<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
Current Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (June 22, 2000) September 5, 2000
SCHOLASTIC CORPORATION
(Exact name of registrant as specified in its charter)
0-19860
Commission File Number
DELAWARE 13-3385513
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 BROADWAY, NEW YORK, NEW YORK 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 343-6100
<PAGE>
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000
------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(A) CONSOLIDATED FINANCIAL STATEMENTS OF GROLIER INCORPORATED.
<TABLE>
<CAPTION>
<S> <C>
PAGE(S)
Report of Independent Public Accountants F-1
Consolidated Statements of Operations and Accumulated Deficit
for the years ended December 31, 1999, 1998 and 1997 F-2
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4 to F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements December 31, 1999,
1998 and 1997 F-7 to F-20
(B) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF GROLIER INCORPORATED.
PAGE(S)
Unaudited Condensed Consolidated Statements of Operations and
Accumulated Deficit for the period from January 1, 2000 to
June 22, 2000 and for the six months ended June 30, 1999 F-21
Unaudited Condensed Consolidated Statements of Comprehensive Income
for the period from January 1, 2000 to June 22, 2000 and for the
six months ended June 30, 1999 F-22
Unaudited Condensed Consolidated Balance Sheet as of June 22, 2000 F-23 to F-24
Unaudited Condensed Consolidated Statements of Cash Flows for the
period from January 1, 2000 to June 22, 2000 and for the
six months ended June 30, 1999 F-25
Notes to Unaudited Condensed Consolidated Financial Statements
June 22, 2000 and June 30, 1999 F-26
(C) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF SCHOLASTIC CORPORATION.
PAGE(S)
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the year ended May 31, 2000 F-28
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of May 31, 2000 F-29 to F-30
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements F-31 to F-32
</TABLE>
(D) EXHIBITS.
Exhibit No. Description
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 (incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on July 7, 2000).
2.2 Amendment No. 1 to Stock Purchase Agreement, dated June 22, 2000, among
Scholastic Inc., a New York corporation and wholly-owned subsidiary of the
Registrant, Hachette Book Group USA, Inc., a Delaware corporation, and
Lagardere North America, Inc., a Delaware corporation (incorporated by
reference to the Company's Current Report on Form 8-K filed with the
Commission on July 7, 2000).
23 Consent of Arthur Andersen LLP
<PAGE>
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000
------------------------------------------------------------------------------
(D) EXHIBITS (continued)
99.2 Press Release, dated June 22, 2000, announcing consummation of the
acquisition of Grolier Incorporated (incorporated by reference to the
Company's Current Report on Form 8-K filed with the Commission on July 7,
2000).
<PAGE>
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000
------------------------------------------------------------------------------
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 hereunto duly authorized.
SCHOLASTIC CORPORATION
(Registrant)
Date: September 5, 2000 /s/ Kevin J. McEnery
------------------------------
Kevin J. McEnery
Executive Vice President & Chief
Financial Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grolier Incorporated:
We have audited the accompanying consolidated balance sheets of Grolier
Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations and accumulated
deficit, comprehensive income and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Grolier Incorporated and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/S/ ARTHUR ANDERSEN LLP
New York, New York
February 4, 2000
F-1
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
For The Years Ended December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and other revenues $ 466,328 $ 449,599 $ 433,095
Costs and expenses:
Cost of sales 96,981 102,182 102,232
Selling, collection, and general expenses 339,251 319,116 303,916
Amortization of intangible assets and goodwill 10,047 9,969 12,526
---------------------------------------------------------------------------------------------
446,279 431,267 418,674
---------------------------------------------------------------------------------------------
Operating income 20,049 18,332 14,421
Other expenses (income):
Interest, net 4,546 5,977 6,016
Foreign exchange (gains) losses (356) 31 (932)
---------------------------------------------------------------------------------------------
4,190 6,008 5,084
---------------------------------------------------------------------------------------------
Income before income taxes 15,859 12,324 9,337
Provision for income taxes (Note 9) 7,769 6,707 4,753
---------------------------------------------------------------------------------------------
Net income 8,090 5,617 4,584
Accumulated deficit - beginning of the year (149,365) (154,982) (159,566)
---------------------------------------------------------------------------------------------
Accumulated deficit - end of the year $(141,275) $(149,365) $(154,982)
=============================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE CONSOLIDATED STATEMENTS.
F-2
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For The Years Ended December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 8,090 $ 5,617 $ 4,584
Other comprehensive income (loss):
Foreign currency translation adjustments (42) (915) (7,656)
---------------------------------------------------------------------------------
Comprehensive income (loss) $ 8,048 $ 4,702 $(3,072)
=================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE CONSOLIDATED STATEMENTS.
F-3
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As Of December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Note 2) $ 10,285 $ 14,625
Accounts receivable:
Installment sales contracts, less unearned finance
charges of $7,084 in 1999 and $9,476 in 1998 (Note 2) 112,302 108,558
Trade and other (Notes 5 and 15) 113,048 97,797
-----------------------------------------------------------------------------------
225,350 206,355
Less allowances for doubtful accounts and returns 82,587 78,751
-----------------------------------------------------------------------------------
142,763 127,604
Note and interest receivable from affiliate (Note 15) -- 51,515
Inventories:
Paper, cloth, and books in process 6,888 8,469
Finished books 43,712 44,560
Collectibles, cards and other merchandise 10,680 9,594
-----------------------------------------------------------------------------------
61,280 62,623
Prepaid promotion and other expenses (Note 2) 53,528 55,275
-----------------------------------------------------------------------------------
Total current assets 267,856 311,642
Plates and revision costs, net (Note 2) 49,772 49,573
Property, plant, and equipment at cost less
accumulated depreciation of $37,537 in 1999 and
$36,871 in 1998 (Notes 2 and 13) 23,482 23,276
Intangible assets (Note 2):
Product rights, net 28,013 28,655
Trademarks, net 17,743 18,372
Customer lists, net 1,576 1,773
Goodwill less accumulated amortization of $68,902 in 1999
and $63,018 in 1998 (Note 2) 166,234 172,118
Deferred charges and other assets 7,601 6,874
-----------------------------------------------------------------------------------
TOTAL ASSETS $562,277 $612,283
===================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE CONSOLIDATED BALANCE SHEETS.
F-4
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As Of December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
LIABILITIES:
Notes payable (Note 6) $ 26,389 $ 25,419
Notes and interest payable to affiliates (Note 15) 13,049 12,034
Long-term debt, current portion (Note 7) 53 55,194
Accounts payable (Note 15) 21,512 21,152
Accrued liabilities (Note 8) 51,870 54,419
Income taxes currently payable (Note 9) 2,090 3,109
Deferred income taxes (Note 9) 5,216 5,176
--------------------------------------------------------------------------------
Total current liabilities 120,179 176,503
Long-term debt, less current portion (Note 7) 30,019 35,185
Deferred income taxes (Note 9) 19,903 16,551
Other long-term liabilities (Notes 8 and 11) 12,088 12,004
--------------------------------------------------------------------------------
Total liabilities 182,189 240,243
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares
authorized; 100 shares issued and outstanding -- --
Additional contributed capital 531,200 531,200
Accumulated deficit (141,275) (149,365)
Cumulative translation adjustment (9,837) (9,795)
--------------------------------------------------------------------------------
Total stockholder's equity 380,088 372,040
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 562,277 $ 612,283
================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE CONSOLIDATED BALANCE SHEETS.
