SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended November 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to __________
Commission File Number: 0-19860
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SCHOLASTIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3385513
------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 Broadway, New York, New York 10012
- -------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
212-343-6100
-------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO USERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Title of each class as of December 31, 1997
------------------- ----------------------------
Common Stock, $.01 par value 15,419,532
Class A Stock, $.01 par value 828,100
SCHOLASTIC CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1997
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Statement of Income for the Three
Months Ended November 30, 1997 and 1996 and for the Six Months
Ended November 30, 1997 and 1996 1
Consolidated Condensed Balance Sheet at November 30, 1997, May
31, 1997 and November 30, 1996 2
Consolidated Condensed Statement of Cash Flows for the Six
Months Ended November 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
(i)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Amounts in millions except per share data)
Three Months Ended Six Months Ended
-------------------------- --------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues $ 354.8 $ 342.2 $ 521.4 $ 500.8
Operating costs and expenses:
Cost of goods sold 176.1 165.8 271.6 259.5
Selling, general and administrative expenses 125.5 106.7 207.9 187.3
Intangible amortization and depreciation 5.6 4.1 10.5 7.6
--------- --------- ---------- ---------
Total operating costs and expenses 307.2 276.6 490.0 454.4
Operating income 47.6 65.6 31.4 46.4
Interest expense, net 5.6 4.2 10.7 7.6
--------- --------- ---------- ---------
Income before provision for income taxes 42.0 61.4 20.7 38.8
Provision for income taxes 16.0 22.9 7.9 14.3
--------- --------- ---------- ---------
Net income $ 26.0 $ 38.5 $ 12.8 $ 24.5
========= ========== ========== =========
Primary earnings per share $ 1.59 $ 2.36 $ 0.79 $ 1.51
Fully diluted earnings per share $ 1.51 $ 2.21 $ 0.79 $ 1.47
Weighted average Class A, Common and
Class A Share and Common Share
Equivalents:
Primary 16.4 16.3 16.2 16.3
Fully diluted 17.8 17.8 16.2 17.8
SEE ACCOMPANYING NOTES
1
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Amounts in millions)
November 30, 1997 May 31, 1997 November 30, 1996
----------------------- ------------------- ----------------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4.3 $ 4.9 $ 2.2
Accounts receivable less allowance for
doubtful accounts 168.3 100.5 184.9
Inventories:
Paper 13.3 8.1 16.6
Books and other 237.6 213.9 222.6
Prepaid and other deferred expenses 58.1 68.9 40.9
-------- --------- ---------
Total current assets 481.6 396.3 467.2
Property, plant and equipment, net 134.3 134.0 122.1
Prepublication costs 97.5 102.1 102.9
Other assets and deferred charges 160.1 152.0 119.1
-------- --------- ---------
$ 873.5 $ 784.4 $ 811.3
======== ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 8.5 $ 5.0 $ 25.1
Accounts payable 87.0 74.2 64.3
Accrued royalties 23.0 12.2 23.4
Deferred revenue 34.9 9.0 34.1
Other current liabilities 69.7 80.2 65.5
-------- --------- ---------
Total current liabilities 223.1 180.6 212.4
Noncurrent liabilities:
Long-term debt 322.2 287.9 252.4
Other noncurrent liabilities 18.4 18.4 24.0
-------- --------- ---------
Total noncurrent liabilities 340.6 306.3 276.4
Commitments and contingencies - - -
Stockholders' equity:
Class A stock, $.01 par value 0.0 0.0 0.0
Common stock, $.01 par value 0.2 0.2 0.2
Additional paid-in capital 204.2 203.8 202.3
Accumulated earnings 143.8 131.0 155.1
Less shares held in treasury (36.8) (36.8) (36.8)
Foreign currency translation adjustment (1.6) (0.7) 1.7
-------- --------- ---------
Total stockholders' equity 309.8 297.5 322.5
-------- --------- ---------
$ 873.5 $ 784.4 $ 811.3
======== ========= =========
SEE ACCOMPANYING NOTES
2
SCHOLASTIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in millions)
Six Months Ended
-----------------------------
November 30, November 30,
1997 1996
------------ ------------
Net cash provided by (used in) operating activities $5.1 $ (26.6)
Cash flows from investing activities:
Royalty advances paid (13.4) (8.0)
Prepublication cost expenditures (11.6) (11.5)
Additions to property, plant and equipment (8.5) (13.0)
Production cost expenditures (7.7) (6.2)
Business acquisition related payments (0.4) (10.8)
Other, net (1.7) (1.4)
------- -------
