, 2001, the adjusted weighted average Class ACompany adopted Statement of Position No. 00-2 (“SOP 00-2”), “Accounting by Producers and Common Shares outstandingDistributors of Films.” SOP 00-2 provides that film costs should be accounted for diluted earnings per share is anti-dilutiveunder an inventory model and is
notdiscusses various topics such as revenue recognition and accounting for exploitation costs and impairment assessment. In addition, SOP 00-2 establishes criteria for which revenues should be included in the calculation.
[LOGO] [GRAPHIC]33
10. COST OF GOODS SOLD -Company’s ultimate revenue projections. As a result of the adoption of SOP 00-2, the Company recorded a net of tax charge of $5.2 in the first quarter of fiscal 2002 to reduce the carrying value of its film production costs. This charge is reflected in the Company’s consolidated statements of operations as a Cumulative effect of accounting change and is attributed entirely to the Media, Licensing and Advertising segment.
13. SPECIAL LITERACY PLACE AND OTHERSEVERANCE CHARGES
On April 16, 2001,May 28, 2003, the Company announced a reduction in its decision not to update SCHOLASTIC
LITERACY PLACE(R), its grade K to 6 basal reading textbook program, for any
future state adoptions. This decision has resulted in a pre-tax charge of $72.9.global work force. The impact on earnings per diluted share of this charge is $1.20 per share. The
charge consistedmajority of the following related to Literacy Placeaffected employees were notified in the fiscal year ended May 31, 2003, and other exited
programs: previously capitalized prepublication costs of $51.6, inventory
write-offs of $19.8, andaccordingly the Company established liabilities for severance and other related costs of $1.5, of which
$1.1 remained on$10.9 for that fiscal year. In the Balance Sheet atfiscal year ended May 31, 2001.
11. NON-RECURRING CHARGES
Fiscal 2000 included pre-tax charges2004, the Company established liabilities of approximately $8.5 primarily$3.3 for severance and other related costs with respect to the establishmentaffected employees notified in that fiscal year. These charges are reflected in the Company’s income statement as the Special severance charges for the years ended May 31, 2003 and May 31, 2004.
A summary of a litigation reservethe activity in the established liabilities is detailed in the following an adverse decision in a
lawsuit, which was received on December 10, 1999. table:
|
| | | | | | Amount |
|
| Fiscal 2003 liabilities | | | | | | $ 10.9 |
| Fiscal 2003 payments | | | | | | (1.2) |
|
| Balance at May 31, 2003 | | | | | | 9.7 |
|
| Fiscal 2004 additional liabilities | | | | | | 3.3 |
| Fiscal 2004 payments | | | | | | (10.9) |
|
| Balance at May 31, 2004 | | | | | | $ 2.1 |
|
|
57
The case, Scholastic Inc. and
Scholastic Productions, Inc. v. Robert Harris and Harris Entertainment, Inc.,
involved stock appreciation rights allegedly grantedremaining liability of $2.1 is expected to Mr. Harris in 1990 in
connectionbe paid over the next two fiscal years under salary continuance arrangements with a joint venture formed primarily to produce motion pictures.
Although the Company disagreed with the judge's decision and appealed the
ruling,certain affected employees.
14. LITIGATION AND OTHER CHARGES
In fiscal 2003, the Company recorded a pre-tax charge of $1.9 for the settlement of a class action securities lawsuit initiated in 1997, which represented the portion of the total settlement amount of $7.5 that was not paid by the insurance carrier.
In fiscal 20002003, the Company recorded a pre-tax charge of $6.7 to fully reserve
with respect$1.2, related to the case. On July 26, 2001,settlement of a lawsuit filed in 1995, which represents the Courtamount by which the settlement and related legal expenses exceeded a previously recorded liability.
15. OTHER INCOME (EXPENSE)
In the fourth quarter of Appealsfiscal 2004, the Company received a payment of $10.0 in connection with the early termination of a sublease by one of its tenants. This transaction resulted in a pre-tax net gain of $8.0. The impact of this gain on earnings per diluted share was $0.13.
In fiscal 2003, the Company sold a portion of its interest in a French publishing company for $5.2, resulting in a pre-tax gain of $2.9. The impact of this gain on earnings per diluted share was $0.05.
In fiscal 2002, the Second
Circuit reversedCompany wrote off an equity investment of $2.0. The impact of this charge on earnings per diluted share was $0.03.
16. CONTINUITY CHARGES
In fiscal 2004, the lower court decisionCompany recorded charges of $25.4 related to its continuity business. These continuity charges represent write-downs of deferred promotion costs of $12.7 and remanded the case for further
proceedings.inventory from discontinued programs of $6.8, and an increase in bad debts of $2.0, as well as modest increases in returns provisions and related severance costs. These charges are primarily reflected as Cost of Goods Sold; Selling, general and administrative expenses; and Bad debt expense. The Company believes it is correctimpact of this charge on the merits of the case and
intends to vigorously defend its position. The $8.5 of charges also included an
unrelated expense of $1.8 for the liquidation of certain stock options.
