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, 2000 Commission File No. 0-19860
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3385513
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 Broadway, New York, New York 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 343-6100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Number of shares outstanding
of each class as of December 31, 2000
------------- -----------------------
Common Stock, $.01 par value 16,604,857
Class A Stock, $.01 par value 828,100
<PAGE>
SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2000
INDEX
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<TABLE>
<CAPTION>
Part I - Financial Information Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three and
Six Months Ended November 30, 2000 and 1999 1
Condensed Consolidated Balance Sheet at November 30, 2000
and 1999, and May 31, 2000 2
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended November 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Part II - Other Information
Item 4. Submission of Matters to Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT 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,
=========================================================================================================================
2000 1999 2000 1999
=========================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 668.3 $ 511.3 $ 1,030.4 $ 693.8
Operating costs and expenses:
Cost of goods sold 284.9 240.3 469.8 351.1
Selling, general and administrative expenses 270.5 185.0 445.8 284.8
Depreciation 7.1 4.7 13.3 9.3
Goodwill and other intangible amortization 4.4 1.3 6.9 2.2
Non-recurring charge -- 8.5 -- 8.5
-------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 566.9 439.8 935.8 655.9
Operating income 101.4 71.5 94.6 37.9
Interest expense, net 13.5 5.7 23.2 10.1
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 87.9 65.8 71.4 27.8
Provision for income taxes 31.6 24.5 25.7 10.1
-------------------------------------------------------------------------------------------------------------------------
Net income $ 56.3 $ 41.3 $ 45.7 $ 17.7
=========================================================================================================================
Net income per Class A and Common Share:
Basic (pre split - see footnote 10) $ 3.26 $ 2.49 $ 2.66 $ 1.07
Diluted (pre split - see footnote 10) $ 2.95 $ 2.30 $ 2.47 $ 1.05
=========================================================================================================================
</TABLE>
See accompanying notes
1
<PAGE>
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(amounts in millions, except per share data)
<TABLE>
<CAPTION>
=================================================================================================================
November 30, 2000 May 31, 2000 November 30, 1999
=================================================================================================================
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12.7 $ 9.0 $ 7.8
Accounts receivable less allowance for
doubtful accounts 307.8 153.7 246.3
Installment sale receivables less
allowance for doubtful accounts 66.8 -- --
Inventories, net 401.4 290.7 301.8
Deferred income taxes 60.7 57.2 41.9
Prepaid and other current assets 83.4 29.1 36.5
-----------------------------------------------------------------------------------------------------------------
Total current assets 932.8 539.7 634.3
Property, plant and equipment, net 212.0 176.4 159.1
Prepublication costs 137.3 116.1 98.7
Goodwill and other intangibles 278.9 66.4 69.2
Other assets and deferred charges 103.9 84.6 84.8
-----------------------------------------------------------------------------------------------------------------
Total assets $ 1,664.9 $ 983.2 $ 1,046.1
=================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of credit and current portion of
long term debt $ 26.2 $ 8.7 $ 19.6
Accounts payable 168.8 129.7 155.4
Accrued royalties 83.6 32.8 39.6
Deferred revenue 35.0 10.3 35.6
Other accrued expenses 165.9 104.3 77.6
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 479.5 285.8 327.8
Noncurrent Liabilities:
Long-term debt 649.6 241.1 312.9
Other noncurrent liabilities 43.5 26.3 22.9
-----------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 693.1 267.4 335.8
Stockholders' Equity:
Preferred Stock, $1.00 par value -- -- --
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.2 0.2 0.2
Deferred Compensation (0.2) -- --
Additional paid-in capital 232.3 222.7 216.9
Accumulated other comprehensive loss:
foreign currency translation adjustment (15.1) (11.1) (6.2)
Retained earnings 288.5 242.8 209.2
Less shares of Common Stock
held in treasury (13.4) (24.6) (37.6)
-----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 492.3 430.0 382.5
-----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,664.9 $ 983.2 $ 1,046.1
=================================================================================================================
</TABLE>
See accompanying notes
2
<PAGE>
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
(amounts in millions)
<TABLE>
<CAPTION>
==================================================================================================================
Six Months ended
November 30, November 30,
==================================================================================================================
2000 1999
==================================================================================================================
<S> <C> <C>
Net cash provided by / (used in) operating activities $ 44.2 $ (10.4)
Cash flows used in investing activities:
Business and trademark acquisition-related payments (396.4) --
Additions to property, plant and equipment (31.2) (16.4)
Prepublication costs (20.6) (23.8)
Royalty advances (13.2) (12.0)
Other (10.0) (0.4)
Production costs (7.9) (5.1)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (479.3) (57.7)
------------------------------------------------------------------------------------------------------------------
Cash flows provided by/(used in) financing activities:
Borrowings under the Grolier facility 350.0 --
Borrowings under Loan Agreement and Revolver 339.2 192.2
Repayments of Loan Agreement and Revolver (280.9) (127.4)
Borrowings under lines of credit 45.6 32.3
Repayments of lines of credit (34.7) (30.3)
Proceeds from the exercise of stock options and related tax benefits 20.5 3.9
Other (0.9) (0.7)
------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 438.8 70.0
------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3.7 1.9
Cash and cash equivalents at beginning of period 9.0 5.9
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12.7 $ 7.8
==================================================================================================================
</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"), including the consolidated accounts of Grolier Incorporated and its
subsidiaries since its acquisition on June 22, 2000, (see Note 3). These
financial statements have not been audited, but reflect those adjustments
consisting of normal recurring items which management considers necessary for a
fair presentation of financial position, results of operations and cash flow.
