UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS
PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2001
Commission file number 0-19860
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
SCHOLASTIC CORPORATION
IRS Employer Identification Number 13-3385513
557 BROADWAY
NEW YORK, NEW YORK 10012
(212) 343-6100
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
TABLE OF CONTENTS
PAGE NUMBER
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REPORT OF INDEPENDENT AUDITORS 1
FINANCIAL STATEMENTS
Statements of net assets available for benefits 2
Statement of changes in net assets available for benefits 3
Notes to financial statements 4-8
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of assets (held at end of year) 9
SIGNATURES 10
EXHIBITS 11
CONSENT OF INDEPENDENT AUDITORS 12
REPORT OF INDEPENDENT AUDITORS
TO THE RETIREMENT PLAN COMMITTEE OF THE BOARD OF DIRECTORS OF SCHOLASTIC
CORPORATION
We have audited the accompanying statements of net assets available for benefits
of the Scholastic Corporation 401(k) Savings and Retirement Plan as of December
31, 2001 and 2000, and the related statement of changes in net assets for the
year ended December 31, 2001. These financial statements are the responsibility
of the Plan's Administrative Committee. 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 net assets available for benefits of the Plan at
December 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2001 is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's Administrative Committee. This supplemental schedule has been subjected
to the auditing procedures applied in our audits of the financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.
/s/Ernst & Young LLP
New York, New York
May 15, 2002
1
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
DECEMBER 31,
-----------------------
2001 2000
---- ----
INVESTMENTS, AT FAIR VALUE
The George Putnam Fund of Boston $22,068 $19,101
Putnam Investors Fund 19,422 16,227
Putnam Stable Value Fund 17,601 8,162
Scholastic Corporation Common Stock 16,214 13,014
Putnam S & P 500 Index Fund 13,562 14,272
The Putnam Fund for Growth & Income 11,717 4,598
Putnam New Opportunities Fund 7,191 7,656
Putnam International Growth Fund 4,269 3,920
Putnam Bond Index Fund 4,130 2,291
Participants loans 3,389 2,879
Putnam Asset Allocation Fund - Balanced Portfolio 3,307 2,198
Putnam OTC & Emerging Growth Fund 3,115 4,342
Putnam Asset Allocation Fund - Growth Portfolio 3,072 2,186
Putnam Asset Allocation Fund - Conservative Portfolio 1,679 843
-------------- -------------
TOTAL INVESTMENTS 130,736 101,689
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RECEIVABLES
Participants contribution receivable 106 124
Employer contribution receivable 39 46
-------------- -------------
TOTAL RECEIVABLES 145 170
-------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $130,881 $101,859
============== =============
SEE ACCOMPANYING NOTES
2
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
Interest and dividend income $ 2,553
Contributions
Employer 4,204
Participants 13,207
Rollovers 1,996
--------
19,407
Transfer of Grolier Assets 29,926
--------
TOTAL ADDITIONS 51,886
Distributions to participants (9,283)
Net realized and unrealized depreciation in fair value of
of investments (13,581)
--------
NET INCREASE 29,022
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of period 101,859
--------
End of period $130,881
========
SEE ACCOMPANYING NOTES
3
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. DESCRIPTION OF THE PLAN
GENERAL
The Scholastic Corporation 401(k) Savings and Retirement Plan, amended and
restated effective January 1, 1998 and subsequently amended effective January 1,
2002 (the "Plan"), formerly the Scholastic Inc. 401(k) Savings and Retirement
Plan, is a defined contribution plan sponsored by Scholastic Corporation (the
"Company"). The Plan is administered by the Retirement Plan Committee of the
Board of Directors of the Company which has delegated certain responsibility and
authority to the Company's Administrative Committee which is composed of members
of senior management of the Company (the "Retirement Plan Committee", and to the
extent delegated to the Administrative Committee, collectively the "Committee").
Putnam Fiduciary Trust Company serves as Trustee for the Plan (the "Trustee").
In addition, Putnam Fiduciary Trust Company and/or its related companies
(collectively, "Putnam") also provide administrative and recordkeeping services
on behalf of the Plan (the "Record Keeper"). Investment products offered,
through December 31, 2001, to participants under the Plan, other than the
Company's Common Stock ("Company Stock") were provided by Putnam.
This description of the Plan provides only general information and is presented
to assist in understanding the Plan's financial statements. Participants should
refer to the Plan Document for a more complete description of the Plan's
provisions.