Net cash used in investing activities (43.3) (50.9)
Cash flows from financing activities:
Borrowings under loan agreement and revolver $ 165.9 $ 152.2
Principal paydowns on loan agreement and revolver (131.8) (86.8)
Borrowings under lines of credit 24.2 17.8
Principal paydowns on lines of credit (20.8) (15.3)
Other, net 0.1 7.5
------- -------
Net cash provided by financing activities 37.6 75.4
Effects of exchange rate changes on cash 0.0 0.0
------- -------
Decrease in cash and cash equivalents (0.6) (2.1)
Cash and cash equivalents at beginning of period 4.9 4.3
------- -------
Cash and cash equivalents at end of period $ 4.3 $ 2.2
======= =======
Supplemental information:
Income taxes paid $ 1.4 $ 9.7
Interest paid $ 10.0 $ 6.8
SEE ACCOMPANYING NOTES
3
SCHOLASTIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have not been
audited, but reflect those adjustments consisting of normal recurring items
which management considers necessary for a fair presentation of financial
position, results of operations and cash flow. These financial statements should
be read in conjunction with the consolidated financial statements and related
notes in the 1996/1997 Annual Report to Stockholders.
Scholastic Corporation, together with its subsidiaries and affiliates (the
"Company"), is among the leading publishers and distributors of children's
books, classroom and professional magazines and other educational materials,
with its principal operations in the United States, Canada, the United Kingdom,
Australia, New Zealand, Mexico and India. The Company distributes most of its
products directly to children and teachers in elementary and secondary schools
and as a result its business cycle is closely correlated to the normal school
year.
The results of operations for the six months ended November 30, 1997 and 1996
are not indicative of the results expected for the full fiscal year. Due to the
seasonal fluctuations that occur, the prior year's November 30 balance sheet is
included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying
consolidated condensed financial statements to conform to the current year
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates and
assumptions. Significant estimates that affect the financial statements include,
but are not limited to, book returns, recoverability of inventory,
recoverability of advances to authors, amortization periods, recoverability of
prepublication costs and litigation reserves.
2. LONG TERM DEBT
The Company has a loan agreement (the "Loan Agreement") with certain banks which
provides for revolving credit loans and letters of credit in the amount of
$135.0 million, with a right, in certain circumstances, to increase such amount
to $160.0 million. The Loan Agreement expires on May 31, 2000. At November 30,
1997, the amount available of $135.0 million was reduced by letters of credit
outstanding in the amount of $1.0 million, and the aggregate amount of
borrowings was $63.0 million.
The Company has a Revolving Loan Agreement (the "Revolver") with Sun Bank,
National Association, which provides for revolving credit loans in an aggregate
principal amount of up to $35.0 million. At November 30, 1997, the aggregate
amount of borrowings was $20.6 million.
On December 23, 1996, the Company issued $125.0 million of 7.0% Notes due 2003
(the "Notes"). The Notes are unsecured and unsubordinated obligations of the
Company and will mature on December 15, 2003. The Notes are not redeemable prior
to maturity. Interest on the Notes is payable semi-annually on December 15 and
June 15 of each year. The proceeds (including accrued interest) from the
issuance of the Notes were $123.9 million after deducting an underwriting
discount and other related offering costs. The Company utilized the net proceeds
primarily to repay amounts outstanding under the Loan Agreement and the
Revolver.
4
On August 18, 1995, the Company sold $110.0 million of 5.0% Convertible
Subordinated Debentures due August 15, 2005 (the "Debentures") under Regulation
S and Rule 144A of the Securities Act of 1933. The Debentures are listed on the
Luxembourg Stock Exchange and the portion sold under Rule 144A is designated for
trading in the Portal system of the National Association of Securities Dealers,
Inc. Interest on the Debentures is payable semi-annually on August 15 and
February 15 of each year. The Debentures are redeemable at the option of the
Company, in whole, but not in part, at any time on or after August 15, 1998 at
100% of the principal amount plus accrued interest. Each Debenture is
convertible, at the holder's option, any time prior to maturity, into Common
Stock of the Company at a conversion price of $76.86 per share.