These financial statements should be read in conjunction with the consolidated
financial statements and related notes in the Report on Form 10-K for the fiscal
year ended May 31, 2000 as well as the Form 8-K filed in connection with the
acquisition of Grolier Incorporated, (See Note 3.)
The Company's business is closely correlated to the school year. Consequently,
the results of operations for the six months ended November 30, 2000 and 1999
are not necessarily indicative of the results expected for the full year. Due to
the seasonal fluctuations that occur, the November 30, 1999 condensed
consolidated balance sheet is included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. Actual results could differ from those estimates and
assumptions. Significant estimates that affect the financial statements include,
but are not limited to: book returns; recoverability of inventory;
recoverability of advances to authors; amortization periods; recoverability of
prepublication and film production costs; purchase price allocations; and
recoverability of other long-lived assets.
2. Recent Accounting Pronouncements
The Company has adopted the provisions of EITF Issue 00-10, "Accounting for
Shipping and Handling Fees and Costs." This Consensus states that all shipping
and handling billed to a customer in a sale transaction represent fees
earned for the goods provided and, accordingly, amounts billed related to
shipping and handling should be classified as revenue. Shipping and handling
costs are classified in cost of goods sold. Certain prior year amounts have been
reclassified in accordance with the Consensus.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires the Company to recognize
all derivatives as either assets or liabilities on the balance sheet and to
measure them at fair value. Under SFAS 133, the Company is required to adopt the
provisions of this standard in the first quarter of fiscal 2002. The Company
does not expect that the adoption of SFAS 133 will have a material impact on its
financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
required to adopt the provisions of SAB 101 no later than the fourth quarter of
fiscal 2001. The Company does not expect that the adoption of SAB 101 will have
a material impact on its financial position, results of operations or cash
flows.
4
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
In June 2000, the Accounting Standards Executive Committee issued Statement of
Position No. 00-2 ("SOP 00-2"), "Accounting by Producers or Distributors of
Films." SOP 00-2 replaces the Statement of Financial Accounting Standards No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films."
SOP 00-2 concludes that film costs should be accounted for under an inventory
model and discusses various topics such as revenue recognition, fee allocation
in multiple films, accounting for exploitation costs, and impairment assessment.
The Company is required to adopt the provisions of SOP 00-2 by the first quarter
of fiscal 2002. The Company does not expect that the adoption of SOP 00-2 will
have a material impact on its financial position, results of operations or cash
flows.
3. Acquisition of Grolier
On June 22, 2000, Scholastic Inc., a wholly-owned subsidiary of the Company,
acquired all of the issued and outstanding capital stock of Grolier Incorporated
("Grolier"), a Delaware corporation, for $400.0 in cash. The Company is
accounting for the acquisition under the purchase method of accounting.
The acquisition was financed by the Company using bank debt. Of the $400.0
Grolier purchase price, $350.0 was borrowed under a new credit facility (the
"Grolier Facility") entered into to finance the acquisition and $50.0 was
borrowed under the Company's existing Loan Agreement and Revolver, (See Note 5.)
The unaudited pro forma results of the Company, giving effect to the acquisition
of Grolier as if it was consummated as of the first day of the six-month period
ended November 30, 2000 and 1999 are as follows:
Six months ended November 30,
================================================================================
2000 1999
================================================================================
Revenues $ 1,066.0 $ 924.5
Net income $ 46.9 $ 12.6
--------------------------------------------------------------------------------
Net income per Class A and Common Share:
Basic (pre-split--See Note 10.) $ 2.73 $ 0.76
Diluted (pre-split--See Note 10.) $ 2.54 $ 0.74
The following summarizes the preliminary allocation of the $396.4 purchase price
allocation, which includes the related transaction and financing costs, to the
net assets of Grolier acquired based upon a preliminary allocation as follows:
Accounts receivable, net $105.5
Inventory 52.4
Other current assets 55.0
Property, plant and equipment, net 18.9
Goodwill and other intangibles 219.8
Other assets 54.4
Current liabilities (86.7)
Non-current liabilities (17.3)
Cash received upon acquisition of Grolier (5.6)
------
Total purchase price $396.4
======
5
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (amounts in
millions, except per share data)
================================================================================
This allocation of the purchase price is based on a preliminary valuation of
Grolier's assets and liabilities and is subject to change. The final allocation
of the purchase price will be based upon a comprehensive evaluation of the fair
value of Grolier's tangible and identifiable intangible assets acquired and
liabilities assumed.
4. Segment Information
The Company is a global children's publishing and media company with operations
in the United States, the United Kingdom, Canada, Australia, New Zealand,
Mexico, Hong Kong, India, Ireland, Argentina and Southeast Asia, and distributes
its products and services through a variety of channels, including school book
clubs, school book fairs, direct-to-home and trade.
The Company's operations are categorized in the following four segments:
Children's Book Publishing and Distribution; Educational Publishing; Media,
Licensing and Advertising; and International. Such segment classification
reflects the nature of products and services consistent with the method by which
the Company's chief operating decision-maker assesses operating performance and
allocates resources. Revenues derived from Grolier's operations are reported in
the Company's Children's Book Publishing and Distribution, Educational
Publishing and International segments.
