<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2001 Commission File No. 0-19860
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3385513
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
557 BROADWAY, NEW YORK, NEW YORK 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 343-6100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Number of shares outstanding
of Each Class as of December 31, 2001
------------- -----------------------
Common Stock, $.01 par value 33,913,011
Class A Stock, $.01 par value 1,656,200
<Page>
SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2001
INDEX
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended November 30, 2001 and 2000 1
Condensed Consolidated Balance Sheets at November 30, 2001
and 2000, and May 31, 2001 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended November 30, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 31
- ------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
=========================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
=========================================================================================================================
2001 2000 2001 2000
=========================================================================================================================
REVENUES $ 637.2 $ 668.3 $ 943.3 $ 1,030.4
Operating costs and expenses:
Cost of goods sold 259.7 284.9 412.4 469.8
Selling, general and administrative expenses 235.7 250.0 403.5 413.4
Bad debt expense 21.1 20.5 40.6 32.4
Depreciation 8.3 7.1 15.9 13.3
Goodwill and other intangibles amortization 0.2 4.4 0.4 6.9
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 525.0 566.9 872.8 935.8
Operating income 112.2 101.4 70.5 94.6
Interest expense, net 8.2 13.5 16.3 23.2
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 104.0 87.9 54.2 71.4
Provision for income taxes 37.5 31.6 19.5 25.7
- -------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting
change 66.5 56.3 34.7 45.7
Cumulative effect of accounting change
(net of income taxes) - - (5.2) -
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 66.5 $ 56.3 $ 29.5 $ 45.7
=========================================================================================================================
Net income per Class A and Common Share:
Basic $ 1.88 $ 1.63 $ 0.84 $ 1.33
Diluted $ 1.69 $ 1.48 $ 0.79 $ 1.24
=========================================================================================================================
=========================================================================================================================
</Table>
SEE ACCOMPANYING NOTES
1
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SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
====================================================================================================================================
NOVEMBER 30, 2001 MAY 31, 2001 NOVEMBER 30, 2000
====================================================================================================================================
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11.4 $ 13.8 $ 12.7
Accounts receivable, net 314.6 220.7 374.6
Inventories, net 390.1 340.3 401.4
Deferred promotion costs 41.9 44.0 40.2
Deferred income taxes 93.3 89.3 60.7
Prepaid and other current assets 44.3 61.4 43.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 895.6 769.5 932.8
Property, plant and equipment, net 274.8 257.3 212.0
Prepublication costs 106.8 103.3 137.3
Production costs 9.7 13.8 16.7
Goodwill 226.4 221.9 216.1
Other intangibles 61.5 61.9 64.0
Other assets and deferred charges 81.0 74.1 86.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,655.8 $ 1,501.8 $ 1,664.9
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit and current portion of
long-term debt $ 382.4 $ 23.3 $ 26.2
Accounts payable 163.5 157.3 168.8
Accrued royalties 53.3 45.7 83.6
Deferred revenue 46.9 12.1 35.0
Other accrued expenses 137.7 136.5 165.9
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783.8 374.9 479.5
NONCURRENT LIABILITIES:
Long-term debt 291.2 585.3 649.6
Other noncurrent liabilities 46.6 47.9 43.5
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 337.8 633.2 693.1
COMMITMENTS AND CONTINGENCIES - - -
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value - - -
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.3 0.3 0.2
Additional paid-in capital 241.5 233.7 232.3
Deferred compensation (0.6) (0.2) (0.2)
Accumulated other comprehensive loss (15.6) (16.4) (15.1)
Retained earnings 308.6 279.1 288.5
Less shares of Common Stock held in treasury - (2.8) (13.4)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 534.2 493.7 492.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,655.8 $ 1,501.8 $ 1,664.9
====================================================================================================================================
====================================================================================================================================
</Table>
SEE ACCOMPANYING NOTES
2
<Page>
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(AMOUNTS IN MILLIONS)
<Table>
<Caption>
=======================================================================================================================
SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
=======================================================================================================================
2001 2000
=======================================================================================================================
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5.8 $ 44.2
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (32.6) (31.2)
Prepublication costs (25.2) (20.6)
Royalty advances (18.3) (13.2)
Production costs (6.7) (7.9)
Acquisition-related payments (4.1) (396.4)
Other 0.2 (10.0)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (86.7) (479.3)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Loan Agreement and Revolver 364.8 339.2
Borrowings under Grolier Facility - 350.0
Repayments of Loan Agreement and Revolver (308.8) (280.9)
Borrowings under lines of credit 73.3 45.6
Repayments of lines of credit (63.2) (34.7)
Proceeds pursuant to employee stock plans and related tax benefits 10.3 20.5
Other 2.1 (0.9)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 78.5 438.8
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2.4) 3.7
Cash and cash equivalents at beginning of period 13.8 9.0
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11.4 $ 12.7
=======================================================================================================================
=======================================================================================================================
</Table>
SEE ACCOMPANYING NOTES
3
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements consist of the
accounts of Scholastic Corporation and its wholly-owned subsidiaries (the
"Company"), which include the consolidated accounts of Grolier Incorporated
("Grolier") and its subsidiaries as of the date of acquisition on June 22, 2000
(See Note 2). These financial statements have not been audited, but reflect
those adjustments consisting of normal recurring items which management
considers necessary for a fair presentation of financial position, results of
operations and cash flow. These financial statements should be read in
conjunction with the consolidated financial statements and related notes in the
Report on Form 10-K for the fiscal year ended May 31, 2001, as well as the
Current Reports on Form 8-K dated July 7, 2000, as amended on September 5, 2000,
and February 8, 2001, filed in connection with the acquisition of Grolier.
The Company's business is closely correlated to the school year. Consequently,
the results of operations for the six months ended November 30, 2001 and 2000
are not necessarily indicative of the results expected for the full year. Due to
the seasonal fluctuations that occur, the November 30, 2000 condensed
consolidated balance sheet is included for comparative purposes.
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates and assumptions. Significant estimates that affect
the financial statements include, but are not limited to: collectability of
accounts receivable; book returns; amortization periods; and recovery of
inventory, advances to authors, prepublication costs, deferred promotion costs,
film production costs and other long-lived assets.
Certain prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENT
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting
model, based upon the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
for long-lived assets to be disposed of by sale and to address significant
implementation issues. The Company is required to adopt this statement by the
first quarter of fiscal 2003. The Company does not expect that the adoption of
SFAS No. 144 will have a material impact on its financial position, results of
operations or cash flows.
4
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
2. ACQUISITION OF GROLIER
On June 22, 2000, Scholastic Inc., a subsidiary of the Company, acquired all of
the issued and outstanding capital stock of Grolier, a Delaware corporation,
for $400.0 in cash. The acquisition was financed by the Company using bank
debt, of which $350.0 was borrowed under a new facility and $50.0 was borrowed
under the Company's existing credit facility. (See Note 4)
Through the purchase of Grolier, the Company acquired the leading operator in
the United States of direct-to-home continuity book clubs serving children
primarily age five and under and the leading print and on-line publisher 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. In accordance with SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," the
Company has analyzed economic characteristics, similarity of nature of products,
similarity of the nature of production, class of customer and method of
distribution of products of the acquired Grolier businesses. Accordingly, the
Grolier businesses have been included in the following business segments: the
domestic direct-to-home continuity and trade operations have been included in
the Children's Book Publishing and Distribution segment; the children's
reference and non-fiction operations have been included in the Educational
Publishing segment; software operations have been included in the Media,
Licensing and Advertising segment; and all international operations have been
included in the International segment.
