SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (June 22, 2000) September 5, 2000 SCHOLASTIC CORPORATION (Exact name of registrant as specified in its charter) 0-19860 Commission File Number DELAWARE 13-3385513 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 555 BROADWAY, NEW YORK, NEW YORK 10012 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 343-6100

SCHOLASTIC CORPORATION CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000 - ------------------------------------------------------------------------------ ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (A) CONSOLIDATED FINANCIAL STATEMENTS OF GROLIER INCORPORATED. PAGE(S) Report of Independent Public Accountants F-1 Consolidated Statements of Operations and Accumulated Deficit for the years ended December 31, 1999, 1998 and 1997 F-2 Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997 F-3 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4 to F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997 F-7 to F-20 (B) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF GROLIER INCORPORATED. PAGE(S) Unaudited Condensed Consolidated Statements of Operations and Accumulated Deficit for the period from January 1, 2000 to June 22, 2000 and for the six months ended June 30, 1999 F-21 Unaudited Condensed Consolidated Statements of Comprehensive Income for the period from January 1, 2000 to June 22, 2000 and for the six months ended June 30, 1999 F-22 Unaudited Condensed Consolidated Balance Sheet as of June 22, 2000 F-23 to F-24 Unaudited Condensed Consolidated Statements of Cash Flows for the period from January 1, 2000 to June 22, 2000 and for the six months ended June 30, 1999 F-25 Notes to Unaudited Condensed Consolidated Financial Statements June 22, 2000 and June 30, 1999 F-26 (C) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF SCHOLASTIC CORPORATION. PAGE(S) Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended May 31, 2000 F-28 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31, 2000 F-29 to F-30 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements F-31 to F-32 (D) EXHIBITS. Exhibit No. Description 2.1 Stock Purchase Agreement, dated April 13, 2000, among Scholastic Inc., a New York corporation, Hachette Book Group USA, Inc., a Delaware corporation, and Lagardere North America, Inc., a Delaware corporation and parent of Hachette (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 7, 2000). 2.2 Amendment No. 1 to Stock Purchase Agreement, dated June 22, 2000, among Scholastic Inc., a New York corporation and wholly-owned subsidiary of the Registrant, Hachette Book Group USA, Inc., a Delaware corporation, and Lagardere North America, Inc., a Delaware corporation (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 7, 2000). 23 Consent of Arthur Andersen LLP

SCHOLASTIC CORPORATION CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000 - ------------------------------------------------------------------------------ (D) EXHIBITS (continued) 99.2 Press Release, dated June 22, 2000, announcing consummation of the acquisition of Grolier Incorporated (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 7, 2000).

SCHOLASTIC CORPORATION CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000 - ------------------------------------------------------------------------------ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SCHOLASTIC CORPORATION (Registrant) Date: September 5, 2000 /s/ Kevin J. McEnery ------------------------------ Kevin J. McEnery Executive Vice President & Chief Financial Officer

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Grolier Incorporated: We have audited the accompanying consolidated balance sheets of Grolier Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations and accumulated deficit, comprehensive income and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Grolier Incorporated and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /S/ ARTHUR ANDERSEN LLP New York, New York February 4, 2000 F-1

GROLIER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT For The Years Ended December 31, (Amounts in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------- Net sales and other revenues $ 466,328 $ 449,599 $ 433,095 Costs and expenses: Cost of sales 96,981 102,182 102,232 Selling, collection, and general expenses 339,251 319,116 303,916 Amortization of intangible assets and goodwill 10,047 9,969 12,526 - --------------------------------------------------------------------------------------------- 446,279 431,267 418,674 - --------------------------------------------------------------------------------------------- Operating income 20,049 18,332 14,421 Other expenses (income): Interest, net 4,546 5,977 6,016 Foreign exchange (gains) losses (356) 31 (932) - --------------------------------------------------------------------------------------------- 4,190 6,008 5,084 - --------------------------------------------------------------------------------------------- Income before income taxes 15,859 12,324 9,337 Provision for income taxes (Note 9) 7,769 6,707 4,753 - --------------------------------------------------------------------------------------------- Net income 8,090 5,617 4,584 Accumulated deficit - beginning of the year (149,365) (154,982) (159,566) - --------------------------------------------------------------------------------------------- Accumulated deficit - end of the year $(141,275) $(149,365) $(154,982) ============================================================================================= THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-2

GROLIER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For The Years Ended December 31, (Amounts in thousands) 1999 1998 1997 - --------------------------------------------------------------------------------- Net income $ 8,090 $ 5,617 $ 4,584 Other comprehensive income (loss): Foreign currency translation adjustments (42) (915) (7,656) - --------------------------------------------------------------------------------- Comprehensive income (loss) $ 8,048 $ 4,702 $(3,072) ================================================================================= THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-3

GROLIER INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As Of December 31, (Amounts in thousands) 1999 1998 - ----------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents (Note 2) $ 10,285 $ 14,625 Accounts receivable: Installment sales contracts, less unearned finance charges of $7,084 in 1999 and $9,476 in 1998 (Note 2) 112,302 108,558 Trade and other (Notes 5 and 15) 113,048 97,797 - ----------------------------------------------------------------------------------- 225,350 206,355 Less allowances for doubtful accounts and returns 82,587 78,751 - ----------------------------------------------------------------------------------- 142,763 127,604 Note and interest receivable from affiliate (Note 15) -- 51,515 Inventories: Paper, cloth, and books in process 6,888 8,469 Finished books 43,712 44,560 Collectibles, cards and other merchandise 10,680 9,594 - ----------------------------------------------------------------------------------- 61,280 62,623 Prepaid promotion and other expenses (Note 2) 53,528 55,275 - ----------------------------------------------------------------------------------- Total current assets 267,856 311,642 Plates and revision costs, net (Note 2) 49,772 49,573 Property, plant, and equipment at cost less accumulated depreciation of $37,537 in 1999 and $36,871 in 1998 (Notes 2 and 13) 23,482 23,276 Intangible assets (Note 2): Product rights, net 28,013 28,655 Trademarks, net 17,743 18,372 Customer lists, net 1,576 1,773 Goodwill less accumulated amortization of $68,902 in 1999 and $63,018 in 1998 (Note 2) 166,234 172,118 Deferred charges and other assets 7,601 6,874 - ----------------------------------------------------------------------------------- TOTAL ASSETS $562,277 $612,283 =================================================================================== THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. F-4

GROLIER INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As Of December 31, (Amounts in thousands) 1999 1998 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY: LIABILITIES: Notes payable (Note 6) $ 26,389 $ 25,419 Notes and interest payable to affiliates (Note 15) 13,049 12,034 Long-term debt, current portion (Note 7) 53 55,194 Accounts payable (Note 15) 21,512 21,152 Accrued liabilities (Note 8) 51,870 54,419 Income taxes currently payable (Note 9) 2,090 3,109 Deferred income taxes (Note 9) 5,216 5,176 - -------------------------------------------------------------------------------- Total current liabilities 120,179 176,503 Long-term debt, less current portion (Note 7) 30,019 35,185 Deferred income taxes (Note 9) 19,903 16,551 Other long-term liabilities (Notes 8 and 11) 12,088 12,004 - -------------------------------------------------------------------------------- Total liabilities 182,189 240,243 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDER'S EQUITY: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding -- -- Additional contributed capital 531,200 531,200 Accumulated deficit (141,275) (149,365) Cumulative translation adjustment (9,837) (9,795) - -------------------------------------------------------------------------------- Total stockholder's equity 380,088 372,040 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 562,277 $ 612,283 ================================================================================ THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. F-5