The following table sets forth the Company's segment information for the periods
indicated:
<TABLE>
<CAPTION>
Children's
Book Media,
Publishing Licensing
and Educational and Total
Distribution Publishing Advertising Domestic International Overhead (1) Consolidated
==========================================================================================================================
Three months ended
November 30, 2000
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 445.5 $ 73.9 $ 54.9 $ 574.3 $ 94.0 $ 0.0 $ 668.3
Depreciation 1.0 0.4 1.4 2.8 1.0 3.3 7.1
Amortization (2) 4.1 14.4 3.6 22.1 0.4 0.0 22.5
Royalty advance expense 7.0 0.7 0.9 8.6 0.3 0.0 8.9
Segment profit/(loss) (3) 111.8 (8.0) 0.3 104.1 12.2 (14.9) 101.4
Expenditures for
long-lived assets (5) 12.4 8.1 4.0 24.5 2.2 14.9 41.6
==========================================================================================================================
Three months ended
November 30, 1999
==========================================================================================================================
Revenues $ 350.2 $ 52.8 $ 39.9 $ 442.9 $ 68.4 $ 0.0 $ 511.3
Depreciation 0.8 0.3 0.4 1.5 0.8 2.4 4.7
Amortization (2) 3.4 6.8 3.7 13.9 0.5 0.0 14.4
Royalty advance expense 8.9 0.4 0.6 9.9 0.7 0.0 10.6
Segment profit/(loss) (3) 93.7 (7.7) (2.6) 83.4 6.2 (18.1) 71.5
Expenditures for
long-lived assets (5) 10.9 10.0 4.2 25.1 1.1 5.3 31.5
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tables and notes continued on the following page
6
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
4. Segment Information (continued)
<TABLE>
<CAPTION>
Children's
Book Media,
Publishing Licensing
and Educational and Total
Distribution Publishing Advertising Domestic International Overhead (1) Consolidated
==========================================================================================================================
Six months ended
November 30, 2000
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 652.1 $ 167.0 $ 65.7 $ 884.8 $ 145.6 $ 0.0 $ 1,030.4
Depreciation 2.1 0.8 2.2 5.1 2.0 6.2 13.3
Amortization (2) 8.4 25.7 6.9 41.0 1.1 0.0 42.1
Royalty advance expense 11.5 1.0 1.1 13.6 0.3 0.0 13.9
Segment profit/(loss) (3) 118.4 6.3 (10.5) 114.2 9.5 (29.1) 94.6
Segment assets 701.4 429.9 64.5 1,195.8 233.4 235.7 1,664.9
Long-lived assets (4) 149.6 290.0 42.4 482.0 51.4 161.9 695.3
Expenditures for
long-lived assets (5) 21.4 14.1 10.9 46.4 3.0 23.5 72.9
==========================================================================================================================
Six months ended
November 30, 1999
==========================================================================================================================
Revenues $ 428.0 $ 109.2 $ 49.3 $ 586.5 $ 107.3 $ 0.0 $ 693.8
Depreciation 1.7 0.5 0.6 2.8 1.7 4.8 9.3
Amortization (2) 6.8 13.8 5.3 25.9 0.8 0.0 26.7
Royalty advance expense 13.1 0.5 0.8 14.4 1.2 0.0 15.6
Segment profit/(loss) (3) 78.7 (7.3) (9.9) 61.5 2.3 (25.9) 37.9
Segment assets 470.7 190.5 56.1 717.3 162.2 166.6 1,046.1
Long-lived assets (4) 94.5 93.1 32.3 219.9 55.8 111.9 387.6
Expenditures for
long-lived assets (5) 19.0 17.6 9.5 46.1 2.2 9.0 57.3
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Overhead includes all domestic corporate-related items not allocated to
reportable segments. As it relates to the segment profit/(loss),
unallocated expenses include costs related to the management of corporate
assets. In fiscal 2000, overhead segment profit/(loss) included a
non-recurring charge of $8.5 primarily related to the establishment of a
litigation reserve following an adverse decision in a lawsuit. 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 the Grolier facilities located in Connecticut.
(2) Includes amortization of goodwill and other intangible assets, and
prepublication and production costs.
(3) Segment profit/(loss) represents earnings before interest and income
taxes. Includes the net effect of the changes in sales returns estimates
which resulted in an increase to net income of $5.2 ($0.27 per share) in
the Fiscal 2001 second quarter.
(4) Includes property, plant and equipment, prepublication costs, goodwill and
other intangible assets, royalty advances and production costs.
(5) Includes purchases of property, plant and equipment, prepublication and
production costs and royalty advances. This amount excludes the
expenditures for long-lived assets as part of the Grolier acquisition.
7
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
5. Debt
The following table sets forth the Company's debt balances as of the dates
indicated:
<TABLE>
<CAPTION>
===============================================================================================================
November 30, 2000 May 31, 2000 November 30, 1999
===============================================================================================================
<S> <C> <C> <C>
Lines of Credit $ 26.2 $ 8.5 $ 19.5
Grolier Facility 350.0 -- --
Loan Agreement and Revolver 64.0 5.6 74.8
7% Notes due 2003, net of discount 124.9 124.8 124.8
Convertible Subordinated Debentures 110.0 110.0 110.0
Other debt 0.7 0.9 3.4
---------------------------------------------------------------------------------------------------------------
Total debt 675.8 249.8 332.5
Less current portion of long-term debt
and lines of credit (26.2) (8.7) (19.6)
---------------------------------------------------------------------------------------------------------------
Total long-term debt $ 649.6 $ 241.1 $ 312.9
===============================================================================================================
</TABLE>
Grolier Facility. The acquisition of Grolier for $400.0 was financed by the
Company using bank debt; of which $350.0 was borrowed under the Grolier
Facility, and the remaining $50.0 was borrowed under the Company's existing Loan
Agreement and Revolver (as discussed below). Scholastic Inc. is the borrower and
the Company is the guarantor under the $350.0 Grolier Facility, effective June
22, 2000. The Grolier Facility is a one year facility, which may be extended at
the Company's discretion for an additional year. Borrowings bear interest at the
prime rate or 0.39% to 1.10% over LIBOR (as defined). The Grolier Facility also
provides for a facility fee ranging from 0.085% to 0.25%. The amounts charged
vary based on the Company's credit rating. Based on the Company's current credit
rating, the interest rate and facility fee charged are 0.475% over LIBOR and
0.125%, respectively. The Grolier Facility contains certain financial covenants
related to debt and interest coverage ratios (as defined) and limits dividends
and other distributions.