The Grolier acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Grolier have been included
in the Company's condensed consolidated results of operations since the date of
acquisition. The assets and liabilities at the acquisition date were adjusted to
their fair values, based upon an independent valuation, with the excess purchase
price over the fair value assigned to goodwill. The valuation was finalized as
of the end of fiscal 2001. With regard to any possible future adjustments to
established liabilities, any excess amounts would result in an adjustment to the
related goodwill value. Costs in excess of the established liabilities will be
included in the determination of net income.
The following table sets forth the final allocation of the Grolier purchase
price, based on the independent valuation, and includes the related transaction
and financing costs:
<Table>
<Caption>
=================================================================
VALUE
=================================================================
Accounts receivable $ 95.3
Inventory 45.5
Other current assets 58.5
Property, plant and equipment, net 18.9
Goodwill and other intangibles 231.8
Other assets 44.2
Current liabilities (85.6)
Non-current liabilities (12.2)
-----------------------------------------------------------------
CASH PAID FOR ACQUISITION, NET OF CASH RECEIVED $ 396.4
=================================================================
</Table>
5
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table sets forth the allocation of Goodwill and Other Intangibles
resulting from the acquisition of Grolier:
<Table>
<Caption>
================================================================
VALUE
================================================================
Goodwill $ 170.2
----------------------------------------------------------------
Titles 29.8
Licenses 17.8
Major sets 11.8
Customer lists 2.2
----------------------------------------------------------------
Total other intangibles 61.6
----------------------------------------------------------------
TOTAL GOODWILL AND OTHER INTANGIBLES $ 231.8
================================================================
</Table>
In connection with the Grolier acquisition, the Company established a plan for
integrating Grolier's operations. Accordingly, the Company established
liabilities of approximately $17.7 relating primarily to severance, fringe
benefits and related salary continuance, as well as certain exit costs
associated with the integration and relocation of certain of Grolier's
operational and administrative functions. This amount, originally estimated at
$12.4, was increased at May 31, 2001 as the Company refined its estimate of
the costs of the integration plan. As of November 30, 2001, approximately
$11.8 of these liabilities remained unpaid, which are expected to be
substantially paid during the current fiscal year.
A summary of the fiscal 2002 activity in the established reserves is detailed in
the following table:
<Table>
<Caption>
===================================================================================================
SEVERANCE AND
RELATED COSTS OTHER EXIT COSTS TOTAL
===================================================================================================
Liability balance at May 31, 2001 $ 11.5 $ 3.2 $ 14.7
Fiscal year 2002 payments to date (2.7) (0.2) (2.9)
- ---------------------------------------------------------------------------------------------------
Liability at November 30, 2001 $ 8.8 $ 3.0 $ 11.8
===================================================================================================
</Table>
6
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table reflects the unaudited pro forma results of operations of
the Company, giving effect to the acquisition of Grolier as if it was
consummated as of the first day of the six-month period ended November 30, 2000,
including the effect of increased interest expense on debt related to the
acquisition. Additionally, the six-month period ended November 30, 2000 reflects
the adoption of SFAS No. 142 ("Goodwill and Other Intangible Assets"), which
resulted in a pro forma reduction of amortization expense. 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 period presented,
nor is it necessarily indicative of future results of operations of the combined
companies.
<Table>
<Caption>
SIX MONTHS ENDED NOVEMBER 30,
==============================================================================================
2001 2000
==============================================================================================
Revenues $ 943.3 $ 1,066.0
Net income before cumulative effect of accounting change $ 34.7 $ 51.7
Net income $ 29.5 $ 51.7
Net income per Class A and Common Share:
Basic before cumulative effect of
accounting change $ 0.98 $ 1.51
Diluted before cumulative effect of
accounting change $ 0.92 $ 1.39
Basic net income $ 0.84 $ 1.51
Diluted net income $ 0.79 $ 1.39
</Table>
7
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
3. SEGMENT INFORMATION
The Company is a global children's publishing and media company with operations
in the United States, the United Kingdom, Canada, Australia, New Zealand,
Mexico, Hong Kong, India, Ireland, Argentina and Southeast Asia, and distributes
its products and services through a variety of channels, including school-based
book clubs, school-based book fairs, direct-to-home and trade.
The Company's operations are categorized in the following four segments:
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION; EDUCATIONAL PUBLISHING; MEDIA,
LICENSING AND ADVERTISING; and INTERNATIONAL. Such segment classification
reflects the nature of products and services consistent with the method by which
the Company's chief operating decision-maker assesses operating performance and
allocates resources.
o CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION includes the publication and
distribution of children's books in the United States through school-based book
clubs, school-based and direct-to-home continuity programs, school-based book
fairs and the trade channel. The direct-to-home continuity and trade businesses
formerly operated by Grolier are incorporated in this segment from June 22,
2000, the date on which Grolier was acquired.
o EDUCATIONAL PUBLISHING includes the publication and distribution to schools
and libraries of supplemental and core materials, classroom magazines and print
and on-line reference and non-fiction products for grades K to 12 in the United
States. The reference and non-fiction business formerly operated by Grolier is
included in this segment from June 22, 2000, the date on which Grolier was
acquired.
o MEDIA, LICENSING AND ADVERTISING includes the production and/or distribution
in the United States of software, Internet services and the production and/or
distribution by and through the Company's subsidiary, Scholastic Entertainment
Inc. ("SEI"), of programming and consumer products (including children's
television programming, videos, software, feature films, promotional activities
and non-book merchandise). The software business formerly operated by Grolier is
included in this segment from June 22, 2000, the date on which Grolier was
acquired.
o INTERNATIONAL includes the publication and distribution of products and
services outside the United States by the Company's international operations and
its domestic export and foreign rights businesses. The international businesses
formerly operated by Grolier are included in this segment from June 22, 2000,
the date on which Grolier was acquired.
8
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table sets forth the Company's segment information for the periods
indicated. Certain prior year amounts have been reclassified to conform with the
current year presentation.
