During fiscal 2012, the Company entered into sublease arrangements for certain leased properties in Manhattan. The fair value of the net rents to $7.0 million inbe received is less than the Company’s lease commitments for these properties over the remaining term of the leases. Accordingly, the Company recognized a loss on these subleases of $6.2 million. In fiscal 2008, also related to2011, the cost reduction initiatives in fiscal 2009.
Company determined the carrying value of its Scholastic Library Publishing and Classroom Magazines business within theClassroom and Supplemental Materials Publishingsegment exceeded the fair value of this reporting unit and recorded an impairment charge of $3.4 million. In fiscal 2010, the Company recorded charges of $43.1$40.1 million for asset impairments consisting of: $36.3 million recorded in theEducationalClassroom and Supplemental Materials Publishingsegment, as the Company implemented certain strategic initiatives during the fiscal year to centralize publishing efforts within theChildren’s Book Publishing and Distributionsegment, including the elimination of the front list for certain library-specific titles within theEducationalClassroom and Supplemental Materials Publishingsegment;segment, and $3.8 million recorded in the Company’sInternationalsegment related to a customer listslist acquired as part of the dissolution of a joint venture in the United Kingdom; and $3.0 million relating to goodwill and other intangible assets of the Company’s direct-to-home toy catalog business recorded in the Company’sMedia, Licensing and Advertisingsegment. In fiscal 2009, the Company recognized a non-cash charge for impairment of goodwill in its UK business of $17.0 million.Kingdom.
The resulting operating income for fiscal 20102012 increased by $58.0$82.3 million or 82.4%, to $128.4$186.3 million, compared to $70.4$104.0 million in the prior fiscal year, principally reflecting the strong results in the Company’sEducational Publishingsegment, compared to the prior fiscal year. In fiscal 2009,2011. The resulting operating income for fiscal 2011 decreased by $143.0$28.2 million, to $70.4$104.0 million, compared to $213.4$132.2 million in fiscal 2010.
Net interest expense for fiscal 2012 was $15.5 million and was relatively flat to the prior fiscal year,2011 net interest expense of $15.6 million. Net interest expense for fiscal 2011 decreased by $0.6 million, to $15.6 million, compared to $16.2 million in fiscal 2010, primarily related to lower debt levels.
In fiscal 2011, the fiscal 2008 release ofHarry Potter and the Deathly Hallows.
Interest expense for fiscal 2010 was $17.8Company recognized a $3.6 million compared to $24.2 million in fiscal 2009 and $32.9 million in fiscal 2008, driven by lower borrowing levels and favorable interest rates.
loss on a UK-based cost method investment. In fiscal 2010, the Company recognized a non-cash loss on a U.S basedU.S.-based cost method investment in the amount of $1.5 million. In fiscal 2009, the Company recognized non-cash unrealized losses on investments in a UK book distribution business and related entities of $13.5 million.
The Company’s provision for income taxes with respect to continuing operations resulted in an effective tax rate of 47.4%36.3%, 61.8%46.1% and 37.0%47.2% for fiscal 2010, 20092012, 2011 and 2008,2010, respectively. The Company’sdecrease in the effective tax rate for fiscal year 2009 exceeds statutory rates as a result2012 was primarily due to the reversal of net operating losses experienced in foreign operations, primarilycertain valuation allowances based on higher profitability in the United Kingdom, for whichUK and across the Company does not expect to realize future tax benefits.Company.
Earnings from continuing operations increased by $45.5$63.2 million to $58.7$108.7 million, compared to $45.5 million in fiscal 2010,2011. Earnings from $13.2continuing operations decreased by $15.5 million, to $45.5 million in fiscal 2009, which decreased by $104.1 million from $117.32011, compared to $61.0 million in fiscal 2008.2010. The basic and diluted earnings from continuing operations per share of Class A Stock and Common Stock were $1.61$3.47 and $1.59,$3.41, respectively, in fiscal 2010, $0.35 in fiscal 2009,2012, $1.36 and $3.03 and $2.99,$1.34, respectively, in fiscal 2008.2011 and $1.67 and $1.65, respectively, in fiscal 2010.
Loss from discontinued operations, net of tax, decreasedincreased by $0.2 million to $2.6a loss of $6.3 million in fiscal 2010,2012, compared to $27.5a loss of $6.1 million in fiscal 20092011. The loss in fiscal 2012 includes an impairment of the Company’s Maumelle facility of $2.2 million and $134.5operational losses from the Company’s discontinued Back to Basics business of $2.1 million. In addition, the Company recognized a liability for the present value of future lease payments due on multiple leases in the Company’s discontinued UK business as the Company believes there is no opportunity for subleasing. Loss from discontinued operations, net of tax, increased by $1.2 million to $6.1 million in fiscal 2008. The higher amount2011, compared to a loss of $4.9 million in fiscal 2008 was substantially due2010. The loss in fiscal 2011 includes the operational losses from the Company’s discontinued Back to Basics business, as well as costs related to the write-downsettlement of certain assets associated with the decision to sell the domestic, Canadian and UK continuities businesses.Canada Grolier Pension Plan.
The resulting net income for fiscal 2012 was $102.4 million, or $3.27 and $3.21 per basic and diluted share, respectively, compared to net income of $39.4 million, or $1.18 and $1.16 per basic and diluted share, respectively, in fiscal 2011. Net income in fiscal 2010 was $56.1 million, or $1.54 and $1.52 per basic and diluted share, respectively, compared to a net loss of $14.3 million, or $0.39 and $0.38 per basic and diluted share, respectively, in fiscal 2009. Net loss in fiscal 2008 was $17.2 million, or $0.44 per basic and diluted share.respectively. The weighted average shares of Class A Stock and Common Stock outstanding, which is used to calculate earnings or loss per share, were lower in fiscal 2011 compared to 2010, 2009 and 2008 primarily due to an accelerateda large share repurchase agreement entered intopursuant to a modified Dutch auction tender offer in fiscal 2011.
Results of Operations – Segments
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
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Revenues | | $ | 1,111.3 | | $ | 922.0 | | $ | 910.6 | | $ | 189.3 | | | 20.5 | % | $ | 11.4 | | | 1.3 | % |
Operating income (loss) | | | 153.0 | | | 78.1 | | | 117.9 | | $ | 74.9 | | | 95.9 | % | $ | (39.8 | ) | | -33.8 | % |
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Operating margin | | | 13.8 | % | | 8.5 | % | | 12.9 | % | | | | | | | | | | | | |
Revenues in theChildren’s Book Publishing and Distribution segment accounted for 51.7% of the Company’s revenues in fiscal 2012, 48.8% in fiscal 2011 and 48.1% in fiscal 2010. In fiscal 2012, segment revenues increased by $189.3 million to $1,111.3 million, compared to $922.0 million in the Corporation on June 1, 2007 (the “ASR”), as more fully discussedprior fiscal year. In fiscal 2011, revenues increased by $11.4 million, to $922.0 million, compared to $910.6 million in Note 10 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.”fiscal 2010.
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ResultsRevenues from school book clubs in fiscal 2012 decreased by $34.7 million to $263.5 million, compared to $298.2 million in the prior fiscal year. Revenues from school book clubs in fiscal 2011 decreased by $6.7 million to $298.2 million, compared to $304.9 million in the prior fiscal year. Both fiscal year declines were related to lower revenue per order, slightly offset by a higher number of Operations – Segmentsorders. During fiscal 2012, the number of book club sponsors declined slightly; however, the Company continues to utilize promotional costs and sponsor incentive programs to optimize the profitability from its sponsor base.
Revenues from the Company’s trade distribution channel increased by $206.3 million to $395.7 million, compared to $189.4 million in fiscal 2011, driven by increased sales, in both print and ebook formats, of theHunger Games trilogy, as well as other titles. In fiscal 2011, trade revenues increased by $14.8 million to $189.4 million, compared to $174.6 million in fiscal 2010 driven by increased sales of ebooks, including theHunger Games trilogy.
Revenues from school book fairs increased by $17.7 million to $452.1 million, compared to $434.4 million in the prior fiscal year, related to both an increase in revenue per fair and an increase in the number of fairs held. Additionally, warehouse sales in fiscal 2012 increased as compared to fiscal 2011. In fiscal 2011, revenues from school book fairs increased by $3.3 million to $434.4 million compared to $431.1 million in fiscal 2010, related to higher revenue per fair and higher fair count, partially offset by lower warehouse sales.
Segment operating income in fiscal 2012 increased by $74.9 million to $153.0 million, compared to $78.1 million in fiscal 2011, driven primarily by the higher revenues in the Company’s trade and school book fair businesses, as well as by decreased promotional expenses in the Company’s school book clubs business. These were partially offset by increased sales tax expense and increased expenses related to the Company’s continued investment in its digital initiatives, as well as higher employee incentive costs associated with higher revenue, increases in reserves for obsolete inventory and the partial impairment of one of the Company’s publishing properties. Segment operating income in fiscal 2011 decreased by $39.8 million to $78.1 million, compared to $117.9 million in fiscal 2010, which was driven primarily by higher promotional spending in the school book clubs business, as well as spending on digital initiatives, partially offset by favorable cost of goods sold in the Company’s book fairs channel.
CEHILDREN’SDUCATIONALB TOOKECHNOLOGYP AUBLISHINGND SANDDISTRIBUTIONERVICES
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| Revenues | | $ | 910.6 | | $ | 940.4 | | $ | 1,187.5 | | | $ | 254.7 | | $ | 230.8 | | $ | 262.8 | | $ | 23.9 | | 10.4 | % | $ | (32.0 | ) | | -12.2 | % |
Operating income | | 117.9 | | 101.8 | | 185.1 | | |
Operating income (loss) | | | 49.2 | | 38.0 | | 71.8 | | $ | 11.2 | | 29.5 | % | $ | (33.8 | ) | | -47.1 | % |
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Operating margin | | 12.9 | % | | 10.8 | % | | 15.6 | % | | 19.3 | % | | 16.5 | % | | 27.3 | % | | | | | | | | | |
Revenues in theChildren’s Book PublishingEducational Technology and DistributionServicessegment accounted for 47.6%11.9% of the Company’s revenues in fiscal 2010, 50.9%2012, 12.2% in fiscal 20092011 and 55.0%13.9% in fiscal 2008.2010. In fiscal 2010,2012 segment revenues increased by $23.9 million to $254.7 million, compared to $230.8 million in fiscal 2011, driven primarily by higher sales of educational technology products and related services, includingRead180 Next Generation products and services which was launched late in fiscal 2011. In fiscal 2011, segment revenues decreased by $29.8$32.0 million or 3.2%, to $910.6$230.8 million, from $940.4compared to $262.8 million in the prior fiscal year. This decrease was2010, primarily due to lower revenues insales of educational technology products and related services compared to theChildren’s Book Publishing and Distributionschool-based book club business, which declined prior year when the Company benefited from the significant impact of federal stimulus funding for education.
In fiscal 2012, segment operating income increased by $36.0$11.2 million to $49.2 million, compared to $38.0 million in the prior fiscal year, related to fewer orders and sponsors, and the prior year benefit from the release ofThe Tales of Beedle the Bard. In fiscal 2009, segmenthigher revenues, decreased by $247.1 million, or 20.8%, from $1,187.5 million in fiscal 2008, primarily related to the fiscal 2008 release ofHarry Potter and the Deathly Hallows.
Revenues from school book fairs accounted for 47.3% of segment revenues in fiscal 2010, compared to 44.2% in fiscal 2009 and 35.5% in fiscal 2008. In fiscal 2010, school book fair revenues increased by $15.3 million, or 3.7%, to $431.1 million, compared to $415.8 million in fiscal 2009, primarily due to higher revenue per fair. In fiscal 2009, school book fair revenues decreased by $6.2 million, or 1.5%, from $422.0 million in fiscal 2008, primarily due to lower revenues from clearance sales as well as lower fair count partially offset by higher revenue per fair.
Revenues from school book clubs accounted for 33.5% of segment revenues in fiscal 2010, compared to 36.3% in fiscal 2009 and 29.2% in fiscal 2008. In fiscal 2010, school book club revenues decreased by $36.0 million, or 10.6%, to $304.9 million, compared to $340.9 million in fiscal 2009, primarily reflecting fewer orders and sponsors, principallyincreased employee related to teacher reassignments at the start of the school year which impacted customer acquisition. In fiscal 2009, school book clubs revenues declined by 1.6%, or $5.6 million, compared to $346.5 million in fiscal 2008, primarily due to lower revenue per order partially offset by an increase in order volume.
The trade distribution channel accounted for 19.2% of segment revenues in fiscal 2010, compared to 19.5% in fiscal 2009 and 35.3% in fiscal 2008. Trade revenues decreased by $9.1 million to $174.6 million in fiscal 2010, compared to $183.7 million in fiscal 2009 when the Company releasedThe Tales of Beedle the Bard. In fiscal 2009, trade revenues decreased by $235.3 million from $419.0 million in fiscal 2008, related to the prior year’s release ofHarry Potter and the Deathly Hallows. Trade revenues for Harry Potter, includingThe Tales of Beedle the Bard, were approximately $25 million, $35 million and $270 million in fiscal 2010, 2009 and 2008, respectively.