Loan Agreement. The Company and Scholastic Inc. 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. 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 are 0.475% over LIBOR 0.150%, and 0.075%, respectively. The
Loan Agreement contains certain financial covenants related to debt and interest
coverage ratios (as defined) and limits dividends and other distributions.
Revolver. The Company and Scholastic Inc. are joint and several borrowers under
a revolving loan agreement with a bank, effective November 10, 1999 and amended
June 22, 2000 (the "Revolver"). The Revolver, which expires on August 11,
2004, provides for revolving credit loans of up to $40.0. Interest under this
facility is at the prime rate minus 1% or 0.325% to 0.90% over LIBOR (as
defined). There is a facility fee ranging from 0.10% to 0.30%. The amounts
charged vary based upon the Company's credit rating. Based on the Company's
current credit rating, the interest rate and facility fee are 0.475% over LIBOR
and 0.150%, respectively. The Revolver contains certain financial covenants
related to debt and interest coverage ratios (as defined) and limits dividends
and other distributions.
8
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
7% Notes due 2003. In December 1996, the Company issued $125.0 of 7% Notes due
2003 (the "Notes"). The Notes are unsecured and unsubordinated obligations of
the Company and will mature on December 15, 2003. The Notes are not redeemable
prior to maturity. Interest on the Notes is payable semi-annually on December 15
and June 15 of each year.
Convertible Subordinated Debentures. In August 1995, the Company sold $110.0 of
5.0% Convertible Subordinated Debentures due August 15, 2005 (the "Debentures").
Interest on the Debentures is payable semi-annually on August 15 and February 15
of each year. The Debentures are redeemable at the option of the Company, in
whole, but not in part, at any time on or after August 15, 1998 at 100% of the
principal amount plus accrued interest. Each Debenture is convertible, at the
holder's option, any time prior to maturity, into Common Stock of the Company at
a conversion price of $76.86 per share, subject to adjustment in certain events.
(See Note 10.)
6. Contingencies
The Company and certain officers have been named as defendants in litigation
which alleges, among other things, violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, resulting from
purportedly materially false and misleading statements to the investing public
concerning the financial condition of the Company. On January 26, 2000, an order
was entered granting the Company's motion to dismiss plaintiffs' Second Amended
Consolidated Complaint without leave to further amend the complaint. Previously,
on December 14, 1998, an order was entered granting the Company's motion to
dismiss plaintiffs' First Amendment Consolidated Complaint with leave to amend
the complaint. In dismissing both complaints, which alleged substantially
similar claims, the court held that plaintiffs failed to state a claim upon
which relief can be granted. Plaintiffs have appealed the most recent dismissal.
The Company continues to believe that the litigation is without merit and will
continue to vigorously defend against it.
On February 1, 1999, two subsidiaries of the Company commenced an action in the
Supreme Court of the State of New York in New York County against Parachute
Press, Inc. ("Parachute"), the licensor of certain publication and
nonpublication rights to the Goosebumps(R) series, certain affiliated Parachute
companies and R.L. Stine, individually, alleging material breach of contract and
fraud in connection with the agreements under which such Goosebumps rights are
licensed to the Company. The issues in the case are also, in part, the subject
of two litigations commenced by Parachute following repeated notices from the
Company to Parachute of material breaches by Parachute of the agreements under
which such rights are licensed and the exercise by the Company of its
contractual remedies under the agreements. The first Parachute action, in which
two subsidiaries of the Company are defendants and counterclaim plaintiffs, was
commenced in the federal court for the Southern District of New York on November
14, 1997 and was dismissed for lack of subject matter jurisdiction on January
29, 1999. On appeal, the Court of Appeals for the Second Circuit vacated the
dismissal and remanded the case for further proceedings. The second Parachute
action was filed contemporaneously with the filing of the Company's complaint on
February 1, 1999 in the Supreme Court of the State of New York in New York
County. In its two complaints, and in its counterclaims, Parachute alleges that
the exercise of contractual remedies by the Company was improper and seeks
declaratory relief and unspecified damages for, among other claims, alleged
breaches of contract and acts of unfair competition. Damages sought by Parachute
include the payment of a total of approximately $36.1 of advances over the term
of the contract (of which approximately $15.3 had been paid at the time the
first Parachute litigation began) and payments of
9
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
royalties set-off by Scholastic against amounts claimed by the Company. The
Company is seeking declaratory relief and damages for, among other claims,
breaches of contract, fraud and acts of unfair competition. Damages sought by
the Company include lost profits and disgorgement of certain payments received
by Parachute. On July 21, 2000, the Company and Parachute each filed motions for
partial summary judgement in the state court cases. The Company intends to
vigorously pursue its claims against Parachute and the other named defendants
and 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.
