UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For The Fiscal Year Ended December 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from _____ to _____
Commission file number 000-19860
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
SCHOLASTIC CORPORATION
557 BROADWAY
NEW YORK, NEW YORK 10012
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
Section 906 Certification 13
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, 2002 and 2001, and the related statement of changes in net assets
for the year ended December 31, 2002. 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, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, 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, 2002 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
April 16, 2003
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SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
DECEMBER 31,
2002 2001
---- ----
INVESTMENTS, AT FAIR VALUE
Putnam Stable Value Fund $ 20,989 $ 17,601
The George Putnam Fund of Boston 20,524 22,068
Putnam Investors Fund 14,905 19,422
Scholastic Corporation Common Stock 12,770 16,214
Putnam S & P 500 Index Fund 11,853 13,562
The Putnam Fund for Growth & Income 10,087 11,717
Putnam Bond Index Fund 7,360 4,130
Putnam New Opportunities Fund 5,669 7,191
Putnam International Growth Fund 4,243 4,269
Participants loans 3,772 3,389
Putnam Asset Allocation Fund - Balanced Portfolio 3,514 3,307
Putnam Asset Allocation Fund - Growth Portfolio 3,327 3,072
Putnam OTC & Emerging Growth Fund 2,583 3,115
Putnam Asset Allocation Fund - Conservative Portfolio 2,015 1,679
Putnam Capital Opportunities Fund 786 -
Cash 15 -
------------ ------------
TOTAL INVESTMENTS 124,412 130,736
------------ ------------
RECEIVABLES
Participants contribution receivable 121 106
Employer contribution receivable 46 39
------------ ------------
TOTAL RECEIVABLES 167 145
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 124,579 $ 130,881
============ ============
SEE ACCOMPANYING NOTES
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SCHOLASTIC CORPORATION
401(k) SAVINGS AND RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS)
Interest and dividend income $ 2,493
Contributions
Employer 5,518
Participants 14,670
Rollovers 2,394
------------
TOTAL ADDITIONS 22,582
Distributions to participants (8,185)
Net realized and unrealized depreciation in fair value of investments (23,192)
------------
NET DECREASE (6,302)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of period 130,881
------------
End of period $ 124,579
============
SEE ACCOMPANYING NOTES
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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, 2002, to participants under the Plan
("Participants"), other than the Company's common stock ("Company Stock"), were
provided by Putnam. The Plan is an employee plan qualified under Section 401(a)
of the Internal Revenue Code, as amended (the "Code").
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 document was
subsequently amended effective January 1, 2002. The amendment effective
January 1, 2002 (and April 1, 2002 for the catch-up contribution feature
referred to below) revised the Plan to comply with and incorporate the Economic
Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), as well as to make
certain plan design changes related to EGTRRA. The changes included: (i)
increasing the annual Compensation (as defined below) recognized by the Plan
from $170,000 to $200,000, (ii) increasing the Plan's pre-tax 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 below), (iii)
establishing the Plan's pre-tax and after-tax deferral limits (on an individual
and combined basis) to 6% of annual Compensation for Highly Compensated
Employees, (iv) permitting Participants who are age 50 and older or who will
attain age 50 before the end of the Plan Year (which is the twelve month period
beginning January 1 and ending on December 31) to make catch-up contributions
(as defined by EGTRRA), (v) increasing the annual pre-tax deferral limit to
$11,000 in 2002, with subsequent increases up to $15,000 in 2006, (vi) allowing
the Plan to accept direct rollovers of eligible distributions from annuity
contracts described in Section 403(b) of the Code, governmental plans under
Section 457(b) of the Code, and individual retirement
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accounts or annuities, as well as after-tax distributions from other employer
plans qualified under Section 401(a) of the Code , and (vii) shortening the
suspension period for participating in the Plan after hardship withdrawals from
twelve months to six months.
Also effective January 1, 2002, the Plan was amended to permit automatic
enrollment of new Eligible Employees (as defined below) hired on or after
January 1, 2002. Eligible Employees are automatically enrolled as soon as
administratively feasible after 90 days of employment. Contributions are made at
a pre-tax contribution rate of 3% of annual Compensation and are deposited in
the Putnam Asset Allocation: Balanced Portfolio.
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 in the Plan
on any business day after they become eligible to participate in the Plan.
Employees hired on or after January 1, 2002 are automatically enrolled as soon
as administratively feasible after 90 days of employment.
PARTICIPANT CONTRIBUTIONS
As approved by the Committee and subject to the provisions of 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
("Compensation Contributions"); provided, that the sum of pre-tax and after-tax
contributions during any Plan Year does not exceed the following limitations:
PRE-TAX CONTRIBUTIONS: Pre-tax contributions are limited to the lesser of 50% of
annual salary, overtime, bonuses and commissions ("Compensation"), subject to
the requirements of the Code, or $11,000 for the Plan Year ended December 31,
2002. Eligible Employees whose Compensation is in excess of $85,000 in the prior
year ("Highly Compensated Employees") are limited to the lesser of 6% of their
annual Compensation or $11,000 for the Plan year ended December 31, 2002. The
sum of pre-tax and after-tax contributions during any Plan Year cannot exceed
50% (or 6%, if a Highly Compensated Employee) of annual Compensation.