GROLIER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, (Amounts in thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED FROM (USED FOR) OPERATING ACTIVITIES: Net income $ 8,090 $ 5,617 $ 4,584 Adjustments to reconcile net income to net cash provided from operating activities: Amortization of intangible assets and goodwill 10,047 9,969 12,526 Depreciation and amortization 15,667 15,860 15,143 Deferred income taxes 5,621 4,546 3,500 - ----------------------------------------------------------------------------------------------------- 39,425 35,992 35,753 Decrease (increase) in assets and (decrease) increase in liabilities: Accounts receivable, net (14,859) (7,992) 782 Inventories 1,926 (2,206) (4,694) Prepaid promotion and other expenses 2,041 (3,513) (1,979) Accounts payable (11) (988) (7,507) Other liabilities (5,689) 1,300 2,517 - ----------------------------------------------------------------------------------------------------- (16,592) (13,399) (10,881) - ----------------------------------------------------------------------------------------------------- Net cash flows provided from operating activities 22,833 22,593 24,872 CASH FLOWS (USED FOR) PROVIDED FROM INVESTMENT ACTIVITIES: Additions to plates and revision costs (12,325) (14,217) (13,425) Purchases of property, plant, and equipment (4,814) (3,828) (3,173) Collections on Scarecrow Press notes receivable 375 500 500 Acquisition of Weldon (3,271) -- -- All other transactions - net (658) (1,779) 881 - ----------------------------------------------------------------------------------------------------- Net cash flows used for investment activities (20,693) (19,324) (15,217) - ----------------------------------------------------------------------------------------------------- CASH FLOWS (USED FOR) PROVIDED FROM FINANCING ACTIVITIES: Increase in notes payable 2,519 16,244 6,383 Decrease (increase) in notes receivable 51,515 (51,515) -- Additions to long-term debt -- 43,970 -- Reductions of long-term debt (60,307) -- (16,290) - ----------------------------------------------------------------------------------------------------- Net cash flows (used for) provided from financing (6,273) 8,699 (9,907) activities Effect of exchange rate changes on cash and cash equivalents (207) 198 (454) - ----------------------------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (4,340) 12,166 (706) Cash and cash equivalents, beginning of the year 14,625 2,459 3,165 - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of the year $ 10,285 $ 14,625 $ 2,459 ===================================================================================================== THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-6

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 1. NATURE OF OPERATIONS Grolier Incorporated and its domestic and foreign subsidiaries ("Grolier" or the "Company") is a worldwide publisher and marketer of children's books, encyclopedias, print and electronic reference sets, educational materials, and collectibles. The Company markets its products in the United States, Canada, the United Kingdom and in eight countries in the Asia Pacific region, including Australia. Direct marketing operations in the United States, Canada, and United Kingdom are the primary source of the Company's revenues. Another significant portion of the Company's revenues is provided from the sale of books to school and public libraries through specialized sales forces predominantly in the United States and United Kingdom. In addition, the Company's electronic publishing products are sold through dealers and distributors and directly to school and public libraries and consumers. The carrying amount of total assets in the Asia Pacific region was $31,101,000 and $31,762,000 as of December 31, 1999 and 1998, respectively. These operations borrow funds in their local currency providing a natural hedge against the effect of foreign exchange fluctuations on existing assets. 2. ACCOUNTING POLICIES The accompanying consolidated financial statements represent a consolidation of the accounts of Grolier, an indirect wholly owned subsidiary of Lagardere North America, Inc. ("LNA"), whose ultimate parent is Lagardere S.C.A. (the "Parent"). All intercompany transactions have been eliminated. The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions by management. As a result, reported amounts of assets, liabilities, revenues, and expenses, as well as disclosures of contingent assets and liabilities, may differ from actual results. Revenues are recognized upon shipment of merchandise. When revenue is recognized, an allowance is established for expected future returns based on historical sales and sales returns. Installment sales contracts receivable due after one year are included in current assets in accordance with recognized trade practice. The portion of the December 31, 1999 balance that will not be collected during 2000 is estimated at 21.1 percent or $25,182,000 (32.9 percent or $38,878,000 in 1998). Based on its collection and return experience on installment sales contracts and trade receivables, the Company has provided an allowance for estimated losses by charges to results of operations. Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Prepaid promotion and other expenses include costs of direct mail, telephone, and other similar promotions which will be amortized over the projected sales response during the next year. At December 31, 1999 and 1998, $43,826,000 and $46,275,000, respectively, of deferred circularizing and advertising costs were reported as assets. Circularizing and advertising expenses charged to the results of operations were $117,298,000, $110,216,000 and $95,209,000 in 1999, 1998 and 1997, respectively. Plate costs, which include editorial costs and costs of major revisions of publications, are deferred until publication date and are charged to results of operations over the estimated lives of the publications. These estimated lives range from 2 to 20 years depending on the type and class of publication. F-7

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 Property, plant, and equipment are stated at cost and are depreciated using the straight-line method over either the estimated useful lives of the related assets or, for capital leases, the terms of the related leases. The estimated useful lives of major categories of assets are as follows: Buildings 31.5 years Building and leasehold improvements 10 years Machinery and equipment 5-10 years Furniture and fixtures 5 years Automobiles and trucks 3-4 years Computer hardware 3 years Capital expenditures with an estimated useful life less than one year or for insignificant amounts are charged to expense as acquired. The effect of this policy on the Company's balance sheet and operating results is not significant. Product rights, trademarks, and customer lists are stated net of accumulated amortization of $115,547,000 and $111,742,000 as of December 31, 1999 and 1998, respectively. These intangibles are being amortized over their respective estimated lives which range from 10 to 40 years. Goodwill of $235,136,000 is being amortized on a straight-line basis over forty years. In evaluating the value and future benefit of these assets, the recoverability from operating income is measured. Under this approach, the estimated future undiscounted cash flows associated with these assets is compared to the asset's carrying value to determine if a reduction is required. No such reduction in carrying value has been recorded. The Company uses forward contracts and options to hedge the risk of changes in foreign currency rates associated with obligations denominated in foreign currency. Gains and losses on the forward contracts and options are recognized in the results of operations and offset the foreign exchange gains and losses on the related transaction. (See Note 14). The Company has an Incentive Compensation Plan which provides awards to designated managers of the Company for current and long term performance. Awards, based primarily on a manager's unit performance and partially on total company performance, are charged to operations as earned. Awards related to current performance are paid shortly after the conclusion of the measurement period. Awards related to long term performance are deferred, then paid at the end of the subsequent three years. These awards can be reduced if subsequent performance does not meet long term targets. Adjustments resulting from translation of assets and liabilities in foreign locations are reflected as a separate component of stockholder's equity. For purposes of the Consolidated Statements of Cash Flows, short-term investments which have a maturity of ninety days or less when purchased are considered cash equivalents. Supplemental cash flow information and noncash activities which impacted the Company's balance sheets, but neither provided nor used cash, and accordingly, have been excluded from the Consolidated Statements of Cash Flows are as follows (Amounts in thousands): 1999 1998 1997 ---- ---- ---- Interest paid $5,108 $6,381 $6,088 Income taxes paid $2,792 $1,249 $1,833 Capital lease obligations assumed $ - $ 130 $ 47 Net book value of assets sold or transferred $ 365 $ 230 $ 82 F-8