F-5
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 8,090 $ 5,617 $ 4,584
Adjustments to reconcile net income to net
cash provided from operating activities:
Amortization of intangible assets and goodwill 10,047 9,969 12,526
Depreciation and amortization 15,667 15,860 15,143
Deferred income taxes 5,621 4,546 3,500
-----------------------------------------------------------------------------------------------------
39,425 35,992 35,753
Decrease (increase) in assets and (decrease) increase
in liabilities:
Accounts receivable, net (14,859) (7,992) 782
Inventories 1,926 (2,206) (4,694)
Prepaid promotion and other expenses 2,041 (3,513) (1,979)
Accounts payable (11) (988) (7,507)
Other liabilities (5,689) 1,300 2,517
-----------------------------------------------------------------------------------------------------
(16,592) (13,399) (10,881)
-----------------------------------------------------------------------------------------------------
Net cash flows provided from operating activities 22,833 22,593 24,872
CASH FLOWS (USED FOR) PROVIDED FROM INVESTMENT ACTIVITIES:
Additions to plates and revision costs (12,325) (14,217) (13,425)
Purchases of property, plant, and equipment (4,814) (3,828) (3,173)
Collections on Scarecrow Press notes receivable 375 500 500
Acquisition of Weldon (3,271) -- --
All other transactions - net (658) (1,779) 881
-----------------------------------------------------------------------------------------------------
Net cash flows used for investment activities (20,693) (19,324) (15,217)
-----------------------------------------------------------------------------------------------------
CASH FLOWS (USED FOR) PROVIDED FROM FINANCING ACTIVITIES:
Increase in notes payable 2,519 16,244 6,383
Decrease (increase) in notes receivable 51,515 (51,515) --
Additions to long-term debt -- 43,970 --
Reductions of long-term debt (60,307) -- (16,290)
-----------------------------------------------------------------------------------------------------
Net cash flows (used for) provided from financing (6,273) 8,699 (9,907)
activities
Effect of exchange rate changes on cash and cash equivalents (207) 198 (454)
-----------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (4,340) 12,166 (706)
Cash and cash equivalents, beginning of the year 14,625 2,459 3,165
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 10,285 $ 14,625 $ 2,459
=====================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE CONSOLIDATED STATEMENTS.
F-6
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. NATURE OF OPERATIONS
Grolier Incorporated and its domestic and foreign subsidiaries ("Grolier" or
the "Company") is a worldwide publisher and marketer of children's books,
encyclopedias, print and electronic reference sets, educational materials,
and collectibles. The Company markets its products in the United States,
Canada, the United Kingdom and in eight countries in the Asia Pacific region,
including Australia. Direct marketing operations in the United States,
Canada, and United Kingdom are the primary source of the Company's revenues.
Another significant portion of the Company's revenues is provided from the
sale of books to school and public libraries through specialized sales forces
predominantly in the United States and United Kingdom. In addition, the
Company's electronic publishing products are sold through dealers and
distributors and directly to school and public libraries and consumers.
The carrying amount of total assets in the Asia Pacific region was
$31,101,000 and $31,762,000 as of December 31, 1999 and 1998, respectively.
These operations borrow funds in their local currency providing a natural
hedge against the effect of foreign exchange fluctuations on existing assets.
2. ACCOUNTING POLICIES
The accompanying consolidated financial statements represent a consolidation
of the accounts of Grolier, an indirect wholly owned subsidiary of Lagardere
North America, Inc. ("LNA"), whose ultimate parent is Lagardere S.C.A. (the
"Parent"). All intercompany transactions have been eliminated.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions by
management. As a result, reported amounts of assets, liabilities, revenues,
and expenses, as well as disclosures of contingent assets and liabilities,
may differ from actual results.
Revenues are recognized upon shipment of merchandise. When revenue is
recognized, an allowance is established for expected future returns based on
historical sales and sales returns.
Installment sales contracts receivable due after one year are included in
current assets in accordance with recognized trade practice. The portion of
the December 31, 1999 balance that will not be collected during 2000 is
estimated at 21.1 percent or $25,182,000 (32.9 percent or $38,878,000 in
1998). Based on its collection and return experience on installment sales
contracts and trade receivables, the Company has provided an allowance for
estimated losses by charges to results of operations.
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Prepaid promotion and other expenses include costs of direct mail, telephone,
and other similar promotions which will be amortized over the projected sales
response during the next year. At December 31, 1999 and 1998, $43,826,000 and
$46,275,000, respectively, of deferred circularizing and advertising costs
were reported as assets. Circularizing and advertising expenses charged to
the results of operations were $117,298,000, $110,216,000 and $95,209,000 in
1999, 1998 and 1997, respectively.
Plate costs, which include editorial costs and costs of major revisions of
publications, are deferred until publication date and are charged to results
of operations over the estimated lives of the publications. These estimated
lives range from 2 to 20 years depending on the type and class of
publication.
F-7
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
Property, plant, and equipment are stated at cost and are depreciated using
the straight-line method over either the estimated useful lives of the
related assets or, for capital leases, the terms of the related leases. The
estimated useful lives of major categories of assets are as follows:
Buildings 31.5 years
Building and leasehold improvements 10 years
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Automobiles and trucks 3-4 years
Computer hardware 3 years
Capital expenditures with an estimated useful life less than one year or for
insignificant amounts are charged to expense as acquired. The effect of this
policy on the Company's balance sheet and operating results is not
significant.
Product rights, trademarks, and customer lists are stated net of accumulated
amortization of $115,547,000 and $111,742,000 as of December 31, 1999 and
1998, respectively. These intangibles are being amortized over their
respective estimated lives which range from 10 to 40 years. Goodwill of
$235,136,000 is being amortized on a straight-line basis over forty years. In
evaluating the value and future benefit of these assets, the recoverability
from operating income is measured. Under this approach, the estimated future
undiscounted cash flows associated with these assets is compared to the
asset's carrying value to determine if a reduction is required. No such
reduction in carrying value has been recorded.
The Company uses forward contracts and options to hedge the risk of changes
in foreign currency rates associated with obligations denominated in foreign
currency. Gains and losses on the forward contracts and options are
recognized in the results of operations and offset the foreign exchange gains
and losses on the related transaction. (See Note 14).
The Company has an Incentive Compensation Plan which provides awards to
designated managers of the Company for current and long term performance.
Awards, based primarily on a manager's unit performance and partially on
total company performance, are charged to operations as earned. Awards
related to current performance are paid shortly after the conclusion of the
measurement period. Awards related to long term performance are deferred,
then paid at the end of the subsequent three years. These awards can be
reduced if subsequent performance does not meet long term targets.
Adjustments resulting from translation of assets and liabilities in foreign
locations are reflected as a separate component of stockholder's equity.