Segment operating income in fiscal 2010 increased by $16.1 million, or 15.8%, to $117.9 million, compared to $101.8 million in fiscal 2009. This increase is primarily related to operational improvements in the Company’s school-based book fairs business, favorable returns and reduced bad debt expenses in the Company’s trade business and reduced promotional expenses in the Company’s school-based book clubs business, partially offset by lower school book clubs revenues and an increase in sales tax expense primarily related to a settlement with a taxing authority.
segment. In fiscal 2009,2011, segment operating income decreased by $83.3$33.8 million, or 45.0%,to $38.0 million, from $185.1$71.8 million in fiscal 2008,2010, primarily related to the lower revenues.
CLASSROOM AND SUPPLEMENTAL MATERIALS PUBLISHING
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Revenues | | $ | 208.2 | | $ | 197.2 | | $ | 213.7 | | $ | 11.0 | | | 5.6 | % | $ | (16.5 | ) | | -7.7 | % |
Operating income (loss) | | | 18.3 | | | 13.6 | | | (4.6 | ) | $ | 4.7 | | | 34.6 | % | $ | 18.2 | | | * | |
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Operating margin | | | 8.8 | % | | 6.9 | % | | * | | | | | | | | | | | | | |
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Revenues in theClassroom and Supplemental Materials Publishing segment accounted for 9.7% of the Company’s revenues in fiscal 2012, 10.4% in fiscal 2011 and 11.3% in fiscal 2010. In fiscal 2012, segment revenues increased by $11.0 million to $208.2 million, compared to $197.2 million in the prior fiscal year, driven primarily by higher revenues of $4.8 million in the Company’s tradeclassroom magazines business resulting fromrelated to the fiscal 2008 releaseCompany’s acquisition ofHarry Potter andWeekly Reader. In addition, revenues in the Deathly Hallows.Company’s library publishing business increased over the
EDUCATIONALPUBLISHING
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Revenues | | $ | 476.5 | | $ | 384.2 | | $ | 407.1 | |
Operating income | | | 67.2 | | | 55.8 | | | 65.9 | |
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Operating margin | | | 14.1 | % | | 14.5 | % | | 16.2 | % |
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Revenues inprior fiscal year as theEducational Publishingsegment accounted for 24.9% of the Company’s Company repositioned its library business to meet customer needs by providing more digital content. In fiscal 2011, revenues decreased by $16.5 million to $197.2 million, compared to $213.7 million in fiscal 2010, 20.8%primarily in fiscal 2009 and 18.9% in fiscal 2008. the Company’s library publishing business.
In fiscal 2010, segment revenues increased by $92.3 million, or 24.0%, to $476.5 million, compared to $384.2 million in the prior year. This increase was the result of higher sales of READ 180®, System 44 and other educational technology products and related services in Scholastic Education, along with new adoptions, in particular the California adoption of READ 180 and System 44, the significant impact of federal stimulus funding for education. Revenues in theEducational Publishingsegment declined by $22.9 million to $384.2 million in fiscal 2009, compared to $407.1 million in fiscal 2008, principally driven by lower sales of READ180 in the first quarter of fiscal 2009 as well as lower school classroom and library revenues.
In fiscal 2010,2012, segment operating income increased by $11.4$4.7 million or 20.4%, to $67.2$18.3 million, compared to $55.8$13.6 million in the prior fiscal year, primarily duerelated to the higher revenues partially offset byin the Company’s library publishing business, as well as an impairment charge of $3.4 million taken in fiscal 2011. In fiscal 2011, segment operating income was $13.6 million, which was an increase of $18.2 million, compared to an operating loss of $4.6 million in fiscal 2010. This was primarily related to the fiscal 2010 asset impairment charge of $36.3 million, recorded in the second quarter of fiscal 2010 in connection with the Company’s decision to consolidate supplemental non-fiction and library publishing activities into theChildren’s Book Publishing and Distributionsegment. In fiscal 2009, segment operating income decreased by $10.1 million, or 15.3%, from $65.9 million in fiscal 2008, primarily due to theas well as lower revenues and a non-cashan impairment charge of $3.4 million for fixedcertain assets impairments of $1.4 million, partially offset by lower selling expenses.in the Scholastic Library Publishing and Classroom Magazines business in fiscal 2011.
MEDIA, LICENSINGAND ADVERTISINGMedia, Licensing And Advertising
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Revenues | | $ | 113.8 | | $ | 125.7 | | $ | 114.7 | |
Operating loss | | | (4.2 | ) | | — | | | (2.9 | ) |
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Revenues | | $ | 85.0 | | $ | 93.0 | | $ | 95.1 | | $ | (8.0 | ) | | -8.6 | % | $ | (2.1 | ) | | -2.2 | % |
Operating income (loss) | | | (4.7 | ) | | 3.0 | | | 0.4 | | $ | (7.7 | ) | | * | | $ | 2.6 | | | * | |
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Operating margin | | | * | | | 3.2 | % | | 0.4 | % | | | | | | | | | | | | |
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Revenues in theMedia, Licensing and Advertisingsegment accounted for 6.0%4.0% of the Company’s revenues in fiscal 2010, 6.7%2012, 5.0% in fiscal 20092011 and 5.3%4.9% in fiscal 2008.2010. In fiscal 2010,2012, segment revenues decreaseddeclined by $11.9$8.0 million or 9.5%, to $113.8$85.0 million, from $125.7compared to $93.0 million in fiscal 2009, primarily due to2011, driven by anticipated lower revenues from sales of software and interactive products as well as lower revenues fromin the Company’s direct-to-home toy catalogcustom publishing and magazine advertising businesses, partially offset by increased revenues in the Company’s interactive business. In fiscal 2009,2011, segment revenues increaseddeclined by $11.0$2.1 million or 9.6%, from $114.7to $93.0 million, compared to $95.1 million in fiscal 2008, primarily due to higher revenues from sales2010, as a result of software and interactive products, higherlower revenues in the custom publishingCompany’s interactive business, and higherpartially offset by an increase in revenues in the Company’s production revenues.business.
In fiscal 2010,2012, the segment experiencedhad an operating loss of $4.2$4.7 million, compared to operating income of $3.0 million in fiscal 2011, yielding a reduction in profitability of $7.7 million, primarily related to impairment charges totaling $3.0 million related to the Company’s direct-to-home toy catalog business and lower revenues, as noted above.well as an impairment of one of the Company’s production properties. In fiscal 2009,2011, the segment operating loss was less than $0.1income increased by $2.6 million to $3.0 million, compared to a loss of $2.9$0.4 million in fiscal 2008.2010, related to reduced outside service expenses in fiscal 2011.
INTERNATIONALInternational
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| Revenues | | $ | 412.0 | | $ | 399.0 | | $ | 449.8 | | | $ | 489.6 | | $ | 444.9 | | $ | 412.0 | | $ | 44.7 | | 10.0 | % | $ | 32.9 | | 8.0 | % |
Operating income | | 30.0 | | 7.3 | | 42.3 | | |
Operating income (loss) | | | 57.6 | | 38.3 | | 30.0 | | $ | 19.3 | | 50.4 | % | $ | 8.3 | | 27.7 | % |
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Operating margin | | 7.3 | % | | 1.8 | % | | 9.4 | % | | 11.8 | % | | 8.6 | % | | 7.3 | % | | | | | | | | | |
Revenues in theInternationalsegment accounted for 21.5%22.7% of the Company’s revenues in fiscal 2010, 21.6%2012, 23.6% in fiscal 20092011 and 20.8%21.8% in fiscal 2008.2010. In fiscal 2010,2012, segment revenues increased by $13.0$44.7 million or 3.3%,to $489.6 million, compared to $444.9 million in fiscal 2011. The increase was primarily related to increased revenues in the Company’s UK, Canada and Australia operations, which benefitted from sales of theHunger Games trilogy and other trade titles, as well as a favorable impact of foreign currency exchange rates, principally in Australia, of $9.2 million. In fiscal 2011, segment revenues increased by $32.9 million to $444.9 million, compared to $412.0 million from $399.0 million in the prior fiscal year.2010. This increase was primarily due to the favorable impact of foreign currency exchange rates of $27.2$23.9 million, principally in Australia and Canada, as well as increased sales in Australia and Canada, partially offset by sales declines in Canada of $7.1 million and the United Kingdom of $5.4 million. In fiscal 2009, segment revenues decreased by $50.8 million to $399.0 million, from $449.8 million in fiscal 2008. This decrease was related to the unfavorable impact of foreign currency exchange rates of $62.5 million as well as alower revenue decline in the United Kingdom of $11.6 million, partially offset by revenue growth in Australia and Canada of $13.5 million and $8.0 million, respectively.Kingdom.
Segment operating income in fiscal 20102012 increased by $22.7$19.3 million to $57.6 million, compared to $38.3 million in fiscal 2011, driven primarily by the higher revenues discussed above. Segment operating income in fiscal 2011 increased by $8.3 million to $38.3 million, compared to $30.0 million comparedin fiscal 2010, related to $7.3favorable results in the Company’s Australia operations.
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million in the prior fiscal year, primarily reflecting a non-cash charge for impairment of goodwill of $17.0 million in the UK in the prior year. Restructuring costs in the United Kingdom of $4.7 million were recorded in fiscal 2010. In addition, a $3.8 million non-cash impairment charge in the UK was recorded in the second quarter of fiscal 2010. Segment operating income in fiscal 2009 decreased to $7.3 million, from $42.3 million in fiscal 2008, primarily due to lower operating income in the United Kingdom, including the above mentioned non-cash charge, as well as the unfavorable impact of foreign currency exchange rates of $12.1 million.
Liquidity and Capital Resources
The Company’s cash and cash equivalents, including the cash of the discontinued operations, totaled $194.9 million at May 31, 2012, $105.3 million at May 31, 2011 and $244.1 million at May 31, 2010, compared to $143.6 million at May 31, 2009 and $120.4 million at May 31, 2008.2010.
Cash provided by operating activities improved by $87.2 million to $275.8was $260.2 million for the year ended May 31, 2010,fiscal 2012, an increase of $31.8 million, compared to $188.6$228.4 million at May 31, 2009. In addition tofor fiscal 2011. This increase was primarily driven by the increase in net income adjusted forfrom continuing operations adding back the effect of non-cash itemscharges of $69.3 million,$61.6 million.
The increase in cash provided by operating activities was partially offset by net changes in the $87.2 million improvement was primarily related to favorableCompany’s working capital changesaccounts, which includedyielded a cash use of $24.9 million in fiscal 2012, compared to a source of cash of $12.5 million in the following:prior fiscal year. This net change of $37.4 million was driven primarily by:
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| • | A $5.6Increases in accounts receivable balances which resulted in a use of cash of $108.9 million increase in deferred revenue for the year ended May 31, 2010,fiscal 2012, compared to increases in accounts receivable balance in the prior fiscal year which resulted in a decreaseuse of $0.5 million for the year ended May 31, 2009, resulting in an improvementcash of $6.1$12.6 million. The net change of $96.3 million in cash provided by operating activities.use was primarily related to the increased revenues in theChildren’s Book Publishing and Distribution segment. The Company expects to collect a large portion of these receivables in the first half of fiscal 2013.
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| • | Increased inventory purchases in fiscal 2012 which resulted in a net cash use of $40.4 million, compared to increases in inventory balances in fiscal 2011 which resulted in a cash use of $9.8 million. The net increase of $30.6 million in cash use was primarily in theChildren’s Book Publishing and Distribution segment. |
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| • | A $3.4 million decrease in inventories foraccounts payable balances of $0.3 million in fiscal 2012, compared to an increase of $19.1 million in the year ended May 31, 2010,prior fiscal year. The net change yielded a cash use of $19.4 million related primarily to the timing of payments. |
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| • | A decrease in deferred revenue of $1.7 million in fiscal 2012 compared to an increase in inventoriesdeferred revenue of $25.8$8.7 million in the prior fiscal year, which yielded a cash use of $10.4 million primarily related to services related deferred revenue in the Company’sEducational Technology and Services segment. |
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Partially offset by: |
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| • | Increased accrued royalty balances, which resulted in a source of cash of $58.2 million for the year ended May 31, 2009, resultingfiscal 2012 as compared to decreased accrued royalty balances which resulted in an improvementa use of $29.2cash of $8.3 million in fiscal 2011. The increase of $66.5 million in cash provided by operating activitiessources from fiscal 2011 to fiscal 2012 was related to royalties associated with the increase in revenues from sales of trade books in both print and ebook formats, which are expected to be paid in the first half of fiscal 2013. |
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| • | Increased Other accrued expenses which resulted in a source of cash of $64.7 million in fiscal 2010.2012, compared to increases in Other accrued expenses which resulted in cash sources of $15.9 million in fiscal 2011. This increase of $48.8 million in source of cash was primarily related to increased income tax accruals and increased employee-related expense accruals associated with higher revenues, which will be paid early in fiscal 2013, as well as increased sales tax accruals. |
Cash providedused in investing activities for fiscal 2012 decreased by operating activities is expected$19.8 million to be negatively impacted in fiscal 2011$121.3 million, compared to fiscal 2009 and fiscal 2010, as income tax payments in fiscal 2011 will be significantly higher than the prior two years and bonuses accrued in fiscal 2010 will be paid in fiscal 2011.