PLAN AMENDMENTS
As mentioned above, the plan document was amended and restated effective January
1, 1998. This amended and restated document was updated during 2001 to reflect
all amendments effective through 2001. The plan was subsequently amended
effective January 1, 2002. Significant changes to the Plan effective January 1,
1998 include: (i) daily valuations instead of monthly valuation of participant
account, participant enrollment, contribution rate changes and participant
directed transfer of assets among investment funds; (ii) modification of the
Plan's transfer election rule to permit transfers in multiples of 1% rather than
in multiples of 10%; and (iii) using forfeitures generated from non-vested
terminated participant accounts to reduce the Company's matching contribution
rather than allocating such amounts to active participant accounts. Effective
January 1, 1999, the restated plan amended the eligibility requirements to be as
of the date of hire rather than after the completion of six months service.
Additionally, the plan was amended to reflect Scholastic Corporation as the
defined "Company" under the Plan with all of the powers, authority and
responsibility of the Company as outlined under the Plan.
In connection with the Company's acquisition of Grolier Incorporated as of June
22, 2000, effective January 1, 2001 the restated Plan reflects the merger of the
Grolier Incorporated Employee Savings and Investment Plan. Other significant
changes effective January 1, 2001 included: (i) increasing the Plan's pre and
after-tax deferral limits (on an individual and combined basis) from 15% to 20%
of annual compensation; (ii) participants in the Grolier
4
Incorporated Retirement Plan on December 31, 2000, who have attained age 45, may
make an irrevocable election to accrue benefits under the Plan in accordance
with benefit formulas that resemble the formulas that existed under the Grolier
Incorporated Employee Savings and Investment Plan and the Grolier Incorporated
Retirement Plan (Grolier Benefit Structure Program); (iii) fully vesting the
matching contributions for Grolier employees with three or more years of service
on December 31, 2000 and (iv) recognizing past service with Grolier. As a result
of this plan merger, on January 2, 2001 funds totaling approximately $29 million
were transferred from the Grolier Incorporated Employee Savings and Investment
Plan's trust to the Scholastic Corporation 401(k) Savings and Retirement Plan's
trust.
The amendment effective January 1, 2002 amended the Plan to comply with and
incorporate the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA), as well as make certain plan design changes related to EGTRRA. The
significant changes included: (i) increasing the compensation recognized by the
Plan from $170,000 to $200,000, (ii) increasing the Plan's pre and after-tax
deferral limits (on an individual and combined basis) from 20% to 50% of annual
compensation for non-highly compensated employees (as defined), (iii)
establishing the Plan's pre and after-tax deferral limits (on an individual and
combined basis) to 6% of annual compensation for highly compensated employees
(as defined), (iv) permitting participants who are age 50 and older or who will
attain age 50 before the end of the plan year to make catch-up contributions (as
defined), (v) increasing the pre-tax deferral limit to $11,000 in 2002 and the
subsequent increases up to $15,000 in 2006, (vi) the Plan accepting direct
rollovers of eligible distributions from 403 (b) annuity contracts, 457
governmental plans and individual retirement accounts or annuities as well as
after-tax distributions from other employer qualified plans, and (vii)
shortening the suspension period for hardship withdrawals from twelve months to
six months.
ELIGIBILITY
Employees eligible to enroll in the Plan include all employees of the Company
and its domestic subsidiaries (other than "leased" employees) who have attained
the age of 18 ("Eligible Employees"). Eligible Employees may enroll into the
Plan on any business day after they become eligible to participate in the Plan.
PARTICIPANT CONTRIBUTIONS
As approved by the Committee and subject to the provisions of the Internal
Revenue Code, as amended (the "Code"), Eligible Employees may contribute during
the Plan Year at the participant's election into any of the Plan's fund options,
in pre-tax and/or after-tax compensation dollars; provided, that the sum of
pre-tax and after-tax contributions during any Plan Year does not exceed the
following limitations:
Pre-tax Compensation Contributions: Pre-tax compensation contributions are
limited to $10,500 for the Plan year ended December 31, 2001.
After-tax Compensation Contributions: After-tax compensation contributions are
limited to 20% of annual salary, overtime, bonuses and commissions,
("Compensation") subject to the requirements of the Code. Pursuant to the limits
set by the Company, contributions from employees having Compensation in excess
of $85,000 ("Highly Compensated Employees"), may be limited to a contribution of
6% of their Compensation.