12.earnings per diluted share was $0.41.
17. OTHER FINANCIAL DATA
Deferred promotion costs were $44.0$40.6 and $4.8$52.8 at May 31, 20012004 and 2000,2003, respectively. Promotion costs expensed were $94.7, $9.0$119.2, $109.1 and $8.1$94.5 for the fiscal years ended May 31, 2001, 20002004, 2003 and 1999,2002, respectively. ThesePromotional expense consists of $111.1, $99.9 and $88.0 for continuity program promotions and $8.1, $9.2 and $6.5 for magazine advertising for fiscal 2004, 2003 and 2002, respectively.
Other advertising expenses were comprised
of $86.6 of direct-to-home promotions for fiscal 2001$160.1, $161.4 and $8.1, $9.0 and $8.1 of
magazine advertising$164.2 for the fiscal years ended May 31, 2001, 20002004, 2003 and 1999,2002, respectively.
Property, plant
Accumulated amortization of prepublication costs was $77.8 and equipment includes capitalized interest costs of $3.3, $1.4$76.3 at May 31, 2004 and $0.62003, respectively. The Company amortized $57.8, $47.5 and $42.6 for the fiscal years ended May 31, 2001, 20002004, 2003 and 1999, respectively,
and construction in progress of $63.6 and $30.1 at May 31, 2001 and 2000,
respectively, related to the expansion of the Company's headquarters.
Goodwill is net of accumulated amortization of $27.6 and $17.3 at May 31, 2001
and 2000,2002, respectively. The Company amortized $10.3, $3.8 and $3.8 for the
fiscal years ended May 31, 2001, 2000 and 1999, respectively.
Other Intangibles are net of accumulated amortization of $7.4 and $3.5 at May
31, 2001 and 2000, respectively. The Company amortized $3.9, $0.6, and $1.7 for
the fiscal years ended May 31, 2001, 2000 and 1999, respectively.
Prepublication costs are net of accumulated amortization of approximately $46.7
and $95.2 at May 31, 2001 and 2000, respectively. The Company amortized $54.8,
$41.1 and $37.8 for the fiscal years ended May 31, 2001, 2000 and 1999,
respectively.
Other accrued expenses include a reserve for unredeemed credits issued in conjunction with the Company'sCompany’s school-based book club and book fair operations of $14.2$12.5 and $11.6$12.4 at May 31, 20012004 and 2000,2003, respectively.
[GRAPHIC]34 [LOG0]
58
REPORT OF INDEPENDENT AUDITORS
Report of Independent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND STOCKHOLDERS
SCHOLASTIC CORPORATION
We have audited the accompanying consolidated balance sheets of Scholastic Corporation (the "Company"“Company”) as of May 31, 20012004 and 2000,2003, and the related consolidated statements of income, changes in stockholders'stockholders’ equity and comprehensive income and cash flows for each of the three years in the period ended May 31, 2001.2004. Our audits also included the financial statement schedule listed in the Index at Item 14(a)15(a). These financial statements and schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted ourthe audits in accordance with auditingthe standards generally accepted
inof the United States.Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at May 31, 20012004 and 20002003 and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 20012004 in conformity with accounting principlesU.S. generally accepted in the United
States.accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP
----------------------
As discussed in Note 12 to the consolidated financial statements, effective June 1, 2001 the Company changed its accounting for production costs and recorded a cumulative effect of accounting change of $5.2 million.
New York, New York
July 18, 2001
[LOGO] [GRAPHIC]35
20, 2004
59
SUPPLEMENTARY FINANCIAL INFORMATION
Supplementary Financial Information
Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data)
Years ended May 31, |
|
| | | First | | Second | | Third | | Fourth | | |
| | | Quarter | | Quarter | | Quarter | | Quarter | (1) | Year |
|
| 2004 |
|
| Revenues | | $ 475.4 | | $ 699.0 | | $ 472.0 | | $ 587.4 | | $ 2,233.8 |
| Cost of goods sold | | 281.4 | | 305.5 | | 229.7 | | 263.4 | | 1,080.0 |
| Cost of goods sold – Continuity charges | | — | | — | | — | | 6.8 | | 6.8 |
| Net income (loss) | | (24.8) | | 66.7 | | (6.0) | | 22.5 | | 58.4 |
| Earnings (loss) per share: |
| Basic | | $ (0.63) | | $ 1.70 | | $ (0.15) | | $ 0.57 | | $ 1.48 |
| Diluted | | $ (0.63) | | $ 1.67 | | $ (0.15) | | $ 0.56 | | $ 1.46 |
|
| 2003 |
|
| Revenues | | $ 306.9 | | $ 660.3 | | $ 433.7 | | $ 557.4 | | $ 1,958.3 |
| Cost of goods sold | | 160.2 | | 281.8 | | 198.3 | | 241.8 | | 882.1 |
| Net income (loss) | | (44.6) | | 75.0 | | (0.5) | | 28.7 | | 58.6 |
| Earnings (loss) per share: |
| Basic | | $ (1.14) | | $ 1.92 | | $ (0.01) | | $ 0.73 | | $ 1.50 |
| Diluted | | $ (1.14) | | $ 1.85 | | $ (0.01) | | $ 0.72 | | $ 1.46 |
|
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA)
YEARS ENDED MAY 31,