Net cash used in investing activities increased by $31.6 million to $105.0of $141.1 million for the fiscal year ended May 31, 2010, from $73.4 million in the prior fiscal year.2011. This increasedecrease was primarily due to $33.0the $24.3 million purchase, in proceeds having been received fromfiscal 2011, of the sale of businessesland on which the Company’s corporate headquarters are located. The Company’s fiscal 2012 prepublication costs and property, plant and equipment reflect continued investments in the priorCompany’s digital initiatives.
Cash used in financing activities in fiscal year.
Net2012 decreased by $183.1 million to $47.4 million, compared to cash used in financing activities decreased by $15.4 million to $70.9 million in fiscal 2010, compared2011 of $230.5 million. The change was primarily due to $86.3 millionthe completion of a large share repurchase pursuant to a modified Dutch auction tender offer in the prior year period. In addition, the Company had higher proceeds related to stock-based compensation plans, as well as lower debt paydowns, in fiscal 2009. The decrease in the use of cash primarily reflects reduced funds expended for the reacquisition of the Corporation’s Common Stock in fiscal 2010.2012.
Due to the seasonality of its businesses, as discussed in Item 1, “Business —- Seasonality,” the Company typically experiences negative cash flow in the June through October time period. As a result of the Company’s business cycle, seasonal borrowings have historically increased during June, July and August, have generally peaked in September and October, and have declined to their lowest levels in May.
The Company’s operating philosophy is to use cash provided from operating activities to create value by paying down debt, to reinvest in existing businesses and, from time to time, to make acquisitions that will complement its portfolio of businesses and to engage in shareholder enhancement initiatives, such as dividend declarations and share purchases.repurchases. The Company believes that cash on hand, funds generated by its
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operations and funds available under its current credit facilities, after the anticipated use of the credit facility to satisfy its repayment obligations in respect of the 5% notes due in fiscal 2013, will be sufficient to finance its short-andshort- and long-term capital requirements.
Despite the current economic conditions, theThe Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund on-going operations, including pension contributions, dividends, currently authorized common share repurchases, debt service, planned capital expenditures and other investments. As of May 31, 2010,2012, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $244.1$194.9 million, cash from operations and borrowings remaining available under the Revolving Loan (as described under “Financing” below) totaling $325.0 million. Approximately 63% ofmillion, less the Company’s
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$152.8 million anticipated to be utilized to satisfy the outstanding debt is not due until fiscal year 2013, and the remaining 37% is spread ratably over each preceding period.5% Notes. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million). Accordingly, the Company believes these sources of liquidity are sufficient to finance its on-going operating needs, as well as its financing and investing activities.
In March 2009, theThe Company’s credit rating was reduced to “BB-” byfrom Standard & Poor’s Rating ServicesRatings Service is “BB-” and “Ba2” byits credit rating from Moody’s Investors Service.Service is “Ba1.” Both agencies hadMoody’s Investors Service and Standard and Poor’s Ratings Service have rated the outlook for the Company as “Stable”. In February 2010, Moody’s Investors Service changed“Stable.” The Company is currently compliant with its debt covenants and expects to remain compliant for the Company’s rating outlook from “Stable” to “Positive.”foreseeable future. The Company’s interest rates for the Loan Agreement are associated with certain leverage ratios, and, accordingly, a change in the Company’s credit rating does not result in an increase or decrease in interest costs under the Company’s Loan Agreement.
The Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2012, to extend the maturity date to June 1, 2014. The Company intends to draw on this credit facility to satisfy its repayment obligations in respect of the 5% Notes due April 2013.
The following table summarizes, as of May 31, 2010,2012, the Company’s contractual cash obligations by future period (see Notes 45, 6 and 512 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”):
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| | Payments Due by Period | | | amounts in millions | |
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Contractual Obligations(1) | | 1 Year
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Contractual Obligations | | | 1 Year or Less | | Years 2-3 | | Years 4-5 | | After Year 5 | | Total | |
| Minimum print quantities | | $ | 46.2 | | $ | 95.3 | | $ | 99.3 | | $ | 267.3 | | $ | 508.1 | | | $ | 60.0 | | $ | 123.4 | | $ | 100.8 | | $ | 160.5 | | $ | 444.7 | |
Royalty advances | | 7.4 | | 2.7 | | 0.5 | | — | | 10.6 | | | 7.1 | | 1.5 | | 0.4 | | — | | 9.0 | |
Lines of credit and short-term debt | | 7.5 | | — | | — | | — | | 7.5 | | | 6.5 | | — | | — | | — | | 6.5 | |
Capital leases(2) | | 5.9 | | 11.9 | | 10.2 | | 196.2 | | 224.2 | | |
Debt(2) | | 50.0 | | 216.7 | | — | | — | | 266.7 | | |
Pension and post-retirement plans | | 21.4 | | 27.6 | | 26.5 | | 65.5 | | 141.0 | | |
Capital leases(1) | | | 6.0 | | 10.5 | | 11.0 | | 185.2 | | 212.7 | |
Debt(1) (2) | | | 6.7 | | 153.0 | | — | | — | | 159.7 | |
Pension and post-retirement plans(3) | | | 17.8 | | 33.9 | | 28.7 | | 64.8 | | 145.2 | |
Operating leases | | 35.3 | | 58.2 | | 37.8 | | 55.7 | | 187.0 | | | 38.3 | | 58.1 | | 38.6 | | 54.4 | | 189.4 | |
| Total | | $ | 173.7 | | $ | 412.4 | | $ | 174.3 | | $ | 584.7 | | $ | 1,345.1 | | | $ | 142.4 | | $ | 380.4 | | $ | 179.5 | | $ | 464.9 | | $ | 1,167.2 | |
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(1) | Obligations for income tax uncertainties pursuant to ASC 740 of approximately $30.6 are not included in the table.Includes principal and interest.
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(2) | Includes principal and interest.The draw on Revolving Loan anticipated to be utilized by the Company to satisfy its obligations for the 5% Notes.
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(3) | Excludes expected Medicare Part D subsidy receipts. |
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Financing
Loan Agreement
On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) elected to replace the Company’s then-existing credit facilities withentered into a new $525.0 million credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 million revolving credit component (the “Revolving Loan”) and a $200.0 million amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured creditwas amended on August 16, 2010, and again on October 25, 2011. The October 25, 2011 amendment extended the maturity of the Revolving Loan facility that is scheduled to expire on June 1, 2012.2014 from June 1, 2012 and provided for the repayment of the outstanding balance of the Term Loan on October 25, 2011. The $325.0 million Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0 million. The $200.0 million Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to an Accelerated Share Repurchase Agreement (as more fully described in Note 10 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”) and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7 million, with the first payment made on December 31, 2007, and a final payment of $7.4 million due on June 1, 2012.
Interest on both the Term Loan and Revolving Loan is due and payable in
31
arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). AtThe interest pricing under the Revolving Loan is dependent upon the Borrower’s election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate that is either:
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| • | A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1% plus an applicable spread ranging from 0.18% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
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| • | A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
As of May 31, 2012, the higher of (a)indicated spread on Base Rate Advances was 0.25% and the prime rate or (b) the prevailing Federal Funds rate plus 0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250%indicated spread on Eurodollar Rate Advances was 1.25%, both based on the Company’s prevailing consolidated debt to total capital ratio. As of May 31, 2010, the applicable margin on the Term Loan was 0.750 % and the applicable margin on the Revolving Loan was 0.600%; at May 31, 2009, the applicable margin on the Term Loan was 0.875% and the applicable margin on the Revolving Loan was 0.700%.
The Loan Agreement also provides for the payment of a facility fee ranging from 0.125%0.20% to 0.250%0.40% per annum onbased upon the Revolving Loan only, which atCompany’s prevailing consolidated debt to total capital ratio. At May 31, 20102012, the facility fee rate was 0.150% and at May 31, 2009 was 0.175%0.25%. As of May 31, 2010, $93.0 million was outstanding under the Term Loan at an interest rate of 1.1%; at May 31, 2009, $135.8 million was outstanding under the Term Loan at an interest rate of 1.2%.
There were no outstanding borrowings under the Revolving Loan as of May 31, 20102012 and May 31, 2009. 2011.
As of May 31, 2010, there was $0.4 million of outstanding2012, standby letters of credit issuedoutstanding under the Loan Agreement.Agreement totaled $1.4 million. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at May 31, 20102012, the Company was in compliance with these covenants.
In November 2009 and May 2009, theLines of Credit
The Company entered intohas unsecured money market bid rate credit lines totaling $20.0 million and $20.0 million, respectively.million. There were no outstanding borrowings under these credit lines at May 31, 20102012 and May 31, 2009.2011. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days, for fiscal 2010 and 180 days for fiscal 2009.days. These credit lines may be renewed, if requested by the Company, at the sole option of the lender.
As of May 31, 2010,2012, the Company also had various local currency credit lines, with maximum available borrowings in amounts equivalent to $28.2$32.8 million, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to $7.5$6.5 million at May 31, 20102012 at a weighted average interest rate of 3.9%5.3%, compared to the equivalent of $10.9$0.7 million at May 31, 20092011 at a weighted average interest rate of 3.3%6.7%.
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 million of 5% Notes (the “5% Notes”). In December 2008,The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company recapitalizedmay at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption. The Company did not make any additional repurchases of the 5% Notes during 2012. The Company amended its United Kingdom operations via a cash contributionexisting revolving credit facility, which was scheduled to mature on June 1, 2012, to extend the maturity date to June 1, 2014. The Company intends to draw on this credit facility to satisfy its obligations for the 5% Notes due April 2013. Accordingly, the balance of the Notes is excluded from current liabilities and classified as Long-term debt on the Company’s domestic operations, due to the cancellationConsolidated Balance Sheet as of the local currency credit line in the United Kingdom.May 31, 2012.
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At May 31, 2010,2012 and May 31, 2011, the Company had open standby letters of credit of $7.2totaling $6.6 million issued under certain credit lines, compared to $7.4including the $1.4 million as of May 31, 2009.under the Loan Agreement discussed above. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.
The Company’s total debt obligations were $252.8$159.3 million at May 31, 20102012 and $303.7$203.4 million at May 31, 2009.2011. The lower level of debt at May 31, 20102012 compared to the level at May 31, 20092011 was primarily due to repayments made on the Term Loan and repurchases of the Company’s 5% Notes on the open market.Loan.
For a more complete description of the Company’s debt obligations, see Note 45 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.”
Acquisitions
In the ordinary course of business, the Company explores domestic and international expansion opportunities, including potential niche and strategic acquisitions. As part of this process, the Company engages with interested parties in discussions concerning possible transactions. On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners. The Company has integrated this business into itsInternational segment. On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K – 12. The Company has included this business in itsClassroom and Supplemental Materials Publishing segment (see Note 2 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”). The Company will continue to evaluate such opportunities and prospects.
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Item 7A | Quantitative and Qualitative Disclosures about Market Risk
The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates.
Additionally, the Company sells product from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts, which were not significant as of May 31, 2010.2012. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.
Market risks relating to the Company’s operations result primarily from changes in interest rates, which are managed through the mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments, including swap agreements, have been used to manage interest rate exposures. Approximately 40%4% of the Company’s debt at May 31, 20102012 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately 48%25% at May 31, 2009.2011. The decrease in variable-rate debt as of May 31, 20102012 compared to May 31, 20092011 was primarily due to repayments made on the Term Loan. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.
Additional information relating to the Company’s outstanding financial instruments is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The following table sets forth information about the Company’s debt instruments as of May 31, 20102012 (see Note 45 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”):
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| | | | | | | | | | | | | | | $ amounts in millions |
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| | Fiscal Year Maturity | | Fair Value | |
| | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | 2010 | |
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Debt Obligations | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit and short-term debt | | $ | 7.5 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 7.5 | | $ | 7.5 | |
Average interest rate | | | 3.9 | % | | | | | | | | | | | | | | | | | | |
Long-term debt, including Current portion: | | | | | | | | | | | | | | | | | | | | | | |
Fixed-rate debt | | $ | — | | $ | — | | $ | 153.0 | | $ | — | | $ | — | | $ | 153.0 | | $ | 151.3 | |
Average interest rate | | | | | | | | | 5.0 | % | | | | | | | | | | | | |
Variable-rate debt | | $ | 42.8 | | $ | 42.8 | | $ | 7.4 | (1) | $ | — | | $ | — | | $ | 93.0 | | $ | 93.0 | |
Interest rate(2) | | | 1.1 | % | | 1.1 | % | | 1.1 | % | | | | | | | | | | | | |
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(1)
| Represents the final payment under the Term Loan, which has a final maturity of June 1, 2012 but may be repaid at any time.
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(2)
| Represents the interest rate under the Term Loan at May 31, 2010; the interest rate is subject to change over the life of the Term Loan.