7. Comprehensive Income
The following table sets forth comprehensive income for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30, November 30, November 30,
================================================================================================================================
2000 1999 2000 1999
================================================================================================================================
<S> <C> <C> <C> <C>
Net income $ 56.3 $ 41.3 $ 45.7 $ 17.7
Other comprehensive loss:
Foreign currency translation adjustment
net of provision for income taxes (2.2) (0.1) (4.0) (0.3)
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 54.1 $ 41.2 $ 41.7 $ 17.4
================================================================================================================================
</TABLE>
10
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(amounts in millions, except per share data)
================================================================================
8. 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 convertible debentures that were outstanding during the period. The
following table, which does not include the impact of the Company's announced
stock split, effective January 16, 2001 (see Footnote 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, November 30, November 30, November 30,
=================================================================================================================================
2000 1999 2000 1999
=================================================================================================================================
<S> <C> <C> <C> <C>
Net income for Basic EPS $ 56.3 $ 41.3 $ 45.7 $ 17.7
Effect of convertible debt 0.9 0.8 1.8 --(a)
---------------------------------------------------------------------------------------------------------------------------------
Net income for Diluted EPS $ 57.2 $ 42.1 47.5 $ 17.7
=================================================================================================================================
Weighted-average shares for Basic EPS 17.3 16.5 17.2 16.5
Effect of stock options 0.7 0.4 0.6 0.4
Effect of convertible debt 1.4 1.4 1.4 --(a)
---------------------------------------------------------------------------------------------------------------------------------
Weighted-average shares for Diluted EPS 19.4 18.3 19.2 16.9
=================================================================================================================================
Net income per Class A and Common Share:
Basic $ 3.26 $ 2.49 $ 2.66 $ 1.07
Diluted $ 2.95 $ 2.30 $ 2.47 $ 1.05
</TABLE>
(a) The effect of convertible debt was excluded because it was anti-dilutive.
9. Non-Recurring Charge
The operating results for the six months ended November 30, 1999 include a $8.5
non-recurring charge primarily related to the establishment of a litigation
reserve following an adverse decision in a lawsuit, which was received on
December 10, 1999. The case involves stock appreciation rights allegedly granted
in 1990 in connection with a joint venture formed primarily to produce motion
pictures. Although the Company disagrees with the judge's decision and is
appealing the ruling, the Company has recorded a $6.7 charge to fully reserve
with respect to the case. The $8.5 charge also includes an unrelated expense of
$1.8 relating to the liquidation of certain stock options.
10. Subsequent Event
On December 14, 2000, Scholastic's Board of Directors approved a 2-for-1 stock
split in the form of a 100% stock dividend on its Common Stock and Class A
Stock, payable January 16, 2001 to stockholders of record as of December 29,
2000. Stockholders will receive one additional share of Common Stock or Class A
Stock for each share held on the record date. All outstanding rights under stock
options to acquire Scholastic's Common Stock and under Scholastic's convertible
debt will also be adjusted to give effect to the stock split.
11
<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, 2000 increased 31% to $668.3 million
compared to $511.3 million in the year ago quarter. For the six months ended
November 30, 2000, revenues increased 49% to $1,030.4 million from $693.8
million in the prior year period. The increase in revenues for both the three
and six month periods reflects revenue growth across all segments of the
Company's business, primarily led by the Children's Book Publishing and
Distribution segment, which was up 27% over the prior year quarter and 52% over
the prior year-to-date period. This segment accounted for 67% and 63%
respectively, of the Company's revenues for the three and six-month periods
ended November 30, 2000 as compared to 69% and 62%, respectively, in the prior
fiscal year periods. This revenue increase also reflects the results of Grolier
Incorporated ("Grolier") for the period subsequent to the June 22, 2000
acquisition by the Company.
Cost of goods sold as a percentage of sales decreased from 47.0% to 42.6% for
the quarter ended November 30, 2000 and from 50.6% to 45.6% for the six-month
period compared to the prior year periods. This improvement resulted primarily
from the addition of Grolier sales in Fiscal 2001 and the significant increase
in higher margin Trade sales due in part to better than expected sell-through in
the Children's Book Publishing & Distribution segment which lowered reserve for
returns requirements. Selling, general and administrative expenses as a
percentage of sales increased from 36.2% to 40.5% for the quarter ended November
30, 2000 when compared to the prior year quarter. This increase relates
primarily to increased goodwill amortization related to the Grolier acquisition,
increased promotional spending and increased amortization of prepublication
costs. For the year-to-date period, selling, general and administrative expenses
as a percentage of sales increased from 41.1% to 43.3% when compared to the same
period in the prior fiscal year.
Operating expenses for the prior year quarter include a non-recurring charge of
$8.5 million due to the establishment of a $6.7 million litigation reserve
following an adverse decision in a lawsuit. The case, which the Company has
appealed, involves stock appreciation rights allegedly granted in connection
with a joint venture formed primarily to produce motion pictures. The
non-recurring charge also includes an unrelated expense of $1.8 million related
to the liquidation of certain stock options.
Excluding the impact of the prior-year non-recurring charge, operating profit
for the quarter ended November 30, 2000 improved 27% to $101.4 million from
$80.0 million in the same quarter of the prior fiscal year. Including the
prior-year non-recurring charge, operating profit for the quarter improved 42%
over the same period in the prior fiscal year. For the six-month period,
operating profit, excluding the impact of the prior-year non-recurring charge,
improved 104% to $94.6 million from $46.4 million in the prior year. Including
the prior-year non-recurring charge, operating profit for the six-month period
improved 150% over the same period in the prior fiscal year. These increases
reflect the impact of strong sales across all segments combined with the
integration of Grolier's revenues in the Company's results.