For purposes of the Consolidated Statements of Cash Flows, short-term
investments which have a maturity of ninety days or less when purchased are
considered cash equivalents. Supplemental cash flow information and noncash
activities which impacted the Company's balance sheets, but neither provided
nor used cash, and accordingly, have been excluded from the Consolidated
Statements of Cash Flows are as follows (Amounts in thousands):
1999 1998 1997
---- ---- ----
Interest paid $5,108 $6,381 $6,088
Income taxes paid $2,792 $1,249 $1,833
Capital lease obligations assumed $ - $ 130 $ 47
Net book value of assets sold or transferred $ 365 $ 230 $ 82
F-8
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The deferred tax provision is determined under the liability method. Under
this method, deferred tax assets and liabilities have been recognized for the
expected future tax consequences of existing differences between the
financial reporting and tax reporting bases of assets and liabilities using
presently enacted tax rates. (See Note 9).
The expected cost of postretirement benefits other than pensions is
recognized in the financial statements over the expected employee service
life. (See Note 11).
3. ACQUISITION
On June 30, 1999, the Company acquired substantially all of the net assets
and distribution rights of Weldon-By-Mail Pty. Ltd., an Australian company,
for approximately $3,460,000. The purchase price of the net assets has been
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The purchase price, and related
expenses, of the distribution rights is included in Product rights in the
Consolidated Balance Sheet as of December 31, 1999, and is being amortized on
a straight-line basis over 40 years.
4. SEGMENT INFORMATION
The Company's operations are categorized in the three segments identified
below. Such segment classification reflects the nature of products and
services consistent with how the chief operating decision maker assesses
operating performance and allocates resources.
The Company's segments are:
Direct Marketing includes the distribution of children's books and
collectibles in the United States, Canada and United Kingdom to parents of
children through telemarketing and wholesale channels.
Publishing includes the publication and distribution of children's books,
encyclopedias, print and electronic reference sets, and educational materials
in the United States, Canada and United Kingdom to schools and public
libraries through specialized sales forces.
International includes the distribution of products and services by the
Company's operations located in eight countries in the Asia Pacific region,
including Australia.
F-9
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The following table sets forth information for the fiscal years ended December
31, 1999, 1998 and 1997 (Amounts in thousands):
<TABLE>
<CAPTION>
U.S. INT'L TOTAL
DIRECT DIRECT DIRECT U.S. INT'L TOTAL
MKTG MKTG MTKG PUBL PUBL PUBL INT'L
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Net sales and other revenues $ 272,605 $ 61,002 $ 333,607 $ 80,965 $ 20,402 $ 101,367 $ 31,354
Depreciation and amortization 1,743 353 2,096 9,085 2,395 11,480 248
Amortization of intangible assets
and goodwill -- -- -- -- -- -- --
Royalty advance expense 13,165 2,795 15,960 4,045 1,386 5,431 306
Interest expense -- 850 850 -- 97 97 1,290
Operating income/(loss) 20,227 6,936 27,163 5,408 853 6,261 4,576
Segment assets 145,479 49,037 194,516 85,939 17,956 103,895 30,541
Long-lived assets 3,793 849 4,642 45,277 3,574 48,851 2,767
Expenditures for long-lived assets 2,231 631 2,862 9,811 1,756 11,567 2,645
1998
Net sales and other revenues $ 263,096 $ 57,746 $ 320,842 $ 74,842 $ 23,822 $ 98,664 $ 30,093
Depreciation and amortization 1,922 310 2,232 9,528 2,059 11,587 224
Amortization of intangible assets
and goodwill -- -- -- -- -- -- --
Royalty advance expense 13,344 2,505 15,849 3,427 996 4,423 291
Interest expense -- 1,123 1,123 -- 160 160 1,554
Operating income/(loss) 25,317 5,159 30,476 1,178 196 1,374 4,564
Segment assets 130,397 36,822 167,219 86,858 18,868 105,726 34,027
Long-lived assets 3,564 578 4,142 44,528 4,294 48,822 415
Expenditures for long-lived assets 3,431 581 4,012 10,480 2,084 12,564 130
1997
Net sales and other revenues $ 233,381 $ 56,894 $ 290,275 $ 76,349 $ 25,036 $ 101,385 $ 41,435
Depreciation and amortization 1,686 173 1,859 9,866 1,494 11,360 220
Amortization of intangible assets
and goodwill -- -- -- -- -- -- --
Royalty advance expense 11,937 2,336 14,273 3,607 642 4,249 458
Interest expense -- 443 443 -- 154 154 1,623
Operating income/(loss) 22,086 5,239 27,325 (1,549) 852 (697) 8,143
Segment assets 112,508 31,827 144,335 88,146 20,925 109,071 34,908
Long-lived assets 2,295 321 2,616 43,624 4,313 47,937 495
Expenditures for long-lived assets 1,662 126 1,788 10,100 2,728 12,828 285
</TABLE>
<TABLE>
CORPORATE
AND
OTHER CONSOLIDATED
<S> <C> <C>
1999
Net sales and other revenues $ -- $ 466,328
Depreciation and amortization 1,843 15,667
Amortization of intangible assets
and goodwill 10,047 10,047
Royalty advance expense -- 21,697
Interest expense 2,627 4,864
Operating income/(loss) (17,951) 20,049
Segment assets 233,325 562,277
Long-lived assets 230,560 286,820
Expenditures for long-lived assets 2,402 19,476
1998
Net sales and other revenues $ -- $ 449,599
Depreciation and amortization 1,817 15,860
Amortization of intangible assets
and goodwill 9,969 9,969
Royalty advance expense -- 20,563
Interest expense 3,475 6,312
Operating income/(loss) (18,082) 18,332
Segment assets 305,311 612,283
Long-lived assets 240,388 293,767
Expenditures for long-lived assets 1,339 18,045
1997
Net sales and other revenues $ -- $ 433,095
Depreciation and amortization 1,704 15,143
Amortization of intangible assets
and goodwill 12,526 12,526
Royalty advance expense -- 18,980
Interest expense 3,960 6,180
Operating income/(loss) (20,350) 14,421
Segment assets 255,257 543,571
Long-lived assets 250,866 301,914
Expenditures for long-lived assets 1,697 16,598
</TABLE>
5. NOTES RECEIVABLE
The Company held two promissory notes related to its sale in 1995 of
Scarecrow Press, Inc. which bear interest at prime plus one percent. The
first note had a face value of $1,750,000, and principal and interest were
receivable in quarterly installments commencing March 31, 1996 through final
maturity in June 1999. The unpaid balance as of December 31, 1998 was
$250,000. The second note had a face value of $250,000, and principal and
interest were receivable in two installments due in September and December
1999. The installment due December 1999 was received in January 2000.
Amounts due within one year ($125,000 and $500,000) are included in Trade and
other receivables in the Consolidated Balance Sheets as of December 31, 1999
and 1998, respectively.
F-10
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
6. NOTES PAYABLE
In April 1996, the Company entered into a letter agreement for an unsecured
$5,000,000 revolving credit note with Banque Nationale de Paris. The Company
may borrow US dollars or Eurodollars for loans with periods up to three
months in multiples of $1,000,000. The US dollar loans bear interest at the
bank's cost of funds plus margins which are mutually agreed upon on a case by
case basis. Eurodollar loans bear interest at the London Inter-Bank Offered
Rate (LIBOR) plus the cost of any applicable reserves and margins which are
mutually agreed upon on a case by case basis. Interest is payable at the
maturity of each loan. As of December 31, 1999 and 1998, there were no loans
outstanding under this letter agreement. The agreement is cancelable at any
time by either party. The average interest rates related to these borrowings
were 5.74 percent and 6.15 percent for the years ended December 31, 1999 and
1998, respectively.