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER(2) YEAR (1) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
2001
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES $ 362.1 $ 668.3 $ 433.0 $ 498.9 $ 1,962.3
COST OF GOODS SOLD 184.9 284.9 199.7 195.7 865.2
COST OF GOODS SOLD-SPECIAL LITERACY PLACE
AND OTHER CHARGES - - - 72.9 72.9
NET (LOSS)/INCOME (10.6) 56.3 3.7 (13.1) 36.3
(LOSS)/EARNINGS PER SHARE:
BASIC $ (0.31) $ 1.63 $ 0.11 $ (0.39) $ 1.05
DILUTED $ (0.31) $ 1.48 $ 0.10 $ (0.39) $ 1.01
- -----------------------------------------------------------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES $ 182.5 $ 511.3 $ 315.0 $ 393.7 $ 1,402.5
COST OF GOODS SOLD 110.8 240.3 157.8 169.4 678.3
NET (LOSS)/INCOME (23.6) 41.3 2.0 31.7 51.4
(LOSS)/EARNINGS PER SHARE:
BASIC $ (0.72) $ 1.25 $ 0.06 $ 0.93 $ 1.54
DILUTED $ (0.72) $ 1.15 $ 0.06 $ 0.86 $ 1.48
| | The fourth quarter of fiscal 2004 includes pre-tax charges of $25.4, or $0.41 per diluted share, in connection with the Company’s review of its continuity business, and a pre-tax net gain of $8.0, or $0.13 per diluted share, in connection with the early termination of a sublease by one of its tenants. The fourth quarter of fiscal 2003 includes a pre-tax Special severance charge of $10.9, or $0.18 per diluted share, relating to a reduction in work force. | |
(1) Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9a | Controls and Procedures
The secondChief Executive Officer and Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of the end of the period covered by this report, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended May 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
60
Part III
Item 10 | Directors and Executive Officers of fiscal 2000 includes non-recurring charges related to
the establishment of a litigation reserve of $6.7 and the liquidation of
certain stock options of $1.8. The impact on earnings per diluted share of
these charges is $0.15 per share.
(2) The fourth quarter of fiscal 2001 includes a special pre-tax charge of
$72.9 included under cost of goods sold primarily related to the decision
not to update SCHOLASTIC LITERACY PLACE. The impact on earnings per diluted
share ofRegistrant
Information required by this charge is $1.20 per share.
ITEM 9 o CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
[GRAPHIC]36 [LOGO]
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directorsitem is incorporated herein by reference from the Company'sCorporation’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act. Certain information regarding the Corporation’s Executive Officers is set forth in Part I – Item 1 – Business.
Item 11 | Executive Compensation
Incorporated herein by reference from the Corporation’s definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange ActAct.
Item 12 | Security Ownership of 1934.
- -----------------------------------------------------------------------------------------------------------------------------------
EMPLOYED BY
NAME AGE REGISTRANT SINCE POSITIONS(S) FOR PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
Richard Robinson 64 1962 Chairman of the Board (since 1982), President (since 1974) and
Chief Executive Officer (since 1975).
Kevin J. McEnery 53 1993 Executive Vice President and Chief Financial Officer (since 1995).
Deborah A. Forte 47 1984 Executive Vice President (since 1996), Senior Vice President (1995)
and Division Head, Scholastic Entertainment Inc. (since 1995).
Donna M. Iucolano 37 2000 Executive Vice President, Scholastic Internet Group (since 2000);
and prior to joining the Company, positions including Senior Vice
President (2000) and Vice President (1998 - 2000) at
1-800-FLOWERS.COM (1994 - 2000).
Barbara A. Marcus 50 1983 Executive Vice President (since 1991), President, Children's Book
Publishing Group and Distribution (since 1999) and Executive Vice
President, Children's Book Publishing and Distribution (1991-1999).
Margery W. Mayer 49 1990 Executive Vice President (since 1990), Learning Ventures (since
1998) and Instructional Publishing and Scholastic School Group
(1990 - 1997).
Julie A. McGee 58 2000 Executive Vice President, Educational Publishing (since 2000), and
prior to joining the Company, positions including President (1991 to
2000) and Editor-in-Chief at McDougal Littell Inc. (1988 - 2000).
Hugh Roome 49 1991 Executive Vice President (since 1996), International (since
2000) and Senior Vice President Magazine Group (1993 - 1996).
Richard M. Spaulding 64 1960 Director (since 1974) and Executive Vice President (since 1974).
Judith A. Corman 63 1999 Senior Vice President, Corporate Communications and Media
Relations (since 1999); and prior to joining the Company, Senior Vice
President at Lerer & Montgomery (1994 - 1999) .