3. CONTINGENCIES
The Company and certain officers have been named as defendants in litigation
which alleges, among other things, violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and rule 10b-5 thereunder, resulting from
purportedly materially false and misleading statements to the investing public
concerning the financial condition of the Company. The litigation is in the
early stages and the Company believes that such litigation is without merit and
plans to vigorously defend against it.
The Company is also engaged in various legal proceedings incident to its normal
business activities. In the opinion of the Company, none of such proceedings is
material to the consolidated financial position of the Company.
4. SUBSEQUENT EVENT
Effective January 1, 1998, the Company sold its SOHO Group, including Home
Office Computing(R) magazine, to CurtCo Freedom Group for approximately $19.0
million and the assumption of certain liabilities pursuant to a definitive
agreement dated as of December 11, 1997. Net proceeds were used to reduce debt.
The Company estimates that the transaction will result in a pre-tax gain of
approximately $10.0 million.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter ended November 30, 1997 increased to $354.8 million (up
4%) from $342.2 million in the comparable quarter of the prior fiscal year.
Revenues improved primarily due to a $11.8 million increase (up 5%) in domestic
book publishing, resulting from strong sales in book clubs, continued shipments
of Scholastic's instructional publishing reading program, Scholastic Literacy
Place(R), and increased sales of new trade publishing properties, including
Animorphs(R) and Dear America(R), which partially offset a decrease in domestic
Goosebumps(R) sales. International revenues increased by 10% versus the
comparable quarter of the prior fiscal year mainly due to the favorable effect
of last year's Red House acquisition as well as revenue growth from book club
and trade sales of properties other than Goosebumps. Revenues for the six months
ended November 30, 1997 totaled $521.4 million, a 4% increase over revenue
reported for the six months ended November 30, 1996.
As a percentage of revenue, cost of goods sold increased 1.2% for the quarter
and 0.3% for the six months ended November 30, 1997 versus comparable periods in
the prior fiscal year. The increase in cost of goods sold over the prior fiscal
year periods can be primarily attributed to changes in the Company's sales mix,
including lower levels of high margin Goosebumps licensing and trade book sales.
Selling, general, and administrative expense as a percentage of revenue
increased 4.2% for the quarter and 2.5% for the six months ended November 30,
1997 versus comparable periods in the prior fiscal year. The primary factors for
this increase were increased promotion costs in book clubs, increased selling
and payroll costs in book fairs to support growth and the effect of the
acquisition of Red House in January 1997.
Operating income for the quarter ended November 30, 1997 decreased from $65.6
million in the corresponding quarter of the prior fiscal year to $47.6 million.
The decrease includes a reduction of approximately $27.0 million of operating
profit associated with the lower level of Goosebumps revenues. Operating income
for the six months ended November 30, 1997 decreased $15.0 million, or 32.3%,
versus the six months ended November 30, 1996, also as a result of lower
Goosebumps revenues.
Net income for the quarter ended November 30, 1997 was $26.0 million versus
$38.5 million in the comparable quarter in the prior fiscal year. Primary
earnings per share in the quarter ended November 30, 1997 decreased to $1.59
from $2.36, and fully diluted earnings per share decreased to $1.51 from $2.21,
in the comparable quarter last fiscal year. Net income for the six months ended
November 30, 1997 was $12.8 million versus $24.5 million in the comparable
period last fiscal year. Primary earnings per share decreased to $0.79 from
$1.51, and fully diluted earnings per share decreased to $0.79 from $1.47, in
the comparable six month period in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash and cash equivalents during the six month
period ended November 30, 1997 of $0.6 million, compared to a net decrease
during the comparable period in the prior fiscal year of $2.1 million. Cash
provided by financing and operating activities funded the net cash used in
investing activities during the six months ended November 30, 1997. Operating
and investing activities were funded by financing activities during the six
months ended November 30, 1996.
For the six months ended November 30, 1997 and 1996, net cash provided by
financing activities was $37.6 million and $75.4 million, respectively.
Financing activities consisted primarily of borrowings and paydowns under the
Loan Agreement and Revolver. Borrowings under the Loan Agreement and the
Revolver, as well as the issuance of the Notes in the 1997 fiscal year, have
been a primary source of the Company's liquidity.