<Table>
<Caption>
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING OVERHEAD (1) DOMESTIC INTERNATIONAL CONSOLIDATED
=========================================================================================================================
THREE MONTHS ENDED
NOVEMBER 30, 2001
=========================================================================================================================
Revenues $ 426.8 $ 73.7 $ 47.2 $ 0.0 $ 547.7 $ 89.5 $ 637.2
Bad debt 17.3 0.5 0.4 0.0 18.2 2.9 21.1
Depreciation 1.4 0.4 1.0 4.4 7.2 1.1 8.3
Amortization (2) 3.8 6.0 2.8 0.0 12.6 0.6 13.2
Royalty advances
expensed 4.4 0.4 0.6 0.0 5.4 0.0 5.4
Segment profit/(loss)(3) 102.8 11.5 0.0 (10.8) 103.5 8.7 112.2
Expenditures for
long-lived assets (5) 17.9 9.1 9.4 5.7 42.1 2.3 44.4
========================================================================================================================
THREE MONTHS ENDED
NOVEMBER 30, 2000
========================================================================================================================
Revenues $ 446.7 $ 74.9 $ 52.7 $ 0.0 $ 574.3 $ 94.0 $ 668.3
Bad debt 17.3 0.1 0.3 0.0 17.7 2.8 20.5
Depreciation 1.0 0.4 1.4 3.3 6.1 1.0 7.1
Amortization (2) 4.1 14.4 3.6 0.0 22.1 0.4 22.5
Royalty advances
expensed 7.0 0.7 0.9 0.0 8.6 0.3 8.9
Segment profit/(loss)(3) 111.8 (6.3) 0.2 (15.6) 90.1 11.3 101.4
Expenditures for
long-lived assets (5) 12.4 8.1 4.0 14.9 39.4 2.2 41.6
=========================================================================================================================
SIX MONTHS ENDED
NOVEMBER 30, 2001
=========================================================================================================================
Revenues $ 567.9 $ 165.0 $ 65.9 $ 0.0 $ 798.8 $ 144.5 $ 943.3
Bad debt 34.5 0.5 0.4 0.0 35.4 5.2 40.6
Depreciation 2.7 0.8 1.9 8.3 13.7 2.2 15.9
Amortization (2) 8.0 12.3 12.2 0.0 32.5 0.6 33.1
Royalty advances
expensed 8.4 0.7 0.7 0.0 9.8 0.0 9.8
Segment profit/(loss)(3) 75.0 26.9 (8.5) (28.2) 65.2 5.3 70.5
Segment assets 757.4 266.2 71.7 329.9 1,425.2 230.6 1,655.8
Goodwill 110.9 69.4 8.4 4.6 193.3 33.1 226.4
Long-lived assets (4) 259.6 164.4 40.7 207.9 672.6 60.6 733.2
Expenditures for
long-lived assets (5) 38.3 15.8 15.9 13.1 83.1 3.8 86.9
=========================================================================================================================
SIX MONTHS ENDED
NOVEMBER 30, 2000
=========================================================================================================================
Revenues $ 652.1 $ 166.8 $ 65.8 $ 0.0 $ 884.7 $ 145.7 $ 1,030.4
Bad debt 27.3 0.3 0.4 0.0 28.0 4.4 32.4
Depreciation 2.1 0.8 2.2 6.2 11.3 2.0 13.3
Amortization (2) 8.4 25.7 6.9 0.0 41.0 1.1 42.1
Royalty advances
expensed 11.5 1.0 1.1 0.0 13.6 0.3 13.9
Segment profit/(loss)(3) 118.1 6.4 (10.3) (29.1) 85.1 9.5 94.6
Segment assets 785.6 332.9 64.3 240.0 1,422.8 242.1 1,664.9
Goodwill 102.6 66.7 8.8 4.3 182.4 33.7 216.1
Long-lived assets (4) 233.7 193.0 42.4 166.2 635.3 60.0 695.3
Expenditures for
long-lived assets (5) 240.2 158.9 10.9 34.5 444.5 24.8 469.3
</Table>
9
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
(1) OVERHEAD INCLUDES ALL DOMESTIC CORPORATE-RELATED ITEMS NOT ALLOCATED TO
REPORTABLE SEGMENTS WHICH INCLUDES UNALLOCATED EXPENSES AND COSTS RELATED
TO THE MANAGEMENT OF CORPORATE ASSETS. UNALLOCATED ASSETS ARE PRINCIPALLY
COMPRISED OF DEFERRED INCOME TAXES AND PROPERTY, PLANT AND EQUIPMENT
RELATED TO THE COMPANY'S HEADQUARTERS IN THE METROPOLITAN NEW YORK AREA,
ITS NATIONAL SERVICE OPERATION LOCATED IN MISSOURI AND AN INDUSTRIAL/OFFICE
BUILDING COMPLEX IN CONNECTICUT.
(2) INCLUDES AMORTIZATION OF GOODWILL, OTHER INTANGIBLES, AND PREPUBLICATION
AND PRODUCTION COSTS.
(3) SEGMENT PROFIT/(LOSS) REPRESENTS EARNINGS BEFORE INTEREST AND INCOME TAXES.
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001, IT EXCLUDES THE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE RELATED TO THE MEDIA, LICENSING AND ADVERTISING
SEGMENT. IN THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2000, IT INCLUDES
THE NET EFFECT OF THE CHANGES IN SALES RETURNS ESTIMATES WHICH RESULTED IN
AN INCREASE TO NET INCOME OF $5.2 ($0.14 PER SHARE).
(4) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL,
OTHER INTANGIBLES, ROYALTY ADVANCES AND PRODUCTION COSTS.
(5) INCLUDES EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION AND PRODUCTION COSTS, ROYALTY ADVANCES AND ACQUISITIONS OF
BUSINESSES.
The following table separately sets forth information for the U.S.
direct-to-home continuity business formerly operated by Grolier, which,
effective June 22, 2000, is included in the Children's Book Publishing and
Distribution segment, and for all other businesses included in the segment:
<Table>
<Caption>
========================================================
THREE MONTHS ENDED NOVEMBER 30,
========================================================
Direct-to-home All Other Total
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Revenues $ 53.6 $ 67.0 $ 373.2 $ 379.7 $ 426.8 $ 446.7
Bad debt 12.0 12.4 5.3 4.9 17.3 17.3
Depreciation 0.1 0.1 1.3 0.9 1.4 1.0
Amortization (1) 0.5 0.6 3.3 3.5 3.8 4.1
Royalty advances expensed 2.7 0.3 1.7 6.7 4.4 7.0
Business profit (2) 5.8 5.2 97.0 106.6 102.8 111.8
Expenditures for long-lived assets (4) 1.8 1.1 16.1 11.3 17.9 12.4
</Table>
<Table>
<Caption>
========================================================
SIX MONTHS ENDED NOVEMBER 30,
========================================================
Direct-to-home All Other Total
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Revenues $ 110.4 $ 103.9 $ 457.5 $ 548.2 $ 567.9 $ 652.1
Bad debt 25.3 20.0 9.2 7.3 34.5 27.3
Depreciation 0.1 0.2 2.6 1.9 2.7 2.1
Amortization (1) 0.7 1.0 7.3 7.4 8.0 8.4
Royalty advances expensed 5.8 0.4 2.6 11.1 8.4 11.5
Business profit (2) 10.3 6.2 64.7 111.9 75.0 118.1
Business assets 241.0 249.5 516.4 536.1 757.4 785.6
Goodwill 86.1 83.8 24.8 18.8 110.9 102.6
Long-lived assets (3) 136.5 137.5 123.1 96.2 259.6 233.7
Expenditures for long-lived assets (4) 2.2 209.6 36.1 30.6 38.3 240.2
</Table>
(1) INCLUDES AMORTIZATION OF GOODWILL, OTHER INTANGIBLES, AND PREPUBLICATION
COSTS.
(2) BUSINESS PROFIT REPRESENTS EARNINGS BEFORE INTEREST AND INCOME TAXES. IN
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2000, "ALL OTHER" INCLUDES THE
NET EFFECT OF THE CHANGES IN SALES RETURNS ESTIMATES WHICH RESULTED IN AN
INCREASE TO NET INCOME OF $5.2 ($0.14 PER SHARE).
(3) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL,
OTHER INTANGIBLES AND ROYALTY ADVANCES.
(4) INCLUDES EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION COSTS, ROYALTY ADVANCES AND THE IMPACT OF THE ALLOCATION OF
THE GROLIER ACQUISITION.
