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Proc-Type: 2001,MIC-CLEAR
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FORM 10-Q
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.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. PART I - FINANCIAL INFORMATION Item 1. Financial Statements
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The accompanying condensed consolidated financial statements consist of the accounts of Scholastic Corporation (the Corporation) and all majority-owned subsidiaries (collectively, Scholastic or the
Company). These financial statements have not been audited but reflect those adjustments consisting of normal recurring items that 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 Annual Report on Form 10-K for the fiscal year ended May 31, 2005.
The Companys business is closely correlated to the school year. Consequently, the results of operations for the three and nine months ended February 28, 2006 and 2005 are not necessarily indicative of the results
expected for the full year. Due to the seasonal fluctuations that occur, the February 28, 2005 condensed consolidated balance sheet is included for comparative purposes.
The Companys condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements involves the
use of estimates and assumptions by management, which affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and
various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and
assumptions. On an on-going basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts receivable and installment receivables; sales returns;
amortization periods; pension obligations; and recoverability of inventories, deferred promotion costs, deferred income taxes and tax reserves, prepublication costs, royalty advances, goodwill and other intangibles.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company applies Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based benefit plans. In accordance with APB No. 25, no compensation expense was recognized with respect to the Companys
stock-based benefit plans, as the exercise price of each stock option issued was equal to the market price of the underlying stock on the date of grant and the exercise price and number of shares subject to grant were fixed. If the Company had
elected to recognize compensation expense based on the fair value of the options granted at the date of grant and in respect to shares issuable under the Companys equity compensation plans as prescribed by SFAS No. 123, net income (loss) and
basic and diluted earnings (loss) per share would have been reduced to the pro forma amounts indicated in the following table:
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New Accounting Pronouncements
In December 2004, the Financial Accounting Standards
Board (the FASB) issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123R), which requires companies to expense
the fair value of all share-based payments as currently permitted, but not required,
under SFAS No. 123. SFAS No. 123R will be effective for the Company commencing
June 1, 2006. Retroactive application of the fair value recognition provisions
of SFAS No. 123 is permitted, but not required. Alternatively, a company may
use the modified prospective transition method for application of SFAS No. 123R.
Under this method, compensation expense is recognized for all share-based payments
granted, modified or settled after the date of adoption based on their grant-date
fair value. For awards granted prior to the adoption date, the compensation expense
of any unvested portion is recognized over the remaining requisite service period.
The Company intends to use the modified prospective transition method to adopt
SFAS No. 123R and is currently evaluating the impact that the adoption of SFAS
No. 123R will have on its financial position, results of operations and cash
flows.
2. Restatement of Previously Issued Consolidated Financial Statements
As a result of a comprehensive review of its lease accounting in the fourth quarter of fiscal 2005, the Company determined that it was appropriate to restate its previously issued annual and interim consolidated financial
statements. The restatement was principally attributable to the treatment of certain leases previously classified as operating leases that should have been classified as capital leases and certain other operating leases that previously did not
reflect future payment escalation clauses in determining rent expense. The classification of certain capital leases as operating leases principally had the effect of excluding assets subject to capital leases and the related capital lease
obligations from the Companys Consolidated Balance Sheet and treating rental payments as rent expense, rather than as interest expense and principal payments on capital lease obligations. Also, not considering future payment escalation clauses
in determining rent expense for certain operating leases principally had the effect of understating
rent expense in the early periods of the lease agreements and overstating rent expense in the later periods of the lease agreements.
5 SCHOLASTIC CORPORATION The Company has revised its accounting for these leasing transactions and restated its previously issued annual and interim Consolidated Financial Statements in its Annual Report on Form 10-K for the fiscal year ended May
31, 2005 to appropriately classify its leases and to appropriately reflect future payment escalation clauses in determining rent expense.
The following is a summary of the impact of the restatement on the Companys Condensed Consolidated Statements of Operations for the three and nine months ended February 28, 2005:
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Scholastic is a global childrens publishing and media company. The Company distributes its products and services through a variety of channels, including school-based book clubs, school-based book fairs, school-based
and direct-to-home continuity programs, retail stores, schools, libraries, the internet and television networks. The Company categorizes its businesses into four operating segments: Childrens Book Publishing
and Distribution; Educational Publishing; Media, Licensing and Advertising (which collectively represent the Companys domestic operations); and International.
This classification reflects the nature of products and services consistent with the method by which the Companys chief operating decision-maker assesses operating performance and allocates resources. Revenues and gross margin related to a
segments products sold or services rendered through another segments distribution channel are reallocated to the segment originating the products or services.
Childrens Book Publishing and Distribution includes the publication and distribution of childrens books in the United States
through school-based book clubs and book fairs, school-based and direct-to-home continuity programs and the trade channel.
Educational Publishing includes the production and/or publication and distribution to schools and libraries of educational technology products,
curriculum materials, childrens books, classroom magazines and print and on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States.
Media, Licensing
and Advertising includes the production
and/or distribution of software in the United States; the production and/or distribution,
primarily by and through the Companys subsidiary, Scholastic Entertainment
Inc., of programming and consumer products (including childrens television
programming, videos, software, feature films, promotional activities and non-book
merchandise); and advertising revenue, including sponsorship programs.
International includes the publication and distribution of products and services outside the United States by the Companys international
operations, and its export and foreign rights businesses.
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The following table summarizes debt as of the dates indicated:
The following table sets forth the maturities of the Companys debt obligations as of February 28, 2006 for the remainder of fiscal 2006 and thereafter:
Lines of Credit
12 Revolver 5.75% Notes due 2007
5% Notes due 2013
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The following table sets forth comprehensive income (loss) for the periods indicated:
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Basic earnings (loss) per share is computed by dividing
net income (loss) by the weighted average Shares of Class A Stock and Common
Stock outstanding during the period. Diluted earnings (loss) per share is calculated
to give effect to potentially dilutive options to purchase Class A and Common
Stock granted pursuant to the Companys stock-based benefit plans that were
outstanding during the period. The diluted loss per share was equal to the basic
loss per share for the three months ended February 28, 2006 and 2005 because
such options would have been antidilutive. The following table summarizes
the reconciliation of the numerators and denominators for the basic and diluted
earnings (loss) per share computations for the periods indicated:
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Goodwill and other intangible assets with indefinite lives are reviewed for impairment annually, or more frequently if impairment indicators arise.
In the twelve months ended May 31, 2005, Additions due to acquisitions includes the purchase price for the acquisition of Chicken House Publishing Ltd. and the accrual for a final payment related to the fiscal 2002
acquisition of Klutz.
The following table summarizes Other intangibles subject to amortization at the dates indicated:
Amortization expense for Other intangibles totaled $0.0 and $0.2
for the three and nine months ended February 28, 2006, respectively, $0.1 and $0.2 for the three and nine months ended February 28, 2005,
respectively, and $0.3 for the twelve months ended May 31, 2005. Amortization expense for these assets is currently estimated to total $0.3 for the fiscal year ending May 31, 2006 and $0.2 for each of the fiscal years ending May 31, 2007
through 2010. The weighted average amortization periods for these assets by major asset class are two years for customer lists and twelve years for other intangibles.
The following table summarizes Other intangibles not subject to amortization at the dates indicated:
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The following tables set forth components of the net
periodic benefit costs under the Companys cash balance retirement plan
for its United States employees meeting certain eligibility requirements (the U.S.
Pension Plan), the defined benefit pension plan of Scholastic Ltd., an
indirect subsidiary of Scholastic Corporation located in the United Kingdom
(the U.K. Pension Plan), the defined benefit pension plan of Grolier
Ltd., an indirect subsidiary of Scholastic Corporation located in Canada, and
the post-retirement benefits provided by the Company to its retired United States-based
employees, consisting of certain healthcare and life insurance benefits for
the periods indicated:
The Company currently estimates that it will contribute $0.6 to the U.S. Pension Plan in the year ending May 31, 2006. For the nine months ended February 28, 2006, the Company did not make any contributions to the U.S.
Pension Plan. The Company currently estimates that Scholastic Ltd. will contribute the equivalent of $1.1 to the U.K. Pension Plan in the fiscal year ending May 31, 2006. For the nine months ended February 28, 2006, Scholastic Ltd. contributed
the equivalent of $0.9 to the U.K. Pension Plan.
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Scholastics third fiscal quarter is its second smallest revenue period. For the quarter ended February 28, 2006, revenue increased slightly compared to the prior fiscal year quarter,
reflecting increases in the Media, Licensing and Advertising and International segments, partially
offset by declines in the Childrens Book Publishing and Distribution and Educational Publishing
segments. Higher expenses in the Childrens Book Publishing and Distribution segment, primarily in the Companys school-based book club business, and lower
educational technology revenues in the Educational Publishing segment resulted in a higher net loss for the quarter compared to the prior year period.
For the nine months ended February 28, 2006, revenues
and net income increased over the prior fiscal year period by $195.0 million
and $9.0 million, respectively, primarily due to higher Harry Potter revenues and profits
in the Childrens Book Publishing and
Distribution segment. Based on the results for the quarter
and their impact on the remainder of the fiscal year ending May 31, 2006,
the Company lowered its forecasts for profitability for the year. Scholastic is taking a number of actions
intended to improve future profitability, including:
Revenues for the quarter ended February 28, 2006 increased $6.9 million, or 1.4%, to $487.7 million, compared to $480.8 million in the prior fiscal year quarter. The increase was due to higher revenues in the
Media, Licensing and Advertising and International segments of $9.2 million and $4.9 million,
respectively, partially offset by lower revenues in the Educational Publishing and Childrens Book Publishing and Distribution segments of $5.8 million and $1.4 million, respectively. For the nine months ended February 28, 2006, revenues increased $195.0
million, or 13.1%, to $1,682.8 million, compared to $1,487.8 million in the prior fiscal year period, due to increases in each of the Companys four operating segments, led by $151.3 million in higher revenues from the
Childrens Book Publishing and Distribution segment as a result of the July 2005 release of Harry Potter and the Half-Blood
Prince, the sixth book in the series.
Cost of goods sold as a percentage of revenues increased
to 49.7% for the quarter ended February 28, 2006, as compared to 48.6% in the
prior fiscal year quarter, primarily due to the impact of higher sales of lower
margin products. For the nine months ended February 28, 2006, Cost of goods
sold as a percentage of revenue increased to 49.5%, as compared to 47.8% in the
prior fiscal year period, primarily due to costs related to the release of Harry Potter and the Half-Blood Prince.
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Bad debt expense increased to $15.7 million, or
3.2% of revenues, for the quarter ended February 28, 2006, compared to $14.9
million, or 3.1% of revenues, in the prior fiscal year quarter. The higher level
of bad debt expense was associated with a large educational services provider
in the Educational Publishing segment.