6
Cash used in investing activities was $43.3 million and $50.9 million for the
first six months of fiscal 1998 and 1997, respectively. Investing activities
primarily consist of royalty advances, prepublication and production cost
expenditures, payments for capital expenditures, and in the 1997 fiscal year,
payments for business and trademark acquisitions.
Royalty advances increased $5.4 million to $13.4 million during the first six
months of fiscal 1998 over the comparable period in the prior fiscal year. This
increase reflects primarily payments during fiscal 1998 of advances under an
extension, entered into in November 1996, of the agreement to publish
Goosebumps. Capital expenditures decreased $4.5 million to $8.5 million for the
six months ended November 30, 1997 over the comparable prior fiscal year period.
Prepublication and production costs expenditures increased modestly during the
first six months of fiscal 1998 over the comparable prior year period. Business
acquisition related payments in the prior period relate to the Company's
acquisition of Lectorum Publications Inc. on September 4, 1996 and the Company's
investment in Gallimard S.A.
The Company believes its existing cash position, combined with funds generated
from operations and funds available under the Loan Agreement and the Revolver,
will be sufficient to finance its ongoing working capital requirements for the
foreseeable future.
RECENT ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." This
statement specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. The Company is required to adopt the provisions of SFAS 128 for
the quarter ended February 28, 1998. The principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are related to
the exclusion of common stock equivalents in the determination of basic earnings
per share and the market price at which common stock equivalents are calculated
in the determination of diluted earnings per share. In accordance with the
provisions of SFAS 128, basic and diluted earnings per share are $1.61 and $1.51
for the quarter ended November 30, 1997, respectively, and $2.41 and $2.21 for
the quarter ended November 30, 1996, respectively. Basic and diluted earnings
per share are $0.79 for the six months ended November 30, 1997, and $1.54 and
$1.48, respectively, for the six months ended November 30, 1996.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, (SFAS 130), "Reporting Comprehensive
Income." This statement establishes the standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The Company is required to adopt the provisions of SFAS
130 for the fiscal year ended May 31, 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments of
an Enterprise and Related Information." This statement requires that public
business enterprises report certain information about operating segments, their
products and services, the geographic areas in which they operate and their
major customers. The Company is required to adopt the provisions of SFAS 131 for
the fiscal year ended May 31, 1999 and does not expect such adoption to have a
material effect on its Results of Operations.
7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Three purported class action complaints were filed in the United States
District Court for the Southern District of New York against Scholastic
Corporation and certain officers during the 1997 fiscal year, seeking, among
other remedies, damages resulting from defendants' alleged violations of federal
securities laws. The complaints have now been consolidated. The Consolidated
Amended Class Action Complaint (the "Consolidated Complaint"), served and filed
on August 13, 1997, is styled as a class action on behalf of all persons who
purchased Company Common Stock from December 10, 1996 through February 20, 1997.
The Consolidated Complaint alleges, among other things, violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder
resulting from purported materially false and misleading statements to the
investing public concerning the financial condition of the Company.
Specifically, the Consolidated Complaint alleges misstatements and omissions by
the Company pertaining to adverse sales and returns of its popular Goosebumps
book series prior to the Company's interim earnings announcement on February 20,
1997. The litigation is still in the early stages. During the second quarter of
fiscal 1998, the Company filed a motion to dismiss. The Company believes that
the suit is without merit and intends to vigorously defend against this action.
As described in the Company's Report on Form 8-K dated November 19, 1997,
the Company is engaged in litigation with Parachute Press. The Company does not
expect that this dispute will have a material adverse effect on its financial
condition.
A number of lawsuits and administrative proceedings which have arisen in
the ordinary course of business are pending or threatened against the Company.
The Company believes there are meritorious defenses to substantially all such
claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on September 16,
1997 (the "Meeting"). The following sets forth the results of the proposals
presented at the Meeting voted upon by the stockholders of the Company entitled
to vote thereon:
Each of the 828,100 shares of Class A Stock (comprising all outstanding
shares of Class A Stock) were voted in favor of:
* Setting the number of directors constituting the Board of Directors
at fifteen until the next annual meeting of the stockholders.