International short-term borrowings from banks, all of which were in
international currencies, averaged approximately $26,041,000 and $22,241,000
with average interest rates related to these borrowings of approximately 8.1
percent and 12.1 percent for the years ended December 31, 1999 and 1998,
respectively. Unused international short-term lines of credit at December 31,
1999 amounted to $5,807,000 worldwide ($8,799,000 at December 31, 1998),
substantially all of which provide for borrowings on an unsecured basis.
The maximum amount of short-term borrowings outstanding from banks
during the year ended December 31, 1999 was $27,359,000 ($26,471,000
in 1998). (See Note 16).
7. LONG-TERM DEBT
The Company had the following long-term indebtedness (Amounts in thousands):
1999 1998
------- --------
Revolving credit loans $30,000 $ 90,000
Capital lease obligations (Note 12) 72 379
------- --------
Total debt 30,072 90,379
Less current portion 53 55,194
------- --------
Total long-term debt $30,019 $35,185
======= =======
In July 1995, the Company executed a credit agreement (the "Credit
Agreement") with six banks which provided an unsecured line of credit up to
$100,000,000 through July 13, 1998; at which date the Company executed an
amendment to the Credit Agreement which extended the maturity to July 12,
2001. The line of credit can be used to obtain revolving credit loans and
standby and commercial letters of credit. Borrowings can be made at LIBOR
plus 0.55 percent or prime at the time of borrowing. Additionally, the
Company is obligated to pay a commitment fee of .1875 percent on the unused
portion of the line and additional fees on the outstanding letters of credit.
As of December 31, 1999 and 1998, the Company had one letter of credit
outstanding of $1,000,000. Excluding the effects of interest rate protection
agreements, the 1999 weighted average interest rate for borrowings under the
Credit Agreement was 6.04 percent (6.34 percent in 1998).
F-11
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The Company has interest rate protection agreements which were obtained to
hedge against changes in short-term interest rates. These agreements cover a
portion of the revolving credit loans outstanding during 1999 and 1998. All
amounts received or paid under hedged interest rate protection agreements are
classified as interest expense. The all inclusive weighted average rate
including the cost of these arrangements for borrowings outstanding during
1999 was 6.09 percent (6.62 percent in 1998). See Note 14 for further
disclosures regarding the fair value of the agreements.
Under the terms of the Credit Agreement, the Company is subject to covenants
which limit among other things debt, liens, contingent obligations,
investments, and cash dividends. The Company continues to be in compliance
with such covenants. (See Note 16).
8. BUSINESS RESTRUCTURING
In 1995, the Company substantially completed the relocation of its publishing
operations from Chicago, IL to the Company's headquarters in Danbury, CT. The
Company is still obligated by a noncancelable operating lease for the Chicago
office space which expires in 2001. Lease payments of approximately $842,000
and $854,000 have been made in 1999 and 1998 respectively, and charged to the
restructuring reserve established in 1994. Charges for the noncancelable
lease obligation are partially offset by income from subleases of $418,000
and $247,000 for the years ended December 31, 1999 and 1998, respectively. As
a result of an additional sublease agreement obtained in 1998, the Company
allocated a portion (approximately $724,000) of its excess 1994 restructuring
reserve to Selling, collection and general expenses. In 1998, the Company
also allocated a portion (approximately $507,000) of its excess 1994
restructuring reserve to the reorganization of its Canadian operations in
1998 (see below). As of December 31, 1999, the remaining reserve balance is
included in Accrued liabilities ($487,000) and Other long-term liabilities
($330,000). It is intended to cover the remaining noncancelable lease
obligation.
In 1999, the Company substantially completed the reorganization of its
Canadian operations (initiated in 1998). In 1998, the Company allocated
approximately $507,000 of its excess 1994 restructuring reserve for the
relocation of its publishing operations to establish a reserve for the exit
costs associated with the Canadian reorganization. Payments of approximately
$359,000 and $79,000 have been made in 1999 and 1998, respectively, and
charged to the reserve established in 1998. As of December 31, 1998, the
remaining reserve balance of $428,000 is included in Accrued liabilities.
9. INCOME TAXES
The Company's provisions (credits) for income taxes were as follows (Amounts
in thousands):
1999 1998 1997
------- ------- -------
United States - deferred $ 6,280 $ 5,437 $ 3,357
Foreign:
Current 1,823 1,961 803
Deferred (659) (891) 143
------- ------- -------
1,164 1,070 946
State - current 325 200 450
------- ------- -------
$ 7,769 $ 6,707 $ 4,753
======= ======= =======
F-12
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The provision for deferred income taxes is based on the liability method and
represents the change in the Company's deferred income tax liability during
the year, including the effect, if any, of enacted rate changes. Deferred
income taxes arise as a result of temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. The major temporary differences which give rise to the net
deferred tax liability are:
Prepaid expense amortization
Bad debt reserves
Returns reserves
Inventory reserves
Inventory cost capitalization
Fixed asset depreciation
The Company's effective income tax rate differs from the United States
federal statutory rate for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Computed federal statutory rate 35.0% 35.0% 35.0%
State income taxes 0.3 (0.6) 0.3
Foreign tax provisions 5.8 7.8 4.1
Certain non-deductible expenses, principally
amortization of intangible assets and goodwill 7.9 12.2 11.6
---- ---- ----
Effective tax rate 49.0% 54.4% 51.0%
==== ==== ====
</TABLE>
The Company and LNA have entered into a joint tax sharing agreement along
with other affiliates, which allocates certain federal income tax liabilities
and benefits among members of the consolidated group. Future tax benefits or
taxes payable (current and deferred) are recognized only to the extent that
the Company could record such amounts on a separate company basis. As of
December 31, 1999, there were no amounts due or receivable under the
agreement.
The Company is included in the consolidated tax return of LNA, and had, for
federal income tax purposes at the end of 1998 fully utilized all of its net
operating loss carryforwards which were subject to the separate return
limitation year rules. In addition, the Company has no U.S. alternative
minimum tax credits which can be offset against future U.S. income taxes.
At December 31, 1999 and 1998, deferred taxes were classified in the
Consolidated Balance Sheets, as follows (Amounts in thousands):
1999 1998
-------- --------
Deferred tax liability $ 44,885 $ 42,442
Deferred tax asset (19,766) (20,715)
-------- --------
Net deferred tax liability 25,119 21,727
Less: Current net deferred tax
liability 5,216 5,176
-------- --------
Noncurrent net deferred $ 19,903 $ 16,551
tax liability ======== ========
Based on the Company's business plan, management is of the opinion that it is
more likely than not that the deferred tax asset at December 31, 1999 will be
realized.
F-13
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. PENSION COSTS
The Company has a trusteed defined benefit pension plan which is available
to substantially all U.S. employees. The Company makes contributions to the
plan pursuant to Internal Revenue Service regulations. Plan assets
include investments in various regulated investment companies with
specific investment objectives.
The Company's Canadian subsidiary has a pension plan which covers
substantially all Canadian employees. Plan assets include marketable
equity and debt securities.