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$ amounts in millions |
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| | Fiscal Year Maturity | | | | | | Fair Value | |
| | 2013 | | 2014 | | 2015 | | 2016 | | Thereafter | | Total | | 2012 | |
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Debt Obligations | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit and short-term debt | | $ | 6.5 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 6.5 | | $ | 6.5 | |
Average interest rate | | | 5.3 | % | | — | | | — | | | — | | | — | | | | | | | |
Long-term debt, including Current portion: | | | | | | | | | | | | | | | | | | | | | | |
Fixed-rate debt | | $ | — | | $ | — | | $ | 153.0 | | $ | — | | $ | — | | $ | 153.0 | | $ | 155.4 | |
Average interest rate | | | — | | | — | | | 5.0 | % | | — | | | — | | | | | | | |
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Item 8 | Consolidated Financial Statements and Supplementary Data
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Consolidated Statements of Operations for the years ended May 31, 2010, 20092012, 2011 and 20082010 | | 3533
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Consolidated Balance Sheets at May 31, 20102012 and 20092011 | | 3634
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Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss) for the years ended May 31, 2010, 20092012, 2011 and 20082010 | | 3836
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Consolidated Statements of Cash Flows for the years ended May 31, 2010, 20092012, 2011 and 20082010 | | 4038
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Notes to Consolidated Financial Statements | | 4240
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Reports of Independent Registered Public Accounting Firm | | 7375
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Supplementary Financial Information - Summary of Quarterly Results of Operations | | 7577
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The following consolidated financial statement schedule for the years ended May 31, 2010, 20092012, 2011 and 20082010 is filed with this annual report on Form 10-K: | | |
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Schedule II — Valuation and Qualifying Accounts and Reserves | | S-2 |
All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto.
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CoConsolidatednsolidated Statements of Operations
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(Amounts in millions, except per share data)
For fiscal years ended May 31, | | |
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For fiscal years ended May 31, |
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Revenues | | $ | 1,912.9 | | $ | 1,849.3 | | $ | 2,159.1 | | | $ | 2,148.8 | | $ | 1,887.9 | | $ | 1,894.2 | |
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Operating costs and expenses: | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation) | | 859.8 | | 881.7 | | 1,042.3 | | | 989.2 | | 873.7 | | 848.6 | |
Selling, general and administrative expenses | | 803.4 | | 777.2 | | 825.6 | | | 870.3 | | 826.4 | | 795.1 | |
Bad debt expense | | 9.5 | | 15.8 | | 8.6 | | | 12.3 | | 13.6 | | 9.5 | |
Depreciation and amortization | | 59.5 | | 60.7 | | 62.2 | | | 68.8 | | 60.1 | | 59.5 | |
Severance | | 9.2 | | 26.5 | | 7.0 | | | 14.9 | | 6.7 | | 9.2 | |
Impairment charge | | 43.1 | | 17.0 | | — | | |
Loss on leases and asset impairments | | | 7.0 | | 3.4 | | 40.1 | |
| Total operating costs and expenses | | 1,784.5 | | 1,778.9 | | 1,945.7 | | | 1,962.5 | | 1,783.9 | | 1,762.0 | |
| Operating income | | 128.4 | | 70.4 | | 213.4 | | | 186.3 | | 104.0 | | 132.2 | |
Other income | | 0.9 | | 0.7 | | 2.6 | | |
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Other income (expense) | | | (0.1 | ) | | (0.4 | ) | | 0.9 | |
Interest income | | 1.6 | | 1.2 | | 3.1 | | | 1.0 | | 1.5 | | 1.6 | |
Interest expense | | (17.8 | ) | | (24.2 | ) | | (32.9 | ) | | (16.5 | ) | | (17.1 | ) | | (17.8 | ) |
Loss on investments | | (1.5 | ) | | (13.5 | ) | | — | | | — | | (3.6 | ) | | (1.5 | ) |
| Earnings from continuing operations before income taxes | | 111.6 | | 34.6 | | 186.2 | | |
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Earnings (loss) from continuing operations before income taxes | | | 170.7 | | 84.4 | | 115.4 | |
Provision for income taxes | | 52.9 | | 21.4 | | 68.9 | | | 62.0 | | 38.9 | | 54.4 | |
| Earnings from continuing operations | | 58.7 | | 13.2 | | 117.3 | | |
Earnings (loss) from continuing operations | | | 108.7 | | 45.5 | | 61.0 | |
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Loss from discontinued operations, net of tax | | (2.6 | ) | | (27.5 | ) | | (134.5 | ) | |
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Earnings (loss) from discontinued operations, net of tax | | | (6.3 | ) | | (6.1 | ) | | (4.9 | ) |
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Net income (loss) | | $ | 56.1 | | $ | (14.3 | ) | $ | (17.2 | ) | | $ | 102.4 | | $ | 39.4 | | $ | 56.1 | |
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Basic and diluted earnings (loss) per share of Class A and Common Stock | | | | | | | | | | | | | | |
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Basic: | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.61 | | $ | 0.35 | | $ | 3.03 | | |
Loss from discontinued operations | | $ | (0.07 | ) | $ | (0.74 | ) | $ | (3.47 | ) | |
Earnings (loss) from continuing operations | | | $ | 3.47 | | $ | 1.36 | | $ | 1.67 | |
Earnings (loss) from discontinued operations | | | $ | (0.20 | ) | $ | (0.18 | ) | $ | (0.13 | ) |
Net income (loss) | | $ | 1.54 | | $ | (0.39 | ) | $ | (0.44 | ) | | $ | 3.27 | | $ | 1.18 | | $ | 1.54 | |
Diluted: | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.59 | | $ | 0.35 | | $ | 2.99 | | |
Loss from discontinued operations | | $ | (0.07 | ) | $ | (0.73 | ) | $ | (3.43 | ) | |
Earnings (loss) from continuing operations | | | $ | 3.41 | | $ | 1.34 | | $ | 1.65 | |
Earnings (loss) from discontinued operations | | | $ | (0.20 | ) | $ | (0.18 | ) | $ | (0.13 | ) |
Net income (loss) | | $ | 1.52 | | $ | (0.38 | ) | $ | (0.44 | ) | | $ | 3.21 | | $ | 1.16 | | $ | 1.52 | |
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Dividends declared per common share | | $ | 0.30 | | $ | 0.30 | | $ | — | | | $ | 0.45 | | $ | 0.35 | | $ | 0.30 | |
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See accompanying notes
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(Amounts in millions, except share data)
Balances at May 31, |
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ASSETS | | 2012 | | 2011 | |
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Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 194.9 | | $ | 105.3 | |
Accounts receivable (less allowance for doubtful accounts of $25.9 at May 31, 2012 and $22.3 at May 31, 2011) | | | 314.1 | | | 220.3 | |
Inventories | | | 295.3 | | | 308.7 | |
Deferred income taxes | | | 71.4 | | | 56.2 | |
Prepaid expenses and other current assets | | | 47.2 | | | 57.1 | |
Current assets of discontinued operations | | | 7.0 | | | 10.5 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Total current assets | | | 929.9 | | | 758.1 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Property, Plant and Equipment | | | | | | | |
Land | | | 37.2 | | | 37.1 | |
Buildings | | | 101.3 | | | 102.0 | |
Capitalized software | | | 217.9 | | | 234.0 | |
Furniture, fixtures and equipment | | | 244.3 | | | 245.8 | |
Leasehold improvements | | | 183.4 | | | 181.4 | |
|
|
|
|
|
|
|
|
| | | 784.1 | | | 800.3 | |
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization | | | (456.9 | ) | | (461.3 | ) |
|
|
|
|
|
|
|
|
Net property, plant and equipment | | | 327.2 | | | 339.0 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Other Assets and Deferred Charges: | | | | | | | |
| | | | | | | |
Prepublication costs | | | 125.8 | | | 117.7 | |
Royalty advances (less allowance for reserves of $77.8 at May 31, 2012 and $71.8 at May 31, 2011) | | | 34.8 | | | 35.5 | |
Production costs | | | 1.6 | | | 7.4 | |
Goodwill | | | 157.7 | | | 154.2 | |
Other intangibles | | | 16.7 | | | 19.8 | |
Noncurrent deferred income taxes | | | 42.3 | | | 20.2 | |
Other assets and deferred charges | | | 34.3 | | | 35.1 | |
|
|
|
|
|
|
|
|
Total other assets and deferred charges | | | 413.2 | | | 389.9 | |
|
|
|
|
|
|
|
|
Total assets | | $ | 1,670.3 | | $ | 1,487.0 | |
|
|
|
|
|
|
|
|
See accompanying notes
- 34 -
| | | | | | | |
|
|
|
|
|
|
|
|
| | | | | | | |
(Amounts in millions, except share data)
Balances at May 31, |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | 2012 | | 2011 | |
|
|
|
|
|
|
| | | | | | | |
Current Liabilities: | | | | | | | |
Lines of credit and current portion of long-term debt | | $ | 6.5 | | $ | 43.5 | |
Capital lease obligations | | | 1.0 | | | 0.5 | |
Accounts payable | | | 119.6 | | | 120.1 | |
Accrued royalties | | | 92.7 | | | 35.4 | |
Deferred revenue | | | 47.1 | | | 49.1 | |
Other accrued expenses | | | 233.5 | | | 173.3 | |
Current liabilities of discontinued operations | | | 2.1 | | | 0.8 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Total current liabilities | | | 502.5 | | | 422.7 | |
| | | | | | | |
Noncurrent Liabilities: | | | | | | | |
Long-term debt | | | 152.8 | | | 159.9 | |
Capital lease obligations | | | 56.4 | | | 55.0 | |
Other noncurrent liabilities | | | 128.3 | | | 109.4 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Total noncurrent liabilities | | | 337.5 | | | 324.3 | |
| | | | | | | |
Commitments and Contingencies: | | | — | | | — | |
| | | | | | | |
Stockholders’ Equity: | | | | | | | |
Preferred Stock, $1.00 par value Authorized - 2,000,000; Issued - None | | | — | | | — | |
Class A Stock, $.01 par value Authorized - 4,000,000; Issued and Outstanding - 1,656,200 shares | | | 0.0 | | | 0.0 | |
Common Stock, $.01 par value Authorized - 70,000,000; Issued - 42,911,624 shares; Outstanding - 29,795,911 shares (42,911,624 shares issued and 29,316,691 shares outstanding at May 31, 2011) | | | 0.4 | | | 0.4 | |
Additional paid-in capital | | | 583.0 | | | 576.6 | |
Accumulated other comprehensive income (loss) | | | (74.2 | ) | | (53.9 | ) |
Retained earnings | | | 723.9 | | | 635.8 | |
Treasury stock at cost | | | (402.8 | ) | | (418.9 | ) |
|
|
|
|
|
|
|
|
Total stockholders’ equity | | | 830.3 | | | 740.0 | |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity | | $ | 1,670.3 | | $ | 1,487.0 | |
|
|
|
|
|
|
|
|
See accompanying notes
- 35 -
|
|
|
ConsConolidated Balance Sheetssolidated Statement of Changes in Stockholders’
Equity and Comprehensive Income (Loss)
|
| | | | | | | |
|
|
|
|
|
|
ASSETS | | 2010 | | 2009 | |
|
|
|
|
|
|
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 244.1 | | $ | 143.6 | |
Accounts receivable (less allowance for doubtful accounts of $18.5 at May 31, 2010 and $15.2 at May 31, 2009) | | | 212.5 | | | 197.4 | |
Inventories | | | 315.7 | | | 344.8 | |
Deferred income taxes | | | 59.3 | | | 62.7 | |
Prepaid expenses and other current assets | | | 42.5 | | | 40.3 | |
Current assets of discontinued operations | | | 20.4 | | | 31.0 | |
|
|
|
|
|
|
|
|
Total current assets | | | 894.5 | | | 819.8 | |
|
|
|
|
|
|
|
|
| |
Property, Plant and Equipment | | | | | | | |
Land | | | 11.0 | | | 10.6 | |
Buildings | | | 92.2 | | | 92.0 | |
Capitalized software | | | 213.8 | | | 199.1 | |
Furniture, fixtures and equipment | | | 227.1 | | | 249.7 | |
Leasehold improvements | | | 177.6 | | | 179.6 | |
|
|
|
|
|
|
|
|
| | | 721.7 | | | 731.0 | |
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization | | | (412.6 | ) | | (415.6 | ) |
|
|
|
|
|
|
|
|
Net property, plant and equipment | | | 309.1 | | | 315.4 | |
|
|
|
|
|
|
|
|
| |
Other Assets and Deferred Charges: | | | | | | | |
Prepublication costs | | | 110.7 | | | 121.5 | |
Royalty advances (less allowance for reserves of $68.9 at May 31, 2010 and $72.6 at May 31, 2009) | | | 38.0 | | | 41.5 | |
Production costs | | | 7.1 | | | 6.0 | |
Goodwill | | | 156.6 | | | 157.0 | |
Other intangibles | | | 15.5 | | | 46.8 | |
Other assets and deferred charges | | | 68.9 | | | 100.8 | |
|
|
|
|
|
|
|
|
Total other assets and deferred charges | | | 396.8 | | | 473.6 | |
|
|
|
|
|
|
|
|
Total assets | | $ | 1,600.4 | | $ | 1,608.8 | |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
(Amounts in millions, except share data) |
|
|
|
|
|
|
|
|
| | | | | | Additional
Paid-in
Capital | |
| | Class A Stock | | Common Stock | | |
| | Shares | | Amount | | Shares | | Amount | | |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009 | | | 1,656,200 | | $ | 0.0 | | | 34,740,275 | | $ | 0.4 | | $ | 552.9 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of $(9.1)) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 14.0 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 134,045 | | | — | | | 3.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (411,977 | ) | | — | | | — | |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 135,915 | | | — | | | (0.9 | ) |