5
Rollover Contributions: Any Eligible Employee may transfer to the Plan
contributions and such other amounts from an "eligible rollover plan" which
meets the requirements of the Code at the time of the transfer ("Rollover
Contributions").
EMPLOYER CONTRIBUTIONS
Under the Plan, the Company contributes a percentage of each participant's
Compensation, as determined by the Committee, at its sole discretion. The
Company's contributions for the benefit of the Plan participants are made in
cash in an amount equal to a percentage of the participant's pre-tax
contributions. For the Plan year ended December 31, 2001, the Company
contributed an amount equal to 100% of the first one hundred dollars of a
participant's contribution and 50% thereafter of the participant's pre-tax
compensation contributions, up to a maximum amount equal to 6% of the
participant's Compensation.
Effective on January 1, 2001, for those eligible participants electing to
participate in the "Grolier Benefit Structure Program", the Company contributed
15% of the participant's pre-tax compensation contributions, up to a maximum
amount equal to 6% of the participant's compensation.
The Company, at its sole discretion, may also make discretionary contributions
for the benefit of all participants regardless of whether they elected to make
pre-tax contributions to the Plan ("Discretionary Contributions"). The amount of
such discretionary contributions is to be determined by the Board of Directors.
No discretionary contributions were made to the Plan by the Company for the year
ended December 31, 2001.
Forfeitures are used to offset the Company's matching contributions. In 2001,
employer contributions were reduced by $747,442 from forfeited non-vested
accounts. At December 31, 2001, forfeited non-vested accounts totaled $19,205.
These forfeiture accounts will be used to reduce future employer contributions.
VESTING
Participants are immediately vested in their Compensation Contributions and
Rollover Contributions. Matching contributions made by the Company and its
domestic subsidiaries vest at the rate of 20% per year of service by a
participant. A participant becomes 100% vested after either five years of
credited service, or upon death or disability while employed, or upon reaching
age 65. Effective January 1, 2001 employees of Grolier Inc. with three or more
years of service on December 31, 2000 who became participants of the Scholastic
401(k) Savings and Retirement Plan are fully vested in Company matching
contributions.
PARTICIPANT ACCOUNT DISTRIBUTIONS
A participant's account may be distributed in full upon cessation of employment
for any reason, including termination, death, disability or retirement. On a
daily basis, a participant, for any reason, may withdraw all or a portion of
after-tax contributions. All distributions from the Plan are in cash or, if
elected by the participant, in whole shares of Company Stock, to the extent that
the participant is invested in the Company Stock. In the event of attainment of
age 59-1/2, a participant may withdraw his entire vested balance during
employment. Benefits payable as of December 31, 2001 and 2000 were $3,787 and
$0, respectively.
6
In the event of a hardship, a participant may withdraw during employment such
portion of his or her account to meet such hardship. In addition, once each Plan
year, participants may request a loan from the Plan of up to 50% of the vested
value of their account not to exceed $50,000. In no event may a participant have
more than one principal residence loan outstanding or more than two outstanding
loans at anytime. All loans must be repaid in equal installments of principal
and interest through automatic payroll deductions over a period not to exceed
five years, except for certain loans made to purchase a participant's principal
residence, which may be repaid over a period of up to ten years pursuant to the
Code. Participants may not otherwise withdraw any portion of their account
balance during employment.
PLAN EXPENSES
Expenses are incurred at either the fund level or the Plan level. All expenses
incurred by the fund (commissions, management fees, etc.) are paid out of
investor assets and are therefore netted in realized and unrealized depreciation
in fair value of investments in the statement of changes in net assets available
for benefits. The Company and its domestic subsidiaries pays all other Plan
expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA"). The financial statements of the Plan are prepared in
accordance with accounting principles generally accepted in the United States.
The Plan's accounts are maintained on the accrual basis. Purchases and sales of
investment securities are recorded at market value on the trade date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS
Investments in the Plan's funds are valued at redemption prices based on the net
asset values of the funds. Investments in the Company's Common Stock are valued
at the closing price as quoted on the NASDAQ National Market System on the
valuation date. Loans receivable from participants are valued at cost which
approximates fair value.