Pension expense for the U.S. plan included in selling, collection, and
general expenses on the accompanying Consolidated Statements of
Operations and Accumulated Deficit amounted to approximately $100,000,
$14,000 and $95,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Special early retirement plans were offered to Canadian Plan members in 1998
and 1997. In 1998, all members affected by the closing of two divisions
who were at least 40 years of age at the date of closing (December 31,
1998) were eligible to receive reduced pension benefits commencing as
early as age 50 instead of age 55. In 1997, all members whose sum of
their age and service was equal to at least 80 were eligible to retire
during the period from October 1, 1997 to December 1, 1997 and receive
special early retirement benefits. These programs did not have a material
effect on the Company's results of operations.
The following table sets forth the pension plan status as of December 31,
1999 and 1998 and amounts recognized in the Company's Consolidated
Balance Sheets for the Company's U.S. and Canadian plans (Amounts in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
U.S. CANADA U.S. CANADA
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fair value of plan assets $ 65,107 $ 8,581 $ 57,578 $ 7,431
-------- -------- -------- --------
Projected benefit obligation (Including vested
benefits of $44,834 and $5,711 for the
U.S. and Canadian plans, respectively, in
1999 $47,998 and $5,089 in 1998) (51,695) (5,937) (55,611) (5,645)
-------- -------- -------- --------
Funded status $ 13,412 $ 2,644 $ 1,967 $ 1,786
======== ======== ======== ========
Prepaid pension cost $ 1,370 $ 2,708 $ 1,470 $ 2,537
Employer contributions $ -- $ -- $ -- $ --
Plan participant contributions $ -- $ -- $ -- $ --
Benefits paid by plan $ 3,501 $ 1,205 $ 3,583 $ 892
</TABLE>
The above table assumes an expected long-term rate of return on plan assets
of 10 percent for the U.S. plan and 9 percent for the Canadian plan in both
years. An assumed compensation increase of 4.5 percent was used for both
plans in 1999 and 1998. The discount rate used in determining the actuarial
present value of accumulated plan benefits was 8 percent for the U.S. plan
and 7.25 percent for the Canadian plan for the year ended December 31, 1999
(7 percent for the U.S. plan and 7.25 percent for the Canadian plan in 1998).
The Company also sponsors a defined contribution 401(k) plan which covers
substantially all eligible employees of the Company's domestic subsidiaries.
The Company's expense amounted to approximately $306,000, $275,000 and
$250,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
F-14
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a defined benefit postretirement health care
plan that covers substantially all full-time U.S. employees.
The plan pays stated percentages of most necessary medical expenses
incurred by retirees, after subtracting payments by Medicare or other
providers and after a stated deductible has been met. Participants become
eligible for the benefits if they retire from the Company having attained
age 55 with 10 years of service, or attaining age 65. Employees who retire
at age 65 or later or after age 55 with 25 years of service receive coverage
at no cost. Employees who retire early with less than 25 years of service
pay a small monthly premium until age 65. Retirees can elect to cover
dependents provided they agree to contribute monthly premiums determined
annually. The Company does not fund the plan.
The following table reconciles the plan's accumulated postretirement
benefit obligation to the accrued postretirement health care cost liabilit
as reflected on the Consolidated Balance Sheets as of December 31, 1999
and 1998 (Amounts in thousands):
1999 1998
------- -------
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ 1,918 $ 1,382
Fully eligible active participants 100 80
Other active participants 647 685
------- -------
2,665 2,147
Fair value of plan assets -- --
Unrecognized net (loss) gain (40) 362
------- -------
Accrued postretirement health care
cost liability $ 2,625 $ 2,509
======= =======
Net postretirement health care expense (benefit) amounted to approximately
$298,000, $29,000 and $(50,000) for the years ended December 31, 1999, 1998
and 1997, respectively.
For measurement purposes, a 6 percent annual rate of increase in the per
capita cost of covered health care claims for all employees was assumed for
1999 (7 percent in 1998); the rate was assumed to decrease to 5 percent in
2000 and remain at that level thereafter. Increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1999 by
$276,000 and the aggregate of the service and interest cost components of net
postretirement health care cost for the year then ended by $39,000 ($216,000
and $29,000, respectively for 1998). The discount rate used in determining
the accumulated postretirement benefit obligation was 8 percent as of
December 31, 1999 (7 percent as of December 31, 1998).
F-15
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
12. COMMITMENTS AND CONTINGENCIES
The Company utilizes office and warehouse space and certain equipment under
operating and capital lease arrangements.
The following table summarizes the Company's future obligations under these
leases at December 31, 1999 (Amounts in thousands):
Capital Operating Sublease
Leases Leases Income
------ ------ ------
2000 $ 53 $1,903 $ 424
2001 28 1,214 298
2002 -- 458 --
2003 -- 274 --
2004 -- 137 --
2005 and thereafter -- 464 --
------ ------ ------
Total minimum lease payments 81 $4,450 $ 722
====== ======
Less amount representing interest 9
------
Present value of minimum lease payments $ 72
======
Rent expense for operating leases amounted to $2,571,000, $2,611,000 and
$2,675,000 in 1999, 1998 and 1997. The Company had income from a sublease
of office space, net of related expenses, of $418,000, $247,000 and
$86,000 in 1999, 1998 and 1997, respectively.
The Company is party to a management services contract with an Indonesian
company. As part of the relationship, the Company guarantees a $1,000,000
line of credit. At December 31, 1999 and 1998, the amount outstanding on
the line was $592,000 and $302,000, respectively.
Certain states have enacted laws purporting to require out-of-state
retailers to collect and remit taxes on sales into those states and the
Company has received assessments under certain of these statutes, which are
being vigorously protested. The U.S. Supreme Court has held that imposition
by the state of a use tax on an out-of-state company which solicits
customers in a state through the mail, and is not otherwise physically
present in a state, imposes an unconstitutional burden on interstate
commerce. However, the issue of whether or not a direct marketer may
properly be subject to state tax, should other circumstances be present,
has not been fully resolved. Action on these assessments is presently
dormant. The Company believes that the ultimate outcome of this matter
will not have a materially adverse effect on its financial position or
results of operations.
F-16
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The Company has loss contingencies with respect to various litigation, taxes
in certain foreign locations, and other matters, the ultimate resolution of
which management believes will not be material to the Company's financial
position or results of operations.
13.PROPERTY, PLANT, AND EQUIPMENT
Net property, plant, and equipment at December 31, 1999 and 1998 consisted of
the following (Amounts in thousands):
1999 1998
------ ------
Land $ 2,904 $ 2,904
Buildings and improvements 21,460 21,187
Computer hardware 14,409 12,567
Computer system applications 9,018 10,930
Leasehold improvements 1,859 1,615
Machinery and equipment 5,364 5,048
Furniture and fixtures 4,703 4,786
Automobiles and trucks 1,302 1,110
------- ------
61,019 60,147
Less accumulated depreciation 37,537 36,871
------- ------
Net property, plant and equipment $23,482 $23,276
======= =======
The Company leases certain computer hardware and automobiles which are
classified as capital leases. The lease terms range from 1 to 5 years. The
leases have purchase options at the end of the lease term. Leased capital
assets included in property, plant, and equipment at December 31, 1999 and
1998 are as follows (Amounts in thousands):
1999 1998
------ -------
Computer hardware $ 111 $ 645
Automobiles 47 58
------ -------
158 703
Accumulated depreciation 79 403
------ -------
$ 79 $ 300
====== =======
14.FINANCIAL INSTRUMENTS
The Company uses interest rate protection agreements (options and swaps) to
hedge against fluctuations in the variable interest rates associated with
borrowings under its credit agreements. Approximately $56,000 and $120,000 of
losses and $14,000 of gains were recognized on options and swaps and are
included in net interest expense in the Consolidated Statements of Operations
and Accumulated Deficit for the years ended December 31, 1999, 1998 and 1997,
respectively.