Net income increased 21% to $56.3 million, or $2.95 per diluted share, compared
to $46.6 million, or $2.59 per diluted share (excluding the $0.29 per share
non-recurring charge recorded last year). For the six-month period, net income
increased 98% to $45.7 million, or $2.47 per diluted share, compared to $23.1
million, or $1.35 per diluted share (excluding the $0.29 per share non-recurring
charge). All net income per diluted share amounts are before the 2-for-1 stock
split effective January 16, 2001. (See Note 10 to Notes to Condensed
Consolidated Financial Statements).
12
<PAGE>
SCHOLASTIC CORPORATION
Item 2. MD&A
================================================================================
Results of Operations - Segments
Children's Book Publishing and Distribution
The Company's Children's Book Publishing and Distribution segment includes the
publication and distribution of children's books in and from the United States
through its school book clubs, continuity programs, school book fairs and the
trade channel. This segment also includes Grolier's direct-to-home book clubs
and trade sales in the United States in the current fiscal year.
<TABLE>
<CAPTION>
Three months ended Six months ended
(in millions) November 30, November 30, November 30, November 30,
====================================================================================================================
2000 1999 2000 1999
====================================================================================================================
<S> <C> <C> <C> <C>
Revenue $ 445.5 $ 350.2 $ 652.1 $ 428.0
Operating Profit 111.8 93.7 118.4 78.7
--------------------------------------------------------------------------------------------------------------------
Operating margin 25.1% 26.8% 18.2% 18.4%
</TABLE>
Revenues in the Children's Book Publishing and Distribution segment for the
quarter ended November 30, 2000 increased 27% to $445.5 million compared to
$350.2 million in the year ago quarter. Grolier Home Book Clubs and Trade
revenues added $67.4 million, with Scholastic Trade revenues increasing 17% from
the year ago quarter. Revenue for School Book Fairs and School Book Clubs
increased 10% and 3%, respectively, compared to the prior year quarter, which
included peak Fiscal 2000 sales of Pokemon(TM) and Harry Potter(TM) books. For
the six-month period, revenues increased 52% to $652.1 million compared to
$428.0 million in the year ago period. This increase reflects the addition of
$107.3 million in revenue from Grolier's operations and increased revenue in the
Company's Trade, School Book Fair and School Book Club operations. Trade
revenues continued to benefit from better than expected sell-through of Harry
Potter and other Scholastic titles. In addition to Harry Potter, other top
selling trade titles for the quarter ended November 30, 2000 included I Spy(TM),
Dear America(R), Royal Diaries, Clifford the Big Red Dog(R), Captain
Underpants(TM) How Do Dinosaurs say Goodnight, Scooby Doo and Powerpuff Girls.
Segment operating profit for the quarter increased 19% to $111.8 million as
compared to $93.7 million in the prior year. This improvement primarily resulted
from the addition of Grolier Home Book Clubs and the impact of better than
expected sell-through in Trade, which lowered reserve requirements and increased
net income by $5.2 million, or $0.27 per share, in the quarter. The Company will
continue to monitor sales information from the retailers related to the Holiday
sales of its Trade titles. Based on such information the Company may adjust its
estimate for sales returns. For the six-month period, operating profit improved
by 50% to $118.4 million, as compared to an operating profit of $78.7 million
for the prior year period. This growth reflects the benefit of the addition of
the Grolier business and the strength of the Trade business.
13
<PAGE>
SCHOLASTIC CORPORATION
Item 2. MD&A
================================================================================
Results of Operations - Segments (continued)
Educational Publishing
The Company's Educational Publishing segment includes the publication and
distribution of grades K to 12 textbooks, supplemental materials, classroom
magazines, teaching resources and instructional technology in and from the
United States to schools and libraries. This segment includes Grolier
Publishing, which includes print and on-line children's non-fiction and
reference products, in the current fiscal year.
<TABLE>
<CAPTION>
Three months ended Six months ended
(in millions) November 30, November 30, November 30, November 30,
====================================================================================================================
2000 1999 2000 1999
====================================================================================================================
<S> <C> <C> <C> <C>
Revenue $ 73.9 $ 52.8 $ 167.0 $ 109.2
Operating (Loss) Profit (8.0) (7.7) 6.3 (7.3)
--------------------------------------------------------------------------------------------------------------------
Operating margin * * 3.8% *
</TABLE>
* - not meaningful
Revenues in the Educational Publishing segment for the quarter ended November
30, 2000 increased 40% to $73.9 million compared to $52.8 million in the year
ago quarter. For the six months, revenues increased 53% to $167.0 million,
compared to $109.2 million in the year ago period. Revenues for both the quarter
and year-to-date period benefited from the addition of Grolier's print and
on-line non-fiction and reference sales (of $15.0 million and $27.0 million,
respectively), combined with increases in Scholastic's core and supplemental
curriculum sales.
The segment's operating loss for the second quarter was $8.0 million, compared
to an operating loss of $7.7 million in the prior fiscal year quarter.
Offsetting the increases in segment revenue were increases in obsolescence
provisions and increased amortization related to certain capitalized
prepublication costs. For the six month period, operating profit improved by
$13.6 million over the prior year period, primarily reflecting the benefit of
product shipments for the Texas reading adoption and open market sales of
Scholastic Literacy Place(R) 2000, strong sales of supplemental curriculum and
the addition of Grolier's reference division.
Media, Licensing and Advertising
The Company's Media, Licensing and Advertising
segment includes the production and distribution of programming and consumer
products (including children's television programming, videos, CD-ROM's, feature
films and non-book products) and internet services, as well as advertising and
promotional activities.