Dividends | | | — | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2010 | | | 1,656,200 | | $ | 0.0 | | | 34,598,258 | | $ | 0.4 | | $ | 569.2 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of $4.0) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 13.7 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 104,100 | | | — | | | 2.9 | |
Purchases of treasury stock at cost | | | — | | | — | | | (5,588,125 | ) | | — | | | — | |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 202,458 | | | — | | | (9.2 | ) |
Dividends | | | — | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2011 | | | 1,656,200 | | $ | 0.0 | | | 29,316,691 | | $ | 0.4 | | $ | 576.6 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of $(6.5)) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 12.2 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 724,613 | | | — | | | 22.4 | |
Purchases of treasury stock at cost | | | — | | | — | | | (475,672 | ) | | — | | | — | |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 230,279 | | | — | | | (28.2 | ) |
Dividends | | | — | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2012 | | | 1,656,200 | | $ | 0.0 | | | 29,795,911 | | $ | 0.4 | | $ | 583.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
- 36
| | | | | | | |
|
|
| |
(Amounts in millions, except share data)
Balances at May 31, | |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | 2010 | | 2009 | |
|
|
|
|
|
|
Current Liabilities: | | | | | | | |
Lines of credit and current portion of long-term debt | | $ | 50.3 | | $ | 53.7 | |
Capital lease obligations | | | 0.9 | | | 3.4 | |
Accounts payable | | | 101.0 | | | 128.2 | |
Accrued royalties | | | 42.3 | | | 41.7 | |
Deferred revenue | | | 39.8 | | | 34.2 | |
Other accrued expenses | | | 155.2 | | | 138.9 | |
Current liabilities of discontinued operations | | | 3.9 | | | 7.3 | |
|
|
|
|
|
|
|
|
Total current liabilities | | | 393.4 | | | 407.4 | |
|
|
|
|
|
|
|
|
Noncurrent Liabilities: | | | | | | | |
Long-term debt | | | 202.5 | | | 250.0 | |
Capital lease obligations | | | 55.0 | | | 54.5 | |
Other noncurrent liabilities | | | 119.1 | | | 111.9 | |
|
|
|
|
|
|
|
|
Total noncurrent liabilities | | | 376.6 | | | 416.4 | |
|
|
|
|
|
|
|
|
| | | | | | | |
Commitments and Contingencies: | | | — | | | — | |
| | | | | | | |
Stockholders’ Equity: | | | | | | | |
Preferred Stock, $1.00 par value Authorized - 2,000,000; Issued - None | | | — | | | — | |
Class A Stock, $.01 par value Authorized - 4,000,000; Issued and Outstanding 1,656,200 shares | | | | | | | |
Common Stock, $.01 par value Authorized - 70,000,000 shares; Issued - 42,911,624; Outstanding - 34,598,258 (42,911,624 shares issued and 34,740,275 outstanding at May 31, 2009) | | | 0.4 | | | 0.4 | |
Additional paid-in capital | | | 569.2 | | | 552.9 | |
Accumulated other comprehensive loss | | | (85.4 | ) | | (77.1 | ) |
Retained earnings | | | 607.8 | | | 562.8 | |
Treasury stock at cost | | | (261.6 | ) | | (254.0 | ) |
|
|
|
|
|
|
|
|
Total stockholders’ equity | | | 830.4 | | | 785.0 | |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity | | $ | 1,600.4 | | $ | 1,608.8 | |
|
|
|
|
|
|
|
|
37
| |
|
|
Consolidated Statement of Changes in Stockholders’
|
Equity and Comprehensive Income (Loss)
| |
(Amounts in millions, except share data)
| | | | | | | | | | | | | | | | |
|
|
| | | | | | Additional
Paid-in
Capital | |
| | Class A Stock | | Common Stock | | |
| | Shares | | Amount | | Shares | | Amount | | |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2007 | | | 1,656,200 | | $ | 0.0 | | | 41,422,121 | | $ | 0.4 | | $ | 490.3 | |
Comprehensive loss: | | | | | | | | | | | | | | | | |
Net Loss | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive loss, net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of $(1.2)) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive loss | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive loss | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 7.0 | |
Adoption of FIN 48 | | | — | | | — | | | — | | | — | | | — | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 1,460,183 | | | — | | | 37.6 | |
Tax benefit realized from stock-based compensation | | | — | | | — | | | — | | | — | | | 4.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (6,437,786 | ) | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008 | | | 1,656,200 | | $ | 0.0 | | | 36,444,518 | | $ | 0.4 | | $ | 539.1 | |
Comprehensive loss: | | | | | | | | | | | | | | | | |
Net Loss | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive loss, net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of $(3.4)) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive loss | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive loss | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 11.6 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 234,446 | | | — | | | 2.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (1,938,689 | ) | | — | | | — | |
Dividends | | | — | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009 | | | 1,656,200 | | $ | 0.0 | | | 34,740,275 | | $ | 0.4 | | $ | 552.9 | |
Comprehensive income: | | | | | | | | | | | | | | | | |
Net Income | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | — | | | — | | | — | | | — | | | — | |
Pension and postretirement adjustments (net of tax of ($9.1)) | | | — | | | — | | | — | | | — | | | — | |
Total other comprehensive loss | | | — | | | — | | | — | | | — | | | — | |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | — | | | 14.0 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | 134,045 | | | — | | | 3.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (411,977 | ) | | — | | | — | |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 135,915 | | | — | | | (0.9 | ) |
Dividends | | | — | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2010 | | | 1,656,200 | | $ | 0.0 | | | 34,598,258 | | $ | 0.4 | | $ | 569.2 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
38 -
| | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
| | Accumulated
Other Comprehensive
Income (Loss) | | Retained
Earnings | | Treasury
Stock
At Cost | | Total
Stockholders’
Equity | |
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2007 | | $ | (34.5 | ) | $ | 611.8 | | $ | 0.0 | | $ | 1,068.0 | |
Comprehensive loss: | | | | | | | | | | | | | |
Net Loss | | | — | | | (17.2 | ) | | — | | | (17.2 | ) |
Other comprehensive loss, net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 1.9 | | | — | | | — | | | 1.9 | |
Pension and postretirement adjustments (net of tax of $(1.2)) | | | (2.1 | ) | | — | | | — | | | (2.1 | ) |
| | | | | | | | | | |
|
|
|
Total other comprehensive loss | | | — | | | — | | | — | | | (0.2 | ) |
| | | | | | | | | | |
|
|
|
Total comprehensive loss | | | — | | | — | | | — | | | (17.4 | ) |
Stock-based compensation | | | — | | | — | | | — | | | 7.0 | |
Adoption of FIN 48 | | | — | | | (6.3 | ) | | — | | | (6.3 | ) |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 37.6 | |
Tax benefit realized from stock-based compensation | | | — | | | — | | | — | | | 4.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (220.0 | ) | | (220.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008 | | $ | (34.7 | ) | $ | 588.3 | | $ | (220.0 | ) | $ | 873.1 | |
Comprehensive loss: | | | | | | | | | | | | | |
Net Loss | | | — | | | (14.3 | ) | | — | | | (14.3 | ) |
Other comprehensive loss, net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (30.3 | ) | | — | | | — | | | (30.3 | ) |
Pension and postretirement adjustments (net of tax of $(3.4)) | | | (12.1 | ) | | — | | | — | | | (12.1 | ) |
| | | | | | | | | | |
|
|
|
Total other comprehensive loss | | | — | | | — | | | — | | | (42.4 | ) |
| | | | | | | | | | |
|
|
|
Total comprehensive loss | | | — | | | — | | | — | | | (56.7 | ) |
Stock-based compensation | | | — | | | — | | | — | | | 11.6 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 2.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (34.0 | ) | | (34.0 | ) |
Dividends | | | — | | | (11.2 | ) | | — | | | (11.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009 | | $ | (77.1 | ) | $ | 562.8 | | $ | (254.0 | ) | $ | 785.0 | |
Comprehensive income: | | | | | | | | | | | | | |
Net Income | | | — | | | 56.1 | | | — | | | 56.1 | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 2.8 | | | — | | | — | | | 2.8 | |
Pension and postretirement adjustments (net of tax of ($9.1)) | | | (11.1 | ) | | — | | | — | | | (11.1 | ) |
| | | | | | | | | | |
|
|
|
Total other comprehensive loss | | | — | | | — | | | — | | | (8.3 | ) |
| | | | | | | | | | |
|
|
|
Total comprehensive income | | | — | | | — | | | — | | | 47.8 | |
Stock-based compensation | | | — | | | — | | | — | | | 14.0 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 3.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (10.8 | ) | | (10.8 | ) |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 3.2 | | | 2.3 | |
Dividends | | | — | | | (11.1 | ) | | — | | | (11.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2010 | | $ | (85.4 | ) | $ | 607.8 | | $ | (261.6 | ) | $ | 830.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
| | Accumulated
Other Comprehensive
Income (Loss) | | Retained
Earnings | | Treasury Stock
At Cost | | Total
Stockholders’
Equity | |
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009 | | $ | (77.1 | ) | $ | 562.8 | | $ | (254.0 | ) | $ | 785.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | 56.1 | | | — | | | 56.1 | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 2.8 | | | — | | | — | | | 2.8 | |
Pension and postretirement adjustments (net of tax of $(9.1)) | | | (11.1 | ) | | — | | | — | | | (11.1 | ) |
| | | | | | | | | | |
|
|
|
Total other comprehensive income (loss) | | | — | | | — | | | — | | | (8.3 | ) |
| | | | | | | | | | |
|
|
|
Total comprehensive income (loss) | | | — | | | — | | | — | | | 47.8 | |
Stock-based compensation | | | — | | | — | | | — | | | 14.0 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 3.2 | |
Purchases of treasury stock at cost | | | — | | | — | | | (10.8 | ) | | (10.8 | ) |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 3.2 | | | 2.3 | |
Dividends | | | — | | | (11.1 | ) | | — | | | (11.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2010 | | $ | (85.4 | ) | $ | 607.8 | | $ | (261.6 | ) | $ | 830.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | 39.4 | | | — | | | 39.4 | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 25.2 | | | — | | | — | | | 25.2 | |
Pension and postretirement adjustments (net of tax of $4.0) | | | 6.3 | | | — | | | — | | | 6.3 | |
| | | | | | | | | | |
|
|
|
Total other comprehensive income (loss) | | | — | | | — | | | — | | | 31.5 | |
| | | | | | | | | | |
|
|
|
Total comprehensive income (loss) | | | — | | | — | | | — | | | 70.9 | |
Stock-based compensation | | | — | | | — | | | — | | | 13.7 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 2.9 | |
Purchases of treasury stock at cost | | | — | | | — | | | (166.9 | ) | | (166.9 | ) |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 9.6 | | | 0.4 | |
Dividends | | | — | | | (11.4 | ) | | — | | | (11.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2011 | | $ | (53.9 | ) | $ | 635.8 | | $ | (418.9 | ) | $ | 740.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): | | | | | | | | | | | | | |
Net Income (loss) | | | — | | | 102.4 | | | — | | | 102.4 | |
Other comprehensive income (loss), net: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (8.2 | ) | | — | | | — | | | (8.2 | ) |
Pension and postretirement adjustments (net of tax of $(6.5)) | | | (12.1 | ) | | — | | | — | | | (12.1 | ) |
| | | | | | | | | | |
|
|
|
Total other comprehensive income (loss) | | | — | | | — | | | — | | | (20.3 | ) |
| | | | | | | | | | |
|
|
|
Total comprehensive income (loss) | | | — | | | — | | | — | | | 82.1 | |
Stock-based compensation | | | — | | | — | | | — | | | 12.2 | |
Proceeds from issuance of common stock pursuant to stock-based compensation | | | — | | | — | | | — | | | 22.4 | |
Purchases of treasury stock at cost | | | — | | | — | | | (13.1 | ) | | (13.1 | ) |
Treasury stock issued pursuant to stock purchase plans | | | — | | | — | | | 29.2 | | | 1.0 | |
Dividends | | | — | | | (14.3 | ) | | — | | | (14.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2012 | | $ | (74.2 | ) | $ | 723.9 | | $ | (402.8 | ) | $ | 830.3 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
- 37 -
Consolidated Statements of Cash Flows
| | | | | | | | | | |
|
|
|
|
|
|
|
|
| | | | (Amounts in millions)
Years ended May 31, | |
|
|
|
|
|
|
|
|
| | 2012 | | 2011 | | 2010 | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
Cash flows - operating activities: | | | | | | | | | | |
Net income (loss) | | $ | 102.4 | | $ | 39.4 | | $ | 56.1 | |