8
* Electing Richard Robinson, Rebeca M. Barrera, Helen V. Benham,
Frederic J. Bischoff, John Brademas, John C. Burton, Charles T. Harris
III, Andrew S. Hedden, Mae C. Jemison, Richard Krinsley, Augustus K.
Oliver and Richard M. Spaulding as directors to serve until the next
annual meeting of stockholders.
* Electing Ernst & Young as independent auditors for the fiscal year
ended May 31, 1998.
* Adopting the 1997 Outside Director's Stock Option Plan.
With respect to all matters voted on by the holders of the Class A Stock,
there were no abstentions or broker non-votes.
Holders of the Common Stock elected the following three nominees as
directors to serve until the next annual meeting of stockholders. Votes cast by
holders of the Common Stock were as follows:
Nominee For Withheld
------- --------- ----------
Ramon C. Cortines 11,904,040 1,362,043
Alonzo A. Crim 13,215,050 51,033
John G. McDonald 13,221,127 44,956
There were no abstentions or broker non-votes with respect to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description of Document
-------- -----------------------
3 (a) Amended and Restated Certificate of Incorporation of the Registrant. (1)
(b) By-laws of the Registrant. (2)
4 (a) Amended and Restated Loan Agreement dated April 11, 1995 among the Registrant and
Citibank, N.A., as agent, Marine Midland Bank, Chase Manhattan Bank, N.A., The First
National Bank of Boston and United Jersey Bank.(3)
(b) Amendment to the Amended and Restated Loan Agreement dated May 1, 1996. (4)
(c) Amendment to the Amended and Restated Loan Agreement dated May 28, 1997. (5)
(d) Amendment to the Amended and Restated Loan Agreement dated November 28, 1997.
(e) Revolving Loan Agreement dated June 19, 1995 between the Registrant and Sun Bank,
National Association, as amended August 14, 1996, May 30, 1997 and November 28, 1997.(6)
(f) Overdraft Facility dated June 1, 1992, as amended on October 30, 1995 between Scholastic
Canada Ltd. and CIBC. (6)
(g) Overdraft Facility dated June 24, 1993 between Scholastic Ltd. (formerly known as
Scholastic Publications Ltd.) and Citibank, N.A. (6)
9
(h) Overdraft Facility dated May 14, 1992, as amended on June 30 1995, between Scholastic
Ltd. (formerly known as Scholastic Publications Ltd.) and Midland Bank. (6)
(i) Overdraft Facility dated February 12, 1993, as amended on January 31, 1995 between
Scholastic Australia Pty. Ltd. (formerly known as Ashton Scholastic Pty. Ltd.) and National
Australia Bank Ltd. (6)
(j) Overdraft Facility dated April 20, 1993 between Scholastic New Zealand Ltd.,
(formerly Ashton Scholastic Ltd.) and ANZ Banking Group Ltd. (6)
(k) Indenture dated August 15, 1995, relating to $110 million of 5% Convertible Subordinated
Debentures due August 15, 2005 issued by the Registrant. (7)
(l) Indenture dated December 15, 1996, relating to $125 million of 7% Notes due December
15, 2003 issued by the Registrant. (8)
11 Statements re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
- Current Report on Form 8-K dated November 19, 1997, with
respect to the Company's litigation with Parachute Press, Inc.
- -------
Footnotes:
(1) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-46338) as filed with the Commission on March 12,
1992.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-45022) as filed with the Commission on January 10,
1992.
(3) Incorporated by reference to the Company's Form 10-Q for the quarter ended
February 28, 1995 as filed with the Commission on April 13, 1995 (File
No. 0-19860).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Commission on August 28, 1996 (File No. 0-19860).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
as filed with the Commission on August 26, 1997 (File No. 0-19860).
(6) Such long-term debt does not individually amount to more than 10% of the
total assets of the Registrant and its subsidiaries on a consolidated
basis. Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such
instrument is not filed herewith. The Registrant hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange Commission upon
request.
(7) Incorporated by reference to the Company's Form 10-Q as filed with the
Commission on August 28, 1995 (File No. 0-19860).