<TABLE>
<CAPTION>
Three months ended Six months ended
(in millions) November 30, November 30, November 30, November 30,
====================================================================================================================
2000 1999 2000 1999
====================================================================================================================
<S> <C> <C> <C> <C>
Revenue $ 54.9 $ 39.9 $ 65.7 $ 49.3
Operating Profit (Loss) 0.3 (2.6) (10.5) (9.9)
--------------------------------------------------------------------------------------------------------------------
Operating margin 0.5% * * *
</TABLE>
* - not meaningful
14
<PAGE>
SCHOLASTIC CORPORATION
Item 2. MD&A
================================================================================
Results of Operations - Segments (continued)
Media, Licensing and Advertising revenues increased 38% to $54.9 million in the
second quarter of fiscal 2001 compared to $39.9 million in the prior year
quarter. For the six month period, the segment's revenues increased 33% to $65.7
million versus $49.3 million in the prior year. This improvement reflects the
impact of increases in advertising revenues for the Company's professional
magazines, production revenues from the new animated series Clifford the Big Red
Dog(TM), fees from the syndication of Scholastic's The Magic School Bus(R)
television show, as well as the inclusion of Grolier in the segment results
($5.4 million for the quarter and six-month periods).
For the quarter ended November 30, 2000, operating profit of $0.3 million
improved from an operating loss of $2.6 million in the same period of the prior
fiscal year. These results reflect the impact of revenue increases, partially
offset by planned increases in promotional, editorial and other operating costs
associated with the continued development of Scholastic.com. For the six months
ended November 30, 2000, the operating loss for this segment was $10.5 million
as compared to $9.9 million in the previous year.
International
The International segment includes the publication and distribution of products
and services outside the United States by the Company's operations in the United
Kingdom, Canada, Australia, New Zealand and Southeast Asia and its emerging
businesses in Mexico, India, Ireland and Argentina. In the current fiscal
period, the segment includes Grolier's direct-to-home operations in the United
Kingdom, Canada and Australia and the publication and distribution of Grolier's
reference products and services outside the United States, principally in
Southeast Asia.
<TABLE>
<CAPTION>
Three months ended Six months ended
(in millions) November 30, November 30, November 30, November 30,
====================================================================================================================
2000 1999 2000 1999
====================================================================================================================
<S> <C> <C> <C> <C>
Revenue $ 94.0 $ 68.4 $ 145.6 $ 107.3
Operating Profit (Loss) 12.2 6.2 9.5 2.3
--------------------------------------------------------------------------------------------------------------------
Operating margin 13.0% 9.1% 6.5% 2.1%
</TABLE>
International revenues increased by approximately 36% for both the quarter and
year-to-date periods ended November 30, 2000 when compared to the comparable
prior year periods. The increase principally reflects the inclusion of Grolier
($22.7 million and $36.7 million, respectively) in the Company's results as
well as an increase in the results of the Canadian operations led by their
School Book Clubs. Operating profit improved $6.0 million over the prior year
quarter and $7.2 million over the prior year six-month period reflecting strong
Canadian and export results combined with the inclusion of Grolier in segment
results, all of which was partially offset by the impact of foreign exchange
fluctuations and lower revenues for the Australia and United Kingdom operations.
15
<PAGE>
SCHOLASTIC CORPORATION
Item 2. MD&A
================================================================================
Seasonality
The Company's school book clubs, school book fairs and most of its magazines
operate on a school-year basis; therefore, the Company's business is highly
seasonal. As a consequence, generally, the Company's revenues in the first and
third quarters of the fiscal year are lower than its revenues in the other two
fiscal quarters, and the Company experiences a loss from operations in the first
quarter. Typically, School Book Clubs and School Book Fairs experience the
largest revenues in the second quarter of the fiscal year, while revenues from
the sale of instructional materials are higher in the first quarter. The
acquisition of Grolier is not expected to substantially change the Company's
historic seasonality.
For the June through October time period, the Company experiences negative cash
flow due to the seasonality of its business. Historically, as a result of the
Company's business cycle, seasonal borrowings have increased during June, July
and August, have generally peaked in September or October, and have been at
their lowest point in May.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased by $3.7 million during the
six-month period ended November 30, 2000, compared to an increase of $1.9
million during the comparable period in the prior fiscal year.
Cash flow provided by operations was $44.2 million for the six-month period
primarily as a result of improved operating performance.
Cash outflows for investing activities were $479.3 million for the six-month
period, largely as a result of the acquisition of Grolier and increased spending
for capital expenditures. Capital expenditures, including capitalized interest,
totaled $31.2 million for the six-month period of fiscal 2001, increasing $14.8
million over the same period in fiscal 2000 largely as a result of the expansion
of the Company's corporate headquarters and continuing investment in systems
development.
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
remainder of the fiscal year.
16
<PAGE>
SCHOLASTIC CORPORATION
Item 2. MD&A
================================================================================
Financing
To finance the June 22, 2000 acquisition of Grolier, the Company borrowed $350.0
million under a new credit facility (the "Grolier Facility") and borrowed the
remaining $50.0 million under the Company's existing Loan Agreement and
Revolver. The Grolier Facility is a one year facility, which may be extended at
the Company's discretion for an additional year. The weighted-average interest
rate under the Grolier Facility for the period June 22, 2000 through November
30, 2000 was 7%.
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 borrowings 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
primarily uses these facilities to fund seasonal cash flow needs and other
working capital requirements. At November 30, 2000, the Company had $64.0
million in borrowings outstanding under these facilities at a weighted average
interest rate of 7%.