For the nine months ended February 28, 2006, Bad debt expense decreased to $43.4
million, or 2.6% of revenues, compared to $50.7 million, or 3.4% of revenues,
in the prior fiscal year period. The lower level of bad debt expense related
primarily to lower bad debt in the Companys continuity
business as a result of the Companys previously announced plan for this
business to focus on its more productive customers.
Depreciation and amortization expense for the quarter ended February 28, 2006 increased to $16.7 million, or 3.4% of revenues, compared to $15.7 million, or 3.3% of revenues, in the prior fiscal year quarter. For
the nine months ended February 28, 2006, Depreciation and amortization expense increased to $49.1 million, or 2.9% of revenues, compared to $46.5 million, or 3.1% of revenues, in the prior fiscal year period. The increases in expense were
principally associated with the depreciation of information technology equipment.
The resulting operating loss for the quarter ended February 28, 2006 was $17.8 million, compared to operating income of $7.9 million in the prior fiscal year quarter. For the nine months ended February 28, 2006, the
resulting operating income increased $11.9 million, or 19.7%, to $72.3 million, or 4.3% of revenues, compared to $60.4 million, or 4.1% of revenues, in the prior fiscal year period.
The effective income tax rate for the quarter ended February 28, 2006 increased to 37.0%, compared to 33.3% in the prior fiscal year quarter. For the nine months ended February 28, 2006, the effective income tax rate
increased to 37.0%, compared to 35.8% in the prior fiscal year period. These increases were primarily due to a higher effective tax rate on foreign earnings and a higher state tax provision.
Net loss was $15.5 million, or $0.37 per diluted
share, for the quarter ended February
28, 2006, compared to a net loss of $0.8 million, or $0.02 per diluted
share, in the prior fiscal year quarter.
For the nine months ended February 28, 2006, net income was $30.2 million,
or $0.73 per diluted share, compared
to net income of $21.2 million, or $0.52 per diluted share, in the prior
fiscal year period.
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In the fourth quarter of fiscal 2005, the Company reviewed the estimated Cost of goods sold related to products originated by the Media, Licensing and Advertising segment that are sold through channels included in the Childrens Book Publishing and Distribution segment. The Company determined that actual costs were
lower and gross margins higher on these products than was previously estimated. As a result, the prior fiscal year quarter inter-segment allocations were adjusted (the Segment Reallocation), resulting in higher gross margin and profits
in the Media, Licensing and Advertising segment with an offsetting decrease in gross margin and profits in the Childrens Book
Publishing and Distribution segment.
Childrens Book Publishing and Distribution
The Companys Childrens Book Publishing and Distribution segment includes the publication and distribution of childrens books in the
United States through school-based book clubs and book fairs, school-based and direct-to-home continuity programs and the trade channel.
Revenues in the Childrens
Book Publishing and Distribution segment
for the quarter ended February 28, 2006 were down slightly at $270.9
million, compared to $272.3 million in the prior fiscal year quarter. For
the current fiscal year quarter, school-based book club revenues were $105.9
million, a decrease of $4.0
million, compared to the prior fiscal year quarter, due to lower order levels
primarily in the Troll/Carnival and Trumpet clubs, and school-based book fair
revenues decreased by $1.2
million to $70.6 million. Revenues from the Companys trade business were $43.7
million in the quarter ended February 28, 2006, an increase of $2.4
million compared to the prior fiscal year quarter, primarily due to higher back list revenues, and revenues from the Companys
continuity business increased by $1.4 million to $50.7 million.
Segment operating loss for the quarter ended February
28, 2006 was $3.2 million, compared to an operating profit of $14.7
million in the prior fiscal year quarter, principally related to higher promotion
expense in the Companys school-based book club business.
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Segment operating profit for the nine months ended
February 28, 2006 improved by $24.1 million to $65.7 million, compared
to $41.6 million in the prior fiscal year period. This improvement was primarily
due to increased operating profits for the Companys trade business resulting
from the higher Harry Potter revenues,
partially offset by lower operating profits in the Companys school-based
book club business as a result of lower revenues and increased promotion expense.
The following highlights the results of the direct-to-home portion of the Companys continuity programs, which consists primarily of the business formerly operated by Grolier and is included in the Childrens
Book Publishing and Distribution segment.
Revenues from the direct-to-home portion of the Companys continuity business increased by $1.8 million, or 5.5%, to $34.6 million for the quarter ended February 28, 2006, as compared to $32.8 million in
the prior fiscal year quarter, and decreased by $20.4 million, or 18.0%, to $93.0 million for the nine months ended February 28, 2006, as compared to $113.4 million in the prior fiscal year period.
Operating losses for the direct-to-home portion of the continuity business were $2.5 million and $13.3 million in the quarter and nine months ended February 28, 2006, respectively, compared to an operating profit of
$0.7 million in the prior fiscal year quarter and an operating loss of $4.2 million in the nine months ended February 28, 2005, which included $3.6 million of Continuity Charges.
Excluding the direct-to-home portion of the continuity business, segment revenues decreased by $3.2 million, or 1.3%, to $236.3 million for the quarter ended February 28, 2006, compared to $239.5 million in the
prior fiscal year quarter, and increased by $171.7 million, or 24.3%, to $877.4 million for the nine months ended February 28, 2006, compared to $705.7 million in the prior fiscal year period.
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Educational Publishing
The Companys Educational Publishing segment includes the production and/or publication and distribution to schools and libraries of educational
technology products, curriculum materials, childrens books, classroom magazines and print and on-line reference and non-fiction products for grades pre-K to 12 in the United States.
* not meaningful
For the quarter ended February 28, 2006, revenues in
the Educational Publishing segment decreased $5.8 million, or 7.3%,
to $73.5 million,
compared to $79.3 million in the prior fiscal year quarter, primarily due
to lower revenues from educational technology products, including the Companys READ
180® reading
intervention program, which the Company believes reflects a shift to a more seasonal
selling pattern for this business. Segment revenues for the nine months ended
February 28, 2006 increased
$9.0 million, or 3.1%, to $301.0 million, compared to $292.0 million
in the prior fiscal year period. The increase was related primarily to higher
revenues from educational technology products.
Segment operating loss for the quarter ended February 28, 2006 was $3.5 million, compared to segment operating profit of $4.9
million in the prior fiscal year quarter, primarily due to the lower revenues
from educational technology products. Segment operating profit for the nine months
ended February 28, 2006 decreased by $3.1 million, or 6.4%, to $45.6 million, compared to $48.7
million in the prior fiscal year period, as higher profits from education technology
products were more than offset by the lower results in the balance of the segment.
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The Companys Media,
Licensing and Advertising segment includes
the production and/or distribution of software in the United States; the production
and/or distribution, primarily by and through Scholastic Entertainment Inc.,
of programming and consumer products (including childrens television programming,
videos, software, feature films, promotional activities and non-book merchandise);
and advertising revenue, including sponsorship programs.
Revenues in the Media,
Licensing and Advertising segment for the
quarter ended February 28, 2006 increased $9.2 million, or 24.7%, to $46.4
million, compared to $37.2 million in the prior fiscal year quarter, reflecting
higher revenues in each of the businesses in the segment, led by an increase
in revenues from software and multimedia products. Segment revenues for the
nine months ended February 28, 2006 increased $19.7 million, or 20.4%,
to $116.4 million, compared to $96.7 million in the prior fiscal year
period, reflecting higher revenues in each of the businesses in the segment,
led by increases in revenues of $6.7 million from software and multimedia
products and $6.4 million from television programming.
Segment operating profit for the quarter ended February 28, 2006 increased $1.9 million to $6.3 million, compared to $4.4 million in the prior fiscal year quarter. Segment operating profit for the nine months
ended February 28, 2006 increased $1.6 million to $8.3 million, compared to $6.7 million in the prior fiscal year period. These segment operating profit increases were primarily due to higher revenues.
International
The International segment includes the publication and distribution of products and services outside the United States by the Companys
international operations, and its export and foreign rights businesses.
Segment operating profit for the quarter ended February
28, 2006 decreased $0.7 million to $2.3 million, as compared to $3.0
million in the prior fiscal year quarter. This decrease was primarily due to
lower local currency operating profits in the United Kingdom equivalent to $2.8
million, partially offset by the favorable impact of foreign currency exchange
rates of $1.2 million. Segment operating profit for the nine months ended
February 28, 2006 was $9.6 million, a decrease of $9.6 million
from $19.2 million in the prior fiscal year period, primarily due
to lower local currency operating profits in the United Kingdom, where the Company
is implementing a turn-around plan, and in Canada, equivalent
to $9.1 million and $1.6 million, respectively.
The Companys school-based book clubs, school-based book fairs and most of its magazines operate on a school-year basis. Therefore, the Companys business is highly seasonal. As a consequence, the Companys
revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based book club and book fair revenues are greatest in the second quarter of the fiscal year, while
revenues from the sale of instructional materials are highest in the first quarter. The Company experiences a substantial loss from operations in the first quarter of each fiscal year.
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The Companys cash and cash equivalents were $219.5 million at February 28, 2006, compared to $22.1 million at February 28, 2005 and $110.6 million at May 31, 2005.
Cash provided by operating activities was $210.3
million for the nine months ended February 28, 2006, compared to $112.1 million
in the prior fiscal year period. This increase was due to favorable changes
in working capital accounts in the current fiscal year period and a higher level of net
income. Working capital account changes that had a positive impact on cash flows included: Accrued royalties, which increased
by $89.2
million in the nine months ended February 28, 2006, compared to an increase of $18.5
million in the prior fiscal year period, primarily due to royalties associated
with higher Harry Potter revenues
that will be paid in the fourth quarter of fiscal 2006; and Accounts
payable and other accrued expenses, which increased by $38.1 million during the
nine months ended February 28, 2006, compared to a decrease of $26.2 million
in the prior fiscal year period, primarily due to accrued expenses associated
with
Harry Potter.
Working capital account changes that had a negative impact on cash flows included: Prepaid expenses and other current assets, which
increased $33.9
million for the nine months ended February 28, 2006, compared to an increase
of $4.0
million in the prior year fiscal period, primarily due to higher income tax payments;
and Inventories, which increased $73.3
million during the nine months ended February 28, 2006, compared to an increase
of $56.9 million in the prior year fiscal period, primarily due to
earlier product purchasing in the Companys school-based book fairs business.
Cash used in investing activities was $118.4 million
for the nine months ended February 28, 2006, compared to $109.8 million in
the prior fiscal year period. This increase was due primarily to Additions to
property, plant and equipment totaling $46.6 million for the nine months
ended February 28, 2006, an increase of $15.2 million over the prior fiscal
year period, principally due to increased information technology spending. Acquisition-related
payments totaled $3.3 million in the nine months ended February 28, 2006
due to a contingent payment related to the acquisition of Klutz in fiscal 2002.