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The deferred tax provision is determined under the liability method. Under this method, deferred tax assets and liabilities have been recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities using presently enacted tax rates. (See Note 9). The expected cost of postretirement benefits other than pensions is recognized in the financial statements over the expected employee service life. (See Note 11). 3. ACQUISITION On June 30, 1999, the Company acquired substantially all of the net assets and distribution rights of Weldon-By-Mail Pty. Ltd., an Australian company, for approximately $3,460,000. The purchase price of the net assets has been allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The purchase price, and related expenses, of the distribution rights is included in Product rights in the Consolidated Balance Sheet as of December 31, 1999, and is being amortized on a straight-line basis over 40 years. 4. SEGMENT INFORMATION The Company's operations are categorized in the three segments identified below. Such segment classification reflects the nature of products and services consistent with how the chief operating decision maker assesses operating performance and allocates resources. The Company's segments are: Direct Marketing includes the distribution of children's books and collectibles in the United States, Canada and United Kingdom to parents of children through telemarketing and wholesale channels. Publishing includes the publication and distribution of children's books, encyclopedias, print and electronic reference sets, and educational materials in the United States, Canada and United Kingdom to schools and public libraries through specialized sales forces. International includes the distribution of products and services by the Company's operations located in eight countries in the Asia Pacific region, including Australia. F-9

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The following table sets forth information for the fiscal years ended December 31, 1999, 1998 and 1997 (Amounts in thousands): U.S. INT'L TOTAL DIRECT DIRECT DIRECT U.S. INT'L TOTAL MKTG MKTG MTKG PUBL PUBL PUBL INT'L 1999 Net sales and other revenues $ 272,605 $ 61,002 $ 333,607 $ 80,965 $ 20,402 $ 101,367 $ 31,354 Depreciation and amortization 1,743 353 2,096 9,085 2,395 11,480 248 Amortization of intangible assets and goodwill -- -- -- -- -- -- -- Royalty advance expense 13,165 2,795 15,960 4,045 1,386 5,431 306 Interest expense -- 850 850 -- 97 97 1,290 Operating income/(loss) 20,227 6,936 27,163 5,408 853 6,261 4,576 Segment assets 145,479 49,037 194,516 85,939 17,956 103,895 30,541 Long-lived assets 3,793 849 4,642 45,277 3,574 48,851 2,767 Expenditures for long-lived assets 2,231 631 2,862 9,811 1,756 11,567 2,645 1998 Net sales and other revenues $ 263,096 $ 57,746 $ 320,842 $ 74,842 $ 23,822 $ 98,664 $ 30,093 Depreciation and amortization 1,922 310 2,232 9,528 2,059 11,587 224 Amortization of intangible assets and goodwill -- -- -- -- -- -- -- Royalty advance expense 13,344 2,505 15,849 3,427 996 4,423 291 Interest expense -- 1,123 1,123 -- 160 160 1,554 Operating income/(loss) 25,317 5,159 30,476 1,178 196 1,374 4,564 Segment assets 130,397 36,822 167,219 86,858 18,868 105,726 34,027 Long-lived assets 3,564 578 4,142 44,528 4,294 48,822 415 Expenditures for long-lived assets 3,431 581 4,012 10,480 2,084 12,564 130 1997 Net sales and other revenues $ 233,381 $ 56,894 $ 290,275 $ 76,349 $ 25,036 $ 101,385 $ 41,435 Depreciation and amortization 1,686 173 1,859 9,866 1,494 11,360 220 Amortization of intangible assets and goodwill -- -- -- -- -- -- -- Royalty advance expense 11,937 2,336 14,273 3,607 642 4,249 458 Interest expense -- 443 443 -- 154 154 1,623 Operating income/(loss) 22,086 5,239 27,325 (1,549) 852 (697) 8,143 Segment assets 112,508 31,827 144,335 88,146 20,925 109,071 34,908 Long-lived assets 2,295 321 2,616 43,624 4,313 47,937 495 Expenditures for long-lived assets 1,662 126 1,788 10,100 2,728 12,828 285 CORPORATE AND OTHER CONSOLIDATED 1999 Net sales and other revenues $ -- $ 466,328 Depreciation and amortization 1,843 15,667 Amortization of intangible assets and goodwill 10,047 10,047 Royalty advance expense -- 21,697 Interest expense 2,627 4,864 Operating income/(loss) (17,951) 20,049 Segment assets 233,325 562,277 Long-lived assets 230,560 286,820 Expenditures for long-lived assets 2,402 19,476 1998 Net sales and other revenues $ -- $ 449,599 Depreciation and amortization 1,817 15,860 Amortization of intangible assets and goodwill 9,969 9,969 Royalty advance expense -- 20,563 Interest expense 3,475 6,312 Operating income/(loss) (18,082) 18,332 Segment assets 305,311 612,283 Long-lived assets 240,388 293,767 Expenditures for long-lived assets 1,339 18,045 1997 Net sales and other revenues $ -- $ 433,095 Depreciation and amortization 1,704 15,143 Amortization of intangible assets and goodwill 12,526 12,526 Royalty advance expense -- 18,980 Interest expense 3,960 6,180 Operating income/(loss) (20,350) 14,421 Segment assets 255,257 543,571 Long-lived assets 250,866 301,914 Expenditures for long-lived assets 1,697 16,598 5. NOTES RECEIVABLE The Company held two promissory notes related to its sale in 1995 of Scarecrow Press, Inc. which bear interest at prime plus one percent. The first note had a face value of $1,750,000, and principal and interest were receivable in quarterly installments commencing March 31, 1996 through final maturity in June 1999. The unpaid balance as of December 31, 1998 was $250,000. The second note had a face value of $250,000, and principal and interest were receivable in two installments due in September and December 1999. The installment due December 1999 was received in January 2000. Amounts due within one year ($125,000 and $500,000) are included in Trade and other receivables in the Consolidated Balance Sheets as of December 31, 1999 and 1998, respectively. F-10

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 6. NOTES PAYABLE In April 1996, the Company entered into a letter agreement for an unsecured $5,000,000 revolving credit note with Banque Nationale de Paris. The Company may borrow US dollars or Eurodollars for loans with periods up to three months in multiples of $1,000,000. The US dollar loans bear interest at the bank's cost of funds plus margins which are mutually agreed upon on a case by case basis. Eurodollar loans bear interest at the London Inter-Bank Offered Rate (LIBOR) plus the cost of any applicable reserves and margins which are mutually agreed upon on a case by case basis. Interest is payable at the maturity of each loan. As of December 31, 1999 and 1998, there were no loans outstanding under this letter agreement. The agreement is cancelable at any time by either party. The average interest rates related to these borrowings were 5.74 percent and 6.15 percent for the years ended December 31, 1999 and 1998, respectively. International short-term borrowings from banks, all of which were in international currencies, averaged approximately $26,041,000 and $22,241,000 with average interest rates related to these borrowings of approximately 8.1 percent and 12.1 percent for the years ended December 31, 1999 and 1998, respectively. Unused international short-term lines of credit at December 31, 1999 amounted to $5,807,000 worldwide ($8,799,000 at December 31, 1998), substantially all of which provide for borrowings on an unsecured basis. The maximum amount of short-term borrowings outstanding from banks during the year ended December 31, 1999 was $27,359,000 ($26,471,000 in 1998). (See Note 16). 7. LONG-TERM DEBT The Company had the following long-term indebtedness (Amounts in thousands): 1999 1998 ------- -------- Revolving credit loans $30,000 $ 90,000 Capital lease obligations (Note 12) 72 379 ------- -------- Total debt 30,072 90,379 Less current portion 53 55,194 ------- -------- Total long-term debt $30,019 $35,185 ======= ======= In July 1995, the Company executed a credit agreement (the "Credit Agreement") with six banks which provided an unsecured line of credit up to $100,000,000 through July 13, 1998; at which date the Company executed an amendment to the Credit Agreement which extended the maturity to July 12, 2001. The line of credit can be used to obtain revolving credit loans and standby and commercial letters of credit. Borrowings can be made at LIBOR plus 0.55 percent or prime at the time of borrowing. Additionally, the Company is obligated to pay a commitment fee of .1875 percent on the unused portion of the line and additional fees on the outstanding letters of credit. As of December 31, 1999 and 1998, the Company had one letter of credit outstanding of $1,000,000. Excluding the effects of interest rate protection agreements, the 1999 weighted average interest rate for borrowings under the Credit Agreement was 6.04 percent (6.34 percent in 1998). F-11