Earnings (loss) from discontinued operations, net of tax | | | (6.3 | ) | | (6.1 | ) | | (4.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Earnings (loss) from continuing operations | | | 108.7 | | | 45.5 | | | 61.0 | |
| | | | | | | | | | |
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by (used in) operating activities of continuing operations: | | | | | | | | | | |
Provision for losses on accounts receivable | | | 12.3 | | | 13.6 | | | 9.5 | |
Provision for losses on inventory | | | 48.1 | | | 27.3 | | | 27.2 | |
Provision for losses on royalty advances | | | 6.5 | | | 4.5 | | | 6.8 | |
Loss on subleases | | | 6.2 | | | — | | | — | |
Amortization of prepublication and production costs | | | 55.1 | | | 51.1 | | | 51.0 | |
Depreciation and amortization | | | 68.8 | | | 60.1 | | | 59.5 | |
Deferred income taxes | | | (37.5 | ) | | (2.8 | ) | | 29.4 | |
Stock-based compensation | | | 12.2 | | | 13.7 | | | 14.0 | |
Non cash net gain on equity investments | | | (1.3 | ) | | (1.7 | ) | | (0.7 | ) |
Non cash write off related to asset impairment | | | 0.8 | | | 3.4 | | | 40.1 | |
Unrealized loss on investments | | | — | | | 3.6 | | | 1.5 | |
Changes in assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | (108.9 | ) | | (12.6 | ) | | (22.4 | ) |
Inventories | | | (40.4 | ) | | (9.8 | ) | | 3.7 | |
Prepaid expenses and other current assets | | | 9.7 | | | 0.6 | | | 3.0 | |
Deferred promotion costs | | | — | | | 0.1 | | | 0.8 | |
Royalty advances | | | (6.2 | ) | | (1.2 | ) | | (3.7 | ) |
Accounts payable | | | (0.3 | ) | | 19.1 | | | (27.0 | ) |
Other accrued expenses | | | 64.7 | | | 15.9 | | | 20.4 | |
Accrued royalties | | | 58.2 | | | (8.3 | ) | | 0.4 | |
Deferred revenue | | | (1.7 | ) | | 8.7 | | | 5.6 | |
Pension and post-retirement liabilities | | | (7.0 | ) | | (11.3 | ) | | (3.6 | ) |
Other noncurrent liabilities | | | 5.9 | | | 5.6 | | | (2.4 | ) |
Other, net | | | 7.8 | | | 7.1 | | | 1.4 | |
|
|
|
|
|
|
|
|
|
|
|
Total adjustments | | | 153.0 | | | 186.7 | | | 214.5 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net cash provided by (used in) operating activities of continuing operations | | | 261.7 | | | 232.2 | | | 275.5 | |
Net cash provided by (used in) operating activities of discontinued operations | | | (1.5 | ) | | (3.8 | ) | | 0.3 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 260.2 | | | 228.4 | | | 275.8 | |
| | | | | | | | | | |
Cash flows - investing activities: | | | | | | | | | | |
Prepublication and production expenditures | | | (58.9 | ) | | (57.9 | ) | | (48.9 | ) |
Additions to property, plant and equipment | | | (53.7 | ) | | (50.0 | ) | | (55.3 | ) |
Acquisition related payments | | | (9.5 | ) | | (10.1 | ) | | (1.0 | ) |
Land acquisition | | | — | | | (24.3 | ) | | — | |
Other | | | 0.8 | | | 1.2 | | | 0.2 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net cash provided by (used in) investing activities of continuing operations | | | (121.3 | ) | | (141.1 | ) | | (105.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (121.3 | ) | | (141.1 | ) | | (105.0 | ) |
See accompanying notes
- 38 -
| | | | | | | | | | |
| | | | (Amounts in millions)
Years ended May 31, | |
|
|
|
|
|
|
|
|
| | 2012 | | 2011 | | 2010 | |
|
|
|
|
|
|
|
|
Cash flows - financing activities: | | | | | | | | | | |
Borrowings under credit agreement and revolving loan | | | 28.8 | | | 70.0 | | | — | |
Repayment of credit agreement and revolving loan | | | (28.8 | ) | | (70.0 | ) | | — | |
Repayment of term loan | | | (50.2 | ) | | (42.8 | ) | | (42.8 | ) |
Repurchase of 5.00% notes | | | — | | | — | | | (4.1 | ) |
Borrowings under lines of credit | | | 89.2 | | | 118.6 | | | 157.0 | |
Repayments under lines of credit | | | (80.6 | ) | | (128.2 | ) | | (159.0 | ) |
Repayment of capital lease obligations | | | (0.7 | ) | | (2.0 | ) | | (3.4 | ) |
Reacquisition of common stock | | | (13.1 | ) | | (166.9 | ) | | (10.8 | ) |
Proceeds pursuant to stock-based compensation plans | | | 22.4 | | | 2.9 | | | 3.2 | |
Payment of dividends | | | (13.2 | ) | | (10.8 | ) | | (10.9 | ) |
Other | | | (1.2 | ) | | (1.3 | ) | | (0.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (47.4 | ) | | (230.5 | ) | | (70.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (1.9 | ) | | 4.4 | | | 0.6 | |
| | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 89.6 | | | (138.8 | ) | | 100.5 | |
| | | | | | | | | | |
Cash and cash equivalents at beginning of period | | | 105.3 | | | 244.1 | | | 143.6 | |
| | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 194.9 | | $ | 105.3 | | $ | 244.1 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| | 2012 | | 2011 | | 2010 | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Supplemental Information: | | | | | | | | | | |
Income taxes payments (refunds), net | | $ | 61.0 | | $ | 31.5 | | $ | 22.3 | |
Interest paid | | | 15.3 | | | 15.4 | | | 16.5 | |
See accompanying notes
- 39 -
|
|
|
Consolidated Statements of Cash Flows
|
| | | | | | | | | | |
| | (Amounts in millions)
Years ended May 31, | |
|
|
|
|
| | 2010 | | 2009 | | 2008 | |
|
|
|
|
|
|
|
|
Cash flows provided by operating activities: | | | | | | | | | | |
Net income (loss) | | $ | 56.1 | | $ | (14.3 | ) | $ | (17.2 | ) |
Loss from discontinued operations, net of tax | | | (2.6 | ) | | (27.5 | ) | | (134.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations | | | 58.7 | | | 13.2 | | | 117.3 | |
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities of continuing operations: | | | | | | | | | | |
Provision for losses on accounts receivable | | | 9.5 | | | 15.8 | | | 8.5 | |
Provision for losses on inventory | | | 27.2 | | | 28.4 | | | 28.4 | |
Provision for losses on royalty | | | 6.8 | | | 12.6 | | | 6.8 | |
Amortization of prepublication and production costs | | | 51.0 | | | 44.8 | | | 46.1 | |
Depreciation and amortization | | | 59.5 | | | 60.7 | | | 62.2 | |
Deferred income taxes | | | 29.4 | | | 38.7 | | | 14.4 | |
Stock-based compensation | | | 14.0 | | | 11.6 | | | 7.0 | |
Non cash write off related to asset impairment | | | 43.1 | | | 17.0 | | | — | |
Unrealized loss on investments | | | 1.5 | | | 13.5 | | | — | |
Changes in assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | (22.4 | ) | | (17.7 | ) | | 3.5 | |
Inventories | | | 3.4 | | | (25.8 | ) | | (17.9 | ) |
Prepaid expenses and other current assets | | | 2.4 | | | 7.3 | | | 10.0 | |
Deferred promotion costs | | | 0.8 | | | 0.3 | | | 0.2 | |
Royalty advances | | | (3.7 | ) | | (6.6 | ) | | (5.0 | ) |
Accounts payable | | | (27.0 | ) | | 25.6 | | | (13.8 | ) |
Other accrued expenses | | | 18.8 | | | (28.3 | ) | | 27.3 | |
Accrued royalties | | | 0.4 | | | (2.5 | ) | | 11.1 | |
Deferred revenue | | | 5.6 | | | (0.5 | ) | | 12.5 | |
Pension and post-retirement liabilities | | | (3.6 | ) | | (4.4 | ) | | (7.3 | ) |
Other, net | | | (1.8 | ) | | 1.9 | | | 4.0 | |
|
|
|
|
|
|
|
|
|
|
|
Total adjustments | | | 214.9 | | | 192.4 | | | 198.0 | |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing operations | | | 273.6 | | | 205.6 | | | 315.3 | |
Net cash provided by (used in) operating activities of discontinued operations | | | 2.2 | | | (17.0 | ) | | (8.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities | | | 275.8 | | | 188.6 | | | 306.5 | |
Cash flows used in investing activities: | | | | | | | | | | |
Prepublication and production expenditures | | | (48.9 | ) | | (57.8 | ) | | (58.8 | ) |
Additions to property, plant and equipment | | | (55.3 | ) | | (45.1 | ) | | (56.2 | ) |
Acquisition related payments | | | (1.0 | ) | | (4.4 | ) | | (2.6 | ) |
Net cash proceeds from sale of businesses | | | 0.2 | | | 33.0 | | | — | |
Other | | | — | | | 1.7 | | | 0.1 | |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations | | | (105.0 | ) | | (72.6 | ) | | (117.5 | ) |
Net cash used in investing activities of discontinued operations | | | — | | | (0.8 | ) | | (5.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities | | | (105.0 | ) | | (73.4 | ) | | (123.4 | ) |
Cash flows provided by (used in) financing activities: | | | | | | | | | | |
Borrowings under credit agreement and revolving loan | | | — | | | 220.3 | | | 190.0 | |
Repayment of credit agreement and revolving loan | | | — | | | (220.3 | ) | | (190.0 | ) |
Borrowings under term loan | | | — | | | — | | | 200.0 | |
Repayment of term loan | | | (42.8 | ) | | (42.8 | ) | | (21.4 | ) |
Repurchase of 5.00% notes | | | (4.1 | ) | | (2.1 | ) | | (12.4 | ) |
Borrowings under lines of credit | | | 157.0 | | | 465.0 | | | 470.9 | |
Repayment under lines of credit | | | (159.0 | ) | | (461.4 | ) | | (524.5 | ) |
Repayment of capital lease obligations | | | (3.4 | ) | | (4.9 | ) | | (5.5 | ) |
Reacquisition of common stock | | | (10.8 | ) | | (34.0 | ) | | (220.0 | ) |
Proceeds pursuant to stock-based compensation plans | | | 3.2 | | | 2.3 | | | 37.6 | |
Payment of dividends | | | (10.9 | ) | | (8.4 | ) | | — | |
Other | | | (0.1 | ) | | — | | | 0.9 | |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities of continuing operations | | | (70.9 | ) | | (86.3 | ) | | (74.4 | ) |
Net cash used in financing activities | | | (70.9 | ) | | (86.3 | ) | | (74.4 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | 0.6 | | | (5.7 | ) | | (11.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents | | | 100.5 | | | 23.2 | | | 97.6 | |
Cash and cash equivalents at beginning of period, including cash of discontinued operations of $0.0, $4.3 and $3.0 at June 1, 2009, 2008 and 2007, respectively | | | 143.6 | | | 120.4 | | | 22.8 | |
Cash and cash equivalents at end of period, including cash of discontinued operations of $0.0, $0.0 and $4.3 at May 31, 2010, 2009 and 2008, respectively | | $ | 244.1 | | $ | 143.6 | | $ | 120.4 | |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
40
|
|
|
Consolidated Statements of Cash Flows
|
| | | | | | | | | | |
| | (Amounts in millions)
Years ended May 31, | |
|
|
|
|
| | 2010 | | 2009 | | 2008 | |
|
|
|
|
|
|
|
|
Supplemental Information: | | | | | | | | | | |
Income taxes payments (refunds), net | | $ | 22.3 | | $ | (5.3 | ) | $ | 45.9 | |
Interest paid | | | 16.5 | | | 23.1 | | | 33.1 | |
Non-cash investing and financing activities: Capital leases | | | 0.1 | | | 0.1 | | | 1.9 | |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
41
|
|
|
Notes to ConsolidatedtoConsolidated Financial StatementsStatements |
(Amounts in millions, except share and per share data)
1. DESCRIPTION OF THE BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the business
Scholastic Corporation (the “Corporation” and together with its subsidiaries, “Scholastic” or the “Company”) is a global children’s publishing, education and media company. Since its founding in 1920, Scholastic has emphasized quality products and a dedication to reading and learning. The Company is the world’s largest publisher and distributor of children’s books andbooks. It is also a leading developer of educational technology products.products and ebooks for children. Scholastic also creates quality educational and entertainment materials and products for use in school and at home, including magazines, ebooks, children’s reference and non-fiction materials, teacher materials, television programming film, videos and toys.film. The Company is a leading operator of school-based book clubs and book fairs in the United States. It distributes its products and services through these proprietary channels, as well as directly to schools and libraries, through retail stores and through the internet. The Company’s website, scholastic.com, is a leading site for teachers, classrooms and parents and an award-winning destination for children. In addition to its operations in the United States, Scholastic has long-established operations in Canada, the United Kingdom, Australia, New Zealand, Ireland, India, China, Singapore and other parts of Asia, with newer operations in China, India and Ireland, and, through its export business, sells products in over 140 countries.
Basis of presentation
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation and all wholly-owned and majority-owned subsidiaries. All significant intercompany transactions are eliminated in consolidation.
ReclassificationChange in Reportable Segments
The current presentation includes a net reclassificationDuring the first quarter of certain costs to Costfiscal 2012, the Company determined that its reportable segment structure is now comprised of goods sold from Selling, general and administrative expenses totaling $12.9 and $6.4 forfive reportable segments:
| |
• | Children’s Book Publishing and Distribution |
| |
• | Educational Technology and Services |
| |
• | Classroom and Supplemental Materials Publishing |
| |
• | Media, Licensing and Advertising |
| |
• | International |
Accordingly, the fiscal years ending May 31, 2009 and 2008, respectively.Company has presented segment data in prior periods consistent with this change in reportable segments.