Cash provided by financing activities was $16.8
million in the nine months ended February 28, 2006, compared to $1.5 million
in the prior fiscal year period, an increase of $15.3 million. This increase
was due primarily to proceeds received by the Company under its employee stock-based
benefit plans totaling $26.0
million in the current fiscal year period, an increase of $11.8 million from $14.2
million in the prior fiscal year period.
Due to the seasonality of its business as discussed
under Seasonality above, the Company experiences negative cash flow
in the June through October time period. As a result of the Companys
business cycle, seasonal borrowings have historically increased during June,
July and August, have generally peaked in September or October, and have been
at their lowest point in May.
25 Financing
Scholastic Corporation and Scholastic Inc. are parties
to an unsecured revolving credit agreement with certain banks (the Credit
Agreement), which expires on March
31, 2009. The Credit Agreement provides for aggregate borrowings of up to $190.0
million (with a right in certain circumstances to increase borrowings to $250.0
million), including the issuance of up to $10.0 million in letters of credit.
Interest under this facility is either at the prime rate or a rate equal to 0.325%
to 0.975% 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 0.25% if borrowings exceed
50% of the total facility. The amounts charged vary based upon the Companys
credit rating. The interest rate, facility fee and utilization fee (when applicable)
as of February 28, 2006 were 0.675% over LIBOR, 0.20% and 0.125%, respectively.
The Credit Agreement contains certain financial covenants related to debt and
interest coverage ratios (as defined) and limits dividends and other distributions.
There were no borrowings outstanding under the Credit Agreement at February
28, 2006 or May 31, 2005. At February 28, 2005, $12.0 million was outstanding
under the Credit Agreement at a weighted average interest rate of 3.1% .
Scholastic Corporation and Scholastic Inc. are joint and several borrowers under an unsecured revolving loan agreement with a bank (the Revolver).
The Revolver provides for unsecured revolving credit of up to $40.0 million and expires on March 31, 2009. Interest under this facility is either at the prime rate minus 1%, or at a rate equal to 0.375% to 1.025% over LIBOR (as defined). There is a facility fee ranging
from 0.10% to 0.30% . The amounts charged vary based upon the Companys credit rating. The interest rate and facility fee as of February 28, 2006 were 0.725% over LIBOR and 0.20%, respectively. The Revolver contains certain financial covenants
related to debt and interest coverage ratios (as defined) and limits dividends and other distributions. There were no borrowings outstanding under the Revolver at February 28, 2006, May 31, 2005 or February 28, 2005.
Unsecured lines of credit available in local currencies to certain of Scholastic Corporations international subsidiaries were, in the aggregate, equivalent to $65.4 million at February 28, 2006, as compared to
$64.6 million at February 28, 2005 and $61.8 million at May 31, 2005. These lines are used primarily to fund local working capital needs. There were borrowings outstanding under these lines of credit equivalent to $30.6 million at
February 28, 2006, as compared to $20.8 million at February 28, 2005 and $24.7 million at May 31, 2005. These lines of credit are considered short-term in nature. The weighted average interest rates on the outstanding amounts were 5.7% and
6.1% at February 28, 2006 and 2005, respectively, and 5.4% at May 31, 2005.
26 The Companys total debt obligations at February 28, 2006 and February 28, 2005 were $500.0 million and $510.3 million, respectively. The Companys total debt obligations at May 31, 2005 were $501.4
million. Through February 28, 2006, the Company had repurchased $6.0 million of its 5.75% Notes due 2007 on the open market. For a more complete description of the Companys debt obligations, see Note 4 of Notes to Condensed Consolidated
Financial Statements Unaudited in Item 1, Financial Statements. Forward
Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, including the conditions of the childrens book and educational
materials markets and acceptance of the Companys products within those markets, and other risks and factors identified in this Report, in the Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, and from time to
time in the Companys other filings with the Securities and Exchange Commission (the SEC). Actual results could differ materially from those currently anticipated.
27
Market risks relating to the Companys operations
result primarily from changes in interest rates, which are managed through the
mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments,
including swap agreements, have been used to manage interest rate exposures.
Approximately 6% of the Companys debt at both February 28, 2006 and 2005
bore interest at a variable rate and was sensitive to changes in interest rates,
compared to approximately 5% at May 31, 2005. The Company is subject to the
risk that market interest rates and its cost of borrowing will increase and thereby
increase the interest charged under its variable-rate debt, as well as the risk
that variable-rate borrowings will represent a larger portion of total debt
in the future.
Additional information relating to the Companys outstanding financial instruments is included in Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following table sets forth information about the Companys debt instruments as of February 28, 2006 (see Note 4 of Notes to Condensed Consolidated Financial Statements - Unaudited in Item 1, Financial
Statements):
28
29
PART II OTHER INFORMATION
30
31
32
Exhibit 10.1
Scholastic Corporation
Directors Deferred Compensation Plan
Amended and Restated Effective January 1, 2005
TABLE OF CONTENTS i
Scholastic Corporation
Article 1. Introduction.
1.1 Establishment. Scholastic Corporation, a Delaware corporation (the Company)
established the Scholastic Corporation 1995 Directors Deferred Compensation Plan (the Plan) effective as of October 1, 1995 (the Effective Date). The Company has amended the Plan from time to time since its adoption.
The plan was last amended and restated effective as of May 25, 1999.
1.2 Purpose. The primary purpose of the Plan is to provide Directors of the Company with the
opportunity to voluntarily defer all or a portion of their Compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain Directors of outstanding competence. All capitalized
terms not defined herein shall have the meanings set forth in Article 2 of the Plan.
1.3 Restatement. The Company hereby amends and restates the Plan to comply with the requirements
of Section 409A of the Internal Revenue Code of 1986, as amended effective January 1, 2005. The amended and restated Plan shall be re-named the Scholastic Corporation Directors Deferred Compensation Plan. The effective date of this
amendment and restatement of the Plan is January 1, 2005.
1.4 Effect of Restatement; Plan Bifurcation. Deferrals made under the Plan on and after January
1, 2005 shall be made in accordance with, and shall be governed by, the terms and conditions of the plan document as set forth herein. Deferrals made under the Plan prior to January 1, 2005 and all earnings thereon shall be governed by the terms
and conditions of the Plan as in effect on December 31, 2004. The Plan, as in effect immediately prior to January 1, 2005 shall be known and referred to as the Grandfathered Plan.
1.5 Section 409A of the Code. This Plan is intended to comply with the applicable requirements
of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. To the extent that any payment or benefit hereunder is subject to Section 409A of the Code, it shall be paid in a manner that will comply
with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto. Notwithstanding anything herein to the contrary,
any provision in this Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null
and void.
Article 2. Definitions
Whenever used herein, the following terms shall have the meanings set forth below, and, when the defined meaning is intended, the term is capitalized:
(a) Board or Board of Directors means the Board of Directors of the Company.
2
Persons will not be considered to be acting as a group solely because they purchase assets of the same corporation at the same time, or as a result of the same public offering. However, persons will be considered to be acting as a
group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business transaction with the corporation. If a person, including an entity shareholder, owns stock in both
corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in
that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.
Notwithstanding the foregoing, an event shall not be considered to be a Change of Control for Payment Purposes if, for purposes of Section 409A of the Code, such event would not be considered to be a Change in
Control Event under Section 409A of the Code or IRS Notice 2005-1.
3
Article 3. Administration
3.1 Administration of the Plan. The Plan shall be administered by, and in the sole and absolute
discretion of, the Board. Subject to the provisions set forth herein, the Board shall take such actions as are required or permitted to be taken by it hereunder and shall have full and complete discretionary authority to interpret the Plan, to
determine the rights of each Director and the eligibility of a Director to participate in the Plan, the amount of benefits payable to a Director
4
and the terms and conditions of each Directors participation in the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan, including any unclear, uncertain or disputed terms
thereof; to establish, amend, waive or rescind rules and regulations for the Plans administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement or instrument entered into under
the Plan and to make all other determinations which may be necessary or advisable for the administration of the Plan. The Board may employ accountants and counsel and other persons to assist or render advice to it, all at the expense of the Company.
Subject to the terms of the Plan, the Board may delegate any or all of its authority granted under the Plan to an executive or executives of the Company. The executive or executives to whom the Board
has delegated authority to administer the Plan shall be the Plan Administrator.
3.2 Decisions Binding. All determinations and decisions of the Board or the Plan Administrator,
as applicable, as to any disputed question or any other issue arising under the Plan, including questions of construction and interpretation, shall be final, conclusive, and binding on all parties.
3.3 Indemnification. Each person who is or shall have been a member of the Board, each person
who is or shall have been the Plan Administrator and each executive to whom authority is or has been delegated by the Board pursuant to the Section 3.1, shall be indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party, or in which he or she may be involved by reason of any
action taken or failure to act under the Plan. The Company shall, subject to the requirements and limitations of Delaware law, pay such loss, cost, liability or expense imposed on or incurred by such person promptly upon demand by him or her,
whether or not he or she has actually advanced such amount prior thereto.
The Company shall also indemnify each such person who is or shall have been a member of the Board, each such person who is or shall have been the Plan Administrator and each executive to whom
authority is or has been delegated by the Board pursuant to Section 3.1, against and from any and all amounts paid by him or her in settlement thereof, with the Companys approval, or paid by him or her against him or her, provided he or she
shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Companys Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Article 4. Eligibility and Participation
4.1 Eligibility. Each person who was a Director of the Company immediately prior to the
Restatement Effective Date shall be eligible to participate in the Plan on and after the
5
Restatement Effective Date. Each other person who becomes a member of the Board of Directors on or after the Restatement Effective Date shall be eligible to participate in the Plan.
4.2 Inactive Participant. In the event a Participant no longer meets the requirements for
eligibility to participate in the Plan, such Participant shall become an inactive Participant retaining all of the rights described under the Plan, except the right to make any further deferrals hereunder. In the event a Director shall cease to
serve as a member of the Board of Directors but shall be designated as a Director Emeritus, such Director shall become an inactive Participant, and, as a result of such change in status, the Director shall not be eligible to make further deferrals
under the Plan but shall not be deemed to have terminated service as a Director until such time as his or her Director Emeritus status shall terminate.
4.3 Participation. The Plan Administrator shall notify a Director as soon as practicable after
he or she first becomes eligible to participate in the Plan. At such time, the Plan Administrator shall provide such Director with an Election to Defer Form which shall be submitted by the Director as provided in Sections 5.2 hereof. Except as
otherwise provided in Section 4.4 below, a Director, once notified of eligibility to participate in the Plan, shall be entitled to make deferrals with respect to each subsequent Plan Year by submitting an Election to Defer Form to the Plan
Administrator in the time and manner provided in Section 5.2.