10
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
4. DEBT
The following table sets forth the Company's debt balances as of the dates
indicated:
<Table>
<Caption>
=============================================================================================================
NOVEMBER 30, 2001 MAY 31, 2001 NOVEMBER 30, 2000
=============================================================================================================
Lines of Credit $ 31.1 $ 23.1 $ 26.2
Grolier Facility 350.0 350.0 350.0
Loan Agreement and Revolver 56.0 - 64.0
7% Notes due 2003, net of discount 124.9 124.9 124.9
Convertible Subordinated Debentures 110.0 110.0 110.0
Other debt 1.6 0.6 0.7
- -------------------------------------------------------------------------------------------------------------
TOTAL DEBT 673.6 608.6 675.8
Less current portion of long-term debt
and lines of credit (382.4) (23.3) (26.2)
- -------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 291.2 $ 585.3 $ 649.6
=============================================================================================================
</Table>
The following table sets forth the maturities of the Company's debt obligations
for the remainder of fiscal 2002 and the next five fiscal years:
<Table>
<Caption>
===============================================================================
MAY 31,
===============================================================================
Six month period ending: 2002 $ 31.3
Fiscal years ending: 2003 351.1
2004 125.4
2005 56.0
2006 109.8
THEREAFTER -
------------------------------
Total $ 673.6
==============================
</Table>
GROLIER FACILITY. On June 22, 2000, the Company established a new credit
facility (the "Grolier Facility") to finance $350.0 of the $400.0 Grolier
purchase price. The Grolier Facility expires on June 21, 2002. Scholastic Inc.
is the borrower, and the Company is the guarantor. Borrowings bear interest at
the prime rate, or 0.39% to 1.10% over LIBOR (as defined). The Grolier Facility
also provides for a facility fee ranging from 0.085% to 0.25%, based on the
Company's credit rating. Based on the Company's current credit rating, the
interest rate and facility fee charged were 0.575% over LIBOR and 0.125%,
respectively. The Grolier Facility contains certain financial covenants related
to debt and interest coverage ratios (as defined) and limits dividends and other
distributions. At November 30, 2001, $350.0 was outstanding under the Grolier
Facility.
11
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
LOAN AGREEMENT. The Company and Scholastic Inc. are joint and several borrowers
under an amended and restated loan agreement with certain banks, effective
August 11, 1999 and amended June 22, 2000 (the "Loan Agreement"). The Loan
Agreement, which expires on August 11, 2004, provides for aggregate borrowings
of up to $170.0 (with a right in certain circumstances to increase borrowings to
$200.0), including the issuance of up to $10.0 in letters of credit, of which
none was outstanding at November 30, 2001. Interest under this facility is
either at the prime rate or 0.325% to 0.90% over LIBOR (as defined). There is a
facility fee ranging from 0.10% to 0.30% and a utilization fee ranging from
0.05% to 0.15% if borrowings exceed 33% of the total facility. The amounts
charged vary based upon the Company's credit rating. Based on the Company's
current credit rating, the interest rate, facility fee and utilization fee as of
November 30, 2001 were 0.475% over LIBOR, 0.150%, and 0.075%, respectively. The
Loan Agreement contains certain financial covenants related to debt and interest
coverage ratios (as defined) and limits dividends and other distributions. At
November 30, 2001, $50.0 was outstanding under the Loan Agreement.
REVOLVER. The Company and Scholastic Inc. are joint and several borrowers under
a Revolving Loan Agreement with a bank, effective November 10, 1999 and amended
June 22, 2000 (the "Revolver"). It provides for unsecured revolving credit loans
of up to $40.0 and expires on August 11, 2004. Interest under this facility is
at the prime rate minus 1% or 0.325% to 0.90% over LIBOR (as defined). There is
a facility fee ranging from 0.10% to 0.30%. The amounts charged vary based upon
the Company's credit rating. Based on the Company's current credit rating, the
interest rate and facility fee as of November 30, 2001 were 0.475% over LIBOR
and 0.150%, respectively. The Revolver has certain financial covenants related
to debt and interest coverage ratios (as defined) and limits dividends and other
distributions. At November 30, 2001, $6.0 was outstanding under the Revolver.
7% NOTES DUE 2003. On December 23, 1996, the Company issued $125.0 of 7% Notes
(the "Notes"). The Notes are unsecured and unsubordinated obligations of the
Company and will mature on December 15, 2003. The Notes are not redeemable prior
to maturity. Interest on the Notes is payable semi-annually on December 15 and
June 15 of each year.
CONVERTIBLE SUBORDINATED DEBENTURES. On August 18, 1995, the Company sold $110.0
of its 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 February 15 of each year. The Debentures are redeemable at the option of the
Company, in whole, but not in part, at any time at 100% of the principal amount
plus accrued interest. Each Debenture is convertible, at the holder's option,
any time prior to maturity, into Common Stock of the Company at a conversion
price of $38.43 per share. On November 29, 2001, the Company announced that it
would redeem all of the outstanding Debentures on January 11, 2002. As of
January 11, 2002, $109.8 of the Debentures were converted into 2.9 shares of
common stock, and $0.2 were redeemed for cash.
12
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
5. 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(R) 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. On December 10, 2001, the Supreme Court of the United States
denied the Company's Petition for a Writ of Certiorari to review the Second
Circuit's decision. 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 of New York, New York
County, 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 of
New York, New York County. 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
13
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
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 judgment in the pending state court cases and on May 18, 2001,
each party filed motions for summary judgment 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.
In addition to the above actions, various claims and lawsuits arising in the
normal course of business are pending against the Company. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of operations
6. COMPREHENSIVE INCOME
The following table sets forth comprehensive income for the periods indicated:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
===========================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
===========================================================================================================================
Net income $ 66.5 $ 56.3 $ 29.5 $ 45.7
Other comprehensive (loss)/income:
Foreign currency translation adjustment
net of provision for income taxes (1.9) (2.2) 0.8 (4.0)
- ---------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 64.6 $ 54.1 $ 30.3 $ 41.7
===========================================================================================================================
</Table>
14
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding during the period. Diluted earnings per
share is calculated to give effect to potentially dilutive stock options and
Debentures that were outstanding during the period. The following table, which
reflects the impact of the Company's 2-for-1 Stock Split effective January 16,
2001 (see Note 10), summarizes the reconciliation of the numerators and
denominators for the basic and diluted earnings per share ("EPS") computations
for the periods indicated:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
=============================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
=============================================================================================================================
Net income for basic EPS $ 66.5 $ 56.3 $ 29.5 $ 45.7
Dilutive effect of Debentures 0.9 0.9 1.8 1.8
- -----------------------------------------------------------------------------------------------------------------------------
Adjusted net income for diluted EPS $ 67.4 $ 57.2 $ 31.3 $ 47.5
=============================================================================================================================
Weighted average Class A and Common
Shares outstanding for basic EPS 35.4 34.6 35.3 34.3
Dilutive effect of shares issued pursuant to
employee stock plans 1.6 1.3 1.5 1.2
Dilutive effect of Debentures 2.9 2.9 2.9 2.9
- -----------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average Class A and
Common Shares for diluted EPS
outstanding 39.9 38.8 39.7 38.4
=============================================================================================================================
Earnings per Class A and Common Share:
Earnings before cumulative effect of
accounting change
Basic $ 1.88 $ 1.63 $ 0.98 $ 1.33
Diluted $ 1.69 $ 1.48 $ 0.92 $ 1.24
Cumulative effect of accounting change
(net of income taxes)
Basic - - $ (0.14) -
Diluted - - $ (0.13) -
Net income
Basic $ 1.88 $ 1.63 $ 0.84 $ 1.33
Diluted $ 1.69 $ 1.48 $ 0.79 $ 1.24
=============================================================================================================================
</Table>
15
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
8. GOODWILL AND OTHER INTANGIBLES
Effective as of June 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill and other intangible
assets with indefinite lives are no longer amortized but are reviewed annually,
or more frequently if impairment indicators arise. During the quarter ended
November 30, 2001, the Company completed the required transitional impairment
review of goodwill. This review required the Company to estimate the fair value
of its identified reporting units as of June 1, 2001. For each of the reporting
units, the estimated fair value was determined utilizing the expected present
value of the future cash flows of the units. In all instances, the estimated
fair value of the reporting units exceeded their book values and therefore no
write-down of goodwill was required as of November 30, 2001.