There were no interest rate options or swaps outstanding as of December 31,
1999.
F-17
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
Foreign subsidiaries of the Company purchase foreign currency contracts and
options from major financial institutions to hedge U.S. dollar purchases of
inventory. All foreign currency contracts and options settle within one year.
Gains and losses are recognized at settlement.
A summary of the forward contracts in place at December 31 is as follows
(Amounts in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ----------------------------
Fair Contract Fair Contract Fair Contract
Value Amount Value Amount Value Amount
----------- --------------- ----------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Buy currency $ 7,057 $ 7,000 $ 9,680 $ 10,000 $ 8,299 $ 8,400
Contract duration 1/00-12/00 1/99-10/99 1/98-12/98
</TABLE>
The fair value of foreign currency contracts is estimated by obtaining quotes
from brokers. The carrying amounts of all other financial instruments
included in the accompanying consolidated financial statements approximates
fair market value.
15.RELATED PARTY TRANSACTIONS
The Company both purchases and sells certain merchandise and services with,
pays loans to and receives loans from LNA and affiliates. All transactions
with LNA and affiliates are conducted at arm's length.
The following intercompany demand notes receivable and payable, including
accrued interest, are reflected in the Consolidated Balance Sheets at
December 31, 1999 and 1998 (Amounts in thousands):
1999 1998
-------- ---------
NOTE RECEIVABLE:
---------------
LNA, interest at 6.28% $ - $ 51,515
NOTES PAYABLE:
-------------
LNA, interest at 5.7% $ 13,049 $ 9,033
MCN SAT US, interest at 5.26% - 3,001
-------- ---------
$ 13,049 $ 12,034
======== =========
The following intercompany balances are reflected in the Consolidated
Balance Sheets and are included in Accounts Receivable and Accounts
Payable at December 31, 1999 and 1998 (Amounts in thousands):
1999 1998
------ ------
RECEIVABLES:
-----------
LNA $ 35 $ 23
Grolier Interactive Europe 3 3
Grolier Interactive UK - 217
Livre de Paris 21 1
Hachette Edition - 30
Matra Hachette General 157 166
Matra Transit 2 -
Hachette Livre - 14
------ ------
$ 218 $ 454
====== ======
F-18
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1999 1998
----- ------
PAYABLES:
--------
LNA $ 44 $ 44
Grolier Interactive Europe 1 6
Grolier Interactive UK 58 123
Livre de Paris 50 47
Hachette Filipachi Grolier 55 76
Matra Transit - 599
Groupe Salvat - 13
----- ------
$ 208 $ 908
===== ======
The following intercompany activity is reflected in the Consolidated
Statements Of Operations and Accumulated Deficit (Amounts in thousands):
1999 1998 1997
---- ----- -----
REVENUES:
--------
LNA $ 48 $ 47 $ 46
Grolier Interactive UK 14 74 288
Livre de Paris 24 5 19
Hachette Edition - 100 142
Matra Hachette General - 66 91
Hachette Livre - 14 -
Groupe Salvat - 23 49
Grolier Interactive Europe - - 5
Grolier Hachette
International - - 44
Hachette Filipachi Grolier - - 6
---- ----- -----
$ 86 $ 329 $ 690
==== ===== =====
1999 1998 1997
---- ----- -----
EXPENSES:
--------
LNA $ 176 $ 176 $ 176
Grolier Interactive UK 40 - 179
Livre de Paris 88 130 110
Matra Hachette General 2,182 2,172 2,079
Hachette Filipachi Grolier 1 54 26
Groupe Salvat 55 366 328
Grolier Interactive Europe - - 2
------- ------- -------
$ 2,542 $ 2,898 $ 2,900
======= ======= =======
F-19
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
In July 1998, the Company consummated the simultaneous purchase of a Canadian
division of an affiliate of LNA and sale of such division to an unrelated
third party. Since this was a related party transaction, no gain or loss was
recognized in the accompanying financial statements. Available Canadian net
operating loss carryforwards and current year operating losses sheltered the
gain from this transaction from any tax liability
16.SUBSEQUENT EVENT (UNAUDITED)
On June 22, 2000, pursuant to a Stock Purchase Agreement dated as of April
13, 2000 and as amended, Scholastic Inc., a wholly-owned subsidiary of
Scholastic Corporation ("Scholastic") acquired all of the issued and
outstanding capital stock of Grolier for $400,000,000 in cash. No Grolier
debt, as discussed in Notes 6 and 7, was assumed by Scholastic in connection
with the acquisition.
F-20
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
For The Period From January 1, 2000 To
June 22, 2000 And For The Six Months Ended
June 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Period From For The Six
January 1, 2000 Months Ended
To June 22, 2000 June 30, 1999
------------------------------------------------------------------------------
<S> <C> <C>
Net sales and other revenues $ 200,253 $ 216,966
Costs and expenses:
Cost of sales 48,980 48,637
Selling, collection, and general
expenses 152,320 161,235
Amortization of intangible assets and
goodwill 5,013 5,005
------------------------------------------------------------------------------
206,313 214,877
------------------------------------------------------------------------------
Operating income (loss) (6,060) 2,089
Other expenses (income):
Interest, net 2,099 2,326
Foreign exchange (gains) losses (658) (642)
Gain on sale of WPG (5,035) --
------------------------------------------------------------------------------
(3,594) 1,684
------------------------------------------------------------------------------
Income (loss) before income taxes (2,466) 405
Provision for income taxes (3,399) 922
------------------------------------------------------------------------------
Net income (loss) 933 (517)
Accumulated deficit - beginning of the (141,275) (149,365)
period
------------------------------------------------------------------------------
Accumulated deficit - end of the period $ 140,342 $ (149,882)
===============================================================================
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS.
F-21
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
For The Period From January 1, 2000 To
June 22, 2000 And For The Six Months Ended
June 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Period From For The Six
January 1, 2000 Months Ended
To June 22, 2000 June 30, 1999
------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 933 $ (517)
Other comprehensive income (loss):
Foreign currency translation adjustments (1,772) (35)
-----------------------------------------------------------------------------
Comprehensive income (loss) $ (839) $ (552)
=============================================================================
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS.
F-22
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
As Of June 22, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
June 22, 2000
--------------------------------------------------------------------
<S> <C>
ASSETS:
Cash and cash equivalents $ 5,552
Accounts receivable:
Installment sales contracts, less unearned
finance charges 97,151
Trade and other 86,865
--------------------------------------------------------------------
184,016
Less allowances for doubtful accounts and
returns 76,033
--------------------------------------------------------------------
107,983
Note and interest receivable from affiliate 18
Inventories:
Paper, cloth, and books in process 6,347
Finished books 40,282
Collectibles, cards and other merchandise 9,842
--------------------------------------------------------------------
56,471
Prepaid promotion and other expenses 51,845
--------------------------------------------------------------------
Total current assets 221,869
Plates and revision costs, net 48,358
Property, plant, and equipment at cost less
accumulated depreciation 23,784
Intangible assets:
Product rights, net 26,611
Trademarks, net 17,429
Customer lists, net 1,478
Goodwill less accumulated amortization 163,292
Deferred charges and other assets 7,486
--------------------------------------------------------------------
TOTAL ASSETS $510,307
====================================================================
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET.