4.4 Partial Plan Year Participation. In the event a Director first becomes eligible to
participate in the Plan after the beginning of a Plan Year, the Committee may, in its discretion, allow such Director to complete an Election to Defer Form within thirty (30) days after the date the Director first becomes eligible to participate, in
which case the deferral election shall be valid and applicable for the Plan Year then in progress. An Election to Defer Form submitted pursuant to this Section 4.3 shall apply only to Compensation earned subsequent to the date on which a valid
Election to Defer Form is received by the Board from the Participant.
4.5 Special Deferral Election for 2005 Plan Year. Each Director who was a participant in the
Grandfathered Plan immediately prior to the Restatement Effective Date shall be eligible to participate in the Plan on and after the Restatement Effective Date provided the Director makes an election, on or before March 15, 2005 pursuant to the
Transition Relief, to defer Compensation under the Plan with respect to the Plan Year beginning on June 1, 2005.
Article 5. Deferral Opportunity
5.1 Amount Which May Be Deferred. A Participant may elect to defer fifty percent (50%) or one
hundred percent (100%) of his or her aggregate Compensation in any Plan Year.
5.2 Deferral Election. A Participant may make an election to defer Compensation under the Plan
with respect to a Plan Year provided he or she makes such election prior to December 31 of the calendar year preceding such Plan Year or not later than thirty (30) calendar days after the date the Director initially became eligible to participate in
the Plan, as applicable. All deferral elections shall be irrevocable and shall be made on an Election to Defer Form, as described herein, which shall specify, with regard to the applicable Plan Year, the following: (i) the percentage of Compensation
which the Participant elects to defer and (ii) the deferral period, as described in Section 5.4 below. A deferral election must be submitted to the Plan
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THE SECURITIES EXCHANGE ACT OF 1934
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
557 Broadway, New York, New York
(Address of principal executive offices)
Yes X No _
Large accelerated filer X Accelerated filer _ Non-accelerated filer _
Yes _ No X
Title
Number of shares outstanding
of each class
as of March 31, 2006
Common Stock, $.01 par value
40,215,377
Class A Stock, $.01 par value
1,656,200
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2006
INDEX
Part I - Financial Information
Page
Item 1.
Financial Statements
Condensed Consolidated Statements of Operations - Unaudited for the
Three and Nine Months Ended February 28, 2006 and 2005
1
Condensed Consolidated Balance Sheets - February 28, 2006 and
2005 - Unaudited; and May 31, 2005
2
Consolidated Statements of Cash Flows - Unaudited for the Nine
Months Ended February 28, 2006 and 2005
3
Notes to Condensed Consolidated Financial Statements - Unaudited
4
Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
28
Item 4.
Controls and Procedures
29
Part II Other Information
Item 6.
Exhibits
30
31
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(Amounts in millions, except per share data)
Revenues
487.7
480.8
1,682.8
$
1,487.8
Operating costs and expenses:
Cost of goods sold
242.2
233.9
833.5
711.4
230.9
208.4
684.5
618.8
Bad debt expense
15.7
14.9
43.4
50.7
Depreciation and amortization
16.7
15.7
49.1
46.5
Total operating costs and expenses
505.5
472.9
1,610.5
1,427.4
Operating income (loss)
(17.8
)
7.9
72.3
60.4
Interest expense, net
6.8
9.1
24.4
27.4
Earnings (loss) before income taxes
(24.6
)
(1.2
)
47.9
33.0
Provision (benefit) for income taxes
(9.1
)
(0.4
)
17.7
11.8
Net income (loss)
(15.5
)
(0.8
)
30.2
21.2
Earnings (loss) per Share of Class A and
Common Stock:
Basic
(0.37
)
(0.02
)
0.74
$
0.53
Diluted
(0.37
)
(0.02
)
0.73
$
0.52
See accompanying notes
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share data)
ASSETS
Current Assets:
Cash and cash equivalents
$
219.5
$
110.6
22.1
Accounts receivable, net
241.9
269.6
249.1
Inventories
480.7
404.9
468.0
Deferred promotion costs
47.3
38.6
42.7
Deferred income taxes
71.3
71.7
75.9
Prepaid expenses and other current assets
78.9
43.9
48.0
Total current assets
1,139.6
939.3
905.8
Property, plant and equipment, net
395.5
392.7
390.7
Prepublication costs
116.2
120.2
115.5
Installment receivables, net
10.4
10.6
10.2
Royalty advances
55.4
54.4
59.2
Production costs
6.4
9.7
9.9
Goodwill
253.6
254.2
251.5
Other intangibles
78.5
78.7
78.7
Other assets and deferred charges
69.0
71.6
72.8
Total assets
$
2,124.6
$
1,931.4
1,894.3
Current Liabilities:
Current portion of long-term debt, lines
of credit and short-term debt
$
326.8
$
24.9
21.3
Capital lease obligations
9.2
11.0
11.6
Accounts payable
150.1
141.4
127.6
Accrued royalties
129.3
40.1
57.1
Deferred revenue
35.9
22.9
43.4
Other accrued expenses
154.1
134.5
128.4
Total current liabilities
805.4
374.8
389.4
Noncurrent Liabilities:
Long-term debt, excluding current portion
173.2
476.5
489.0
Capital lease obligations
63.1
63.4
63.7
Other noncurrent liabilities
87.8
79.6
62.7
Total noncurrent liabilities
324.1
619.5
615.4
Commitments and Contingencies
-
-
-
Stockholders Equity:
Preferred Stock, $1.00 par value
-
-
-
Class A Stock, $.01 par value
0.0
0.0
0.0
Common Stock, $.01 par value
0.4
0.4
0.4
Additional paid-in capital
455.5
424.0
405.3
Deferred compensation
(1.7
)
(2.1
)
(1.5
)
Accumulated other comprehensive loss
(32.6
)
(28.5
)
(14.9
)
Retained earnings
573.5
543.3
500.2
Total stockholders equity
995.1
937.1
889.5
Total liabilities and stockholders equity
$
2,124.6
$
1,931.4
1,894.3
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(Amounts in millions)
Cash flows provided by operating activities:
Net income
$
30.2
$
21.2
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for losses on accounts receivable
43.4
50.7
Amortization of prepublication and production costs
53.9
49.3
Depreciation and amortization
49.1
46.5
Royalty advances expensed
20.9
21.3
Deferred income taxes
2.2
(3.3
)
Non-cash interest expense
1.1
0.9
Changes in assets and liabilities:
Accounts receivable, net
(14.1
)
(27.1
)
Inventories
(73.3
)
(56.9
)
Prepaid expenses and other current assets
(33.9
)
(4.0
)
Deferred promotion costs
(7.7
)
(0.9
)
Accounts payable and other accrued expenses
38.1
(26.2
)
Accrued royalties
89.2
18.5
Deferred revenue
12.3
19.3
Tax benefit realized from employee stock-based plans
5.1
1.5
Other, net
(6.2
)
1.3
Total adjustments
180.1
90.9
Net cash provided by operating activities
210.3
112.1
Cash flows used in investing activities:
Prepublication expenditures
(35.4
)
(40.9
)
Additions to property, plant and equipment
(46.6
)
(31.4
)
Royalty advances
(22.1
)
(24.7
)
Production expenditures
(11.0
)
(12.8
)
Acquisition-related payments
(3.3
)
-
Net cash used in investing activities
(118.4
)
(109.8
)
Cash flows provided by financing activities:
Borrowings under Credit Agreement and Revolver
170.3
342.4
Repayments of Credit Agreement and Revolver
(170.3
)
(344.6
)
Repurchase of 5.75% Notes
(6.0
)
-
Borrowings under lines of credit
182.4
169.0
Repayments of lines of credit
(176.7
)
(172.4
)
Repayment of capital lease obligations
(8.9
)
(7.1
)
Proceeds pursuant to employee stock-based plans
26.0
14.2
Net cash provided by financing activities
16.8
1.5
Effect of exchange rate changes on cash
0.2
0.5
Net increase in cash and cash equivalents
108.9
4.3
Cash and cash equivalents at beginning of period
110.6
17.8
Cash and cash equivalents at end of period
$
219.5
$
22.1
See accompanying notes
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
1. Basis of Presentation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
Net income (loss) as reported
$
(15.5
)
$
(0.8
)
$
30.2
$
21.2
Add: Stock-based employee compensation
included in reported net
income (loss), net of tax
0.3
0.1
0.6
0.3
Deduct: Total stock-based employee
compensation expense determined
under
fair value-based method,
net of tax
2.5
3.0
7.9
9.0
Net income (loss) pro
forma
$
(17.7
)
$
(3.7
)
$
22.9
$
12.5
Earnings (loss) per share - as
reported:
Basic
$
(0.37
)
$
(0.02
)
$
0.74
$
0.53
Diluted
$
(0.37
)
$
(0.02
)
$
0.73
$
0.52
Earnings (loss) per share pro
forma:
Basic
$
(0.42
)
$
(0.09
)
$
0.56
$
0.31
Diluted
$
(0.42
)
$
(0.09
)
$
0.55
$
0.31
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
Selling, general and administrative expenses
213.1
(4.7
)
$
208.4
Depreciation and amortization
13.1
2.6
15.7
Operating income
5.8
2.1
7.9
Interest expense, net
6.9
2.2
9.1
Loss before income taxes
(1.1
)
(0.1
)
(1.2
)
Benefit for income taxes
(0.4
)
-
(0.4
)
Net loss
(0.7
)
(0.1
)
(0.8
)
Basic
(0.02
)
0.00
$
(0.02
)
Diluted
(0.02
)
0.00
(0.02
)
Selling, general and administrative expenses
631.4
(12.6
)
$
618.8
Depreciation and amortization
39.1
7.4
46.5
Operating income
55.2
5.2
60.4
Interest expense, net
21.6
5.8
27.4
Earnings before income taxes
33.6
(0.6
)
33.0
Provision for income taxes
11.9
(0.1
)
11.8
Net income
21.7
(0.5
)
21.2
Earnings per share of Class A and Common Stock:
Basic
0.55
(0.02
)
$
0.53
Diluted
0.54
(0.02
)
0.52
(1) Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
The following is a summary of the impact of the restatement
on the Companys Condensed Consolidated Balance Sheet at February 28, 2005
and the Consolidated Statement of Cash Flows for the nine months ended February
28, 2005:
February 28, 2005
Property, plant and equipment, net
$
328.5
$
62.2
$
390.7
Other assets and deferred charges
66.3
6.5
72.8
Total assets
1,825.6
68.7
1,894.3
Capital lease obligations - current
-
11.6
11.6
Total current liabilities
377.8
11.6
389.4
Capital lease obligations noncurrent
-
63.7
63.7
Other noncurrent liabilities
58.2
4.5
62.7
Total noncurrent liabilities
547.2
68.2
615.4
Retained earnings
511.3
(11.1
)
500.2
Total stockholders equity
900.6
(11.1
)
889.5
Total liabilities and stockholders equity
$
1,825.6
$
68.7
$
1,894.3
Consolidated Statement of Cash Flows
Nine Months Ended February 28, 2005
Net cash provided by operating activities
105.0
$
7.1
112.1
Net cash provided by financing activities
8.6
(7.1
)
1.5
(1) Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
3. Segment Information
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
The following table sets forth information for
the Companys segments for the periods indicated. In the fourth quarter of fiscal 2005, the Company reviewed the estimated Cost of goods
sold related to products originated by the Media, Licensing and Advertising segment that are sold through channels included in the Childrens Book Publishing and Distribution segment.
