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2002/2003 Scholastic Credo and Editorial Platform Scholastic produces educational materials to assist and inspire students: • To cultivate their minds to utmost capacity • To become familiar with our cultural heritage • To strive for excellence in creative expression in all fields of learning, literature, and art ANNUAL REPORT • To seek effective ways to live a satisfying life • To enlarge students’ concern for and understanding of today’s world • To help to build a society free of prejudice and hate, and dedicated to the highest quality of life in community and nation Building Value We strive to present the clearest explanation of current affairs and contemporary thought, Scholastic Corporation Annual Report 2002/2003 and to encourage literary appreciation and expression consistent with the understanding and interests of young people at all levels of learning.

We believe in: • The worth and dignity of each individual Respect for the diverse groups in our multicultural society Through • • The right of each individual to live in a wholesome environment and, equally, the personal responsibility of each individual to help gain and preserve a decent and healthful environment, beginning with informed care for one’s own body and mind • High moral and spiritual values • The democratic way of life, with basic liberties — and responsibilities — for everyone • Constitutional, representative government and evenhanded justice that maintains Leadership in equality of rights for all people • Responsible competitive enterprise and responsible labor, with opportunities for all • Cooperation and understanding among all people for the peace of the world

We pledge ourselves to uphold the basic freedoms of all individuals; we are unalterably opposed to any system of government or society that denies these freedoms. We oppose discrimination of any kind on the basis of race, creed, color, sex, age, or national origin. Children’s Good citizens may honestly differ on important public questions. We believe that all sides of the issues of our times should be fairly discussed — with deep respect for facts and logical thinking — in classroom magazines, books, and other educational materials used in schools and homes. Founded 1920 Brands and

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Scholastic Corporation Corporate and Editorial Offices, 557 Broadway, New York, New York 10012 212-343-6100 Distribution Scholastic Corporation Ofﬁces

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Scholastic Corporation, Scholastic Inc., Scholastic Corporation Accounting Scholastic Book Fairs, Inc. Corporate and Editorial Offices Services and Information Systems Center 1080 Greenwood Boulevard 557 Broadway 100 Plaza Drive, 4th floor Lake Mary, FL 32746 New York, NY 10012 Secaucus, NJ 07094 407-829-7300 212-343-6100 201-633-2400 Customer Service Web site: www.scholastic.com National Service Organization and 1-800-SCHOLASTIC Scholastic Library Publishing, Inc. Scholastic Book Clubs, Inc. (1-800-724-6527) Scholastic At Home Inc. 2391 East McCarty Street www.scholastic.com/custsupport/ Fellow Scholastic Shareholders: 90 Sherman Turnpike Jefferson City, MO 65101 index.htm Danbury, CT 06816 203-797-3500 573-636-5271 fter a five-year •••Revenue growth in School Book Fairs International Offices Aperiod in slowed to 5%, and revenues in School Argentina India New Zealand which we achieved Book Clubs declined modestly. This was Scholastic Argentina S.A. Scholastic India Private Ltd. Scholastic New Zealand Ltd. 54-11-4836-1450 91-124-243-9250 64-9-274-8112 significant increases partly caused by the weak economy, Australia Grolier International Philippines in both revenues as well as some mistakes in execution. Scholastic Australia Pty. Ltd. Private Limited (India) Grolier International, Inc. 61-2-4328-3555 91-11-2628-1356 63-2-752-1981 and profits, we Although we successfully reduced costs Grolier Australia Pty. Ltd. Indonesia Singapore missed our goals in ••• (Scholastic At Home) Grolier International, Inc. Grolier International, Inc. in our procurement, supply chain and 61-2-4329-9338 62-21-310-6886 65-6746-6695 Fiscal 2003 and operations by $35 million last year, Canada Ireland Taiwan Scholastic Canada Ltd. Scholastic Ireland Grolier International, Inc. Richard Robinson reported lower we experienced offsetting cost increases 905-887-7323 353-183-02020 Chairman, 886-2-2752-8901 profits than in Grolier Limited (Canada) President and CEO elsewhere in the business, especially Malaysia Thailand 2002 — though 450-667-1510 Grolier (Malaysia) SND. BHD. in healthcare, postage, facilities and Grolier International, Inc. we still made $59 Hong Kong 60-3-2070-4911 66-2-233-0582 depreciation. Scholastic Hong Kong Ltd. Mexico United Kingdom million after tax (compared with $93 million 852-2722-6161 Scholastic Mexico, S.A. de C.V. Scholastic Group Ltd. in 2002) in a difficult year for consumer We took a $10.9 million pre-tax Grolier International, Inc. 52-55-5559-8000 44-1926-887799 ••• 852-2527-6312 bookselling. In recent talks with Scholastic charge for severance pay (and related Grolier Limited (U.K.) 44-1603-740400 employees, I have found that, like me, they costs) due to the reduction of about are disappointed about missing the 2003 400 people from our worldwide staff. Stockholder Information