3. TAX STATUS
The Plan received a favorable determination letter from the Internal Revenue
Service as of November 1, 1995 that the Plan qualifies under Section 401(a) of
the Code. Therefore, the Plan's assets are not subject to tax under Section
501(a) of the Code. The Plan is required to operate in conformity with the Code
in order to maintain its qualification. If any operational
7
defects are identified, the Company will take all action necessary to correct
and maintain the qualified status of the Plan. As a result of amending and
restating the Plan, the Company is required to file for a new determination
letter on or before June 30, 2002.
4. PLAN TERMINATION
While the Plan is intended to be permanent, it may be terminated at any time by
a resolution of the Board of Directors of the Company, subject, however, to the
provisions of ERISA. Upon termination of the Plan, all necessary provisions of
the Plan shall remain in effect, no further contributions may be made to the
Plan and the account of each participant shall become fully vested and
non-forfeitable. In the event of termination, the Plan assets may continue to be
held by the plan trustee. If however, upon a determination that the continuance
of such an arrangement is not in the best interest of the Plan's participants,
the Board of Directors may terminate the arrangement, and upon such termination,
the trustee shall apply for the benefit of each participant (or beneficiary) the
full value of such participant's account.
5. INVESTMENTS
During 2001, the Plan's net realized and unrealized appreciation (depreciation)
in the fair value of investments was as follows (in thousands):
Scholastic Corporation Common Stock $ 1,991
Putnam Bond Index Fund 225
Putnam Asset Allocation Fund - Conservative Portfolio (100)
Putnam Asset Allocation Fund - Balanced Portfolio (271)
Putnam Asset Allocation Fund - Growth Portfolio (375)
The George Putnam Fund of Boston (558)
Putnam International Growth Fund (887)
The Putnam Fund for Growth & Income (1,086)
Putnam S&P 500 Index Fund (1,741)
Putnam OTC & Emerging Growth Fund (2,062)
Putnam New Opportunities Fund (2,775)
Putnam Investors Fund (5,942)
--------
$(13,581)
========
8
SCHOLASTIC CORPORATION 401(k) SAVINGS AND RETIREMENT PLAN
SCHEDULE H, LINE 4i
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
Identity of Description of Number Current
Issue Investment of Shares Value
Putnam* The George Putnam Fund of Boston 1,316 $22,068
Putnam* Putnam Investors Fund 1,666 19,422
Putnam* Putnam Stable Value Fund 17,601 17,601
Scholastic Corp.* Common Stock 322 16,214
Putnam* Putnam S & P 500 Index Fund 487 13,562
Putnam* The Putnam Fund for Growth & Income 660 11,717
Putnam* Putnam New Opportunities Fund 171 7,191
Putnam* Putnam International Growth Fund 214 4,269
Putnam* Putnam Bond Index Fund 347 4,130
Participant Loans* 6.5% - 10.00 % Interest
Rate, Repayment
Terms: 2 to 10 years - 3,389
Putnam* Putnam Asset Allocation
Fund - Balanced Portfolio 337 3,307
Putnam* Putnam OTC &
Emerging Growth Fund 407 3,115
Putnam* Putnam Asset Allocation
Fund - Growth Portfolio 319 3,072
Putnam* Putnam Asset Allocation
Fund - Conservative Portfolio 193 1,679
--------------
$130,736
==============
*Indicates party-in-interest to the Plan.
9
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Retirement Plan Committee of the Scholastic Corporation 401(k) Savings and
Retirement Plan which administers the Plan has duly caused this annual report to
be signed on its behalf by the undersigned hereunto duly authorized.
SCHOLASTIC CORPORATION 401(k) SAVINGS
AND RETIREMENT PLAN
Date: June 21, 2002 /s/ Richard M. Spaulding
-------------------------------------------------
Richard M. Spaulding
EXECUTIVE VICE PRESIDENT, SCHOLASTIC CORPORATION
AND CHAIRMAN OF THE RETIREMENT PLAN COMMITTEE AND
ADMINISTRATIVE COMMITTEE OF THE
SCHOLASTIC CORPORATION 401(k) SAVINGS AND
RETIREMENT PLAN
10
EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
23 Consent of Independent Auditors
11
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We 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 of our report dated
May 15, 2002, with respect to the financial statements and schedules of the
Scholastic Corporation 401(k) Savings and Retirement Plan included in this
Annual Report (Form 11-K) for the year ended December 31, 2001.
/s/ Ernst & Young LLP
New York, New York
June 24, 2002
12