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The Company has interest rate protection agreements which were obtained to hedge against changes in short-term interest rates. These agreements cover a portion of the revolving credit loans outstanding during 1999 and 1998. All amounts received or paid under hedged interest rate protection agreements are classified as interest expense. The all inclusive weighted average rate including the cost of these arrangements for borrowings outstanding during 1999 was 6.09 percent (6.62 percent in 1998). See Note 14 for further disclosures regarding the fair value of the agreements. Under the terms of the Credit Agreement, the Company is subject to covenants which limit among other things debt, liens, contingent obligations, investments, and cash dividends. The Company continues to be in compliance with such covenants. (See Note 16). 8. BUSINESS RESTRUCTURING In 1995, the Company substantially completed the relocation of its publishing operations from Chicago, IL to the Company's headquarters in Danbury, CT. The Company is still obligated by a noncancelable operating lease for the Chicago office space which expires in 2001. Lease payments of approximately $842,000 and $854,000 have been made in 1999 and 1998 respectively, and charged to the restructuring reserve established in 1994. Charges for the noncancelable lease obligation are partially offset by income from subleases of $418,000 and $247,000 for the years ended December 31, 1999 and 1998, respectively. As a result of an additional sublease agreement obtained in 1998, the Company allocated a portion (approximately $724,000) of its excess 1994 restructuring reserve to Selling, collection and general expenses. In 1998, the Company also allocated a portion (approximately $507,000) of its excess 1994 restructuring reserve to the reorganization of its Canadian operations in 1998 (see below). As of December 31, 1999, the remaining reserve balance is included in Accrued liabilities ($487,000) and Other long-term liabilities ($330,000). It is intended to cover the remaining noncancelable lease obligation. In 1999, the Company substantially completed the reorganization of its Canadian operations (initiated in 1998). In 1998, the Company allocated approximately $507,000 of its excess 1994 restructuring reserve for the relocation of its publishing operations to establish a reserve for the exit costs associated with the Canadian reorganization. Payments of approximately $359,000 and $79,000 have been made in 1999 and 1998, respectively, and charged to the reserve established in 1998. As of December 31, 1998, the remaining reserve balance of $428,000 is included in Accrued liabilities. 9. INCOME TAXES The Company's provisions (credits) for income taxes were as follows (Amounts in thousands): 1999 1998 1997 ------- ------- ------- United States - deferred $ 6,280 $ 5,437 $ 3,357 Foreign: Current 1,823 1,961 803 Deferred (659) (891) 143 ------- ------- ------- 1,164 1,070 946 State - current 325 200 450 ------- ------- ------- $ 7,769 $ 6,707 $ 4,753 ======= ======= ======= F-12

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The provision for deferred income taxes is based on the liability method and represents the change in the Company's deferred income tax liability during the year, including the effect, if any, of enacted rate changes. Deferred income taxes arise as a result of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The major temporary differences which give rise to the net deferred tax liability are: Prepaid expense amortization Bad debt reserves Returns reserves Inventory reserves Inventory cost capitalization Fixed asset depreciation The Company's effective income tax rate differs from the United States federal statutory rate for the years ended December 31: 1999 1998 1997 ------ ------- ------- Computed federal statutory rate 35.0% 35.0% 35.0% State income taxes 0.3 (0.6) 0.3 Foreign tax provisions 5.8 7.8 4.1 Certain non-deductible expenses, principally amortization of intangible assets and goodwill 7.9 12.2 11.6 ---- ---- ---- Effective tax rate 49.0% 54.4% 51.0% ==== ==== ==== The Company and LNA have entered into a joint tax sharing agreement along with other affiliates, which allocates certain federal income tax liabilities and benefits among members of the consolidated group. Future tax benefits or taxes payable (current and deferred) are recognized only to the extent that the Company could record such amounts on a separate company basis. As of December 31, 1999, there were no amounts due or receivable under the agreement. The Company is included in the consolidated tax return of LNA, and had, for federal income tax purposes at the end of 1998 fully utilized all of its net operating loss carryforwards which were subject to the separate return limitation year rules. In addition, the Company has no U.S. alternative minimum tax credits which can be offset against future U.S. income taxes. At December 31, 1999 and 1998, deferred taxes were classified in the Consolidated Balance Sheets, as follows (Amounts in thousands): 1999 1998 -------- -------- Deferred tax liability $ 44,885 $ 42,442 Deferred tax asset (19,766) (20,715) -------- -------- Net deferred tax liability 25,119 21,727 Less: Current net deferred tax liability 5,216 5,176 -------- -------- Noncurrent net deferred $ 19,903 $ 16,551 tax liability ======== ======== Based on the Company's business plan, management is of the opinion that it is more likely than not that the deferred tax asset at December 31, 1999 will be realized. F-13

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 10. PENSION COSTS The Company has a trusteed defined benefit pension plan which is available to substantially all U.S. employees. The Company makes contributions to the plan pursuant to Internal Revenue Service regulations. Plan assets include investments in various regulated investment companies with specific investment objectives. The Company's Canadian subsidiary has a pension plan which covers substantially all Canadian employees. Plan assets include marketable equity and debt securities. Pension expense for the U.S. plan included in selling, collection, and general expenses on the accompanying Consolidated Statements of Operations and Accumulated Deficit amounted to approximately $100,000, $14,000 and $95,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Special early retirement plans were offered to Canadian Plan members in 1998 and 1997. In 1998, all members affected by the closing of two divisions who were at least 40 years of age at the date of closing (December 31, 1998) were eligible to receive reduced pension benefits commencing as early as age 50 instead of age 55. In 1997, all members whose sum of their age and service was equal to at least 80 were eligible to retire during the period from October 1, 1997 to December 1, 1997 and receive special early retirement benefits. These programs did not have a material effect on the Company's results of operations. The following table sets forth the pension plan status as of December 31, 1999 and 1998 and amounts recognized in the Company's Consolidated Balance Sheets for the Company's U.S. and Canadian plans (Amounts in thousands): 1999 1998 ---------------------- --------------------- U.S. CANADA U.S. CANADA -------- -------- -------- -------- Fair value of plan assets $ 65,107 $ 8,581 $ 57,578 $ 7,431 -------- -------- -------- -------- Projected benefit obligation (Including vested benefits of $44,834 and $5,711 for the U.S. and Canadian plans, respectively, in 1999 $47,998 and $5,089 in 1998) (51,695) (5,937) (55,611) (5,645) -------- -------- -------- -------- Funded status $ 13,412 $ 2,644 $ 1,967 $ 1,786 ======== ======== ======== ======== Prepaid pension cost $ 1,370 $ 2,708 $ 1,470 $ 2,537 Employer contributions $ -- $ -- $ -- $ -- Plan participant contributions $ -- $ -- $ -- $ -- Benefits paid by plan $ 3,501 $ 1,205 $ 3,583 $ 892 The above table assumes an expected long-term rate of return on plan assets of 10 percent for the U.S. plan and 9 percent for the Canadian plan in both years. An assumed compensation increase of 4.5 percent was used for both plans in 1999 and 1998. The discount rate used in determining the actuarial present value of accumulated plan benefits was 8 percent for the U.S. plan and 7.25 percent for the Canadian plan for the year ended December 31, 1999 (7 percent for the U.S. plan and 7.25 percent for the Canadian plan in 1998). The Company also sponsors a defined contribution 401(k) plan which covers substantially all eligible employees of the Company's domestic subsidiaries. The Company's expense amounted to approximately $306,000, $275,000 and $250,000 for the years ended December 31, 1999, 1998 and 1997, respectively. F-14