The Company determined that actual costs were lower and gross margins higher
on these products than was previously estimated. As a result, the prior period
inter-segment allocations were adjusted (the Segment Reallocation),
resulting in higher gross margin and profits in the Media, Licensing and Advertising segment with an offsetting decrease in gross margin and profits in the Childrens
Book Publishing and Distribution segment. Prior year segment results have
been reclassified to reflect this reallocation.
Three months ended
February 28, 2006
Revenues
$ 270.9
$ 73.5
$ 46.4
$ 0.0
$ 390.8
$ 96.9
$ 487.7
Bad debt
11.4
1.5
0.1
0.0
13.0
2.7
15.7
Depreciation and
amortization
3.4
0.6
0.0
11.7
15.7
1.0
16.7
Amortization (2)
4.2
6.9
4.8
0.0
15.9
0.5
16.4
Royalty advances
expensed
6.2
0.3
0.2
0.0
6.7
1.0
7.7
Segment profit (loss) (3)
(3.2
)
(3.5
)
6.3
(19.7
)
(20.1
)
2.3
(17.8
)
Expenditures for
14.0
7.3
2.4
9.7
33.4
3.7
37.1
Three months ended
February 28, 2005 - Restated
Revenues
$ 272.3
$ 79.3
$ 37.2
$ 0.0
$ 388.8
$ 92.0
$ 480.8
Bad debt
11.8
0.6
0.1
0.0
12.5
2.4
14.9
Depreciation and
amortization
4.2
0.8
0.3
8.7
14.0
1.7
15.7
Amortization (2)
4.4
8.2
4.2
0.0
16.8
0.1
16.9
Royalty advances
expensed
14.0
0.6
(0.2
)
0.0
14.4
0.7
15.1
Segment profit (loss) (3)
14.7
4.9
4.4
(19.1
)
4.9
3.0
7.9
Expenditures for
long-lived assets (4)
18.3
11.0
5.6
5.0
39.9
0.7
40.6
Nine months ended
February 28, 2006
Revenues
$ 970.4
$ 301.0
$ 116.4
$ 0.0
$ 1,387.8
$ 295.0
$ 1,682.8
Bad debt
33.0
2.9
0.3
0.0
36.2
7.2
43.4
Depreciation and
amortization
12.7
2.7
1.1
28.3
44.8
4.3
49.1
Amortization (2)
12.4
22.8
17.2
0.0
52.4
1.5
53.9
Royalty advances
expensed
17.3
1.3
0.6
0.0
19.2
1.7
20.9
Segment profit (loss) (3)
65.7
45.6
8.3
(56.9
)
62.7
9.6
72.3
Segment assets
1,026.3
301.4
68.4
420.3
1,816.4
308.2
2,124.6
Goodwill
130.6
82.5
9.8
0.0
222.9
30.7
253.6
Expenditures for
51.9
22.0
10.9
23.4
108.2
10.2
118.4
Long-lived assets (5)
332.4
182.6
31.9
291.5
838.4
104.0
942.4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
Nine months ended
February 28, 2005 - Restated
Revenues
$ 0.0
$ 1,207.8
$ 280.0
$ 1,487.8
Bad debt
0.0
43.8
6.9
50.7
Depreciation and
amortization
27.2
41.8
4.7
46.5
Amortization (2)
0.0
48.7
0.6
49.3
Royalty advances
expensed
0.0
19.6
1.7
21.3
Segment profit (loss) (3)
(55.8
)
41.2
19.2
60.4
Segment assets
416.4
1,580.9
313.4
1,894.3
Goodwill
0.0
221.1
30.4
251.5
Expenditures for
long-lived assets (4)
13.0
105.0
4.8
109.8
Long-lived assets (5)
294.3
837.7
105.4
943.1
(1)
(2)
(3)
(4)
(5)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
The following table separately sets forth information
for the periods indicated for the United States direct-to-home portion of the
Companys continuity programs, which consist primarily of the business formerly
operated by Grolier Incorporated (Grolier) and are included in
the Childrens
Book Publishing and Distribution segment, and for all other businesses included
in the segment:
Three months ended
February 28,
2006
2005
2006
2005
2006
2005
Restated
Restated
Restated
Revenues
$
34.6
$
32.8
$
236.3
$
$
270.9
$
Bad debt
7.5
7.2
3.9
11.4
Depreciation and amortization
0.0
0.1
3.4
3.4
Amortization (1)
0.6
0.3
3.6
4.2
Royalty advances expensed
1.8
1.2
4.4
6.2
Business profit (loss) (2)
(2.5
)
0.7
(0.7
)
(3.2
)
Expenditures for long-lived assets (3)
1.7
2.2
12.3
14.0
Nine months ended
February 28,
2006
2005
2006
2005
2006
2005
Restated
Restated
Restated
Revenues
$
93.0
$
113.4
$
877.4
$
$
970.4
$
Bad debt
22.0
28.0
11.0
33.0
Depreciation and amortization
0.8
0.5
11.9
12.7
Amortization (1)
1.2
0.9
11.2
12.4
Royalty advances expensed
2.2
2.1
15.1
17.3
Business profit (loss) (2)
(13.3
)
(4.2
)
79.0
65.7
Business assets
241.1
232.9
785.2
1,026.3
Goodwill
92.4
92.4
38.2
130.6
Expenditures for long-lived assets (3)
4.7
6.4
47.2
51.9
Long-lived assets (4)
143.6
145.7
188.8
332.4
(1)
(2)
(3)
(4)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
4. Debt
Lines of Credit
$
30.6
$
24.7
$
20.8
Credit Agreement and Revolver
-
12.0
5.75% Notes due 2007, net of premium
295.9
303.5
304.0
5% Notes due 2013, net of discount
173.2
173.0
173.0
Other debt
0.3
0.2
0.5
Total debt
500.0
501.4
510.3
Less current portion of long-term debt, lines
of credit and short-term debt
(326.8
)
(24.9
)
(21.3
)
Total long-term debt, excluding current portion
$
173.2
$
476.5
$
489.0
Three-month period ending May 31:
2006
$
18.7
Fiscal years ending May 31:
2007
308.1
2008
-
2009
-
2010
-
Thereafter
173.2
Total debt
$
500.0
Certain
of Scholastic Corporations international subsidiaries had unsecured lines of credit available in local currencies equivalent to $65.4 in the aggregate at February 28, 2006, as compared to $64.6 at
February 28, 2005 and $61.8 at May 31, 2005. There were borrowings outstanding under these lines of credit equivalent to $30.6 at February 28, 2006, as compared to $20.8 at February 28, 2005 and $24.7
at May 31, 2005. These lines of credit are considered short-term in nature. The
weighted average interest rates on the outstanding amounts were 5.7% and 6.1%
at February 28, 2006 and 2005, respectively, and 5.4% at May 31, 2005.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
Credit Agreement
Scholastic Corporation and its principal
operating subsidiary, Scholastic Inc., are parties to an unsecured revolving
credit agreement with certain banks (the Credit Agreement), which
expires on March 31, 2009. The Credit Agreement provides for aggregate borrowings
of up to $190.0
(with a right in certain circumstances to increase borrowings to
$250.0), including the issuance of up to $10.0 in letters of credit.
Interest under this facility is either at the prime rate or at a rate equal to
0.325% to 0.975% 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 0.25% if borrowings
exceed 50% of the total facility. The amounts charged vary based upon the Companys
credit rating. The interest rate, facility fee and utilization fee (when applicable)
as of February 28, 2006 were 0.675% over LIBOR, 0.20% and 0.125%, respectively.
The Credit Agreement contains certain financial covenants related to debt and
interest coverage ratios (as defined) and limits dividends and other distributions.
There were no borrowings outstanding under the Credit Agreement at February
28, 2006 or May 31, 2005. At February 28, 2005, $12.0
was outstanding under the Credit Agreement at a weighted average interest rate
of 3.1% .
Scholastic
Corporation and Scholastic Inc. are joint and several borrowers under an unsecured
revolving loan agreement with a bank (the Revolver). The Revolver
provides for unsecured revolving credit of up to $40.0 and expires on March 31, 2009. Interest under this facility is either at the prime rate minus 1%, or at a rate equal to 0.375% to 1.025% over LIBOR (as defined). There is a facility fee ranging from
0.10% to 0.30% . The amounts charged vary based upon the Companys credit
rating. The interest rate and facility fee as of February 28, 2006 were 0.725%
over LIBOR and 0.20%, respectively. The Revolver contains certain financial covenants
related to debt and interest coverage ratios (as defined) and limits dividends
and other distributions. There were no borrowings outstanding under the Revolver
at February 28, 2006, May 31, 2005 or February 28, 2005.
In
January 2002, Scholastic Corporation issued $300.0 of 5.75% Notes (the 5.75%
Notes).
The 5.75% Notes are senior unsecured obligations that mature on January 15, 2007.
Interest on the 5.75% Notes is payable semi-annually on July 15 and January 15
of each year. The Company may, at any time, redeem all or a portion of the 5.75%
Notes at a redemption price (plus accrued interest to the date of the redemption)
equal to the greater of (i) 100% of the principal amount, or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
discounted to the date of the redemption. Through February 28, 2006, the Company
had repurchased $6.0 of the 5.75% Notes on the open market.
In
April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the 5% Notes).
The 5% Notes are senior unsecured obligations that mature on April 15, 2013.