targets, but aware that tough years teach 10-K To obtain information about the CUSIP Numbers valuable lessons. Copies of Scholastic’s Form 10-K are Company, please contact: Common Stock: 807066105 Revenue by Segment (FY03) available without charge upon written Raymond Marchuk 7% Senior Notes: 807066AB1 request to: Senior Vice President, Finance 5.75% Notes: 807066AE5 In reviewing last year’s results, there are four Scholastic Corporation and Investor Relations 5% Notes: 807066AF2 key factors that explain why profitability $ in Millions Investor Relations 212-343-6741 Auditors 557 Broadway Email:[email protected] Ernst & Young LLP declined, with revenues modestly increasing: Media, Licensing & Advertising New York, N.Y. 10012 Media Relations $124 New York, New York They are also available at 212-343-6833 International General Counsel Revenues and profits were down in Trade www.scholastic.com/aboutscholastic/ •• 6% $319 Registrar and Transfer Agent Coudert Brothers investor/ Publishing. This was partly the result of Questions or changes relating to New York, New York 16% 2003 Annual Stockholders Meeting shareholder accounts should be directed Forward-Looking Statements a weak economy, in which U.S. children’s The 2003 Annual Meeting of to the Company’s transfer agent: This Annual Report contains Stockholders will be held on Tuesday, Mellon Investor Services, LLC book sales were down 6% across the 61% certain forward-looking statements. September 23, 2003, at 9:00 AM, Overpeck Centre 17% Such forward-looking statements are industry. Also, we experienced an adverse at Scholastic’s Corporate Headquarters 85 Challenger Road subject to various risks and uncertainties 557 Broadway, New York, N.Y. 10012 change in our revenue mix: higher-margin Ridgefield, NJ 07660-2108 including the conditions of the Educational Investor Relations 1-800-851-9677 Children’s Publishing children’s book and instructional Harry Potter®revenues declined, offset The Company posts on its Web site at Book Publishing $326 Scholastic Common Stock materials markets and acceptance of by increases in lower-margin revenues & Distribution www.scholastic.com/aboutscholastic/ Scholastic’s Common Stock is traded the Company’s products within those from the prior year’s acquisitions. $1,190 investor/ the date of its upcoming on the NASDAQ Stock Market markets and other risks and factors financial press releases and telephonic Ticker Symbol: SCHL identified from time to time in the analyst call at least five days prior to Company’s filings with the Securities

Photo by © Scott Olson/Getty Images Photo by dissemination. The Company’s investor and Exchange Commission. Actual calls are open to the public and are results could differ materially from available on the Company’s Web site those currently anticipated. after the call. Scholastic began Fiscal 2004 with the record-breaking release of Harry Potter and the Order of the Phoenix, the fifth title in the phenomenal epic, which sold five million copies in its first day alone. While the economy and the bookselling deliver strong profits in Canada and Southeast environment in the U.S. were tough last year, Asia, all of which will benefit us in 2004. our proprietary children’s book distribution Scholastic Entertainment’s channels — school-based Clubs and Fairs, and Clifford The Big Red Dog® Continuity Programs — still showed fundamen- was a top-rated TV series tal strength. We held a record number of Book for children ages 2–5 last Fairs, showed improvement in our Book Clubs in year, and in 2004 our media the spring after a weak winter, and developed presence will expand with successful new Continuity Programs. exciting new series for Clifford®and other In light of last year’s results, we are tackling Scholastic franchises. the issues in our Club and Fair businesses. Our goal for 2004 is to improve the profitability While improving our core businesses is our of these businesses and return them to mid- top priority, we also aim to further reduce to-high single-digit revenue costs while boosting margins and cash flow. growth. Trade publishing Our 2004 plan includes cost reductions will also return to signifi- of $40 million, benefiting from our May 2003 cant growth in revenues staff reduction program and greater efficien- and profits, as we benefit cies. After making large investments to from the success of the strengthen our business in recent years, we fifth title in the Harry Potter expect capital expenditures to decline by series, Harry Potter and the approximately $25 million in 2004, Order of the Phoenix. increasing cash flow.