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company sponsors a defined benefit postretirement health care plan that covers substantially all full-time U.S. employees. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from the Company having attained age 55 with 10 years of service, or attaining age 65. Employees who retire at age 65 or later or after age 55 with 25 years of service receive coverage at no cost. Employees who retire early with less than 25 years of service pay a small monthly premium until age 65. Retirees can elect to cover dependents provided they agree to contribute monthly premiums determined annually. The Company does not fund the plan. The following table reconciles the plan's accumulated postretirement benefit obligation to the accrued postretirement health care cost liabilit as reflected on the Consolidated Balance Sheets as of December 31, 1999 and 1998 (Amounts in thousands): 1999 1998 ------- ------- Actuarial present value of accumulated postretirement benefit obligation: Retirees $ 1,918 $ 1,382 Fully eligible active participants 100 80 Other active participants 647 685 ------- ------- 2,665 2,147 Fair value of plan assets -- -- Unrecognized net (loss) gain (40) 362 ------- ------- Accrued postretirement health care cost liability $ 2,625 $ 2,509 ======= ======= Net postretirement health care expense (benefit) amounted to approximately $298,000, $29,000 and $(50,000) for the years ended December 31, 1999, 1998 and 1997, respectively. For measurement purposes, a 6 percent annual rate of increase in the per capita cost of covered health care claims for all employees was assumed for 1999 (7 percent in 1998); the rate was assumed to decrease to 5 percent in 2000 and remain at that level thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1999 by $276,000 and the aggregate of the service and interest cost components of net postretirement health care cost for the year then ended by $39,000 ($216,000 and $29,000, respectively for 1998). The discount rate used in determining the accumulated postretirement benefit obligation was 8 percent as of December 31, 1999 (7 percent as of December 31, 1998). F-15

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 12. COMMITMENTS AND CONTINGENCIES The Company utilizes office and warehouse space and certain equipment under operating and capital lease arrangements. The following table summarizes the Company's future obligations under these leases at December 31, 1999 (Amounts in thousands): Capital Operating Sublease Leases Leases Income ------ ------ ------ 2000 $ 53 $1,903 $ 424 2001 28 1,214 298 2002 -- 458 -- 2003 -- 274 -- 2004 -- 137 -- 2005 and thereafter -- 464 -- ------ ------ ------ Total minimum lease payments 81 $4,450 $ 722 ====== ====== Less amount representing interest 9 ------ Present value of minimum lease payments $ 72 ====== Rent expense for operating leases amounted to $2,571,000, $2,611,000 and $2,675,000 in 1999, 1998 and 1997. The Company had income from a sublease of office space, net of related expenses, of $418,000, $247,000 and $86,000 in 1999, 1998 and 1997, respectively. The Company is party to a management services contract with an Indonesian company. As part of the relationship, the Company guarantees a $1,000,000 line of credit. At December 31, 1999 and 1998, the amount outstanding on the line was $592,000 and $302,000, respectively. Certain states have enacted laws purporting to require out-of-state retailers to collect and remit taxes on sales into those states and the Company has received assessments under certain of these statutes, which are being vigorously protested. The U.S. Supreme Court has held that imposition by the state of a use tax on an out-of-state company which solicits customers in a state through the mail, and is not otherwise physically present in a state, imposes an unconstitutional burden on interstate commerce. However, the issue of whether or not a direct marketer may properly be subject to state tax, should other circumstances be present, has not been fully resolved. Action on these assessments is presently dormant. The Company believes that the ultimate outcome of this matter will not have a materially adverse effect on its financial position or results of operations. F-16

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The Company has loss contingencies with respect to various litigation, taxes in certain foreign locations, and other matters, the ultimate resolution of which management believes will not be material to the Company's financial position or results of operations. 13.PROPERTY, PLANT, AND EQUIPMENT Net property, plant, and equipment at December 31, 1999 and 1998 consisted of the following (Amounts in thousands): 1999 1998 ------ ------ Land $ 2,904 $ 2,904 Buildings and improvements 21,460 21,187 Computer hardware 14,409 12,567 Computer system applications 9,018 10,930 Leasehold improvements 1,859 1,615 Machinery and equipment 5,364 5,048 Furniture and fixtures 4,703 4,786 Automobiles and trucks 1,302 1,110 ------- ------ 61,019 60,147 Less accumulated depreciation 37,537 36,871 ------- ------ Net property, plant and equipment $23,482 $23,276 ======= ======= The Company leases certain computer hardware and automobiles which are classified as capital leases. The lease terms range from 1 to 5 years. The leases have purchase options at the end of the lease term. Leased capital assets included in property, plant, and equipment at December 31, 1999 and 1998 are as follows (Amounts in thousands): 1999 1998 ------ ------- Computer hardware $ 111 $ 645 Automobiles 47 58 ------ ------- 158 703 Accumulated depreciation 79 403 ------ ------- $ 79 $ 300 ====== ======= 14.FINANCIAL INSTRUMENTS The Company uses interest rate protection agreements (options and swaps) to hedge against fluctuations in the variable interest rates associated with borrowings under its credit agreements. Approximately $56,000 and $120,000 of losses and $14,000 of gains were recognized on options and swaps and are included in net interest expense in the Consolidated Statements of Operations and Accumulated Deficit for the years ended December 31, 1999, 1998 and 1997, respectively. There were no interest rate options or swaps outstanding as of December 31, 1999. F-17

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 Foreign subsidiaries of the Company purchase foreign currency contracts and options from major financial institutions to hedge U.S. dollar purchases of inventory. All foreign currency contracts and options settle within one year. Gains and losses are recognized at settlement. A summary of the forward contracts in place at December 31 is as follows (Amounts in thousands): 1999 1998 1997 --------------------------- --------------------------- ---------------------------- Fair Contract Fair Contract Fair Contract Value Amount Value Amount Value Amount ----------- --------------- ----------- --------------- ----------- ---------------- Buy currency $ 7,057 $ 7,000 $ 9,680 $ 10,000 $ 8,299 $ 8,400 Contract duration 1/00-12/00 1/99-10/99 1/98-12/98 The fair value of foreign currency contracts is estimated by obtaining quotes from brokers. The carrying amounts of all other financial instruments included in the accompanying consolidated financial statements approximates fair market value. 15.RELATED PARTY TRANSACTIONS The Company both purchases and sells certain merchandise and services with, pays loans to and receives loans from LNA and affiliates. All transactions with LNA and affiliates are conducted at arm's length. The following intercompany demand notes receivable and payable, including accrued interest, are reflected in the Consolidated Balance Sheets at December 31, 1999 and 1998 (Amounts in thousands): 1999 1998 -------- --------- NOTE RECEIVABLE: --------------- LNA, interest at 6.28% $ - $ 51,515 NOTES PAYABLE: ------------- LNA, interest at 5.7% $ 13,049 $ 9,033 MCN SAT US, interest at 5.26% - 3,001 -------- --------- $ 13,049 $ 12,034 ======== ========= The following intercompany balances are reflected in the Consolidated Balance Sheets and are included in Accounts Receivable and Accounts Payable at December 31, 1999 and 1998 (Amounts in thousands): 1999 1998 ------ ------ RECEIVABLES: ----------- LNA $ 35 $ 23 Grolier Interactive Europe 3 3 Grolier Interactive UK - 217 Livre de Paris 21 1 Hachette Edition - 30 Matra Hachette General 157 166 Matra Transit 2 - Hachette Livre - 14 ------ ------ $ 218 $ 454 ====== ====== F-18