Interest on the 5% Notes is payable semi-annually on April 15 and October 15
of each year. The Company may at any time redeem all or a portion of the 5% Notes
at a redemption price (plus accrued interest to the date of the redemption) equal
to the greater of (i) 100% of the principal amount, or (ii) the sum of the present
values of the remaining scheduled payments of principal and interest discounted
to the date of the redemption.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
5. Comprehensive Income (Loss)
Net income (loss)
$
(15.5
)
$
(0.8
)
$
30.2
$
21.2
Other comprehensive income (loss) -
0.7
(2.4
)
(4.1
)
6.6
Comprehensive income (loss)
$
(14.8
)
$
(3.2
)
$
26.1
$
27.8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
6. Earnings (Loss) Per Share
earnings (loss) per share
$
(15.5
)
$
(0.8
)
$
30.2
$
21.2
Common Stock outstanding for basic
earnings (loss) per share
41.8
40.0
40.8
39.8
Dilutive effect of Class A and
Common Stock issued pursuant to
stock-based benefit plans
-
-
0.7
0.7
Adjusted weighted average Shares of
Class A and Common Stock outstanding
for diluted earnings (loss)
per share
41.8
40.0
41.5
40.5
Earnings (loss) per share of Class A
and Common Stock:
Basic
$
(0.37
)
$
(0.02
)
$
0.74
$
0.53
Diluted
$
(0.37
)
$
(0.02
)
$
0.73
$
0.52
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
7. Goodwill and Other Intangibles
The following table summarizes the activity in Goodwill for the periods indicated:
Beginning balance
$
254.2
$
249.7
$
249.7
Additions due to acquisitions
-
6.0
-
Other adjustments
(0.6
)
(1.5
)
1.8
Total
$
253.6
$
254.2
$
251.5
Customer lists
$
3.0
$
3.0
$
2.9
Accumulated amortization
(2.8
)
(2.8
)
(2.7
)
Net customer lists
0.2
0.2
0.2
Other intangibles
4.0
4.0
4.0
Accumulated amortization
(2.8
)
(2.6
)
(2.6
)
Net other intangibles
1.2
1.4
1.4
Total
$
1.4
$
1.6
$
1.6
Titles
$
$
31.0
$
Licenses
17.2
Major sets
11.4
Trademarks and Other
17.5
Total
$
$
77.1
$
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(Amounts in millions, except per share data)
8. Pension and Other Post-Retirement Benefits
Service cost
$
2.0
$
2.0
$
6.1
$
5.9
Interest cost
2.1
2.1
6.2
6.2
Expected return on assets
(2.2
)
(2.4
)
(6.6
)
(7.2
)
Net amortization and deferrals
1.0
0.6
2.9
1.9
Net periodic benefit cost
$
2.9
$
2.3
$
8.6
$
6.8
Service cost
$
0.1
$
0.1
$
0.4
$
0.3
Interest cost
0.5
0.5
1.4
1.6
Amortization of prior service cost
(0.2
)
(0.2
)
(0.6
)
(0.6
)
Recognized gain or loss
0.5
0.5
1.4
1.3
Net periodic benefit cost
$
0.9
$
0.9
$
2.6
$
2.6
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A)
Overview and Outlook
Results of Operations Consolidated
Item 2. MD&A
Selling, general and administrative expenses as a percentage of revenue for the quarter ended February 28, 2006 increased to 47.3% from 43.3% in the prior fiscal year quarter, primarily due to an increase in promotional
expenses in the Childrens Book Publishing
and Distribution segment. For the nine months ended February 28, 2006, Selling, general and administrative expenses as a
percentage of revenues decreased to 40.7% from 41.5% in the prior fiscal year period, primarily due to the revenue benefit from Harry Potter and the Half-Blood Prince without
a corresponding increase in expense. For the nine months ended February 28,
2005, Selling, general and administrative expenses included a charge of $3.6 million, primarily related to severance costs, recorded in connection with the fiscal 2004
review by the Company of its continuity business (the Continuity Charges).
Item 2. MD&A
Results of Operations - Segments
($ amounts in millions)
2006
2005
2006
2005
Restated
Restated
Revenue
$
270.9
$
272.3
$
970.4
$
819.1
Operating profit (loss)
(3.2
)
14.7
(1)
65.7
41.6
(1)(2)
Operating margin
*
5.4
% (1)
6.8
%
5.1
% (1)
* not meaningful
(1)
Reflects the Segment Reallocation.
(2)
Includes Continuity Charges related to this segment of $3.6.
Item 2. MD&A
Segment revenues for the nine months ended February 28,
2006 increased $151.3 million, or 18.5%, to $970.4 million, compared
to $819.1 million in the prior fiscal year period. For the current fiscal
year period, the Companys
trade business revenues were $311.2 million, an increase of $175.3
million from the prior fiscal year period, and school-based book fair revenues
increased by $12.2 million to $238.2
million. Revenues in the Companys continuity business were $134.1
million in the nine months ended February 28, 2006, a decrease of $26.7 million compared to the prior fiscal year period, primarily as a result of the Companys
previously announced plan for this business, and
revenues from school-based book clubs decreased by $9.5 million to $286.9
million. The increase in
trade revenues was principally due to Harry
Potter revenues of approximately $195 million, as compared to approximately $15
million of Harry Potter revenues
in the prior fiscal year period.
Direct-to-home continuity
($ amounts in millions)
2006
2005
2006
2005
Restated
Restated
Revenue
$
34.6
$ 32.8
$
93.0
$ 113.4
Operating profit (loss)
(2.5
)
0.7
(13.3
)
(4.2
)(1)
Operating margin
*
2.1
%
*
*
*
not meaningful
(1)
Includes Continuity Charges related to this business
of $3.6.
Item 2. MD&A
Excluding the direct-to-home portion of the continuity
business, segment operating loss was $0.7 million in the quarter ended
February 28, 2006, compared to an operating profit of $14.0 million in
the prior fiscal year quarter, and segment operating profit was $79.0
million in the nine months ended February 28, 2006, compared to an operating
profit of $45.8
million in the prior fiscal year period.
($ amounts in millions)
2006
2005
2006
2005
Restated
Restated
Revenue
$ 73.5
$ 79.3
$ 301.0
$ 292.0
Operating profit (loss)
(3.5
)
4.9
45.6
48.7
Operating margin
*
6.2
%
15.1
%
16.7
%
Item 2. MD&A
Media, Licensing and Advertising
($ amounts in millions)
2006
2005
2006
2005
Restated
Restated
Revenue
$ 46.4
$ 37.2
$ 116.4
$ 96.7
Operating profit
6.3
4.4
(1)
8.3
6.7
(1)
Operating margin
13.6
%
11.8
% (1)
7.1
%
6.9
% (1)
(1) Reflects the Segment Reallocation.
($ amounts in millions)
2006
2005
2006
2005
Restated
Restated
Revenue
$
96.9
$ 92.0
$ 295.0
$ 280.0
Operating profit
2.3
3.0
9.6
19.2
Operating margin
2.4
%
3.3
%
3.3
%
6.9
%
23
Item 2. MD&A
Revenues in the International segment
for the quarter ended February 28, 2006 increased $4.9 million, or 5.3%,
to $96.9 million, compared to
$92.0 million in the prior fiscal year quarter. This increase reflected higher
local currency revenue growth in Canada and Australia, equivalent to $3.0
million and $1.9 million, respectively, partially offset by lower local
currency revenue in the United Kingdom equivalent to $1.3 million. Segment
revenues for the nine months ended February 28, 2006 increased $15.0 million,
or 5.4%, to $295.0 million, as compared to $280.0 million in the prior
fiscal year period. This increase reflected revenue growth in the
Companys export business of $5.8 million and local currency revenue
growth in Australia and Canada, equivalent to $4.7 million and $1.5
million, respectively, as well as the favorable impact of foreign currency
exchange rates of $3.8 million, partially offset by lower local currency
revenues in the United Kingdom equivalent to $7.9
million.
Item 2. MD&A
Liquidity and Capital Resources
Item 2. MD&A
The Company believes its existing cash position,
combined with funds generated from operations and available under the Credit
Agreement and the Revolver, described in Financing below, will
be sufficient to finance its ongoing working capital requirements. The
Company anticipates refinancing its debt obligations prior to their respective
maturity dates, including its outstanding 5.75% Notes due in January 2007,
to the extent not paid through cash flow.
Item 2. MD&A
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
does not represent a significant risk in the context of the Companys current international operations. In the normal course of business, the Companys operations outside the United States periodically enter into short-term forward contracts
(generally not exceeding an amount equivalent to $20.0 million in the aggregate)
to match selected purchases not denominated in their respective local currencies.
Debt Obligations
$
18.4
$
12.2
-
-
-
-
$
30.6
6.3
%
5.2
%
$
0.3
$
294.0
-
-
-
175.0
$
469.3
5.12
%
5.75
%
5.0
%
(1)
Item 4. Controls and Procedures
The Chief Executive Officer and the Chief Financial
Officer of Scholastic Corporation, after conducting an evaluation, together
with other members of the Company's management, of the effectiveness of the
design and operation of the Corporations disclosure controls and procedures
as of February 28, 2006, have concluded that the Corporations disclosure
controls and procedures were effective to ensure that information required
to be disclosed by the Corporation in its reports filed or submitted under
the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
SEC and accumulated and communicated to members of the Companys management,
including the Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure. There was no change in the
Corporations internal control over financial reporting
that occurred during the quarter ended February 28, 2006 that has materially
affected, or is reasonably likely to materially affect, the Corporations
internal control over financial reporting.
Item 6. Exhibits
Exhibits:
10.1
Scholastic Corporation Directors Deferred Compensation Plan, as amended and
restated effective January 1, 2005.
10.2
Deferred Compensation Agreement between Scholastic Inc. and Ernest Fleishman,
as amended and restated effective January 1, 2005.
31.1
Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certifications of the Chief Executive Officer and Chief Financial Officer of
Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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)
/s/ Richard Robinson
Richard Robinson
Chairman of the Board,
President, and Chief
Executive Officer
s/ Mary A. Winston
Mary A. Winston
Executive Vice President and
Chief Financial Officer
QUARTERLY REPORT ON FORM 10-Q, DATED FEBRUARY 28, 2006
Exhibits Index
Exhibit
Number
Description of Document
Scholastic Corporation Directors Deferred Compensation Plan, as amended and
restated effective January 1, 2005.
Deferred Compensation Agreement between Scholastic Inc. and Ernest
Fleishman, as amended and restated effective January 1, 2005.
Certification of the Chief Executive Officer of Scholastic Corporation filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer of Scholastic Corporation filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of the Chief Executive Officer and Chief Financial Officer of
Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Page
Scholastic Corporation Directors Deferred Compensation Plan
1
Article 1
Introduction
1
Article 2
Definitions
1
Article 3
Administration
4
Article 4
Eligibility and Participation
5
Article
5
Deferral Opportunity
6
Article 6
Deferred Compensation Accounts
8
Article 7
Beneficiary Designation
8
Article 8
Rights of Participants
9
Article 9
Amendment and Termination
9
Article 10
Miscellaneous
10
Directors Deferred Compensation Plan
(b)
Chairperson Fees means fees paid by the Company to a Director, in cash, for serving as Chairperson of a Board Committee during the relevant Plan Year and which is exclusive of any Retainer or Meetings Fees earned
during such Plan Year.