Discontinued Operations
As more fully described in Note 2, “Discontinued Operations,”The Company closed or sold several operations during fiscal 2009 and 2010, and presently holds for sale one facility. During the first quarter of fiscal 2012, the Company determined to sell or shut down its domestic, Canadian and UK continuities businesses, and intends to sell a related warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”) and an office and distribution facility in Danbury, Connecticut (the “Danbury Facility”). During fiscal 2009, the Company also ceased its operations in Argentinaits direct-to-home catalog business specializing in toys. This business was a separate reporting unit included in theMedia, Licensing and Mexico, its door-to-door selling operations in Puerto Rico as well as its continuities business in Australia and New Zealand, its corporate book fairs business and closed its Scarsdale, NY store. The Company also sold a trade magazine. Additionally, the Company sold a non-core market research business and a non-core on-line resource for teachers business. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business.Advertisingsegment. All of the abovethese businesses are classified as discontinued operations in the Company’s financial statements.
Use of estimates
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. On an on-going
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The Company’s significant estimates include those developed for: |
basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts receivable; sales returns; amortization periods; stock-based compensation expense; pension and other post-retirement obligations; tax rates; and recoverability of inventories, deferred promotion costs, deferred income taxes and tax reserves, fixed assets, prepublication costs, and royalty advances, and the fair value of goodwill and other intangibles. In addition, for a description of the significant assumptions and estimates used by management in connection with discontinued operations, see Note 2, “Discontinued Operations.”
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• | Accounts receivable, returns and allowances |
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• | Sales taxes |
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• | Royalty advance reserves |
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• | Customer reward programs |
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• | Impairment testing for goodwill, intangibles and other long-lived assets |
Summary of Significant Accounting Policies
Revenue recognition
The Company’s revenue recognition policies for its principal businesses are as follows:
School-Based Book Clubs – Revenue from school-based book clubs is recognized upon shipment of the products. For ebooks, revenue is recognized upon electronic delivery to the customer.
School-Based Book Fairs – Revenues associated with school-based book fairs are related to sales of product. Book fairs are typically run by schools and/or parent teacher organizations over a five business daybusiness-day period. At the end of reporting periods, the Company defers estimated revenue for those fairs that have not been completed as of the period end based on the number of fair days occurring after period end on a straight-line calculation of the full fair’s revenue.
Trade – Revenue–Revenue from the sale of children’s books for distribution in the retail channel is primarily recognized when the risks and benefits transfer to the customer, which generallyor when the product is aton sale and available to the time of shipment.public. For newly published titles, the Company, on occasion, contractually agrees with its customers when the publication may be first offered for sale to the public, or an agreed upon “Release Date”.“Strict Laydown Date.” For such titles, the risks and benefits of the publication are not deemed to be transferred to the customer until such time that the publication can contractually be sold to the public, and the Company defers revenue on sales of such titles until such time as the customer is permitted to sell the product to the public. Revenue for ebooks, which is the net amount received from the retailer, is recognized upon electronic delivery to the customer by the retailer.
A reserve for estimated returns is established at the time of sale and recorded as a reduction to revenue. Actual returns are charged to the reserve as received. The calculation of the reserve for estimated returns is based on historical return rates, sales patterns and sales patterns.expectations. Actual returns could differ from the Company’s estimate. A reserve for estimated bad debts is established at the time of sale and is based on the aging of accounts receivable held by the Company’s third party administrator. While the Company usesand specific reserves on a third party to invoice and collect for shipments made, the Company bears the majority of the responsibility in the case of uncollectible accounts.customer-by-customer basis.
Educational PublishingTechnology and Services – For shipments to schools, revenue is recognized when risks and benefits transfer to the customer. Shipments to depositories are on consignment and revenue is recognized based on actual shipments from the depositories to the schools. For certain software-based products, the Company offers new customers installation, maintenance and training. Intraining with these products and, in such cases, software-based product sales and services are accounted for as separate units of accounting and total proceeds are allocated based upon the relative fair values of these units. Service revenue is deferred and recognized as services are provideddelivered or over the life of the contract. Revenues from contracts with multiple deliverables are recognized as each deliverable is earned, based on the relative selling price of each deliverable, provided the deliverable has value to customers on a standalone basis, the customer has full use of the deliverable and there is no further obligation from the Company. If there is a right of return, revenue is recognized if delivery of the undelivered items or services is probable and substantially in control of the Company.
Toy CatalogClassroom and Supplemental Materials Publishing – Revenue from the sale of children’s toys to the home through catalogsclassroom and supplemental materials is recognized when risks and benefits transfer to the customer, which generally is at the time of shipment. A reserve for estimated returns is established at the time of sale and recorded as a reduction to revenue. Actual returns are charged to the reserve as received. The calculationupon shipment of the reserve for estimated returns is based on historical return rates and sales patterns.products.
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Film Production and Licensing – Revenue from the sale of film rights, principally for the home video and domestic and foreign television markets, is recognized when the film has been delivered and is available for showing or exploitation. Licensing revenue is recorded in accordance with royalty agreements at the time the licensed materials are available to the licensee and collections are reasonably assured.
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Magazines – Revenue is deferred and recognized ratably over the subscription period, as the magazines are delivered.
Magazine Advertising revenue – Revenue is recognized when the magazine is onfor sale and available to the subscribers.
Scholastic In-School Marketing – Revenue is recognized when the Company has satisfied its obligations under the program and the customer has acknowledged acceptance of the product or service. Certain revenues may be deferred pending future deliverables.
Cash equivalents
Cash equivalents consist of short-term investments with original maturities of three months or less. The Consolidated Balance Sheets include restricted cash of $1.0 and $0.5 at May 31, 2012 and 2011, respectively, which is reported in “Other current assets.”
Accounts receivable
Accounts receivable are recorded net of allowances for doubtful accounts and reserves for returns. In the normal course of business, the Company extends credit to customers that satisfy predefined credit criteria. The Company is required to estimate the collectability of its receivables. Reserves for returns are based on historical return rates and sales patterns. The Company’s return reserve balance is greater than typical as of May 31, 2012 due to increased trade sales in the second half of fiscal 2012. In order to develop the estimate of returns that will be received subsequent to May 31, 2012, management considers patterns of sales and returns in the months preceding May 31, 2012, as well as actual returns received subsequent to year end, available sell-through information and other return rate information that management believes is relevant. The timing of the increased trade sales creates a higher degree of uncertainty than is typically the case regarding its return reserve and such reserve could be subject to significant changes in succeeding quarters based on actual return activity in the first half of fiscal 2013. Allowances for doubtful accounts are established through the evaluation of accounts receivable aging and prior collection experience to estimate the ultimate collectability of these receivables. At the time the Company determines that a receivable balance, or any portion thereof, is deemed to be permanently uncollectable, the balance is then written off.
Inventories
Inventories, consisting principally of books, are stated at the lower of cost, using the first-in, first-out method, or market. The Company records a reserve for excess and obsolete inventory based upon a calculation using the historical usage rates, and sales patterns of its products.products and specifically identified obsolete inventory. In fiscal 2012, in response to changing trends in the children’s book market, the Company changed its estimate for inventory obsolescence and recorded an increase in the reserve of $17.9 million.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are recorded on a straight-line basis, over the estimated useful lives.lives of the assets. Buildings have an estimated useful life, for purposes of depreciation, of forty years. Capitalized software, net of accumulated amortization, was $61.2$57.2 and $59.8$59.2 at May 31, 20102012 and 2009,2011, respectively. Capitalized software is depreciated over a period of three to seven years. Amortization expense for capitalized software was $25.0, $25.2$27.6, $25.8 and $21.1$25.0 for the fiscal years ended May 31, 2010, 20092012, 2011 and 2008,2010, respectively. Furniture, fixtures and equipment are depreciated over periods not exceeding ten years. Leasehold improvements are amortized over the life of the lease or the life of the assets, whichever is shortershorter. Included in Depreciation and amortization is $1.1 related to capitalized leases for the year ended May 31, 2012. The Company evaluates the depreciation periods of property, plant and equipment to determine whether events or circumstances indicate that the asset’s carrying value is not recoverable or warrant revised estimates of useful lives.
Leases
Lease agreements are evaluated to determine whether they are capital or operating leases in accordance with FASB Accounting Standards Codification (ASC) Topic 840, “Leases” (“Topic 840”).leases. When substantially all of the risks and benefits of property ownership have been transferred to the Company, as determined by the test criteria in Topic 840,the current authoritative guidance, the lease then qualifiesis recognized as a capital lease.
Capital leases are capitalized at the lower of the net present value of the total amount of rent payable under the leasing agreement (excluding finance charges) or the fair market value of the leased asset. Capital lease assets are depreciated on a straight-line basis, over a period consistent with the Company’s normal depreciation policy for tangible fixed assets, but not exceeding the lease term. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term. Sublease income is recognized on a straight-line basis over the duration of each lease term. To the extent expected sublease income is less than expected rental payments the Company recognizes a current loss on the difference between the fair values of the sublease and the rental payments.
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Prepublication costs
The Company capitalizes the art, prepress, editorial, digital conversion and other costs incurred in the creation of the master copy of a book or other media (the “prepublication costs”). Prepublication costs are amortized on a straight-line basis over a three- to seven-yearthree-to-seven-year period based on expected future revenues. The Company regularly reviews the recoverability of the capitalized costs based on expected future revenues.
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Royalty advances
Royalty advances are initially capitalized and subsequently expensed as related revenues are earned or when the Company determines future recovery through earndowns is not probable. The Company has a long history of providing authors with royalty advances, and it tracks each advance earned with respect to the sale of the related publication. The royalties earned are applied first against the remaining unearned portion of the advance. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company will recover the advance through the sale of the publication. The Company applies this historical experience to its existing outstanding royalty advances to estimate the likelihood of recovery.recoveries through earndowns. Additionally, the Company’s editorial staff regularly reviews its portfolio of royalty advances to determine if individual royalty advances are not recoverable through earndowns for discrete reasons, such as the death of an author prior to completion of a title or titles, a Company decision to not publish a title, poor market demand or other relevant factors that could impact recoverability.
Goodwill and intangible assets
Goodwill and other intangible assets with indefinite lives are not amortized and are reviewed for impairment annually or more frequently if impairment indicators arise.
With regard to goodwill, the Company compares the estimated fair value of its identified reporting units to the carrying value of the net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of its identified reporting unit is less than its carrying value. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount the Company performs the two-step test. For each of the reporting units, the estimated fair value is determined utilizing the expected present value of the projected future cash flows of the units, in addition to comparisons to similar companies. The Company reviews its definition of reporting units annually.annually or more frequently if conditions indicate that the reporting units may change. The Company evaluates its operating segments to determine if there are components one level below the operating segment. A component is present if discrete financial information is available, and segment management regularly reviews the operating results of the business. If an operating segment only contains a single component, that component is determined to be a reporting unit for goodwill impairment testing purposes. If an operating segment contains multiple components, the Company evaluates the economic characteristics of these components. Any components within an operating segment that share similar economic characteristics are aggregated and deemed to be a reporting unit for goodwill impairment testing purposes. Components within the same operating segment that do not share similar economic characteristics are deemed to be individual reporting units for goodwill impairment testing purposes. The Company has identified 11eleven separate reporting units for goodwill impairment testing purposes. For each reporting unit with a goodwill asset, impairment testing is conducted at the reporting unit level.
With regard to other intangibles with indefinite lives, the Company determines the fair value by asset, which is then compared to its carrying value. The estimated fair value is determined utilizing the expected present value of the projected future cash flows of the asset.
Intangible assets with definite lives consist principally of customer lists, covenants not to compete, and certain other intellectual property assets and are amortized over their expected useful lives. Customer lists are amortized on a straight-line basis over a five-year period, while covenants not to compete are amortized on a straight-line basis over their contractual term. Other intellectual property assets are amortized over their remaining useful lives which range primarily from three to fiveten years.
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basesbasis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to enter into the determination of taxable income.
The Company believes that its taxable earnings, during the periods when the temporary differences giving rise to deferred tax assets become deductible or when tax benefit carryforwards may be utilized, should be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of the tax benefit carryforwards or the projected
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taxable earnings indicateindicates that realization is not likely, the Company establishes a valuation allowance.
In assessing the need for a valuation allowance, the Company estimates future taxable earnings, with consideration for the feasibility of on-goingongoing tax planning strategies and the realizability of tax benefit carryforwards, to determine which deferred tax assets are more likely than not to be realized in the future. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax
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rates and future taxable earnings. In the event that actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance.
It is the Company’s policy to recognizeThe Company accounts for uncertain income tax positions using a two-step method. Recognition occurs when thean entity concludes that a tax position, based solely on technical merits, is more likely than not to be sustained upon examination. If a tax position is more likely than not to be sustained upon examination.examination, the amount recognized is the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon settlement. The Company assesses all income tax positions and adjusts its reserves against these positions periodically based upon these criteria. The Company also assesses potential penalties and interest associated with these tax positions, and includes these amounts as a component of income tax expense.
In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known. The Company’s effective tax rate is based on expected income and statutory tax rates and permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates.
The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in foreign subsidiaries are indefinitely invested. When amounts are determined not to be indefinitely invested, the Company provides income taxes based upon the expected repatriation.
Non-income Taxes
The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where a liability associated with these examinations and assessments is probable and can be reliably estimable, the Company has made accruals for these matters which are reflected in the Company’s Consolidated Financial Statements. These amounts are included in the Consolidated Financial Statements in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.