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 1999 1998 ----- ------ PAYABLES: -------- LNA $ 44 $ 44 Grolier Interactive Europe 1 6 Grolier Interactive UK 58 123 Livre de Paris 50 47 Hachette Filipachi Grolier 55 76 Matra Transit - 599 Groupe Salvat - 13 ----- ------ $ 208 $ 908 ===== ====== The following intercompany activity is reflected in the Consolidated Statements Of Operations and Accumulated Deficit (Amounts in thousands): 1999 1998 1997 ---- ----- ----- REVENUES: -------- LNA $ 48 $ 47 $ 46 Grolier Interactive UK 14 74 288 Livre de Paris 24 5 19 Hachette Edition - 100 142 Matra Hachette General - 66 91 Hachette Livre - 14 - Groupe Salvat - 23 49 Grolier Interactive Europe - - 5 Grolier Hachette International - - 44 Hachette Filipachi Grolier - - 6 ---- ----- ----- $ 86 $ 329 $ 690 ==== ===== ===== 1999 1998 1997 ---- ----- ----- EXPENSES: -------- LNA $ 176 $ 176 $ 176 Grolier Interactive UK 40 - 179 Livre de Paris 88 130 110 Matra Hachette General 2,182 2,172 2,079 Hachette Filipachi Grolier 1 54 26 Groupe Salvat 55 366 328 Grolier Interactive Europe - - 2 ------- ------- ------- $ 2,542 $ 2,898 $ 2,900 ======= ======= ======= F-19

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 In July 1998, the Company consummated the simultaneous purchase of a Canadian division of an affiliate of LNA and sale of such division to an unrelated third party. Since this was a related party transaction, no gain or loss was recognized in the accompanying financial statements. Available Canadian net operating loss carryforwards and current year operating losses sheltered the gain from this transaction from any tax liability 16.SUBSEQUENT EVENT (UNAUDITED) On June 22, 2000, pursuant to a Stock Purchase Agreement dated as of April 13, 2000 and as amended, Scholastic Inc., a wholly-owned subsidiary of Scholastic Corporation ("Scholastic") acquired all of the issued and outstanding capital stock of Grolier for $400,000,000 in cash. No Grolier debt, as discussed in Notes 6 and 7, was assumed by Scholastic in connection with the acquisition. F-20

GROLIER INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT For The Period From January 1, 2000 To June 22, 2000 And For The Six Months Ended June 30, 1999 (Amounts in thousands) Period From For The Six January 1, 2000 Months Ended To June 22, 2000 June 30, 1999 - ------------------------------------------------------------------------------ Net sales and other revenues $ 200,253 $ 216,966 Costs and expenses: Cost of sales 48,980 48,637 Selling, collection, and general expenses 152,320 161,235 Amortization of intangible assets and goodwill 5,013 5,005 - ------------------------------------------------------------------------------ 206,313 214,877 - ------------------------------------------------------------------------------ Operating income (loss) (6,060) 2,089 Other expenses (income): Interest, net 2,099 2,326 Foreign exchange (gains) losses (658) (642) Gain on sale of WPG (5,035) -- - ------------------------------------------------------------------------------ (3,594) 1,684 - ------------------------------------------------------------------------------ Income (loss) before income taxes (2,466) 405 Provision for income taxes (3,399) 922 - ------------------------------------------------------------------------------ Net income (loss) 933 (517) Accumulated deficit - beginning of the (141,275) (149,365) period - ------------------------------------------------------------------------------ Accumulated deficit - end of the period $ 140,342 $ (149,882) =============================================================================== THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS. F-21

GROLIER INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For The Period From January 1, 2000 To June 22, 2000 And For The Six Months Ended June 30, 1999 (Amounts in thousands) Period From For The Six January 1, 2000 Months Ended To June 22, 2000 June 30, 1999 - ------------------------------------------------------------------------------ Net income (loss) $ 933 $ (517) Other comprehensive income (loss): Foreign currency translation adjustments (1,772) (35) - ----------------------------------------------------------------------------- Comprehensive income (loss) $ (839) $ (552) ============================================================================= THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS. F-22

GROLIER INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET As Of June 22, 2000 (Amounts in thousands) June 22, 2000 - -------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 5,552 Accounts receivable: Installment sales contracts, less unearned finance charges 97,151 Trade and other 86,865 - -------------------------------------------------------------------- 184,016 Less allowances for doubtful accounts and returns 76,033 - -------------------------------------------------------------------- 107,983 Note and interest receivable from affiliate 18 Inventories: Paper, cloth, and books in process 6,347 Finished books 40,282 Collectibles, cards and other merchandise 9,842 - -------------------------------------------------------------------- 56,471 Prepaid promotion and other expenses 51,845 - -------------------------------------------------------------------- Total current assets 221,869 Plates and revision costs, net 48,358 Property, plant, and equipment at cost less accumulated depreciation 23,784 Intangible assets: Product rights, net 26,611 Trademarks, net 17,429 Customer lists, net 1,478 Goodwill less accumulated amortization 163,292 Deferred charges and other assets 7,486 - -------------------------------------------------------------------- TOTAL ASSETS $510,307 ==================================================================== THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET. F-23

GROLIER INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET As Of June 22, 2000 (Amounts in thousands) June 22, 2000 - --------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY: LIABILITIES: Notes payable $ 8,243 Notes and interest payable to affiliates 13,000 Long-term debt, current portion 40 Accounts payable 20,151 Accrued liabilities 43,847 Income taxes currently payable 1,899 Deferred income taxes 3,238 - --------------------------------------------------------------------- Total current liabilities 90,418 Long-term debt, less current portion 30,994 Deferred income taxes 17,771 Other long-term liabilities 4,218 - --------------------------------------------------------------------- Total liabilities 143,401 - --------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding -- Additional contributed capital 518,857 Accumulated deficit (140,342) Cumulative translation adjustment (11,609) - --------------------------------------------------------------------- Total stockholder's equity 366,906 - --------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $510,307 ===================================================================== THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET. F-24