F-23
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
As Of June 22, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
June 22, 2000
---------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
LIABILITIES:
Notes payable $ 8,243
Notes and interest payable to affiliates 13,000
Long-term debt, current portion 40
Accounts payable 20,151
Accrued liabilities 43,847
Income taxes currently payable 1,899
Deferred income taxes 3,238
---------------------------------------------------------------------
Total current liabilities 90,418
Long-term debt, less current portion 30,994
Deferred income taxes 17,771
Other long-term liabilities 4,218
---------------------------------------------------------------------
Total liabilities 143,401
---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares
authorized; 100 shares issued and outstanding --
Additional contributed capital 518,857
Accumulated deficit (140,342)
Cumulative translation adjustment (11,609)
---------------------------------------------------------------------
Total stockholder's equity 366,906
---------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $510,307
=====================================================================
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET.
F-24
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Period From January 1, 2000 To June 22, 2000 And For The Six
Months Ended June 30, 1999
(Amounts In Thousands)
<TABLE>
<CAPTION>
Period From For The Six
January 1, 2000 Months Ended
To June 22, 2000 June 30, 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES: $ 30,874 $ 9,121
CASH FLOWS (USED FOR) PROVIDED FROM INVESTMENT
ACTIVITIES:
Additions to plates and revision costs (6,068) (6,527)
Purchases of property, plant, and equipment (2,917) (3,232)
Collections on Scarecrow Press notes receivable - 250
Acquisition of Weldon - (2,799)
All other transactions - net (10,985) (679)
------------------------------------------------------------------------------------------
Net cash flows used for investment activities (19,970) (12,987)
------------------------------------------------------------------------------------------
CASH FLOWS (USED FOR) PROVIDED FROM FINANCING ACTIVITIES:
Decrease in notes payable (16,421) (6,073)
Decrease (increase) in notes receivable - 51,515
Additions to long-term debt 975 -
Reductions of long-term debt - (51,277)
------------------------------------------------------------------------------------------
Net cash flows (used for) provided from financing
activities (15,446) (5,835)
Effect of exchange rate changes on cash and cash equivalents (191) (58)
------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (4,733) (9,759)
Cash And Cash Equivalents, Beginning Of The Period 10,285 14,625
-----------------------------------------------------------------------------------------
Cash And Cash Equivalents, End Of The Period $ 5,552 $4,866
=========================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS.
F-25
<PAGE>
GROLIER INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 22, 2000 AND JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements represent
a consolidation of the accounts of Grolier, an indirect wholly owned
subsidiary of Lagardere North America, Inc. ("LNA"), whose ultimate
parent is Lagardere S.C.A. (the "Parent"). All intercompany
transactions have been eliminated. 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
Grolier's audited historical consolidated financial statements included
elsewhere in this document.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions by management. As a result, reported amounts of assets,
liabilities, revenues, and expenses, as well as disclosures of
contingent assets and liabilities, may differ from actual results.
2. CONTINGENCIES
Certain states have enacted laws purporting to require out-of-state
retailers to collect and remit taxes on sales into those states and the
Company has received assessments under certain of these statutes, which
are being vigorously protested. The U.S. Supreme Court has held that
imposition by the state of a use tax on an out-of-state company which
solicits customers in a state through the mail, and is not otherwise
physically present in a state, imposes an unconstitutional burden on
interstate commerce. However, the issue of whether or not a direct
marketer may properly be subject to state tax, should other
circumstances be present, has not been fully resolved. Action on these
assessments is presently dormant. The Company believes that the
ultimate outcome of this matter will not have a materially adverse
effect on its financial position or results of operations.
The Company has loss contingencies with respect to various litigation,
taxes in certain foreign locations, and other matters, the ultimate
resolution of which management believes will not be material to the
Company's financial position or results of operations.
3. SUBSEQUENT EVENT
On June 22, 2000, pursuant to a Stock Purchase Agreement dated as of
April 13, 2000 and as amended, Scholastic Inc., a wholly-owned
subsidiary of Scholastic Corporation ("Scholastic") acquired all of the
issued and outstanding capital stock of Grolier for $400,000,000 in
cash. No Grolier debt was assumed by Scholastic in connection with the
acquisition.
F-26
<PAGE>
SCHOLASTIC CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
for Scholastic Corporation ("Scholastic") gives effect to the acquisition of
Grolier Incorporated ("Grolier") completed on June 22, 2000 for $400 million
in cash using the purchase method of accounting in accordance with generally
accepted accounting principles.
The unaudited pro forma condensed consolidated financial statements are based
upon the historical financial statements of the respective companies. The
unaudited pro forma condensed consolidated balance sheet assumes that the
acquisition took place on May 31, 2000 and combines Grolier's unaudited May
31, 2000 historical consolidated balance sheet with Scholastic's audited May
31, 2000 historical consolidated balance sheet. The unaudited pro forma
condensed consolidated statement of operations for the twelve months ended May
31, 2000 assumes that the acquisition took place on June 1, 1999 and combines
Scholastic's audited consolidated statement of operations for the twelve
months ended May 31, 2000 with Grolier's unaudited consolidated statement of
operations for the twelve months ended May 31, 2000. The unaudited pro forma
condensed consolidated financial statements are based on the estimates and
assumptions set forth in the notes to such statements.
The pro forma adjustments are based on a preliminary valuation of Grolier's
assets and liabilities. The final allocation of the purchase price will be
determined based upon an appraisal of the fair value of Grolier's tangible and
identifiable intangible assets acquired and liabilities assumed. The actual
financial position and results of operations will differ, perhaps
significantly from the unaudited pro forma amounts reflected because of a
variety of factors, including access to additional information and changes in
value not currently identified. The unaudited pro forma condensed consolidated
financial statements do not purport to be indicative of the results of
operations for future periods or the combined financial position or results
that would have been realized had the companies been a single entity during
the period presented.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical consolidated financial statements
of Scholastic included in its May 31, 2000 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on August 25, 2000 and Grolier's
historical consolidated financial statements included elsewhere in this
document.