Charles B. Deull 41 1995 Senior Vice President (since 1995), General Counsel (since 1999),
Senior Vice President, Legal and Business Affairs (1995 - 1999) and
Corporate Secretary (since 1996).
Ernest B. Fleishman 64 1989 Senior Vice President, Education and Corporate Relations
(since 1989).
Jean Feiwel 48 1983 Senior Vice President, Children's Book Publishing and Distribution
(since 1993) and Publisher (since 1997).
Beth Ford 37 2000 Senior Vice President, Global Operations (since 2000); and prior to
joining the Company, Director, Supply Chain at Pepsi Bottling
Group/Pepsico (1997 - 2000) and Director, Operations at Preseco
Company (1996 - 1997) .
[LOGO] [GRAPHIC]37
- -----------------------------------------------------------------------------------------------------------------------------------
EMPLOYED BY
NAME AGE REGISTRANT SINCE POSITIONS(S) FOR PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
Maurice Greenfield 58 1999 Senior Vice President and Chief Information Officer (since 1999);
and prior to joining the Company, Vice President, MIS at National
Broadcasting Company (1985-1999).
Larry V. Holland 42 1994 Senior Vice President, Corporate Human Resources and Employee
Services (since 1997) and Vice President, Human Resources
(1994-1997).
Linda S. Koons 46 1990 Senior Vice President, Education Group (since 1998) and Publisher
(since 1995), Group Head, Education Group (1999 -2000) and
Vice President (1995-1998).
Judith A. Newman 43 1993 Senior Vice President, Book Clubs (since 1997) and Vice President,
Marketing (1993-1997).
David J. Walsh 65 1983 Senior Vice President, International Operations (since 1983).
Helen V. Benham 51 1974 Director (since 1992) and Corporate Vice President, Early Childhood
Advisor (since 1996).
Claudia H. Cohl 61 1975 Vice President (since 1978), Internal Communications (since 1999)
and Editorial Planning and Development, Scholastic Education Group
(1993-1999).
Raymond Marchuk 50 1983 Vice President, Finance & Investor Relations (since 1983).
Karen A. Maloney 44 1997 Vice President and Corporate Controller (since 1998), Director of
Accounting and Financial Operations (1997-1998); and prior to
joining the Company, Vice President and Controller at
Calvin Klein, Inc. (1996-1997).
Vincent M. Marzano 38 1987 Vice President (since 2000) and Treasurer (since 1993).
David Krishock 46 2001 President, Scholastic Book Fairs (since 2001); and prior to joining
the Company, President and Chief Executive Officer at
Suntory Water Group Ltd. (1998-2001); Vice Chairman, Global
Business Development at Saatchi & Saatchi plc. (1997); Managing
Director at Lion Nathan Ltd. (1994-1998).
[GRAPHIC]38 [LOGO]
ITEM 11 o EXECUTIVE COMPENSATION
Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference from the Company'sCorporation’s definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
ITEM 12 o SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Act.
Item 13 | Certain Relationships and Related Transactions
Incorporated herein by reference from the Company'sCorporation’s definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
ITEM 13 o CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Act.
Item 14 | Principal Accountant Fees and Services
Incorporated herein by reference from the Company'sCorporation’s definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
PARTAct.
Part IV
ITEM 14 O EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
The following consolidated financial statements are included in
Item 8:
Consolidated Statements of Income for the three years ended May 31,
2001, 200015 | Exhibits, Financial Statement Schedules and 1999
Consolidated Balance Sheets at May 31, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income for the three years ended May 31, 2001, 2000,
and 1999
Consolidated Statements of Cash Flows for the three years ended May
31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULE:
The following consolidated financial statement schedule is included
in Item 14(d):
Schedule II- Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the Consolidated Financial Statements or the Notes
thereto.
(a)(3) EXHIBITS:
2.1 Stock Purchase Agreement, dated April 13, 2000, among Scholastic
Inc., a New York corporation, Hachette Book Group USA, Inc., a
Delaware corporation, and Lagardere North America, Inc., a
Delaware corporation and parent of Hachette, together with
Amendment No. 1 to Stock Purchase Agreement, dated June 22, 2000
(incorporated by reference to the Company's Current ReportReports on Form 8-K as filed with the Commission on July 7, 2000).
3.1 Amended and Restated Certificate of Incorporation of the Company
(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); together with Certificate of Amendment,
effective as of September 19, 2000, to the Company's Amended and
Restated Certificate of Incorporation (incorporated by reference to
the Company's Quarterly Report filed with the Commission on October
16, 2000).
3.2 Bylaws of the Company, amended and restated as of March 16, 2000
(incorporated by reference to the Company's Quarterly Report on Form
10-Q as filed with the Commission on April 14, 2000).