GROLIER INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For The Period From January 1, 2000 To June 22, 2000 And For The Six Months Ended June 30, 1999 (Amounts In Thousands) Period From For The Six January 1, 2000 Months Ended To June 22, 2000 June 30, 1999 - ----------------------------------------------------------------------------------------- NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES: $ 30,874 $ 9,121 CASH FLOWS (USED FOR) PROVIDED FROM INVESTMENT ACTIVITIES: Additions to plates and revision costs (6,068) (6,527) Purchases of property, plant, and equipment (2,917) (3,232) Collections on Scarecrow Press notes receivable - 250 Acquisition of Weldon - (2,799) All other transactions - net (10,985) (679) - ------------------------------------------------------------------------------------------ Net cash flows used for investment activities (19,970) (12,987) - ------------------------------------------------------------------------------------------ CASH FLOWS (USED FOR) PROVIDED FROM FINANCING ACTIVITIES: Decrease in notes payable (16,421) (6,073) Decrease (increase) in notes receivable - 51,515 Additions to long-term debt 975 - Reductions of long-term debt - (51,277) - ------------------------------------------------------------------------------------------ Net cash flows (used for) provided from financing activities (15,446) (5,835) Effect of exchange rate changes on cash and cash equivalents (191) (58) - ------------------------------------------------------------------------------------------ (Decrease) increase in cash and cash equivalents (4,733) (9,759) Cash And Cash Equivalents, Beginning Of The Period 10,285 14,625 - ----------------------------------------------------------------------------------------- Cash And Cash Equivalents, End Of The Period $ 5,552 $4,866 ========================================================================================= THE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS. F-25

GROLIER INCORPORATED AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 22, 2000 AND JUNE 30, 1999 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements represent a consolidation of the accounts of Grolier, an indirect wholly owned subsidiary of Lagardere North America, Inc. ("LNA"), whose ultimate parent is Lagardere S.C.A. (the "Parent"). All intercompany transactions have been eliminated. These financial statements have not been audited but reflect those adjustments consisting of normal recurring items which management considers necessary for a fair presentation of financial position, results of operations and cash flow. These financial statements should be read in conjunction with Grolier's audited historical consolidated financial statements included elsewhere in this document. The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions by management. As a result, reported amounts of assets, liabilities, revenues, and expenses, as well as disclosures of contingent assets and liabilities, may differ from actual results. 2. CONTINGENCIES Certain states have enacted laws purporting to require out-of-state retailers to collect and remit taxes on sales into those states and the Company has received assessments under certain of these statutes, which are being vigorously protested. The U.S. Supreme Court has held that imposition by the state of a use tax on an out-of-state company which solicits customers in a state through the mail, and is not otherwise physically present in a state, imposes an unconstitutional burden on interstate commerce. However, the issue of whether or not a direct marketer may properly be subject to state tax, should other circumstances be present, has not been fully resolved. Action on these assessments is presently dormant. The Company believes that the ultimate outcome of this matter will not have a materially adverse effect on its financial position or results of operations. The Company has loss contingencies with respect to various litigation, taxes in certain foreign locations, and other matters, the ultimate resolution of which management believes will not be material to the Company's financial position or results of operations. 3. SUBSEQUENT EVENT On June 22, 2000, pursuant to a Stock Purchase Agreement dated as of April 13, 2000 and as amended, Scholastic Inc., a wholly-owned subsidiary of Scholastic Corporation ("Scholastic") acquired all of the issued and outstanding capital stock of Grolier for $400,000,000 in cash. No Grolier debt was assumed by Scholastic in connection with the acquisition. F-26

SCHOLASTIC CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial information for Scholastic Corporation ("Scholastic") gives effect to the acquisition of Grolier Incorporated ("Grolier") completed on June 22, 2000 for $400 million in cash using the purchase method of accounting in accordance with generally accepted accounting principles. The unaudited pro forma condensed consolidated financial statements are based upon the historical financial statements of the respective companies. The unaudited pro forma condensed consolidated balance sheet assumes that the acquisition took place on May 31, 2000 and combines Grolier's unaudited May 31, 2000 historical consolidated balance sheet with Scholastic's audited May 31, 2000 historical consolidated balance sheet. The unaudited pro forma condensed consolidated statement of operations for the twelve months ended May 31, 2000 assumes that the acquisition took place on June 1, 1999 and combines Scholastic's audited consolidated statement of operations for the twelve months ended May 31, 2000 with Grolier's unaudited consolidated statement of operations for the twelve months ended May 31, 2000. The unaudited pro forma condensed consolidated financial statements are based on the estimates and assumptions set forth in the notes to such statements. The pro forma adjustments are based on a preliminary valuation of Grolier's assets and liabilities. The final allocation of the purchase price will be determined based upon an appraisal of the fair value of Grolier's tangible and identifiable intangible assets acquired and liabilities assumed. The actual financial position and results of operations will differ, perhaps significantly from the unaudited pro forma amounts reflected because of a variety of factors, including access to additional information and changes in value not currently identified. The unaudited pro forma condensed consolidated financial statements do not purport to be indicative of the results of operations for future periods or the combined financial position or results that would have been realized had the companies been a single entity during the period presented. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of Scholastic included in its May 31, 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 25, 2000 and Grolier's historical consolidated financial statements included elsewhere in this document. F-27

SCHOLASTIC CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME Year ended May 31, 2000 (Amounts in millions, except per share data) HISTORICAL ---------------------------------------------- Scholastic Grolier Grolier Pro Forma Pro Forma Scholastic Grolier Adjustments(1) Adjusted Adjustments(2) Combined - -------------------------------------------------------------------------------------------------------------------------------- Revenues $ 1,402.5 $ 455.5 $ (14.0) $ 441.5 $ -- $ 1,844.0 Operating costs and expenses: Cost of goods sold 678.3 103.0 (7.3) 95.7 4.3 (D) 778.3 Selling, general and administrative expenses 592.6 321.9 (6.3) 315.6 (2.5) (C) 905.7 Other operating costs: Depreciation 19.7 13.6 -- 13.6 0.2 (D) 33.5 Goodwill and trademark amortization 4.4 10.0 -- 10.0 (1.5) (A) 12.9 Non-recurring charges 8.5 -- -- -- -- 8.5 - -------------------------------------------------------------------------------------------------------------------------------- Total operating costs and expenses 1,303.5 448.5 (13.6) 434.9 0.5 1,738.9 - -------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 99.0 7.0 (0.4) 6.6 (0.5) 105.1 Sale of WPGL -- 5.0 (5.0) -- -- -- Interest expense, net (18.6) (4.4) 0.3 (4.1) (26.5) (B) (49.2) - -------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 80.4 7.6 (5.1) 2.5 (27.0) 55.9 Provision for/(benefit from) income taxes 29.0 1.1 (0.2) 0.9 (9.7) (E) 20.2 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 51.4 $ 6.5 $ (4.9) $ 1.6 $ (17.3) $ 35.7 ================================================================================================================================ Earnings per Class A and Common Share: Basic $ 3.07 $ 2.14 Diluted $ 2.96 $ 2.09 - -------------------------------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION F-28

SCHOLASTIC CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET Balances at May 31, 2000 (Amounts in millions) HISTORICAL ---------------------------------------------- Scholastic Grolier Grolier Pro Forma Pro Forma Scholastic Grolier Adjustments(1) Adjusted Adjustments(2)(F) Combined - -------------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9.0 $ 3.1 $ (0.1) $ 3.0 $ -- $ 12.0 Accounts receivable, net 153.7 100.2 (0.6) 99.6 (0.8) 252.5 Inventories 290.7 62.8 (1.0) 61.8 (5.3) 347.2 Deferred taxes 57.2 -- -- -- -- 57.2 Prepaid and Other Current Assets 29.1 53.5 (0.1) 53.4 -- 82.5 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 539.7 219.6 (1.8) 217.8 (6.1) 751.4 - -------------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET 176.4 24.3 (0.1) 24.2 4.2 204.8 OTHER ASSETS AND DEFERRED CHARGES: Prepublication costs 116.1 47.9 -- 47.9 (21.0) 143.0 Goodwill and other intangible assets 66.4 209.7 -- 209.7 3.6 279.7 Royalty advances 48.7 2.8 -- 2.8 (0.1) 51.4 Production costs 14.2 -- -- -- -- 14.2 Other 21.7 4.5 -- 4.5 6.1 32.3 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND DEFERRED CHARGES 267.1 264.9 -- 264.9 (11.4) 520.6 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 983.2 $ 508.8 $ (1.9) $ 506.9 $ (13.3) $ 1,476.8 ================================================================================================================================ SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION F-29