In other areas, Educational Publishing With a clear strategy focused on our outstanding performed well in 2003 and should beneﬁt content and proprietary distribution channels, from our strategic focus on reading interven- we’ll learn from 2003 and continue to build tion. We continued our international turn- a strong and proﬁtable company, serving our around in 2003, rebuilding in the United customers — parents, teachers and children —

Kingdom and Australia while continuing to even better in the years ahead. Levin Studio 10/Jimmy Photo by

2 Scholastic’s School Book Clubs reach more than one million teachers, providing affordable, fun-to-read books to over 26 million children and their families last year. Trusted Brands and Content In Trade Publishing, the success of the June For over 80 years, teachers, parents and publication of Harry Potter and the Order of the children have trusted the Scholastic name, Phoenix — more than its brands and the titles it publishes. By five million copies were working with the best children’s authors, sold during its first 24 developing the highest quality children’s hours on sale — has content in-house and partnering with creative already significantly innovators in children’s education and boosted our results entertainment, we consistently deliver high- in Fiscal 2004. quality products that help children read and This year we’re also learn. This is an essential part of our strategy publishing more for profitable growth, as seen in our plan for than 600 other new the coming year. books, including Inkheart by Cornelia Funke, two new Captain Underpants®titles by Dav Pilkey, and other titles from strong Scholastic authors, Top-of-Mind Brand Awareness franchises and licensors. We’re also relaunch-

Children’s Books, Magazines and Education* ing the best-selling Goosebumps®series, which is now reaching a new generation.

30% In Educational Publishing, Scholastic’s READ 180® has become one of the 20% most trusted brands

in reading intervention. otal Mentions otal Because of the 10% fundamental importance of literacy to learning — highlighted by the No Child Left Behind Act — Percent Unaided T Unaided Percent 0% we have been less susceptible to declines resulting from unfavorable state adoption cycles and budget cutbacks, especially since

*Survey of U.S. respondents, asked what names come to mind we are addressing the number one issue for when they think of children's books and magazine publishers or companies that provide educational products or services for children. Roper Starch, 2000. which schools are being held accountable: raising reading scores. Photo by Jeffrey Vock © Scholastic Inc. Vock Jeffrey Photo by

4 Scholastic’s READ 180 ®, a scientiﬁcally based program that helps struggling students turn their lives around by improving reading skills, is a leading brand in the fast-growing market for reading intervention. Scholastic Entertainment, which includes Unrivaled Distribution Channels our software and production businesses, As the largest operator of School Book Clubs will continue to be and Fairs in the U.S., a leading provider of a key means of children’s books through Continuity Programs, building and a leading trade sales organization for children’s extending our print books, and a leading seller of library books and brands through other reference and curriculum materials through media. Further an extensive educational sales force, Scholastic building the Clifford possesses unmatched distribution channels. franchise, Scholastic This distribution strength — the second Entertainment is producing CLIFFORD’S REALLY essential element of our strategy — permits us BIG MOVIE™, to be distributed by Warner Bros. to deliver quality products directly to teachers, in 2004, and will launch a new TV series, parents and children. It also allows us to hear Clifford’s Puppy Days™, on PBS in Fall 2003. ﬁrst-hand from our customers what they need We’re beginning production of The Misadventures and want. Combined with our ability to develop of Maya and Miguel™, a TV series for PBS quality brands and content, our proprietary targeted at all children, with an emphasis on channels enable us to build closer customer the growing Hispanic community. We’ll be relationships, develop products that meet cus- building publishing, licensing and merchandising tomers’ needs and achieve higher margin sales. around this show. In School Book Clubs and Fairs, our position remains strong, reinforced U.S. School Book Clubs and Fairs Revenue by concrete plans

$ in Millions to improve revenue

$800 and proﬁt growth in

* 700 the coming year. 600 In School Book 500 Clubs, we’re simpli- 400 fying our promotion 300 and improving beneﬁts 200 for teachers. We’re also 100

0 increasing our presence in the value segment, combining assets of a former competitor with *Compound annual growth rate, FY98-FY03.

6 Scholastic Entertainment will launch the new TV series, Clifford’s Puppy Days ™, on PBS in Fall 2003, building on the popularity of its top-rated TV show, Clifford The Big Red Dog ®,

and continuing to extend 7and strengthen the brand. we have a detailed plan to boost revenue per and is well positioned to meet the current fair while improving operational efficiency to and future needs of school libraries. reduce costs and strengthen customer service. Scholastic’s large international presence — Scholastic’s Continuity Programs will grow with publishing and distribution subsidiaries through diversifying our sources of customer in 15 countries and exports to more than acquisition. By expanding direct mail, Internet 165 countries last year — enables us to and school market channels, we will lessen meet the growing demand outside the U.S. the impact of growing interest for English-language learning and low-cost in “Do Not Call” lists. books in English, Spanish and local This year we’re also languages. We are also expanding our launching several new School Book Clubs and Fairs internationally, continuity programs, in particular in Asia. Additionally, we expect including Nick Jr. and a rebound in our export business after Disney Princess clubs. a decline last year, caused in part by international conflict and SARS. Scholastic’s educational sales organization is another key distribution channel for the The Internet is Company. Our focus on reading intervention growing rapidly as a in Educational Publishing increasingly key content and presents our sales force with the opportunity distribution channel to create reading solutions through combining for Scholastic. reading intervention products with In 2003 Internet- paperbacks, classroom libraries, classroom based revenues magazines, teaching (now included, resources and technology along with related expenses, in the products. While the library operating segments’ financial statements) market is under pressure comprised more than 5% of Scholastic’s from budget cutbacks, sales, as Scholastic.com transitioned from Scholastic has a the developmental to the operational phase. strong editorial and Scholastic.com continues to experience sales capability in strong growth in teacher, child and family

library channels, use, with page views up 60%, to 375 million © Liz Naples Photo by