The following table reflects unaudited pro forma results of operations of the
Company, giving effect to SFAS No. 142 as if it were adopted on June 1, 2000:
<Table>
<Caption>
SIX MONTHS ENDED NOVEMBER 30,
==============================================================================================================
2001 2000
==============================================================================================================
Net income, as reported $ 29.5 $ 45.7
Add back: amortization expense, net of tax - 4.0
- --------------------------------------------------------------------------------------------------------------
Pro forma net income $ 29.5 $ 49.7
Basic net income per Class A and Common Share:
As reported $ 0.84 $ 1.33
Pro forma $ 0.84 $ 1.45
Diluted net income per Class A and Common Share:
As reported $ 0.79 $ 1.24
Pro forma $ 0.79 $ 1.34
==============================================================================================================
</Table>
The following table summarizes the activity in Goodwill for the periods
indicated:
<Table>
<Caption>
====================================================================================================================
SIX MONTHS ENDED TWELVE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 2001 MAY 31, 2001 NOVEMBER 30, 2000
====================================================================================================================
Beginning balance $ 221.9 $ 63.5 $ 63.5
Additions due to acquisitions 4.1 169.9 158.4
Amortization - (10.3) (4.8)
Other, principally translation adjustments 0.4 (1.2) (1.0)
- --------------------------------------------------------------------------------------------------------------------
TOTAL $ 226.4 $ 221.9 $ 216.1
====================================================================================================================
</Table>
The following table summarizes Other intangibles subject to amortization at the
dates indicated:
<Table>
<Caption>
==============================================================================================================
NOVEMBER 30, 2001 MAY 31, 2001 NOVEMBER 30, 2000
==============================================================================================================
Customer lists $ 2.2 $ 2.2 $ 2.2
Accumulated amortization (1.6) (1.3) (0.6)
- --------------------------------------------------------------------------------------------------------------
Net customer lists $ 0.6 $ 0.9 $ 1.6
Other intangibles 2.2 2.2 2.2
Accumulated amortization (1.4) (1.3) (1.2)
- --------------------------------------------------------------------------------------------------------------
Net other intangibles $ 0.8 $ 0.9 $ 1.0
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 1.4 $ 1.8 $ 2.6
==============================================================================================================
</Table>
16
<Page>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table summarizes Other intangibles not subject to amortization at
the dates indicated:
<Table>
<Caption>
==============================================================================================================
NOVEMBER 30, 2001 MAY 31, 2001 NOVEMBER 30, 2000
==============================================================================================================
Net carrying value by major class:
Titles $ 28.7 $ 28.7 $ 29.3
Licenses 17.2 17.2 17.5
Major sets 11.4 11.4 11.6
Trademarks and Other 2.8 2.8 3.0
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 60.1 $ 60.1 $ 61.4
==============================================================================================================
</Table>
Amortization expense for Other intangibles totaled $0.2 and $0.4 for the three
and six months ended November 30, 2001, respectively, and $1.1 and $2.1 for the
three and six months ended November 30, 2000, respectively. Amortization expense
for the twelve months ended May 31, 2001 totaled $3.9.
9. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
On June 1, 2001, the Company adopted Statement of Position No. 00-2 ("SOP
00-2"), "Accounting by Producers and Distributors of Films," which replaced SFAS
No. 53, "Financial Reporting by Producers and Distributors of Motion Picture
Films." SOP 00-2 provides that film costs should be accounted for under an
inventory model and discusses 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 Company's
ultimate revenue projections.
The Company recognizes revenue from its film licensing arrangements when the
film is complete and delivered, the license period has begun, the fee is fixed
or determinable and collection is reasonably assured. Costs of producing film
and acquiring film distribution rights are capitalized and amortized using the
individual-film-forecast method. This method amortizes such residual costs in
the same ratio that current period revenue bears to estimated remaining
unrecognized revenue as of the beginning of the fiscal year. All exploitation
costs are expensed as incurred. As a result of the adoption of SOP 00-2, the
Company recorded a charge of $5.2, net of tax, 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 condensed consolidated statements of operations as a
cumulative effect of accounting change and is attributed entirely to the Media,
Licensing and Advertising segment. Management estimates that 100% of the costs
of its unamortized films will be amortized over the next three years.
10. COMMON AND CLASS A STOCK
On December 14, 2000, the Company's Board of Directors authorized a 2-for-1
stock split in the form of a 100% stock dividend on its Common Stock and Class A
Stock, effective January 16, 2001, to shareholders of record as of December 29,
2000 (the "2-for-1 Stock Split"). Stockholders of record received one additional
share of 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.
17
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
================================================================================
RESULTS OF OPERATIONS - CONSOLIDATED
Revenues for the quarter ended November 30, 2001 decreased 4.7% to $637.2
million from $668.3 million in the second quarter of the prior fiscal year. In
the year ago quarter, Scholastic benefited from strong sales of HARRY POTTER
titles, which provided approximately $70 million in revenues for the quarter
ended November 30, 2000, as compared to approximately $45 million in the current
year quarter. In addition, the planned elimination of less profitable programs
in the direct-to-home continuity business contributed to a decrease of $13.4
million in revenues to $53.6 million for the quarter ended November 30, 2001, as
compared to revenues of $67.0 million in the year ago quarter. Partially
offsetting these anticipated revenue declines was an increase in school-based
book fair revenues of $14.5 million. For the six months ended November 30, 2001,
revenues decreased 8.5% to $943.3 million from $1,030.4 million in the prior
year period. In the year ago period the Company benefited from the successful
release of HARRY POTTER AND THE GOBLET OF FIRE and strong domestic trade sales
of the HARRY POTTER titles of approximately $170 million as compared to
approximately $55 million in the current fiscal period.
Cost of goods sold as a percentage of revenues decreased to 40.8% in the quarter
ended November 30, 2001 from 42.6% in the prior year quarter. This improvement
was primarily attributable to the Company's April 2001 strategic decision not to
update SCHOLASTIC LITERACY PLACE(R). The resulting $72.9 million charge included
the write-off of prepublication costs, thereby reducing amortization expense
included in cost of product in the current quarter and in the six-month period.
For the six months ended November 30, 2001, cost of goods as a percentage of
sales improved to 43.7% from 45.6% in the prior year period, primarily as a
result of the reduced prepublication amortization.
Selling, general and administrative expenses, as a percentage of revenues,
improved modestly to 37.0% for the quarter ended November 30, 2001 compared to
37.4% in the year ago quarter primarily as a result of the Company's ongoing
cost savings program. For the six-month period ended November 30, 2001, selling,
general and administrative expenses as a percentage of revenues increased to
42.8% from 40.1% in the prior fiscal year period. This increase reflects the
impact of decreased HARRY POTTER revenues of approximately $115 million,
partially offset by the benefit of the Company's ongoing cost savings program of
approximately $15 million.