SCHOLASTIC CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET BALANCES AT MAY 31, 2000 (AMOUNTS IN MILLIONS) HISTORICAL ---------------------------------------------- Scholastic Grolier Grolier Pro Forma Pro Forma Scholastic Grolier Adjustments(1) Adjusted Adjustments(2)(F) Combined - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Lines of credit and current portion of long-term debt $ 8.7 $ 21.2 $ -- $ 21.2 $ (21.2) $ 8.7 Accounts payable 129.7 22.2 (2.1) 20.1 5.8 155.6 Accrued royalties 32.8 8.4 -- 8.4 -- 41.2 Accrued taxes 23.8 2.4 -- 2.4 -- 26.2 Deferred revenue 10.3 2.3 -- 2.3 -- 12.6 Other accrued expenses 80.5 22.6 (0.1) 22.5 (0.7) 102.3 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 285.8 79.1 (2.2) 76.9 (16.1) 346.6 - -------------------------------------------------------------------------------------------------------------------------------- NONCURRENT LIABILITIES: Long-term debt 241.1 30.1 -- 30.1 369.9 641.1 Deffered taxes -- 17.9 -- 17.9 (15.9) 2.0 Other noncurrent liabilities 26.3 18.2 -- 18.2 12.6 (G) 57.1 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL NONCURRENT LIABILITIES 267.4 66.2 -- 66.2 366.6 700.2 - -------------------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES -- -- -- -- -- -- STOCKHOLDERS' EQUITY: Preferred Stock -- -- -- -- -- -- Class A Stock 0.0 -- -- -- -- -- Common Stock 0.2 -- -- -- -- 0.2 Additional paid-in capital 222.7 520.0 (4.0) 516.0 (516.0) 222.7 Accumulated other comprehensive loss (11.1) (12.5) 0.2 (12.3) 12.3 (11.1) Retained earnings 242.8 (144.0) 4.1 (139.9) 139.9 242.8 Less: Common Stock in treasury, at cost (24.6) -- -- -- -- (24.6) - -------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 430.0 363.5 0.3 363.8 (363.8) 430.0 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 983.2 $ 508.8 $ (1.9) $ 506.9 $ (13.3) $ 1,476.8 ================================================================================================================================ SEE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION F-30

SCHOLASTIC CORPORATION NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Amounts in millions, except per share data) 1. GROLIER ADJUSTMENTS On June 22, 2000, Scholastic Corporation ("Scholastic") acquired all of the issued and outstanding capital stock of Grolier Incorporated ("Grolier"). Pursuant to the stock purchase agreement, the assets of the Franklin Watts imprint in the United Kingdom and Australia were not acquired. The Grolier Adjustments represent the elimination of the revenues, expenses, assets and liabilities related to these subsidiaries. 2. PRO FORMA ADJUSTMENTS For purposes of determining the pro forma effect of the acquisition of Grolier on Scholastic's Condensed Consolidated Statement of Income for the year ended May 31, 2000 and the Condensed Balance Sheet as of May 31, 2000, the following adjustments have been made: (A) Represents annual effect of the amortization of goodwill and other intangible assets of Grolier, amortized using a weighted average useful life of 25 years. (B) Represents annual effect of the incremental interest expense on amounts borrowed by Scholastic to fund the purchase price of $400 at a weighted average interest rate of 7.65%. (C) Represents the elimination of management fees charged to Grolier from its former parent. (D) Represents adjustments to amortization and depreciation relating to certain acquired assets including prepaid editorial costs and building which were adjusted to their fair values. The average useful lives of these assets have been adjusted to conform with Scholastic policies. (E) Represents the income tax benefit of the tax deductible components of items (2 A-D) above, at a tax rate of 36%. (F) Represents adjustments to reflect the allocation of the $406 purchase price, including transaction and financing costs, to the acquired assets of Grolier based upon a preliminary allocation. (G) Represents costs related to the acquisition, primarily consisting of severance and anticipated close-down costs. F-31

SCHOLASTIC CORPORATION NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Amounts in millions, except per share data) 3. EARNINGS PER SHARE The following table sets forth the computation of the historical and pro forma basic and diluted earnings per share for the year ended, May 31, 2000: Scholastic Historical Pro Forma Scholastic Combined ---------- ---------- Net income for basic earnings per share $ 51.4 $ 35.7 Dilutive effect of debentures 3.5 -- - ------------------------------------------------------------------------- Adjusted net income for diluted earnings per share $ 54.9 $ 35.7 Weighted average Class A and Common Shares outstanding for basic earnings per share 16.7 16.7 Dilutive effect of shares issuable pursuant to employee stock plans 0.4 0.4 Dilutive effect of Debentures 1.5 -- Dilutive effects of Warrants 0.0 0.0 - ------------------------------------------------------------------------- Adjusted weighted average Class A and Common Shares for diluted earnings per share outstanding 18.6 17.1 ========================================================================= Earnings per Class A and Common Share Basic $ 3.07 $ 2.14 Diluted $ 2.96 $ 2.09 F-32

SCHOLASTIC CORPORATION CURRENT REPORT ON FORM 8-K/A, DATED SEPTEMBER 5, 2000 EXHIBIT INDEX - -------------------------------------------------------------------------------- PAGE NUMBER IN SEQUENTIALLY EXHIBIT NUMBER DESCRIPTION OF DOCUMENT NUMBERED COPY Exhibit 23 Consent of Arthur Andersen LLP E-1

Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants we hereby consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-48655, No. 33-69058 and No. 33-91090) pertaining to the Scholastic Corporation 401(K) Savings and Retirement Plan; Registration Statement (Form S-8 No. 33-46338) pertaining to the 1992 Stock Option Plan as of May 19, 1992; Registration Statement (Form S-8 No. 33-50128) pertaining to the 1992 Outside Directors' Stock Option Plan; Registration Statement (Form S-3 No. 333-17365) pertaining to $175,000,000 of Securities; Registration Statement (Form S-8 No. 333-62297) pertaining to Scholastic Corporation 1997 Outside Directors' Stock Option Plan; Registration Statement (Form S-8 No. 333-65757) pertaining to the Scholastic Corporation 1995 Stock Option Plan; Registration Statement (Form S-8 No. 333-68181) pertaining to the Scholastic Corporation Employee Stock Purchase Plan and Registration Statement (Form S-8 No. 333-68185) pertaining to the Scholastic Corporation Management Stock Purchase Plan of our report dated February 4, 2000, on the consolidated financial statements of Grolier Incorporated and Subsidiaries for the years ended December 31, 1999, 1998 and 1997 which are included in Scholastic Corporation's current report on Form 8-K/A dated September 5, 2000. It should be noted that we have not audited any financial statements of Grolier Incorporated and Subsidiaries subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP New York, New York August 31, 2000