AFTER-TAX CONTRIBUTIONS: After-tax contributions are limited to 50% of annual
Compensation, subject to the requirements of the Code. Highly Compensated
Employees are limited to a contribution of 6% of their annual Compensation. The
sum of pre-tax and after-tax contributions during any Plan Year cannot exceed
50% (or 6% if a Highly Compensated Employee) of annual Compensation.
ROLLOVER CONTRIBUTIONS: Any Eligible Employee may transfer to the Plan
contributions and such other amounts from an "eligible rollover plan" that 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 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, 2002, the Company contributed an amount equal
to 100% of the first one hundred dollars of a Participant's contribution and 50%
5
thereafter of the Participant's pre-tax contributions, up to a maximum amount
equal to 6% of the Participant's annual Compensation ("Matching Contributions").
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
of the Company (the "Board"). The Company made no Discretionary Contributions to
the Plan for the year ended December 31, 2002.
Forfeitures by Participants of unvested Matching Contributions ("Forfeitures")
are used to offset Matching Contributions for other Participants. In 2002,
Matching Contributions were reduced by $169,764 from Forfeitures. At
December 31, 2002, Forfeitures totaled $104,152, which will be used to reduce
future Matching Contributions.
VESTING
Participants are immediately vested in their Compensation Contributions and
Rollover Contributions. Matching Contributions vest at the rate of 20% per year
of service by a Participant. A Participant becomes 100% vested in all Matching
Contributions after either five years of credited service, or upon death or
disability while employed, or upon reaching age 65.
PARTICIPANT ACCOUNT DISTRIBUTIONS
A Participant's account under the Plan 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 his or her 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 or her entire
vested balance during employment. Benefits payable (but not yet paid) as of
December 31, 2002 and 2001 were $0 and $3,787, respectively.
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 loan for the purchase of a principal residence outstanding or more
than two outstanding loans at any time. 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 funds (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 pays all other Plan expenses.
6
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 Company 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 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 filed for a new determination letter on June 28, 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, 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 Trustee. However,
upon a determination that the continuance of such an arrangement is not in the
best interest of the Participants, the Board 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.
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5. INVESTMENTS
During 2002, the Plan's net realized and unrealized appreciation (depreciation)
in the fair value of investments was as follows (in thousands):
Putnam Bond Index Fund $ 506
Putnam Asset Allocation Fund-Conservative Portfolio (173)
Putnam Capital Opportunities Fund (280)
Putnam Asset Allocation Fund - Balanced Portfolio (553)
Putnam Asset Allocation Fund - Growth Portfolio (651)
Putnam International Growth Fund (812)
Putnam OTC & Emerging Growth Fund (1,131)
Putnam New Opportunities Fund (2,292)
The Putnam Fund for Growth & Income (2,495)
The George Putnam Fund of Boston (2,682)
Putnam S&P 500 Index Fund (3,313)
Putnam Investors Fund (4,624)
Scholastic Corporation Common Stock Fund (4,692)
----------
$ (23,192)
==========
8
EIN #13-3385513
PLAN #004
SCHOLASTIC CORPORATION 401(k) SAVINGS AND RETIREMENT PLAN
SCHEDULE H, LINE 4I
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS)
Identity of Description of Number Current
Issue Investment of Shares Value
---------------------------------------------------------------------------------------------------------------------
Putnam* Putnam Stable Value Fund 20,989 20,989
Putnam* The George Putnam Fund of Boston 1,384 20,524
Putnam* Putnam Investors Fund 1,673 14,905
Scholastic Corp.* Common Stock 355 12,770
Putnam* Putnam S & P 500 Index Fund 548 11,853
Putnam* The Putnam Fund for Growth & Income 712 10,087
Putnam* Putnam Bond Index Fund 564 7,360
Putnam* Putnam New Opportunities Fund 194 5,669
Putnam* Putnam International Growth Fund 257 4,243
Participant Loans* Prime + .05 % Interest
Rate, Repayment
Terms: 1 to 10 years - 3,772
Putnam* Putnam Asset Allocation
Fund - Balanced Portfolio 420 3,514
Putnam* Putnam Asset Allocation
Fund - Growth Portfolio 417 3,327
Putnam* Putnam OTC &
Emerging Growth Fund 500 2,583
Putnam* Putnam Asset Allocation
Fund - Conservative Portfolio 254 2,015
Putnam* Putnam Capital Opportunities Fund 102 786
Putnam* Cash - 15
-------------
$ 124,412
=============
*Indicates party-in-interest to the Plan.
9
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrative Committee of Scholastic Corporation, the Plan Administrator
of the Scholastic Corporation 401(k) Savings and Retirement 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 27, 2003 /s/ Richard M. Spaulding
------------------------
Richard M. Spaulding
EXECUTIVE VICE PRESIDENT, SCHOLASTIC CORPORATION
AND CHAIRMAN OF ADMINISTRATIVE COMMITTEE OF THE
SCHOLASTIC CORPORATION 401(k) SAVINGS AND
RETIREMENT PLAN
10
EXHIBITS
Exhibit No. Document
----------- --------
23 Consent of Independent Auditors
99.1 Certification furnished pursuant to the Section 906 of the Sarbanes-Oxley Act of 2002.
11