(8) Incorporated by reference to the Company's Registration Statement on Form
S-3 (Registration No. 333-17365) as filed with the Commission on December
11, 1996.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Scholastic Corporation
-------------------------
(Registrant)
Date: January 14, 1998 /s/ Richard Robinson
---------------- ------------------------
Chairman of the Board,
President, Chief Executive
Officer & Director
Date: January 14, 1998 /s/ Kevin J. McEnery
---------------- ------------------------
Executive Vice President and
Chief Financial Officer
11
SCHOLASTIC CORPORATION
Form 10-Q for the Quarterly Period Ended November 30, 1997
EXHIBIT INDEX
-------------
Exhibit Number Description of Document
- -------------- ----------------------------
4(d) Amendment to the Amended
and Restated Loan Agreement
dated November 28, 1997.
11 Statement re: Computation
of Per Share Earnings
27 Financial Data Schedule
EXECUTION COPY
LETTER AMENDMENT NO. 3
Dated as of November 28, 1997
To the banks, financial institutions
and other institutional lenders
(collectively, the "Banks") parties
to the Loan Agreement referred to
below and to Citibank, N.A., as agent
(the "Agent") for the Banks
Ladies and Gentlemen:
We refer to the Amended and Restated Loan Agreement dated as of April 11,
1995 (as amended, supplemented or otherwise modified through the date hereof,
the "Loan Agreement") among the undersigned and you. Capitalized terms not
otherwise defined in this Letter Amendment have the same meanings as specified
in the Loan Agreement.
The Loan Agreement is, effective as of the date of this Letter Amendment,
hereby amended as follows:
(a) Section 1.01 is amended by replacing ", whether
actual or implied, of the commercial paper" in the
definition of "Applicable LIBO Rate" with "of the
senior unsecured long-term debt", and by replacing
the table in that section with the following table:
"Senior Unsecured
Long-Term Applicable Applicable
Rating LIBO Margin Commitment
S&P/Moody's Rate Fee Rate
------------------- ----------------- ------------
A-/A3 0.325% 0.10%
BBB/Baa2 0.375% 0.15%
BBB-/Baa3 0.55% 0.2125%
BB+/Ba1 1.00% 0.375%
Lower than BB+/Ba1
or not rated 1.25% 0.50%"
(b) Section 6.01(a) is amended by replacing the ratio
".55:1" in clause (ii) with the ratio ".58:1", and by
replacing the period at the end of clause (iii) with
the following:
2
"; (iv) during the fourth quarter of the fiscal
year ending May 31, 1998, the Borrowers shall
maintain a Consolidated Debt Ratio of not more than
.55:1;
(v) during the first quarter of the fiscal year
ending May 31, 1999, the Borrowers shall maintain a
Consolidated Debt Ratio of not more than .58:1; and
(vi) during the second quarter of the fiscal year
ending May 31, 1999, the Borrowers shall maintain a
Consolidated Debt Ratio of not more than .58:1."
(c) Section 6.01(b) is amended as follows:
(i) Clause (v) of the proviso to Section 6.01(b) is
amended by removing the word "and" at the end thereof
and by replacing the ratio "3.10:1" with the ratio
"2.50:1".
(ii) Clause (vi) of the proviso to Section 6.01(b) is
amended by replacing the period at the end thereof
with a semi-colon and by replacing the ratio "3.25:1"
with the ratio "2.50:1".
(iii) Section 6.01(b) is further amended by adding
the following to the end of clause (vi) of the
proviso thereof:
"(vii) during the fourth quarter of the
fiscal year ending May 31, 1998, the
Borrower shall maintain a Consolidated
Interest Coverage Ratio of not less than
3.50:1;
(viii) during the first quarter of the
fiscal year ending May 31, 1999, the
Borrower shall maintain a Consolidated
Interest Coverage Ratio of not less than
3.50:1; and
(ix) during the second quarter of the fiscal
year ending May 31, 1999, the Borrower shall
maintain a Consolidated Interest Coverage
Ratio of not less than 3.50:1."
(d) Section 6.03(b)(ii) is amended by replacing the date
"May 31, 1998" with the date "May 31, 2000."
This Letter Amendment shall become effective as of the date first above
written when, and only when, on or before November 28, 1997, the Agent shall
have received counterparts of this Letter Amendment executed by the undersigned
and the Majority Banks or, as to any of the Banks, advice satisfactory to the
Agent that such Bank has executed this Letter Amendment PROVIDED, HOWEVER, that
part (a) of this Letter Amendment shall only become effective when the Agent
shall have received counterparts of this Letter Amendment executed by all of the
Banks, or as to any of the Banks, advice
3
satisfactory to the Agent that such Bank has executed this Letter Amendment.