4.1 Amended and Restated Credit Agreement, dated as of August 11, 1999,
among the Company and Scholastic Inc., as borrowers, the Initial
Lenders named therein, Citibank, N.A., as administrative agent,
Salomon Smith Barney Inc., as arranger, and Chase Manhattan Bank,
N.A., and Fleet Bank, N.A., as syndication agents (incorporated by
reference to the Company's Annual Report on Form 10-K as filed with
the Commission on August 23, 2000), together with Amendment No. 1,
dated as of June 22, 2000 (incorporated by reference to the
Company's Annual Report on Form 10-K as filed with the Commission on
August 25, 2000).
4.2 Credit Agreement, dated as of June 22, 2000, among the Company, as
guarantor, Scholastic Inc., as borrower, the initial Lenders named
therein, Citibank, N.A., as agent for the lenders, and Salomon Smith
Barney Inc. and Credit Suisse First Boston, as joint lead arrangers,
and the other agents named therein (incorporated by reference to the
Company's Annual Report on Form 10-K as filed with the Commission on
August 25, 2000).
[LOGO] [GRAPHIC]39
| (a)(1) | | Financial Statements: | |
| | The following consolidated financial statements are included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data”: | |
| | Consolidated Statements of Income for the years ended May 31, 2004, 2003 and 2002 | |
| | Consolidated Balance Sheets at May 31, 2004 and 2003 | |
| | Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended May 31, 2004, 2003 and 2002 | |
| | Consolidated Statements of Cash Flows for the years ended May 31, 2004, 2003 and 2002 | |
| | Notes to Consolidated Financial Statements | |
| (a)(2) | | Financial Statement Schedule: | |
| | The following consolidated financial statement schedule is included in Item 15(d): Schedule II – Valuation and Qualifying Accounts and Reserves | |
| | All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto. | |
| (a)(3) | | Exhibits: | |
| 3.1 | | Amended and Restated Certificate of Incorporation of the Corporation, as amended to date. | |
61
PART IV
4.3* Amended and Restated Revolving Loan Agreement, dated November 10, 1999,
among the Company, Scholastic Inc. and Sun Bank, National Association,
together with Amendment No. 1, dated June 22, 2000.
4.4* Credit Agreement Facility, dated July 16, 2001, as amended on October
30, 1995, between Scholastic Canada Ltd. and Canadian Imperial Bank of
Commerce.
4.5* Credit Agreement Facility, dated June 24, 1993, between Scholastic Ltd.
and Citibank, N.A.
4.6* Credit Agreement, dated May 14, 1992, as amended on June 30, 1995,
between Scholastic Ltd. (formerly known as Scholastic Publications Ltd.)
and Midland Bank.
4.7* Credit Agreement, dated December 21, 2001, between Scholastic Australia
Pty. Ltd. and Westpac Banking Corporation.
4.8 Indenture dated August 15, 1995 for 5% Convertible Subordinated
Debentures due August 15, 2005 issued by the Company (incorporated by
reference to the Company's Annual Report on Form 10-K as filed with the
Commission on August 28, 1995).
4.9 Indenture dated December 15, 1996 for 7% Notes due December 15, 2003
issued by the Company (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).
10.1** Scholastic Corporation 1992 Stock Option Plan (incorporated by reference
to the Company's Annual Report on Form 10-K as filed with the Commission
on August 27, 1992).
10.2** Amendment No. 1 to the Scholastic Corporation 1992 Stock Option Plan,
effective as of July 18, 2001.
10.3** Scholastic Corporation 1995 Stock Option Plan, effective as of September
21, 1995 (incorporated by reference to the Company's Registration
Statement on Form S-8 (Registration No. 33-98186) as filed with the
Commission on October 16, 1995), together with Amendment No. 1 to the
Scholastic Corporation 1995 Stock Option Plan, effective September 16,
1998 (incorporated by reference to the Company's Quarterly Report on
Form 10-Q as filed with the Commission on October 15, 1998).
10.4** Amendment No. 2 to the Scholastic Corporation 1995 Stock Option Plan,
effective as of July 18, 2001.
10.5** Form of Stock Option Agreement for Scholastic Corporation 1995 Stock
Option Plan (incorporated by reference to the Company's Annual Report on
Form 10-K as filed with the Commission on August 26, 1998).
10.6** Scholastic Corporation 1992 Outside Directors' Stock Option Plan
(incorporated by reference to the Company's Annual Report on Form 10-K
as filed with the Commission on August 27, 1992).
10.7** Scholastic Corporation Employee Stock Purchase Plan, amended and
restated effective as of March 1, 2000 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q as filed with the Commission on
April 14, 2000).
10.8** Scholastic Corporation Management Stock Purchase Plan, amended and
restated effective as of December 15, 1999 (incorporated by reference to
the Company's Quarterly Report on Form 10-Q as filed with the Commission
on January 14, 2000).
10.9** Amendment No. 1 to the Scholastic Corporation Management Stock Purchase
Plan, effective July 18, 2001.
10.10** Scholastic Corporation 1997 Outside Director Stock Option Plan, amended
and restated as of May 25, 1999 (incorporated by reference to the
Company's Annual Report on Form 10-K as filed with the Commission on
August 23, 1999).