Bad debt expense increased slightly to $21.1 million, or 3.3% of revenue, for
the quarter ended November 30, 2001, as compared to $20.5 million, or 3.1% of
revenue, in the prior year quarter. For the six months ended November 30, 2001,
bad debt expense increased to $40.6 million, or 4.3% of revenue, as compared to
$32.4 million, or 3.1% of revenue, in the prior year period. The increase was
due primarily to the inclusion in the current period of three additional
weeks of the direct-to-home continuity business, which has lower collection
rates than the Company's other businesses.
Depreciation for the quarter ended November 30, 2001 increased to $8.3 million
from $7.1 million in the prior year quarter. For the six months ended November
30, 2001, depreciation increased to $15.9 million from $13.3 million in the
prior year period. These increases are a result of depreciation on projects
recently placed in service including information technology initiatives.
18
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Goodwill and other intangibles amortization reflects reductions of $4.2 million
and $6.5 million in the quarter and the six-month periods ended November 30,
2001, respectively, related to the Company's adoption of Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." Under SFAS 142, the Company is required to take an impairment-only
approach to amortizing goodwill and other intangible assets with indefinite
lives which accordingly reduced amortization expense. (See Note 8 in the Notes
to Condensed Consolidated Financial Statements.)
The resulting operating income for the quarter ended November 30, 2001 grew over
the prior year quarter by $10.8 million to $112.2 million, or 17.6% of revenue,
as compared to $101.4 million, or 15.2% of revenue, in the prior year quarter.
For the six months ended November 30, 2001, operating income decreased to $70.5
million, or 7.5% of revenue, compared to $94.6 million, or 9.2% of revenue, in
the prior fiscal year.
Net interest expense decreased by $5.3 million to $8.2 million in the current
fiscal quarter from $13.5 million in the year ago quarter, due primarily to
lower interest rates. For the six-month period ended November 30, 2001, net
interest expense decreased to $16.3 million from $23.2 million in the year ago
period, due primarily to lower interest rates.
In the first quarter of fiscal 2002, the Company adopted Statement of Position
No. 00-2 ("SOP 00-2"), "Accounting by Producers and Distributors of Films." As a
result of the adoption of SOP 00-2, the Company recorded an after-tax charge of
$5.2 million, which is reflected as a cumulative effect of accounting change.
(See Note 9 in the Notes to Condensed Consolidated Financial Statements.)
Net income for the second fiscal quarter increased 18.1% to $66.5 million, or
$1.69 per diluted share, compared to $56.3 million, or $1.48 per diluted share,
in the prior year quarter. For the six months ended November 30, 2001, net
income decreased to $29.5 million, or $0.79 per diluted share, from $45.7
million, or $1.24 per diluted share, in the prior year. The effect of the SOP
00-2 charge on net income was $5.2 million, or $0.13 per diluted share.
RESULTS OF OPERATIONS - SEGMENTS
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION
The Company's CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment includes the
publication and distribution of children's books in the United States through
school-based book clubs, school-based and direct-to-home continuity programs,
school-based book fairs and the trade channel. The direct-to-home continuity and
trade businesses formerly operated by Grolier are incorporated in this segment
from June 22, 2000, the date on which Grolier was acquired.
19
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
<Table>
<Caption>
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
====================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
====================================================================================================================
Revenue $ 426.8 $ 446.7 $ 567.9 $ 652.1
Operating profit 102.8 111.8 75.0 118.1
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 24.1% 25.0% 13.2% 18.1%
</Table>
The following table highlights the results of the direct-to-home continuity
business included in the Children's Book Publishing and Distribution segment,
formerly operated by Grolier, from June 22, 2000, the date on which Grolier was
acquired.
<Table>
<Caption>
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
=============================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
=============================================================================================================
Revenue $ 53.6 $ 67.0 $ 110.4 $ 103.9
Operating profit 5.8 5.2 10.3 6.2
- -------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 10.8% 7.8% 9.3% 6.0%
</Table>
Revenues in the CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment for the
quarter ended November 30, 2001 decreased 4.5% to $426.8 million compared to
$446.7 million in the prior fiscal year quarter. This decline in revenues
related principally to lower trade sales of approximately $25 million due to
the effect of the strong prior year sales of HARRY POTTER titles. The decrease
in trade revenues for the quarter was partially offset by revenue increases of
$14.5 million in school-based book fairs and $5.6 million in school-based book
clubs over the prior fiscal year quarter. Sales growth for school-based book
fairs reflects continued growth in revenue per fair and fair count, which
benefited from the July 2001 acquisition of Troll Book Fairs. Additionally, in
the quarter ended November 30, 2001, revenues for the Company's direct-to-home
continuity business decreased approximately 20%, or $13.4 million, to $53.6
million when compared to the prior year, reflecting the planned elimination of
less profitable programs. Excluding the direct-to-home continuity business,
segment revenues for the quarter decreased by $6.5 million to $373.2 million
compared to the prior year quarter.
20
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Operating profit for the quarter decreased $9.0 million to $102.8 million
compared to $111.8 million in the prior year. The decrease in trade results of
$20.0 million was partially offset by increased operating profits of $8.4
million in school-based book fairs and $2.0 million in school-based book clubs
as compared to the prior year quarter. Operating profit for the Company's
direct-to-home continuity business increased in the current year quarter to $5.8
million from $5.2 million in the prior year quarter reflecting lower revenues
offset by higher operating margins. Segment operating margins for the quarter
decreased from 25.0% to 24.1%, due primarily to a decrease in trade margins
related to the decrease in HARRY POTTER revenues.
Revenues for the six-month period ended November 30, 2001 decreased $84.2
million to $567.9 million compared to $652.1 million in the year ago period.
This decrease was due to a decline in trade sales of $111.5 million reflecting
strong prior year sales of HARRY POTTER titles, including the release in the
summer of 2000 of HARRY POTTER AND THE GOBLET OF FIRE, of approximately $170
million in the year ago period compared to approximately $55 million of sales in
the current year. This decrease was partially offset by revenue increases of
$12.9 million and $7.3 million in school-based book fairs and school-based book
clubs, respectively, as compared to the prior year period. Revenues from the
direct-to-home continuity business increased $6.5 million to $110.4 million from
$103.9 million in the prior period. This increase reflects the impact of three
weeks of additional direct-to-home revenues in the current year of $17.8 million
from Grolier's direct-to-home business, partially offset by the revenue
decrease from the elimination of less profitable continuity programs. Excluding
the direct-to-home continuity business, segment revenue decreased by $90.7
million to $457.5 million from $548.2 million in the prior year period.
Segment operating profit for the six-month period ended November 30, 2001
decreased $43.1 million to $75.0 million, as compared to $118.1 million for the
prior year period. This decrease reflects the impact of the reduced HARRY POTTER
sales discussed above. Segment operating margin for the six-month period
decreased to 13.2% from 18.1% of revenue in the prior year period, also
primarily due to the decrease in HARRY POTTER sales. Operating profit for the
direct-to-home continuity business for the six-month period increased to $10.3
million (9.3% of revenue), from $6.2 million (6.0% of revenue) in the prior
year period. Excluding the direct-to-home continuity business, segment
operating profit for the six-month period decreased to $64.7 million (14% of
revenue) from $111.9 million (20% of revenue) in the prior year period.
EDUCATIONAL PUBLISHING
The Company's EDUCATIONAL PUBLISHING segment includes the publication and
distribution to schools and libraries of supplemental and core materials,
classroom magazines, and print and on-line reference and non-fiction products
for grades K to 12 in the United States. The reference and non-fiction business
formerly operated by Grolier is included in this segment from June 22, 2000, the
date on which Grolier was acquired.