This Letter Amendment is subject to the provisions of Section 8.11 of the Loan
Agreement.
On the effective date of this Letter Amendment, the undersigned shall pay
to the Agent for the account of each Bank executing this Letter Amendment on or
before the date hereof (the "Signing Banks") an amendment fee of eight basis
points on each Signing Bank's Commitment.
On and after the effectiveness of this Letter Amendment, each reference in
the Loan Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Loan Agreement, and each reference in the Notes and each
of the other Loan Instruments to "the Loan Agreement", "thereunder", "thereof"
or words of like import referring to the Loan Agreement, shall mean and be a
reference to the Loan Agreement, as amended by this Letter Amendment.
The Loan Agreement, the Notes and each of the other Loan Instruments, as
specifically amended by this Letter Amendment, are and shall continue to be in
full force and effect and are hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this Letter Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of any Bank or the Agent under any of the Loan Instruments, nor constitute a
waiver of any provision of any of the Loan Instruments.
If you agree to the terms and provisions hereof, please evidence such
agreement by executing and returning at least three counterparts of this Letter
Amendment to Citibank, N.A., 399 Park Avenue, New York, NY 10043, Attn: Mr. Dale
Goncher.
This Letter Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Letter Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Letter Amendment.
This Letter Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York.
Very truly yours,
SCHOLASTIC CORPORATION
By: /s/
----------------------
Name:
Title:
SCHOLASTIC INC.
By: /s/
------------------------
Name:
Title:
Agreed as of the date first above written:
CITIBANK, N.A., as Agent
By: /s/
------------------------
Name:
Title:
BANKS
- -----
CITIBANK, N.A.
By: /s/
------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By: /s/
------------------------
Name:
Title:
BANK OF BOSTON, N.A. (formerly known as
The First National Bank of Boston)
By: /s/
------------------------
Name:
Title:
MARINE MIDLAND BANK
By: /s/
------------------------
Name:
Title:
UNITED JERSEY BANK
By: /s/
------------------------
Name:
Title:
EXHIBIT 11
SCHOLASTIC CORPORATION
STATEMENTS OF COMPUTATION OF NET INCOME
PER CLASS A, COMMON AND CLASS A
SHARE AND COMMON SHARE EQUIVALENTS
(Amounts in millions except shares and per share data)
Three Months Ended Six Months Ended
----------------------------- ----------------------------
November 30, November 30, November 30 , November 30,
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited) (Unaudited)
Net income used for primary earnings per
share $ 26.0 $ 38.5 $ 12.8 $ 24.5
Net interest savings from assumed conversion
of Convertible Subordinated Debentures 0.9 0.8 1.7 1.7
--------- ---------- ---------- ----------
Net income used for fully diluted earnings
per share $ 26.9 $ 39.3 $ 14.5 $ 26.2
========== ========== ========== =========
Primary:
Weighted average Class A and Common
Shares outstanding 16.2 15.9 16.2 15.9
Common Share equivalents arising from
outstanding options computed on the
treasury stock method 0.2 0.4 0.0 0.3
---------- ---------- ---------- -----------
Primary Class A , Common and Class A
Share and Common Share Equivalents
outstanding 16.4 16.3 16.2 16.2
Fully Diluted:
Additional dilutive effect of outstanding
options computed on the treasury stock
method 0.0 0.0 0.1 0.1
Assumed conversion of Convertible
Subordinated Debentures 1.4 1.5 1.5 1.5
---------- ---------- ---------- -----------
Fully diluted Class A, Common and Class
A Share and Common Share Equivalents
outstanding 17.8 17.8 17.8 17.8
========== ========== ========== ===========
Primary earnings per share $ 1.59 $ 2.36 $ 0.79 $ 1.51
Fully diluted earnings per share $ 1.51 $ 2.21 $ 0.79 $ 1.47
5
1,000
6-MOS
MAY-31-1998
NOV-30-1997
4,346
0
176,685
8,375
250,835
481,600
183,230
48,895
873,464
223,088
234,727
0
0
175
309,611
873,464
521,437
521,437
271,589
479,475
10,578
6,354
10,697
20,687
7,860
12,827
0
0
0
12,827
0.79
0.79