10.11** Form of Stock Option Agreement for Scholastic Corporation 1997 Outside
Director Plan (incorporated by reference to the Company's Annual Report
on Form 10-K as filed with the Commission on August 26, 1998).
10.12** Scholastic Corporation 1995 Director's Deferred Compensation Plan,
amended and restated as of May 25, 1999 (incorporated by reference to
the Company's Annual Report on Form 10-K as filed with the Commission on
August 23, 1999).
10.13** Scholastic Corporation Executive Performance Incentive Plan, effective
as of June 1, 1999 (incorporated by reference to the Company's Quarterly
Report on Form 10-Q as filed with the Commission on October 15, 1999).
[GRAPHIC]40 [LOGO]
| 3.2 | | Bylaws of the Corporation, amended and restated as of March 16, 2000 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on April 14, 2000). | |
| 4.1 | | Credit Agreement, dated as of March 31, 2004, among the Corporation and Scholastic Inc., as borrowers, the Initial Lenders named therein, Citibank, N.A., as administrative agent, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers, and JPMorgan Chase Bank, N.A. and Fleet Bank, N.A., as syndication agents (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on April 2, 2004). | |
| 4.2* | | Amended and Restated Revolving Loan Agreement, dated November 10, 1999, among the Corporation, Scholastic Inc. and Sun Bank, National Association, together with Amendment No. 1, dated June 22, 2000, and Amendment No. 2, dated as of April 30, 2004. | |
| 4.3 | | Indenture dated January 23, 2002 for 5.75% Notes due January 15, 2007 issued by the Corporation (incorporated by reference to the Corporation’s Registration Statement on Form S-3 (Registration No. 333-55238) as filed with the SEC on February 8, 2001). | |
| 4.4* | | Indenture dated April 4, 2003 for 5% Notes due 2013 issued by the Corporation. | |
| 10.1** | | Scholastic Corporation 1992 Stock Option Plan (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 27, 1992, SEC File No. 000-19860), together with Amendment No. 1 to the Scholastic Corporation 1992 Stock Option Plan, effective as of July 18, 2001 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 24, 2001). | |
| 10.2** | | Scholastic Corporation 1995 Stock Option Plan, effective as of September 21, 1995 (incorporated by reference to the Corporation’s Registration Statement on Form S-8 (Registration No. 33-98186) as filed with the SEC on October 16, 1995), together with Amendment No. 1 to the Scholastic Corporation 1995 Stock Option Plan, effective September 16, 1998 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 15, 1998, SEC File No. 000-19860), and Amendment No. 2 to the Scholastic Corporation 1995 Stock Option Plan, effective as of July 18, 2001 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 24, 2001). | |
| 10.3** | | Scholastic Corporation 1992 Outside Directors’ Stock Option Plan (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 27, 1992, SEC File No. 000-19860). | |
| 10.4** | | Scholastic Corporation Management Stock Purchase Plan, amended and restated effective as of December 18, 2002 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 14, 2003). | |
| 10.5** | | Scholastic Corporation 1997 Outside Directors’ Stock Option Plan, amended and restated as of May 25, 1999 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999), together with Amendment No. 1 dated September 20, 2001 to the Scholastic Corporation 1997 Outside Directors’ Stock Option Plan (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 14, 2002) and Amendment No. 2 to the Scholastic Corporation 1997 Outside Directors’ Stock Option Plan (incorporated by reference to Appendix B to the Corporation’s definitive Proxy Statement as filed with the SEC on August 19, 2003). | |
62
10.14** Employment Agreement between Jean L. Feiwel and Scholastic Inc., dated
as of May 25, 2000 (incorporated by reference to the Company's Annual
Report on Form 10-K as filed with the Commission on August 25, 2000).
10.15** Description of split dollar life insurance arrangements for the benefit
of Richard Robinson and Helen Benham (incorporated by reference to the
Company's Annual Report on Form 10-K as filed with the Commission on
August 25, 2000).
10.16 Amended and Restated Lease, effective as of August 1, 1999, between ISE
555 Broadway, LLC, landlord, and Scholastic Inc., tenant, for the
building known as 555 Broadway, NY, NY (incorporated by reference to the
Company's Annual Report on Form 10-K as filed with the Commission on
August 23, 1999).
10.17 Amended and Restated Sublease, effective as of October 9, 1996, between
Kalodop Corp., as sublandlord, and Scholastic Inc., as subtenant, for
the premises known as 557 Broadway, NY, NY (incorporated by reference to
the Company's Annual Report on Form 10-K as filed with the Commission on
August 23, 1999).
10.18 Agreements with Industrial Development Agency of the City of New York
including (i) Lease Agreement dated December 1, 1993; (ii) Indenture of
Trust Agreement dated December 1, 1993; (iii) Project Agreement dated
December 1, 1993; (iv) Sales Tax letter dated December 3, 1993 (each of
the foregoing are incorporated by reference to the Company's Annual
Report on Form 10-K as filed with the Commission on August 26, 1994).