<Table>
<Caption>
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
====================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
====================================================================================================================
Revenue $73.7 $ 74.9 $165.0 $ 166.8
Operating profit (loss) 11.5 (6.3) 26.9 6.4
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 15.6% * 16.3% 3.8%
</Table>
* - NOT MEANINGFUL
21
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Revenues in the EDUCATIONAL PUBLISHING segment for the quarter ended November
30, 2001 decreased modestly to $73.7 million, compared to $74.9 million in the
comparable quarter of the prior year. For the six-month period ended November
30, 2001, revenues decreased slightly to $165.0 million, compared to $166.8
million in the comparable prior year period. The decrease is due to lower sales
of SCHOLASTIC LITERACY PLACE(R) of $11.7 million related to the Company's
decision to exit the basal textbook market combined with lower sales of
other core products of $5.5 million. These decreases were partially offset by
increased sales of paperback reading collections and supplemental curriculum of
approximately $12 million combined with the impact of three additional weeks of
Grolier reference and non-fiction revenues in the current year of $4.1 million.
Operating profit for this segment for the second quarter increased by $17.8
million over the comparable quarter of the prior year, primarily due to reduced
prepublication costs, lower marketing and promotion costs, and lower
inventory reserve levels of $9.2 million, $2.1 million and $2.0 million,
respectively. These reductions were principally related to the exit from the
basal textbook market. For the six-month period ended November 30, 2001,
operating profit improved by $20.5 million over the comparable prior year
period, primarily due to reduced prepublication costs.
MEDIA, LICENSING AND ADVERTISING
The Company's MEDIA, LICENSING AND ADVERTISING segment includes the production
and/or distribution in the United States of software, Internet services and the
production and/or distribution by and through the Company's subsidiary,
Scholastic Entertainment Inc. ("SEI"), of programming and consumer products
(including children's television programming, videos, software, feature films,
promotional activities and non-book merchandise). The software business formerly
operated by Grolier is included in this segment from June 22, 2000, the date on
which Grolier was acquired.
<Table>
<Caption>
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
====================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
====================================================================================================================
Revenue $ 47.2 $ 52.7 $ 65.9 $ 65.8
Operating profit (loss) 0.0 0.2 (8.5) (10.3)
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN * 0.4% * *
</Table>
* - NOT MEANINGFUL
MEDIA, LICENSING AND ADVERTISING revenues decreased $5.5 million to $47.2
million for the quarter ended November 30, 2001 compared to $52.7 million in the
prior year quarter. The revenue decrease is primarily attributable to the prior
year SEI revenue of $4.0 million related to the syndication of THE MAGIC SCHOOL
BUS series and decreased consumer magazine advertising revenue of $1.7 million.
For the six-month period, segment revenues were flat at $65.9 million versus
$65.8 million in the prior year.
For the quarter ended November 30, 2001, segment operating profit decreased to
breakeven from $0.2 million in the prior year quarter. The results for the
quarter reflect a decrease in SEI operating profit of $2.0 million, primarily
due to the film revenue decrease, offset by a decrease of $1.8 million in
Internet development spending. For the six-month period, operating loss
decreased $1.8 million to $8.5 million primarily reflecting a decrease of $2.5
million in Internet development spending.
22
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
INTERNATIONAL
The INTERNATIONAL segment includes the publication and distribution of products
and services outside the United States by the Company's international operations
and its domestic export and foreign rights businesses. The international
businesses formerly operated by Grolier are included in this segment from June
22, 2000, the date on which Grolier was acquired.
<Table>
<Caption>
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
====================================================================================================================
NOVEMBER 30, 2001 2000 2001 2000
====================================================================================================================
Revenue $ 89.5 $ 94.0 $ 144.5 $ 145.7
Operating profit 8.7 11.3 5.3 9.5
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 9.7% 12.0% 3.7% 6.5%
</Table>
INTERNATIONAL revenues decreased by $4.5 million to $89.5 million for the
quarter ended November 30, 2001, from $94.0 million in the year ago quarter.
This decrease is due primarily to lower revenues in Canada and the United
Kingdom of $3.3 million and $1.3 million, respectively. International revenues
for the six months ended November 30, 2001 were flat at $144.5 million as
compared to $145.7 million in the prior year period. Revenues for the current
year-to-date period were positively impacted by three additional weeks of
Grolier business revenues of $6.2 million. This benefit was offset by lower
revenues in the United Kingdom and Canada of $3.7 million and $3.1 million,
respectively.
For the quarter ended November 30, 2001, operating profit decreased $2.6 million
to $8.7 million from $11.3 million in the prior year quarter. The decrease is
due primarily to lower operating profits in Canada and the United Kingdom of
approximately $3.0 million resulting from lower revenues. For the six months
ended November 30, 2001, operating profit decreased by $4.2 million to $5.3
million as compared to the prior year. This decrease is primarily the result of
lower operating profit in Canada and the United Kingdom.
SEASONALITY
The Company's school-based book clubs, school-based book fairs and most of its
magazines operate on a school-year basis. Therefore, the Company's business is
highly seasonal.
As a consequence, the Company's revenues in the first and third quarters of the
fiscal year are generally lower than its revenues in the other two fiscal
quarters. The Company experiences a substantial loss from operations in the
first quarter. Typically, school-based book club and book fair revenues are
proportionately larger in the second quarter of the fiscal year, while revenues
from the sale of instructional materials are highest in the first quarter.
In the June through October time period, the Company experiences negative cash
flow due to the seasonality of its business. As a result of the Company's
business cycle, seasonal borrowings have historically increased during June,
July and August, have generally peaked in September or October, and have been at
their lowest point in May.
23
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $2.4 million during the
six-month period ended November 30, 2001, compared to an increase of $3.7
million during the comparable period in the prior year.
Cash flow provided from operations was $5.8 million for the six-month period
ended November 30, 2001, resulting from net income adjusted for non-cash
charges of $124.5 million, partially offset by net working capital changes of
$118.7 million.
Cash outflows for investing activities were $86.7 million for the six-month
period as compared to $479.3 in the prior year period, due to the acquisition
of Grolier in the prior year. The spending for the six months ended November
30, 2001 principally consisted of capital expenditures, prepublication costs,
royalty advances, production costs and business acquisitions. Capital
expenditures, including capitalized interest, totaled $32.6 million for the
six months ended November 30, 2001, increasing $1.4 million from the year ago
period. Prepublication expenditures increased $4.6 million to $25.2 million
in the six-month period. Payments for royalty advances increased to $18.3
million in the six-month period from $13.2 million in the prior year
six-month period.
The Company believes its existing cash position, combined with funds generated
from operations and available under the amended Loan Agreement and the Revolver,
will be sufficient to finance its ongoing working capital requirements for the
balance of fiscal 2002.
FINANCING
In connection with the June 22, 2000 acquisition of Grolier for $400.0 million,
the Company has outstanding $350.0 million under an unsecured credit facility
established in connection with the acquisition, which expires June 21, 2002 (the
"Grolier Facility"). The weighted average interest rate under the Grolier
Facility at November 30, 2001 was 3.1%. The Company does not anticipate any
difficulty in extending the Grolier Facility or finding alternative financing
prior to the expiration of the facility.