(c)
Change in Control of the Company means, and shall be deemed to have occurred upon, any of the following events:
(i)
a change in ownership of the Company which means the date that any one person, or more than one person acting as a group (as defined below), acquires ownership of stock of the Company that, together with stock held by
such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; provided, that, if any one person or more than one person acting as a group, is considered to own more than 50% of the
total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Company (or to cause a change in the
effective control (as defined in subsection (ii) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for
property will be treated as an acquisition of stock for purposes of this section.
(ii)
a change in effective control of the Company, which means the date that either: (A) any one person, or more than one person acting as a group (as defined below), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 35% or more of the total voting power of the stock of the Company; or (B) a majority of members of the Board are replaced
during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.
(iii)
a a change in the ownership of a substantial portion of the Companys assets, which means the date that any one person, or more than one person acting as a group (as defined below), acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the
assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. Notwithstanding the foregoing, a Change of Control shall not occur when there is a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer, as
provided
in this paragraph (iii). A transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to:
(a)
A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;
(b)
An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company; or
(c)
A person, or more than one person acting as a group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or
(d)
An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in paragraph (c).
(d)
Code means the Internal Revenue Code of 1986, as amended. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or
replaces such section or subsection.
(e)
Company means Scholastic Corporation, a Delaware corporation.
(f)
Compensation means the Retainer, Meeting Fees and, if applicable, Chair- person Fees payable to a Participant by the Company for services performed as a Director during a Plan Year. In no event, however, shall amounts
paid in the form of Company stock or stock options qualify as Compensation eligible for deferral under the Plan.
(g)
Director means each member of the Board of Directors of the Company who receives a Retainer and Meeting Fees for service on the Board of Directors.
(h)
Disability means the inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that may result in death and, in any case, is expected
to continue for a period of not less than 12 months.
(i)
Effective Date means the date the Plan became effective, as set forth in Section 1.1 herein.
(j)
Grandfathered Plan means the terms and provisions of the Plan in effect immediately prior to the Restatement Effective Date.
(k)
Meeting Fees means fees paid by the Company to a Director, in cash, for attendance at Board and various Board committee meetings during the relevant Plan Year, and which is exclusive of any Retainer or Chairperson Fees
earned during such Plan Year. For the purposes of the Plan, Meeting Fees shall not include any fees paid or payable in Company stock or stock options.
(l)
Participant means any Director who is actively participating in the Plan.
(m)
Plan means the Scholastic Corporation Directors Deferred Compensation Plan.
(n)
Plan Administrator means the executive(s) appointed by the Board pursuant to Section 3.1 hereof to administer certain provisions of the Plan as set forth herein and shall initially be the Vice President of Human
Resources of Scholastic Inc.
(o)
Plan Year means the fiscal year of the Company beginning on June 1st and ending on May 31st .
(p)
Restatement Effective Date means January 1, 2005.
(q)
Retainer means the annual cash retainer paid by the Company and earned by a Director during the relevant Plan Year with respect to the Directors service on the Board, and which is exclusive of Meeting Fees or
Chairperson Fees earned during such Plan Year. For purposes of the Plan, Retainer shall not include any retainer paid or payable in Company stock or stock options.
(r)
Transition Relief means the extended time period permitted by Q&A-21 of Notice 2005-1 issued by the Internal Revenue Service in which a valid deferral election could be made with respect to compensation to be
earned in, or during a portion of, calendar year 2005.
Administrator on a timely basis in order to be given effect. Once a Participant has submitted an Election to Defer Form, the Participant may only revoke or change the deferral election if he or she notifies the Plan Administrator in writing of the revocation or change prior to December 31 of the calendar year preceding the Plan Year for which the revocation or change is to be effective. All amounts deferred under the Plan for a particular Plan Year shall be paid to the Participant (or Beneficiary) in a single sum cash payment.
5.3 Length of Deferral. Except as otherwise provided herein, all deferrals hereunder and earnings thereon shall be maintained in deferred status until the later of: (a) the expiration of the deferral period (which may not exceed 15 years) specified by the Director in the Election to Defer Form or (b) termination of the Directors service for any reason other than death or Disability. Notwithstanding the foregoing provisions, in the event of the termination of the Directors service due to Disability or death, payments of all deferred amounts plus earnings thereon shall be made to the Director (or his or her Beneficiary) as soon as administratively feasible after the date of the Directors termination of service.
5.4 Change in Deferral Period. A Participant may elect to extend the deferral period and thereby defer payment of the deferred amount plus earnings thereon provided that the Participants subsequent deferral election: (i) may not be effective until 12 months after the date the subsequent election is made; (ii) the subsequent election must be made at least 12 months prior to the date the payment would otherwise be made; (iii) the payment is delayed by at least five years from the original payment date under Section 5.4 (or any subsequent election); and (iv) the original deferral period together with any subsequent deferral period does not provide for the deferral of any Compensation for more 15 years after the date the Compensation would have been paid to the Director in the absence of an deferral election under the Plan.
5.5 Payments of Deferred Amounts. Each Participant shall receive payment of the deferred amounts, together with earnings accrued thereon, pursuant to Section 6.2, at the end of the applicable deferral period, as determined under Section 5.4. Each payment for a particular Plan Year shall be made in cash, in a single sum payment, as soon as administratively feasible after the date specified for payment as determined under Section 5.4.
Notwithstanding the foregoing, any unpaid deferred amounts and accumulated earnings thereon shall be paid to the Participant in the event that, at any time prior to full payment of such deferred amounts and earnings thereon, a Change in Control of the Company occurs. In such event, payments of all deferred amounts plus earnings thereon shall be made to all Participants in single sum cash payments as administratively feasible after the effective date of the Change in Control, as applicable.
5.6 Unforeseeable Emergency. If a Participant suffers an unforeseen emergency, as defined herein, the Board, in its sole discretion, may pay as soon as administratively feasible to the Participant only that portion, if any, of his or her account that the Board determines is necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. A Participant requesting an emergency payment shall apply for the payment in writing in a form approved by the Plan Administrator and shall provide such additional information as the Plan Administrator may require. For purposes of this paragraph, unforeseen emergency means a severe financial
7
hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as described in Section 152(a) of the Code) of the Participant, loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances constituting an unforeseeable emergency shall depend on the facts of each case, but, in any event, shall not be made to the extent that such emergency is or may be relieved: (a) through liquidation or compensation by insurance or otherwise, (b) by liquidation of the Participants assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of deferrals under a cash-or-deferred arrangement maintained by the Participants current employer.
In addition to the requirements set forth in clauses (a), (b), and (c) above, as a precondition to an unforeseen emergency, a Participant must have obtained all distributions, other than hardship distributions of salary reduction contributions under a cash-or-deferred arrangement maintained by any employer pursuant to a plan qualified under Section 401(a) of the Code which contains a cash-or-deferred arrangement and other than in-service withdrawals resulting in a forfeiture, currently available under all plans maintained by any employer.
Article 6. Deferred Compensation Accounts
6.1 Participants Accounts. The Company shall establish and maintain an individual bookkeeping account for deferrals made by each Participant, and earnings thereon, under Article 5 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant. The term account and other measures representing the value of a Directors deferrals under the Plan are bookkeeping entries only and shall not constitute property of any kind or any interest in the Company or specific assets thereof.
6.2 Earnings on Deferred Amounts. Compensation deferred under the Plan shall accrue interest on a quarterly basis at a rate equal to the 30-year Treasury Bill rate of interest in effect as of the first business day of each calendar quarter (or, if such rate is not available, interest shall accrue at a rate determined by Scholastic to be equivalent to the investment yield of a 30-year Treasury Bill for such period). Each Participants deferred compensation account shall be credited on the last day of each calendar quarter until all deferrals have been paid, with interest computed on the average balance in the account during such quarter. Interest earned on deferred amounts shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts.
6.3 Charges Against Accounts. There shall be charged against each Participants deferred compensation account any payments made to the Participant or to his or her beneficiary.
Article 7. Beneficiary Designation
Each Participant shall designate a beneficiary or beneficiaries who, upon the Participants death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed
8
by the Board. Each designation shall be effective as of the date delivered to a Company employee so designated by the Board.
Participants may change their designations of beneficiary on such form as prescribed by the Board. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the designated employee prior to the Participants death.
In the event that all the beneficiaries named by a Participant pursuant to this Article 7 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participants beneficiaries under the Plan shall be paid to the Participants estate.
In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participants beneficiaries under the Plan shall be paid to the Participants estate.
Article 8. Rights of Participants
8.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participants accounts when due. Payment of account balances shall be made out of the general funds of the Company.
8.2 Unfunded Plan. The Plan constitutes an unfunded, unsecured promise of the Company to make payments in the future of the amounts deferred under the Plan and is intended to constitute a nonqualified deferred compensation plan which is unfunded for tax purposes and for the purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create, or be construed to create, a trust of any kind, a fiduciary relationship between the Company and any Director or any other person. No special or separate fund shall be established or other segregation of assets made to assure payment of deferred amounts hereunder. No Director or any other person shall have any preferred claim on, or beneficial ownership interest in, any assets of the Company prior to the time that deferred amounts are paid to the Director as provided herein. The rights of a Director to receive benefits from the Company shall be no greater than any general unsecured creditor of the Company.
8.3 Service as a Director. Neither the establishment of the Plan, nor any action taken hereunder, shall in any way obligate (i) the Company to nominate a Director for reelection or to continue to retain a Director; or (ii) a Director to agree to be nominated for reelection or to continue to serve on the Board.
Article 9. Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate the Plan at any time by action of the Board. No such amendment or termination shall in any material manner adversely affect any Participants rights to deferred amounts or interest earned thereon, without the consent of the Participant.
9
Article 10. Miscellaneous
10.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Plan Administrator with a copy to sent to the Corporate Secretary of the Company. Such notice, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
10.2 Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
10.3 Nontransferability. Participants rights to deferred amounts, contributions, and investment return earned thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant.
10.4 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
10.5 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company.
10.6 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.
10.7 Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule, subject to preemption by ERISA.
10
Exhibit 10.2
DEFERRED COMPENSATION AGREEMENT
(As Amended and Restated
Effective January 1, 2005)
THIS DEFERRED COMPENSATION AGREEMENT (Agreement) originally made and entered into in the City of New York, State of New York, on the 31st day of July 1989, by and between Scholastic Inc., a New York corporation (Scholastic), and Ernest Fleishman, an individual residing in the State of Connecticut (Employee) is hereby amended and restated effective as of January 1, 2005 primarily in order to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (Code). For purposes of clarity and consistency, the Agreement, as in effect immediately prior to January 1, 2005, shall be referred to and known as the Grandfathered Agreement and the Agreement, as amended and restated and as set forth herein, shall be referred to and known as the Deferred Compensation Agreement.