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on April 17, 2001, noticing the
Company's announcement that it will not update SCHOLASTIC LITERACY
PLACE(R) (Items 7 and 9).
- --------------------------------------------------
* Such long-term debt does not individually amount to more than 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such
instrument is not filed herewith. The Company hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange Commission upon
request.
** The referenced exhibit is a management contract or compensation plan or
arrangement described in Item 601(b) (10) (iii) of Regulation S-K.
[LOGO] [GRAPHIC]41
| 10.6** | | Scholastic Corporation 1995 Director’s Deferred Compensation Plan, amended and restated as of May 25, 1999 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999). | |
| 10.7** | | Scholastic Corporation Executive Performance Incentive Plan, effective as of June 1, 1999 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 15, 1999). | |
| 10.8** | | Scholastic Corporation 2001 Stock Incentive Plan (incorporated by reference to Appendix A of the Corporation’s definitive Proxy Statement as filed with the SEC on August 24, 2001). | |
| 10.9 | | Amended and Restated Lease, effective as of August 1, 1999, between ISE 555 Broadway, LLC, landlord, and Scholastic Inc., tenant, for the building known as 555 Broadway, NY, NY (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999). | |
| 10.10 | | Amended and Restated Sublease, effective as of October 9, 1996, between Kalodop Corp., as sublandlord, and Scholastic Inc., as subtenant, for the premises known as 557 Broadway, NY, NY (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999). | |
| 21 | | Subsidiaries of the Corporation. | |
| 23 | | Consent of Ernst & Young LLP. | |
| 31.1 | | Certification of the Chief Executive Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | | Certification of the Chief Financial Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | | Certifications of the Chief Executive Officer and the Chief Financial Officer of the Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| (b) | | Reports on Form 8-K. | |
| | A Current Report on Form 8-K was filed with the SEC on April 3, 2004 reporting under Items 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and 12 (Results of Operations and Financial Condition) a press release regarding results of operations for the Corporation’s fiscal quarter ended February 29, 2004. | |
| | A Current Report on Form 8-K was filed with the SEC on July 15, 2004 reporting under Item 12 (Results of Operations and Financial Condition) a press release regarding charges recorded in the fourth quarter of the Corporation’s fiscal year ended May 31, 2004 related to its continuity business and estimates of results of operations for that year. | |
| | A Current Report on Form 8-K was filed with the SEC on July 21, 2004 reporting under Items 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and 12 (Results of Operations and Financial Condition) a press release regarding results of operations for the Corporation’s fiscal year ended May 31, 2004. | |
| | | |
| * | | Such long-term debt does not individually amount to more than 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such instrument is not filed herewith. The Corporation hereby agrees to furnish a copy of any such instrument to the SEC upon request. | |
| ** | | The referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K. | |
63
SIGNATURES
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 24, 2001 SCHOLASTIC CORPORATION
By: /s/ Richard Robinson
------------------------
| |
| |
| Dated: August 2, 2004 | SCHOLASTIC CORPORATION |
| By: /s/ Richard Robinson |
|
|
| Richard Robinson, Chairman of the Board,
President and Chief Executive Officer |
Power of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard Robinson his or her true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary and requisite to be done, as fully and to all the intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/
|
| Signature | | Title | | Date |
|
| /s/ Richard Robinson | | Chairman of the Board, President, | | August 24, 2001
- ------------------------------- 2, 2004 |
| ________________________________ | | Chief Executive Officer and | | |
| Richard Robinson | | Director (Principal Executive Officer)
/s/ Kevin J. McEnery | | |
| | | | |
| /s/ Mary A. Winston | | Executive Vice President and Chief | | August 24, 2001
- ------------------------------- 2, 2004 |
| ________________________________ | | Financial Officer (Principal Financial Officer)
Kevin J. McEnery
/s/ | | |
| Mary A. Winston | | | | |
| | | |
| /s/ Karen A. Maloney | | Vice President and Controller | | August 24, 2001
- ------------------------------- (Principal2, 2004 |