The Company maintains two unsecured credit facilities, the Loan Agreement and
the Revolver, which provide for aggregate borrowings of up to $210.0 million
(with a right, in certain circumstances, to increase to $240.0 million),
including the issuance of up to $10.0 million in letters of credit. Both the
Loan Agreement and the Revolver expire on August 11, 2004. The Company uses
these facilities primarily to fund seasonal cash flow needs and other working
capital requirements. At November 30, 2001, the Company had $56.0 million in
borrowings outstanding under these facilities at a weighted average interest
rate of 3.5%.
In addition, unsecured lines of credit available to the Company's international
subsidiaries totaled $52.6 million at November 30, 2001. These lines are used
primarily to fund local working capital needs. At November 30, 2001, $31.1
million in borrowings were outstanding under these lines of credit at a weighted
average interest rate of 6.4%.
24
<Page>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
On November 29, 2001, the Company announced that on January 11, 2002, it would
redeem all of its outstanding 5% Convertible Subordinated Debentures due August
15, 2005 (the "Debentures"). As of January 11, 2002, $109.8 million of the
Debentures were converted into 2.9 million shares of common stock, and $0.2
million were redeemed for cash.
ACQUISITIONS
On June 22, 2000, the Company acquired the capital stock of Grolier for $400.0
million in cash, and in July 2001, the Company acquired certain assets of Troll
Book Fairs, Inc. On December 21, 2001, the Company acquired for $9.0 million in
cash, assets of Tom Snyder Productions Inc., a leading developer and publisher
of interactive educational software. In the ordinary course of business, the
Company explores domestic and international expansion opportunities, including
potential niche and strategic acquisitions. As part of this process, the Company
engages with interested parties in discussions concerning possible transactions.
The Company will continue to evaluate such opportunities and prospects.
FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements, which are subject
to various risks and uncertainties, including the conditions of the children's
book and instructional materials markets and acceptance of the Company's
products within those markets and other risks and factors identified in the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2001.
25
<Page>
SCHOLASTIC CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================
The Company has operations in various foreign countries. In the normal course of
business, these operations are exposed to fluctuations in currency values.
Management believes that the impact of currency fluctuations do not represent a
significant risk in the context of the Company's current international
operations. The Company does not generally enter into derivative financial
instruments in the normal course of business for material amounts, nor are such
instruments used for speculative purposes.
Market risks relating to the Company's operations result primarily from changes
in interest rates. Approximately two-thirds of the Company's debt bears interest
at a variable rate and is sensitive to changes in interest rates. The Company is
subject to the risk that market interest rates will increase and thereby
increase the interest rates currently being charged under the variable rate
debt. The Company does not currently utilize any interest rate derivative
instruments to manage its exposure to interest rate changes.
As of November 30, 2001, the balance outstanding under its variable rate
facilities was $438.7 million, at a weighted average interest rate of 3.4%. A
15% increase or decrease in the average cost of the Company's variable rate debt
under the various facilities at November 30, 2001 would impact the Company's
pre-tax results of operations and cash flows by approximately $2.2 million
annually.
26
<Page>
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
================================================================================
The Annual Meeting of Stockholders of the Company was held on September 20,
2001. The following sets forth the results of the proposals presented at the
Annual Meeting voted upon by the stockholders of the Company entitled to vote
thereon:
Holders of the 1,656,200 shares of Class A Stock (comprising all outstanding
shares of Class A Stock) unanimously voted in favor of:
o Electing Richard Robinson, Rebeca M. Barrera, Helen V. Benham, Ramon
Cortines, Charles T. Harris III, Andrew S. Hedden, Mae C. Jemison,
Peter M. Mayer, Augustus K. Oliver and Richard M. Spaulding as
directors to serve until the next annual meeting of stockholders or
until their successors are duly elected and qualified;
o Ratifying the appointment of Ernst & Young as independent auditors for
the fiscal year ending May 31, 2002; and
o Approving the Scholastic Corporation 2001 Stock Incentive Plan.
Holders of the Common Stock elected the following three nominees as directors to
serve until the next annual meeting of stockholders or until their successors
are duly elected and qualified. Votes cast by holders of the Common Stock were
as follows:
<Table>
<Caption>
NOMINEE FOR WITHHELD
John L. Davies 26,942,739 387,533
Linda Keene 26,944,896 385,376
John G. McDonald 26,930,954 399,316
</Table>
27
<Page>
SCHOLASTIC CORPORATION
ITEM 5. OTHER INFORMATION
================================================================================
The following persons constitute the current executive officers of the
Registrant superceding the information reported under Part III, Item 10,
Directors and Officers of the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 2001:
<Table>
<Caption>
NAME AGE EMPLOYED BY POSITION(S) FOR PAST FIVE YEARS
REGISTRANT SINCE
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 48 1984 Executive Vice President (since 1996), Divisional
President, Scholastic Entertainment Inc. (since 2001),
and Division Head, Scholastic Entertainment Inc.
(1995-2001).
Donna M. Iucolano 38 2000 Executive Vice President (since 2000), Divisional
President, Scholastic Internet Group (since 2001),
Executive Vice President, Scholastic Internet Group
(2000-2001); 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), Divisional
President, Children's Book Publishing Group (since 1999)
and Executive Vice President, Children's Book Publishing
and Distribution (1991-1999).
Margery W. Mayer 49 1990 Executive Vice President (since 1990), Divisional
President, Educational Publishing (since 2001), Executive
Vice President, Learning Ventures (since 1998) and
Instructional Publishing and Scholastic School Group
(1990-1997).
Hugh Roome 50 1991 Executive Vice President (since 1996), Divisional
President, International (since 2001), Executive Vice
President, International (2000-2001) and Senior Vice
President, Magazine Group (1993-1996).
28
<Page>
SCHOLASTIC CORPORATION
ITEM 5. OTHER INFORMATION
<Caption>
=========================================================================================================================
NAME AGE EMPLOYED BY POSITION(S) FOR PAST FIVE YEARS
REGISTRANT SINCE
Richard M. Spaulding 64 1960 Director (since 1974) and Executive Vice President,
Marketing (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 42 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 M. Fleishman 64 1989 Senior Vice President, Education and Corporate Relations
(since 1989).
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).
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).
Helen V. Benham 52 1974 Director (since 1992) and Corporate Vice President, Early
Childhood Advisor (since 1996).
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).
</Table>
29
<Page>
SCHOLASTIC CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
================================================================================
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.20 Amendment No. 1 dated September 20, 2001 to
the 1997 Outside Directors' Stock Option Plan
(Amended and Restated as of May 25, 1999)
(b) Reports on Form 8-K
A current report on Form 8-K was filed on
November 30, 2001, noticing the Company's
announcement of its decision to redeem on
January 11, 2002 all of its outstanding 5%
Convertible Subordinated Notes due August 15,
2005 at a redemption price of 100% of the
principal amount thereof, in accordance with
the Indenture under which the Notes were
issued.
- --------------------------------------------------------------------------------
30
<Page>
SCHOLASTIC CORPORATION
SIGNATURES
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHOLASTIC CORPORATION
(Registrant)
Date: January 14, 2002 /s/ Richard Robinson
-----------------------------------
Richard Robinson
CHAIRMAN OF THE BOARD,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: January 14, 2002 /s/ Kevin J. McEnery
-----------------------------------
Kevin J. McEnery
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
31
<Page>
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 10-Q, DATED NOVEMBER 30, 2001
EXHIBITS INDEX
================================================================================
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED COPY
------- ----------------------- --------------
Exhibit 10.20 Amendment No. 1 dated September 20, 2001 to E-1
the 1997 Outside Directors' Stock Option Plan
(Amended and Restated as of May 25, 1999)
32