In addition, unsecured lines of credit available to the Company's United
Kingdom, Canadian, Australian and Southeast Asian operations totaled $49.5
million at November 30, 2000. These lines are used primarily to fund local
working capital needs. At November 30, 2000, $26.2 million in borrowings were
outstanding under these lines of credit at a weighted-average interest rate of
8%.
Acquisitions
On June 22, 2000, the Company acquired the capital stock of Grolier for $400.0
million in cash. 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.
Subsequent Event
Scholastic Corporation announced that its Board of Directors approved a 2-for-1
stock split in the form of a 100% stock dividend on its Common Stock and Class A
Stock, payable January 16, 2001 to stockholders of record as of December 29,
2000. Stockholders will receive one additional share of Common Stock or Class A
Stock for each share held on the record date. The additional shares will be
mailed or delivered on or about January 16, 2001 by the Company's transfer
agent, ChaseMellon Shareholder Services L.L.C. All outstanding rights under
stock options to acquire Scholastic's Common Stock and under Scholastic's 5%
Convertible Subordinated Debentures due 2005 will also be adjusted to give
effect to the stock split.
Forward Looking Statements
This Report on Form 10-Q contains forward-looking statements, which are subject
to various risks and uncertainties, including the conditions of the children's
book and instructional materials markets and acceptance of the Company's
products within those markets and other risks and factors identified in the
Company's Report on Form 10-K for the fiscal year ended May 31, 2000.
The Company posts on its website,
www.scholastic.com/aboutscholastic/invrel/index.htm, the date of its upcoming
financial press releases and telephonic analyst call at least five days prior to
the dissemination of its financial press releases. The Company's analyst calls
are open to the public and remain available to the public through the Company's
website for at least five days after the date of call.
17
<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. As a result of the financing related to the Grolier
acquisition, approximately 65% of the Company's total 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. Under its current policies, the Company does not utilize any interest rate
derivative instruments to manage its exposure to interest rate changes.
As of November 30, 2000, the balance outstanding under its variable rate
facilities was $440.9 million. The six-month weighted-average interest rate
under its variable rate facilities was 7%. A 15% increase or decrease in the
average cost of the Company's variable rate debt under the various facilities at
November 30, 2000 would impact the Company's results of operations by
approximately $4.9 million annually on a pre-tax basis.
18
<PAGE>
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
Item 4. Submissions of Matters to Vote of Security Holders
================================================================================
The Annual Meeting of Stockholders of the Company was held on September 19,
2000. The following sets forth the results of the proposals presented at the
meeting voted upon by the stockholders of the Company entitled to vote thereon.
Holders of the 828,100 shares of Class A Stock (comprising all outstanding
shares of Class A Stock) unanimously voted in favor of:
o The election of Richard Robinson, Rebeca M. Barrera, Helen V.
Benham, Charles T. Harris III, Andrew S. Hedden, Ramon Cortines, Mae
C. Jemison, Augustus K. Oliver and Richard M. Spaulding to serve as
directors of the Company, each to serve until the next Annual
Meeting of Stockholders and until their successor is duly elected
and qualified.
o The resolution authorizing an amendment to the Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock of the Company to 70,000,000.
o The resolution authorizing an amendment to the Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Preferred Stock of the Company to 2,000,000.
o The resolution authorizing an amendment to the Amended and Restated
Certificate of Incorporation to effect the other amendments as set
forth in the proposed Charter Amendment.
o The ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending May
31, 2001.
With respect to all matters voted on by the holders of the Class A Stock at the
meeting, broker non-votes were not applicable since no shares are held by
brokers.
Holders of Common Stock voted in favor of:
o The election of the following three nominees as directors to serve
until the next annual meeting of stockholders and until their
successors are duly elected and qualified. Votes cast by holders of
the Common Stock were as follows:
Nominee For Withheld
Linda B. Keene 13,921,500 135,231
Peter Mayer 13,922,600 134,131
John G. McDonald 13,922,450 134,281
With respect to the foregoing matter voted on by the holders of the Common
Stock, abstentions or broker non-votes were not applicable.
o The approval of a resolution authorizing an amendment to the Amended
and Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock of the Company to 70,000,000.
Votes cast by holders of the Common Stock were as follows:
For: 10,199,550 Against: 3,851,599 Abstain: 5,582 Broker non-votes: 0
19
<PAGE>
SCHOLASTIC CORPORATION
Item 6. Exhibits and Reports on Form 8-K
================================================================================
(a) Exhibits:
Exhibit
Number Description of Document
------ -----------------------
27.1 Financial Data Schedule as of and for the six months
ended November 30, 2000
(b) Reports on Form 8-K filed during the quarter:
Amended Current Report on Form 8-K/A filed on September 5, 2000 regarding the
consummation of the acquisition of Grolier Incorporated by Scholastic Inc. on
June 22, 2000.
--------------------------------------------------------------------------------
20
<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 16, 2001 /s/ Richard Robinson
-----------------------------------
Richard Robinson
Chairman of the Board,
President, Chief Executive
Officer and Director
Date: January 16, 2001 /s/ Kevin J. McEnery
-----------------------------------
Kevin J. McEnery
Executive Vice President and
Chief Financial Officer
21
<PAGE>
SCHOLASTIC CORPORATION
FORM 10-Q FOR QUARTERLY PERIOD ENDED NOVEMBER 30, 2000
EXHIBIT INDEX
================================================================================
Exhibit
Number Description of Document
------ -----------------------
27.1 Financial Data Schedule for the six months ended
November 30, 2000
--------------------------------------------------------------------------------