IN CONSIDERATION of the foregoing and the mutual agreements herein, the parties agree as follows:
1. Purpose of Agreement. The purpose of the Deferred Compensation Agreement is to continue to provide a means for the Employee to make elective deferrals of base salary during his employment with Scholastic. Elective deferrals made by the Employee on and after January 1, 2005, and all earnings thereon, shall be made in accordance with, and shall be governed by, the terms and conditions of the Deferred Compensation Agreement. Deferrals made by the Employee prior to January 1, 2005, and all earnings thereon, shall be governed by the terms and conditions of the Grandfathered Agreement.
2. Section 409A of the Code. This Deferred Compensation Agreement is intended to comply with the applicable requirements of Section 409A of the Code and shall be limited,
construed and interpreted in accordance with such intent. To the extent that any payment or benefit hereunder is subject to Section 409A of the Code, it shall be paid in a manner that will comply with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto. Notwithstanding anything herein to the contrary, any provision in this Deferred Compensation Agreement that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null and void.
3. Deferral Election. Deferral Amount. The Employee may elect to defer a dollar amount of his annual base salary with respect to a calendar year by completing a written election form and filing it with the Corporate Benefits Department of Scholastic on or before December 31st of the calendar year immediately preceding the calendar year in which the elective deferral will be effective; provided, however, that the Employee shall be permitted to make an effective deferral election with respect to the annual base salary he earned prior to December 31, 2005, by filing his written deferral election with the Corporate Benefits Department of Scholastic on or before March 15, 2005, in accordance with the transition relief provided by the Internal Revenue Service in Q&A-21 of Notice 2005-1. Once a deferral election is made in accordance with this Paragraph 3, the Employee may only revoke or change it if the Employee notifies the Corporate Benefits Department of Scholastic in writing of the revocation or change in the deferral election prior to December 31st of the calendar year immediately preceding the calendar year for which the revocation or change in deferral election is to be effective. To the extent that the Employee elects to defer a portion of his base salary, Scholastic shall reduce the Employees base salary in
2
accordance with the Employees deferral election and amounts deferred hereunder shall be credited to the Account (as defined in Paragraph 10 below) established for the Employee.
Interest. On the first day of each calendar year, Scholastic shall also credit to the Account as interest an additional amount at the rate equal to the average of 30-year Treasury bonds as of the last day of each month of the preceding calendar year as reported in The New York Times (or, if such rate is not reported, an annual interest rate determined by Scholastic to be equivalent to the average investment yield of 30-year Treasury bonds for such period) multiplied by the average monthly balance of the Account during the preceding year. (See attached example.) Interest shall be credited in accordance with the foregoing sentence until all amounts credited to the Account have been distributed.
4. Payment of Deferred Amounts. Subject to the provisions of Paragraph 5 below, payment of the deferred salary and additional amounts credited to the Account as interest shall not commence to be made to the Employee until the Initial Disbursement Date (as defined herein) and shall be made in quarterly installments over a five-year period following the Initial Disbursement Date. The amount of each quarterly installment shall be computed by dividing the balance of the Account (including interest) by the number of installments remaining to be paid under the agreement. For purposes of this Deferred Compensation Agreement, the term Initial Disbursement Date shall be the date of the Employees termination of employment with Scholastic; provided, however, that if the Initial Disbursement Date is determined when the Employee is a key employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, the first installment payment otherwise payable to the Employee hereunder shall be delayed by six calendar months.
3
5. Payment Upon Death or Disability. Notwithstanding the provisions of Paragraph 4, in the event of the Employees death or Disability (as defined below) while there remains unpaid any portion of the Account, the unpaid balance of the Account shall be paid in a single sum cash payment to Employees executors or administrators, in the event of his death or to the Employee, in the event of his Disability, as soon as practicable following such event. For purposes of this Agreement, the term Disability means the inability of the Employee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that may result in death and, in any case, is expected to continue for a period of not less than 12 months.
6. Non-Assignment of Benefits. No amounts credited to the Account and no payments to be made hereunder may be assigned, sold, transferred, pledged, charged, commuted, encumbered or otherwise alienated by Employee, to the extent permitted by law, and no such amount or payment shall in any way be subject to any legal process or subject to the payment of any claims against the Employee. In no event shall the Employee have the right to recover any amounts of salary credited to the Account otherwise than in accordance with this agreement.
7. Unforeseeable Emergency. In the event that Employee incurs an Unforeseeable Emergency, (as defined herein) Scholastic, in its sole discretion, may revise the payment schedule to pay Employee only that portion, if any, of his Account that Scholastic determines necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution.
For purposes of this Deferred Compensation Agreement, the term Unforeseeable Emergency means a severe financial hardship to the Employee resulting from a sudden and unexpected illness or accident of the Employee or of a dependent (as described in Section 152(a)
4
of the Code) of the Employee, loss of the Employees property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee. The circumstances constituting an Unforeseeable Emergency shall depend on the facts of each case, but, in any event, shall not exist to the extent that such emergency is or may be relieved: (a) through liquidation or compensation by insurance or otherwise, (b) by liquidation of the Employees assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of deferrals under this Deferred Compensation Agreement (or any other cash-or-deferred arrangement maintained by Scholastic in which the Employee participates).
8. Taxes. All federal, state or local income or payroll taxes (including all taxes required under the Federal Insurance Contributions Act) that Scholastic determines are required to be withheld from any amount allocated to the Account or from any payments made pursuant to this Deferred Compensation Agreement shall be withheld.
9. Administration. The Human Resources and Compensation Committee of the Board of Directors of Scholastic (HRCC) shall be responsible for the administration of the deferral program memorialized in this agreement. The HRCC has initially delegated authority to administer the deferral program in this Agreement to the Vice President of Human Resources of Scholastic.
10. Miscellaneous. For purposes of this Deferred Compensation Agreement, the term Account means a bookkeeping entry maintained by Scholastic of the amounts of salary deferred hereunder, additions credited thereon, and installments paid under this agreement. The foregoing Account shall be separate from the account established pursuant to the terms of the
5
Grandfathered Agreement. The use of the word Account does not contemplate or imply any segregation by Scholastic of any monies or their assets, nor shall it be deemed to mean that any amount credited to the Account is the property of Employee. The right of the Employee to receive amounts deferred under this Deferred Compensation Agreement shall be no greater than the right of an unsecured general creditor against the assets of Scholastic. Nothing contained in this Deferred Compensation Agreement and no action taken pursuant to its provisions shall in any way be deemed to create a trust of any kind or a fiduciary relationship between Scholastic and the Employee and no assets of Scholastic shall be subject to any prior claim by the Employee or his beneficiary to assure payment of amounts deferred under this Deferred Compensation Agreement. All payments under this Deferred Compensation Agreement shall be paid in cash from the general funds of Scholastic. It is the intent of the parties hereto that this Deferred Compensation Agreement be treated as unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
11. Successors and Assigns. This Deferred Compensation Agreement shall be binding upon and inure to the benefit of the Employee and Scholastic and their respective successors and assigns. This Deferred Compensation Agreement contains the full understanding of the parties with respect to its subject matter and may not be modified or amended, except by a written agreement executed by both parties. This Deferred Compensation Agreement has been executed and delivered in the State of New York and its validity, interpretation, performance and enforcement shall be governed by the laws of the State of New York, subject to preemption by ERISA.
12. Employment Rights. Nothing contained in this Deferred Compensation Agreement shall confer upon the Employee a right to be employed or to continue in the employ
6
of Scholastic or interfere in any way with the right of the Scholastic to terminate the employment of the Employee at any time.
13. Amendment and Termination. Scholastic reserves the right to amend, modify or terminate the Plan at any time by action of the HRCC. However, no such amendment or termination shall in any material manner adversely affect the Employees rights to deferred amounts or interest earned thereon, without the Employees written consent.
IN WITNESS WHEREOF, the parties to this amended and restated Deferred Compensation Agreement have subscribed their names.
Executed in duplicate, effective as of January 1, 2005 on this __ day of _____________, 2006.
SCHOLASTIC INC. | |||
By | /s/ Richard Robinson | ||
Name: | Richard Robinson | ||
Title: | President | ||
/s/ Ernest B. Fleishman | |||
Ernest B. Fleishman |
7
EXAMPLE
INTEREST CALCULATION
(b) | ||||
(a) | INT RATE | |||
ACCOUNT | 30-YEAR | |||
MONTH | BALANCE | TREAS BOND | ||
|
|
|
||
JAN | 10,000 |
|
||
FEB | 12,000 |
|
||
MAR | 14,000 |
|
||
APR | 16,000 |
|
||
MAY | 18,000 |
|
||
JUNE | 20,000 |
|
||
JUL | 22,000 |
|
||
AUG | 24,000 |
|
||
SEPT | 26,000 |
|
||
OCT | 28,000 |
|
||
NOV | 30,000 |
|
||
DEC | 32,000 |
|
||
|
|
|||
AVERAGE | 21,000 |
|
||
|
|
(a) | AS OF LAST DAY OF EACH MONTH |
(b) | SEE KEY RATES IN N.Y. TIMES |
AMT CREDITED | ||||
AVG BALANCE |
|
AVG RATE |
|
AS INTEREST |
|
|
|
||
21,000 | 8.33% | 1,750 | ||
|
|
|
Exhibit 31.1
I, Richard Robinson, the principal executive officer of Scholastic Corporation, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Scholastic Corporation; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): | ||
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. | |||
Date: April 7, 2006
/s/ Richard Robinson Richard Robinson Chairman of the Board, President and Chief Executive Officer |
Exhibit 31.2
I, Mary A. Winston, the principal financial officer of Scholastic Corporation, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Scholastic Corporation; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): | ||
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 7, 2006
/s/ Mary A. Winston | |
Mary A. Winston | |
Executive Vice President | |
and Chief Financial Officer |
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
with Respect to the Quarterly Report on Form 10-Q
for the Quarter ended February 28, 2006
of Scholastic Corporation
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States | ||
Code), each of the undersigned officers of Scholastic Corporation, a Delaware corporation (the Company), does hereby certify, to the best of such officers knowledge, that: | ||
1. | The Companys Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 (the Form 10-Q) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
2. | Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. | |
Dated: April 7, 2006
|
/s/ Richard Robinson |
Richard Robinson | |
Chief Executive Officer | |
Dated: April 7, 2006
|
/s/ Mary A. Winston |
Mary A. Winston | |
Chief Financial Officer |
The certification set forth above is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-Q or as a separate disclosure document of the Company or the certifying officers.