F-27
<PAGE>
SCHOLASTIC CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year ended May 31, 2000
(Amounts in millions, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------- Scholastic
Grolier Grolier Pro Forma Pro Forma
Scholastic Grolier Adjustments(1) Adjusted Adjustments(2) Combined
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,402.5 $ 455.5 $ (14.0) $ 441.5 $ -- $ 1,844.0
Operating costs and expenses:
Cost of goods sold 678.3 103.0 (7.3) 95.7 4.3 (D) 778.3
Selling, general and administrative expenses 592.6 321.9 (6.3) 315.6 (2.5) (C) 905.7
Other operating costs:
Depreciation 19.7 13.6 -- 13.6 0.2 (D) 33.5
Goodwill and trademark amortization 4.4 10.0 -- 10.0 (1.5) (A) 12.9
Non-recurring charges 8.5 -- -- -- -- 8.5
--------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 1,303.5 448.5 (13.6) 434.9 0.5 1,738.9
--------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 99.0 7.0 (0.4) 6.6 (0.5) 105.1
Sale of WPGL -- 5.0 (5.0) -- -- --
Interest expense, net (18.6) (4.4) 0.3 (4.1) (26.5) (B) (49.2)
--------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 80.4 7.6 (5.1) 2.5 (27.0) 55.9
Provision for/(benefit from) income taxes 29.0 1.1 (0.2) 0.9 (9.7) (E) 20.2
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 51.4 $ 6.5 $ (4.9) $ 1.6 $ (17.3) $ 35.7
================================================================================================================================
Earnings per Class A and Common Share:
Basic $ 3.07 $ 2.14
Diluted $ 2.96 $ 2.09
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
F-28
<PAGE>
SCHOLASTIC CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Balances at May 31, 2000
(Amounts in millions)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------- Scholastic
Grolier Grolier Pro Forma Pro Forma
Scholastic Grolier Adjustments(1) Adjusted Adjustments(2)(F) Combined
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9.0 $ 3.1 $ (0.1) $ 3.0 $ -- $ 12.0
Accounts receivable, net 153.7 100.2 (0.6) 99.6 (0.8) 252.5
Inventories 290.7 62.8 (1.0) 61.8 (5.3) 347.2
Deferred taxes 57.2 -- -- -- -- 57.2
Prepaid and Other Current Assets 29.1 53.5 (0.1) 53.4 -- 82.5
--------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 539.7 219.6 (1.8) 217.8 (6.1) 751.4
--------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 176.4 24.3 (0.1) 24.2 4.2 204.8
OTHER ASSETS AND DEFERRED CHARGES:
Prepublication costs 116.1 47.9 -- 47.9 (21.0) 143.0
Goodwill and other intangible assets 66.4 209.7 -- 209.7 3.6 279.7
Royalty advances 48.7 2.8 -- 2.8 (0.1) 51.4
Production costs 14.2 -- -- -- -- 14.2
Other 21.7 4.5 -- 4.5 6.1 32.3
--------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND DEFERRED CHARGES 267.1 264.9 -- 264.9 (11.4) 520.6
--------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 983.2 $ 508.8 $ (1.9) $ 506.9 $ (13.3) $ 1,476.8
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
F-29
<PAGE>
SCHOLASTIC CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
BALANCES AT MAY 31, 2000
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------- Scholastic
Grolier Grolier Pro Forma Pro Forma
Scholastic Grolier Adjustments(1) Adjusted Adjustments(2)(F) Combined
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit and current portion of
long-term debt $ 8.7 $ 21.2 $ -- $ 21.2 $ (21.2) $ 8.7
Accounts payable 129.7 22.2 (2.1) 20.1 5.8 155.6
Accrued royalties 32.8 8.4 -- 8.4 -- 41.2
Accrued taxes 23.8 2.4 -- 2.4 -- 26.2
Deferred revenue 10.3 2.3 -- 2.3 -- 12.6
Other accrued expenses 80.5 22.6 (0.1) 22.5 (0.7) 102.3
--------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 285.8 79.1 (2.2) 76.9 (16.1) 346.6
--------------------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 241.1 30.1 -- 30.1 369.9 641.1
Deffered taxes -- 17.9 -- 17.9 (15.9) 2.0
Other noncurrent liabilities 26.3 18.2 -- 18.2 12.6 (G) 57.1
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 267.4 66.2 -- 66.2 366.6 700.2
--------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES -- -- -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred Stock -- -- -- -- -- --
Class A Stock 0.0 -- -- -- -- --
Common Stock 0.2 -- -- -- -- 0.2
Additional paid-in capital 222.7 520.0 (4.0) 516.0 (516.0) 222.7
Accumulated other comprehensive loss (11.1) (12.5) 0.2 (12.3) 12.3 (11.1)
Retained earnings 242.8 (144.0) 4.1 (139.9) 139.9 242.8
Less: Common Stock in treasury, at cost (24.6) -- -- -- -- (24.6)
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 430.0 363.5 0.3 363.8 (363.8) 430.0
--------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 983.2 $ 508.8 $ (1.9) $ 506.9 $ (13.3) $ 1,476.8
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
F-30
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
(Amounts in millions, except per share data)
1. GROLIER ADJUSTMENTS
On June 22, 2000, Scholastic Corporation ("Scholastic") acquired all of the
issued and outstanding capital stock of Grolier Incorporated ("Grolier").
Pursuant to the stock purchase agreement, the assets of the Franklin Watts
imprint in the United Kingdom and Australia were not acquired. The Grolier
Adjustments represent the elimination of the revenues, expenses, assets and
liabilities related to these subsidiaries.
2. PRO FORMA ADJUSTMENTS
For purposes of determining the pro forma effect of the acquisition of Grolier
on Scholastic's Condensed Consolidated Statement of Income for the year ended
May 31, 2000 and the Condensed Balance Sheet as of May 31, 2000, the following
adjustments have been made:
(A) Represents annual effect of the amortization of goodwill and other
intangible assets of Grolier, amortized using a weighted average useful life
of 25 years.
(B) Represents annual effect of the incremental interest expense on amounts
borrowed by Scholastic to fund the purchase price of $400 at a weighted
average interest rate of 7.65%.
(C) Represents the elimination of management fees charged to Grolier from its
former parent.
(D) Represents adjustments to amortization and depreciation relating to certain
acquired assets including prepaid editorial costs and building which were
adjusted to their fair values. The average useful lives of these assets have
been adjusted to conform with Scholastic policies.
(E) Represents the income tax benefit of the tax deductible components of items
(2 A-D) above, at a tax rate of 36%.
(F) Represents adjustments to reflect the allocation of the $406 purchase price,
including transaction and financing costs, to the acquired assets of Grolier
based upon a preliminary allocation.
(G) Represents costs related to the acquisition, primarily consisting of
severance and anticipated close-down costs.
F-31
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
(Amounts in millions, except per share data)
3. EARNINGS PER SHARE
The following table sets forth the computation of the historical and pro forma
basic and diluted earnings per share for the year ended, May 31, 2000:
Scholastic
Historical Pro Forma
Scholastic Combined
---------- ----------
Net income for basic earnings per share $ 51.4 $ 35.7
Dilutive effect of debentures 3.5 --
-------------------------------------------------------------------------
Adjusted net income for diluted earnings per share $ 54.9 $ 35.7
Weighted average Class A and Common Shares
outstanding for basic earnings per share 16.7 16.7
Dilutive effect of shares issuable pursuant to
employee stock plans 0.4 0.4
Dilutive effect of Debentures 1.5 --
Dilutive effects of Warrants 0.0 0.0
-------------------------------------------------------------------------
Adjusted weighted average Class A and Common
Shares for diluted earnings per share outstanding 18.6 17.1
=========================================================================
Earnings per Class A and Common Share
Basic $ 3.07 $ 2.14
Diluted $ 2.96 $ 2.09
F-32
<PAGE>
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000
EXHIBIT INDEX
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE NUMBER IN SEQUENTIALLY
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT NUMBERED COPY
<S> <C> <C>
Exhibit 23 Consent of Arthur
Andersen LLP E-1
</TABLE>