| ________________________________ | | (Principal Accounting Officer) | | |
Karen A. Maloney
/s/ | | | | |
| | | | |
| /s/ Rebeca M. Barrera | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Rebeca M. Barrera
/s/ Helen V. Benham Director August 24, 2001
- -------------------------------
Helen V. Benham
|
[GRAPHIC]42 [LOGO]
SIGNATURE TITLE DATE
/s/ | | | | | | | | |
| /s/ Ramon C. Cortines | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Ramon C. Cortines
/s/ | | | |
| | | | |
| /s/ John L. Davies | | Director | | August 24, 2001
- --------------------------------
2, 2004 |
| ________________________________ | | | |
John L. Davies
/s/ | | | | |
| | | | |
| /s/ Charles T. Harris III | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Charles T. Harris III
/s/ | | | | |
| | | | |
| /s/ Andrew S. Hedden | | Director | | August 24, 2001
- --------------------------------
2, 2004 |
| ________________________________ | | | |
Andrew S. Hedden
/s/ | | | | |
64
| Signature | | Title | | Date |
|
| /s/ Mae C. Jemison | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Mae C. Jemison
/s/ Linda B. Keene Director August 24, 2001
- -------------------------------
Linda B. Keene
/s/ | | | | |
| | | | |
| /s/ Peter M. Mayer | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Peter M. Mayer
/s/ | | | | |
| | | | |
| /s/ John G. McDonald | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | |
John G. McDonald
/s/ | | | | |
| | | | |
| /s/ Augustus K. Oliver | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
Augustus K. Oliver
/s/ | | | | |
| | | | |
| /s/ Richard M. Spaulding | | Director | | August 24, 2001
- -------------------------------
2, 2004 |
| ________________________________ | | | | |
| Richard M. Spaulding | | | | |
[LOGO] [GRAPHIC]43
65
SCHOLASTIC CORPORATION
FINANCIAL STATEMENT SCHEDULE
Annual Report on FormScholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
Year Ended May
YEAR ENDED MAY 31, 2001
Item 14(D)
[GRAPHIC]44 [LOGO]
2004
ITEM 15(d)
66
SCHEDULESchedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Valuation and Qualifying Accounts and Reserves
(Amounts in millions)
Years Ended May 31, |
|
| | | Balance at | | | | | | |
| | | Beginning | | | | Write-Offs | | Balance at |
| | | Of Year | | Expensed | | and Other | | End of Year |
|
| 2004 |
|
| Allowance for doubtful accounts | | $ 60.5 | | $ 90.3 | | $ 82.5 | | $ 68.3 |
| Reserve for returns | | 58.2 | | 193.5 | | 199.1 | (1) | 52.6 |
| Reserve for obsolescence | | 54.4 | | 29.9 | | 25.1 | | 59.2 |
| Reserve for royalty advances | | 45.8 | | 4.3 | | 0.3 | | 49.8 |
|
| 2003 |
|
| Allowance for doubtful accounts | | $ 62.6 | | $ 72.3 | | $ 74.4 | | $ 60.5 |
| Reserve for returns | | 61.3 | | 164.1 | | 167.2 | (1) | 58.2 |
| Reserve for obsolescence | | 55.1 | | 26.7 | | 27.4 | | 54.4 |
| Reserve for royalty advances | | 44.6 | | 5.0 | | 3.8 | | 45.8 |
|
| 2002 |
|
| Allowance for doubtful accounts | | $ 70.1 | | $ 68.7 | | $ 76.2 | | $ 62.6 |
| Reserve for returns | | 63.0 | | 156.8 | | 158.5 | (1) | 61.3 |
| Reserve for obsolescence | | 64.7 | | 22.1 | | 31.7 | | 55.1 |
| Reserve for royalty advances | | 43.0 | | 3.7 | | 2.1 | | 44.6 |
|
(AMOUNTS IN MILLIONS)
YEARS ENDED MAY 31,
BALANCE AT
BEGINNING CHARGED WRITE-OFFS BALANCE AT
OF YEAR TO INCOME AND OTHER END OF YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
2001
- -----------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ROYALTY ADVANCES $ 38.8 $ 4.4 $ 0.2 $ 43.0
RESERVE FOR OBSOLESCENCE 41.8 51.9 29.0 64.7
RESERVE FOR RETURNS 44.1 160.4 141.5(1) 63.0
ALLOWANCE FOR DOUBTFUL ACCOUNTS 14.7 75.5 20.1 70.1
- -----------------------------------------------------------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ROYALTY ADVANCES $ 31.9 $ 8.1 $ 1.2 $ 38.8
RESERVE FOR OBSOLESCENCE 37.1 23.9 19.2 41.8
RESERVE FOR RETURNS 25.8 82.5 64.2(1) 44.1
ALLOWANCE FOR DOUBTFUL ACCOUNTS 12.3 20.5 18.1 14.7
- -----------------------------------------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ROYALTY ADVANCES $ 29.7 $ 2.3 $ 0.1 $ 31.9
RESERVE FOR OBSOLESCENCE 30.7 19.8 13.4 37.1
RESERVE FOR RETURNS 21.3 48.3 43.8(1) 25.8
ALLOWANCE FOR DOUBTFUL ACCOUNTS 10.1 17.0 14.8 12.3
| (1) Represents actual returns charged to the reserve. | |
(1) Represents actual returns charged to the reserve.
[LOGO] [GRAPHIC]45
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
10.2 Amendment No. 1 to the Scholastic Corporation 1992
Stock Option Plan, effective as of July 18, 2001.
10.4 Amendment No. 2 to the Scholastic Corporation 1995
Stock Option Plan, effective as of July 18, 2001.
10.9 Amendment No. 1 to the Scholastic Corporation
Management Stock Purchase Plan, effective
July 18, 2001.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
[GRAPHIC]46 [LOGO]
67