8 Scholastic develops long-lasting relationships with parents and children through direct-to-home Continuity Programs which reach more than 3 million new families each year with popular brands. per year. The August 2003 issue of Parents reduction in capital expenditures, will improve magazine ranks Scholastic.com as one of cash flow. the three best book and toy e-commerce sites for children and families. We have also Building Value Through Leadership registered more than 380,000 teacher users As a global leader in children’s books, of our Internet site. education and media, Scholastic stands to benefit from continued spending to help Disciplined Financial Plan children read and learn. Our outstanding Our ability to improve margin, profitability brands and content, and our unrivaled and cash flow is a critical aspect of building distribution channels, including the Internet, give a valuable company. As part of our effort us a strong position to expand our children’s to increase margins, we’ve expanded our books, education and media businesses, both cost-reduction target this year to more than in the U.S. and abroad. $40 million in annual savings. The reduction in force, announced in May, which eliminated After last year’s results, our focus is appropri- about 400 positions, mainly in middle and ately on the fundamentals. Yet, Scholastic upper management, will save more than continues to follow its long-term strategy and $15 million this year. Our plan also includes plan, using its leadership in children’s brands continuing cost reductions in our procurement and distribution — combined with a and supply chain, and further steps to control disciplined financial plan — to build a healthcare and other areas of cost increases valuable company for our shareholders, last year. These actions, along with a customers and employees.

Scholastic’s Competitive Strengths and Strategy

Direct Feedback From Teachers, Parents, and Children Richard Robinson

Chairman, President and Chief Executive Ofﬁcer Trusted Proprietary Brands & Distribution August 15, 2003 Content Channels

10 Scholastic, with subsidiaries in 15 countries and exports to more than 165, touches parents, teachers and children across the globe — reaching millions through our proprietary channels and helping children to read through our brands and content. Directors and Ofﬁcers

Directors of the Corporation

Richard Robinson (E) Charles T. Harris III (E, N, R) John G. McDonald (H, S) Chairman of the Board, President, Managing General Partner, Harris The IBJ Professor of Finance, and Chief Executive Ofﬁcer, Capital Partners, L.P. Graduate School of Business, Scholastic Corporation Andrew S. Hedden (E, R) Stanford University Rebeca M. Barrera (N, P) Partner, Coudert Brothers LLP Augustus K. Oliver (A, E, R) President, National Latino Mae C. Jemison (N, P) Managing Director, Children’s Institute Founder and President, Waterview Advisors LLC Ramon C. Cortines (H, N, P,SA) BioSentient Corporation Richard M. Spaulding (E, P,R) Education Consultant Linda B. Keene (A, H, S ) Executive Vice President, John L. Davies (A, H, S) Prinicipal, Waterford Marketing Group Scholastic Corporation Founder and former President, Peter M. Mayer (E, P,H, S) AOL International President and Publisher, Overlook Press/ Peter Mayer Publishers, Inc.

A: Audit Committee N: Nominating Committee S: Stock Grant Committee E: Executive Committee P: Strategic Planning Committee SA: Stock Grant Committee Alternate H: Human Resources and R: Retirement Plan Committee Compensation Committee

Corporate Executive Ofﬁcers

Richard Robinson Margery W. Mayer Ernest B. Fleishman Chairman of the Board, President Executive Vice President and President, Senior Vice President, Education and and Chief Executive Ofﬁcer Scholastic Education Corporate Relations Kevin J. McEnery Hugh R. Roome Beth Ford Executive Vice President and Executive Vice President and President, Senior Vice President, Global Chief Financial Ofﬁcer Scholastic International Operations and Information Deborah A. Forte Richard M. Spaulding Technology Executive Vice President and President, Executive Vice President, Larry V. Holland Scholastic Entertainment Marketing Senior Vice President, Corporate Donna M. Iucolano Judith A. Corman Human Resources and Employee Executive Vice President and President, Senior Vice President, Corporate Services e-Scholastic Communications and Media Relations Karen A. Maloney Barbara A. Marcus Charles B. Deull Vice President and Corporate Executive Vice President and President, Senior Vice President, General Counsel Controller Children’s Book Publishing and and Secretary Distribution

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Scholastic Corporation Corporate and Editorial Offices, 557 Broadway, New York, New York 10012 212-343-6100 Distribution