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Unredeemed incentive credits
The Company employs incentive programs to encourage sponsor participation in its book clubs and book fairs. These programs allow the sponsors to accumulate credits which can then be redeemed for Company products or other items offered by the Company. The Company recognizes a liability for the estimated costs of providing these credits at the time of the recognition of revenue for the underlying purchases of Company product that resulted in the granting of the credit, based on the estimated cost to provide the free products.credits. As the credits are redeemed, such liability is reduced.
Other noncurrent liabilities
All of the rate assumptions discussed below impact the Company’s calculations of its pension and post-retirement obligations. The rates applied by the Company are based on the portfolios’ past average rates of return, discount rates and actuarial information. Any change in market performance, interest rate performance, assumed health care costs trend rate or compensation rates could result in significant changes in the Company’s pension and post-retirement obligations.
Pension obligations – Scholastic Corporation and certain of its subsidiaries have defined benefit pension plans covering the majority of their employees who meet certain eligibility requirements. The Company’s pension plans and other post-retirement benefits are accounted for using actuarial valuations required by ASC Topic 715, “Compensation Retirement Benefits” (“Topic 715”).valuations.
The Company’s pension calculations are based on three primary actuarial assumptions: the discount rate, the long-term expected rate of return on plan assets, and the anticipated rate of compensation increases. The discount rate is used in the measurement of the projected, accumulated and vested benefit obligations and the interest cost component of net periodic pension costs. The long-term expected return on plan assets is used to calculate the expected earnings from the investment or reinvestment of plan assets. The anticipated rate of compensation increase is used to estimate the increase in compensation for participants of the plan from their current age to their assumed retirement age. The estimated compensation amounts are used to determine the benefit obligations and the service cost. Pension benefits in the cash balance plan for employees located in the United States are based on formulas in which the employees’ balances are credited monthly with interest based on the average rate for one-year United States Treasury Bills plus 1%. Contribution credits are based on employees’ years of
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service and compensation levels during their employment periods.periods, for the periods prior to June 1, 2009.
Other post-retirement benefits – Scholastic CorporationThe Company provides post-retirement benefits, consisting of healthcare and life insurance benefits, to eligible retired United States-based employees. The post-retirement medical plan benefits are funded on a pay-as-you-go basis, with the Company paying a portion of the premium and the employee paying the remainder. The Company follows Topic 715 in calculatingcalculates the existing benefit obligation, which is based on the discount rate and the assumed health care cost trend rate. The discount rate is used in the measurement of the projected and accumulated benefit obligations and the interest cost component of net periodic post-retirement benefit cost. The assumed health care cost trend rate is used in the measurement of the long-term expected increase in medical claims.
Foreign currency translation
The Company’s non-United States dollar-denominated assets and liabilities are translated into United States dollars at prevailing rates at the balance sheet date and the revenues, costs and expenses are translated at the weighted average rates prevailing during each reporting period. Net gains or losses resulting from the translation of the foreign financial statements and the effect of exchange rate changes on long-term intercompany balances are accumulated and charged directly to the foreign currency translation adjustment component of stockholders’ equity until such time as the operations are substantially liquidated or sold. The Company does not expectassesses foreign investment levels periodically to repatriate earnings fromdetermine if all or a portion of the Company’s investments in foreign corporate subsidiaries and therefore does not provide for taxes on cumulative translation adjustments within stockholders’ equity.are indefinitely invested.
Shipping and handling costs
Amounts billed to customers for shipping and handling are classified as revenue. Costs incurred in shipping and handling are recognized in cost of goods sold.
Earnings per share
Basic earnings per share- 45 -
Advertising costs
The Company incurs costs for both direct-response and non-direct-response advertising. The Company capitalizes direct-response advertising costs for expenditures, primarily in its Classroom Magazines division. The asset is basedamortized on a cost-pool-by-cost-pool basis over the period during which the future benefits are expected to be received. Included in Prepaid expenses and other current assets on the weighted average sharesbalance sheet is $4.8 of Class A Stock and Common Stock outstanding. Diluted earnings per share is based on the weighted average sharescapitalized advertising costs as of Class A Stock and Common Stock outstanding adjusted for the impact of potentially dilutive securities outstanding. The dilutive impact of options outstanding on continuing operations is calculated using the treasury stock method, which treats the options as if they were exercised at the beginning of the period, adjusted for Common Stock assumed to be repurchased with the proceeds and tax benefit realized upon exercise. Any potentially dilutive security is excluded from the computation of diluted earnings per share for any period in which it has an anti-dilutive effect. Options that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive totaled: 5,264,202 at May 31, 2010; 6,198,855 at May 31, 2009;2012 and 2,770,635 at May 31, 2008.2011. The Company expenses non-direct-response advertising costs as incurred.
Discontinued Operationsoperations
ASC Topic 360 requiresLong-lived assets classified within discontinued operations are recognized at the calculation of estimated fair value less cost to sell ofthose long-lived assets for assets held for sale. The calculation of estimated fair value less cost to sell includes significant estimates and assumptions, including, but not limited to: operating projections; excess working capital levels; real estate values; and the anticipated costs involved in the selling process. The Company recognizes operations as discontinued when the operations have either ceased or are expectedprobable to be disposed of in a sale transaction in the near term, the operations and cash flows of all discontinued operations have been eliminated, or will be eliminated upon consummation of the expected sale transaction, and the Company will not have any significant continuing involvement in the discontinued operations subsequent to the expected sale transaction.
Stock-based compensation
The Company recognizes the cost of employee and director services received in exchange for any stock-based awards. The Company recognizes compensation expensethe cost on a straight-line basis over an award’s requisite service period, which is generally the vesting period, based on the award’s fair value at the date of grant.
The fair values of stock options granted by the Company are estimated at the date of grant using the
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Black-Scholes option-pricing model. The Company’s determination of the fair value of share-basedstock-based payment awards using this option-pricing model is affected by the price of the Common Stock as well as by assumptions regarding highly complex and subjective variables, including, but not limited to, the expected price volatility of the Common Stock over the terms of the awards, the risk-free interest rate, and actual and projected employee stock option exercise behaviors. Estimates of fair value are not intended to predict actual future events or the value that may ultimately be realized by employees or directorsthose who receive these awards.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates, in order to derive the Company’s best estimate of awards ultimately expected to vest. In determining the estimated forfeiture rates for stock-based awards, the Company periodically conducts an assessment of the actual number of equity awards that have been forfeited previously. When estimating expected forfeitures, the Company considers factors such as the type of award, the employee class and historical experience. The estimate of stock-based awards that will ultimately be forfeited requires significant judgment and, to the extent that actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period such estimates are revised.
The table set forth below provides the estimated fair value of options granted during fiscal years 2010, 20092012, 2011 and 20082010 and the significant weighted average assumptions used in determining the fair value for options granted by the Company under the Black-Scholes option pricing model. The average expected life represents an estimate of the period of time stock options are expected to remain outstanding based on the historical exercise behavior of the option grantees. The risk-free interest rate was based on the U.S. Treasury yield curve corresponding to the expected life in effect at the time of the grant. The volatility was estimated based on historical volatility corresponding to the expected life.
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Estimated fair value of stock options granted | | $ | 8.34 | | $ | 9.51 | | $ | 13.05 | |
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Expected dividend yield | | | 1.4 | % | | 0.7 | % | | 0.0 | % |
Expected stock price volatility | | | 37.6 | % | | 34.3 | % | | 31.2 | % |
Risk-free interest rate | | | 3.3 | % | | 3.4 | % | | 3.9 | % |
Expected life of options | | | 7 years | | | 6 years | | | 6 years | |
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Recently Adopted Accounting Pronouncements
In December 2008, the Financial Accounting Standards Board (“FASB”) issued an amendment to the authoritative guidance for employer’s disclosures about post-retirement benefit plan assets, which is effective for fiscal years ending after December 15, 2009. The amendment requires additional disclosures regarding investment allocations, major categories, valuation techniques and concentrations of risk related to plan assets held in an employer’s defined benefit pension or post-retirement plan. It also requires disclosure of any effects of utilizing significant unobservable inputs upon the overall change in the fair value of the plan assets during the reporting period. The Company has complied with the additional disclosures required by this standard. The adoption of this standard had no impact on the Company’s consolidated financial position, results of operations and cash flows.
In May 2009, the FASB issued ASC Topic 855 “Subsequent Events” (“Topic 855”), which establishes standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, i.e., whether that date represents the date the financial statements were issued or were available to be issued. Topic 855 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this standard had no impact on the Company’s consolidated financial position, results of operations and cash flows.
In January 2010, the FASB issued Accounting Standard Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) Improving
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Estimated fair value of stock options granted | | $ | 9.30 | | $ | 8.15 | | $ | 8.34 | |
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Expected dividend yield | | | 1.4 | % | | 1.3 | % | | 1.4 | % |
Expected stock price volatility | | | 36.7 | % | | 37.3 | % | | 37.6 | % |
Risk-free interest rate | | | 1.6 | % | | 2.0 | % | | 3.3 | % |
Expected life of options | | | 7 years | | | 6 years | | | 7 years | |
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Disclosures about Fair Value Measurements” (“ASU 2010-06”). This update requires additional disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The Company has complied with the additional disclosures required by this standard. The adoption of this standard had no impact on the Company’s consolidated financial position, results of operations and cash flows.
New Accounting Pronouncements
In June 2009, the FASB issued authoritative accounting guidance that changes the consolidation model for variable interest entities (VIEs). The guidance requires companies to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the company (1) has the power to direct matters that most significantly impact the VIE’s economic performance, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact on its results of operations and financial position.
In October 2009, the FASB issued Accounting Standard Update No. 2009-13, “Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements” (“ASU No. 2009-13”). The accounting standard update addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Vendors often provide multiple products or services to their customers. Those deliverables often are provided at different points in time or over different time periods. ASU No. 2009-13 establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue-generating activities. Specifically, ASU No. 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. ASU No. 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the impact on the Company’s consolidated financial position, results of operations and cash flows.
In October 2009, the FASB issued Accounting Standard Update No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements” (“ASU No. 2009-14”). The accounting standard update addresses the accounting revenue arrangements that contain tangible products and software and it affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The accounting standard update clarifies what guidance should be used in allocating and measuring revenue. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the software recognition guidance in Subtopic 985-605, “Software – Revenue Recognition.” The amendment requires that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. ASU No. 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the impact on the Company’s consolidated financial position, results of operations and cash flows.
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NEW ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued an update to the authoritative guidance related to fair value measurements. The amendments will add new disclosures, with a particular focus on Level 3 measurements. The objective of these amendments is to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). The disclosure amendments in this update are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011.
In June 2011, the FASB issued an update related to the reporting of other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments also require the presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued an update that effectively deferred the requirements related to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the FASB time to re-deliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private and non-profit entities. The Company is evaluating the impact of this update on its consolidated financial position, results of operations and cash flows.
In September 2011, the FASB issued an update to the authoritative guidance related to goodwill impairment testing. The updated guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company can skip the two-step test. Companies are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any reporting unit in any period and proceed directly to Step 1 of the test. A company that validates its conclusion by measuring fair value can resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, and the Company adopted the update for its annual impairment test in the fourth quarter of its fiscal year ended May 31, 2012.
2. ACQUISITIONS
On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners, for $2.8, net of cash acquired. As a result of this transaction, the Company recorded $1.3 of goodwill. The results of operations of this business subsequent to the acquisition date are included in theInternational segment.
On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.8 in assumed liabilities, which have been fulfilled by the Company as of May 31, 2012. The Company utilized internally-developed discounted cash flow forecasts and market comparisons of royalty rates to determine the fair value of the assets acquired and the amount to be allocated to goodwill. As a result, the Company recognized $1.4 of goodwill and $5.4 of intangible assets. The results of operations of this business subsequent to the acquisition date are included in theClassroom and Supplemental Materials Publishing segment, and certain assets will benefit theChildren’s Book Publishing and Distribution segment.
3. DISCONTINUED OPERATIONS
During 2008, the Company determined to sell or shut down its domestic, Canadian and UK continuities businesses, and intends to sell a related warehousing and distribution facility located in Maumelle, Arkansas (the “Maumelle Facility”) and an office and distribution facility in Danbury, Connecticut (the “Danbury Facility”). During fiscal 2009, the Company also ceased its operations in Argentina and Mexico, its door-to-door selling operations in Puerto Rico as well as its continuities business in Australia and New Zealand, its corporate book fairs business and closed its Scarsdale, NY store. The Company also sold a trade magazine. Additionally, the Company sold a non-core market research business and a non-core on-line resource for teachers business. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business. All of the above businesses are classified as discontinued operations in the Company’s financial statements.
In accordance with Topic 360, the results of operations for the aforementioned operations are presented in the Company’s Consolidated Financial Statements as discontinued operations. Topic 360 requires adjustments to the carrying value of assets held for sale if the carrying value exceeds their estimated fair value, less cost to sell. The calculation of estimated fair value less cost to sell includes significant estimates and assumptions, including, but not limited to: operating projections and the discount rate and terminal values developed in connection with the discounted cash flow; excess working capital levels; real estate fair values; and the anticipated costs involved in the selling process. The Company prepared separate financial statements reflecting the discontinued operations presentation, which required management to make significant judgments and estimates for purposes of allocating to the discontinued operations certain operating expenses, such as warehousing and distribution expenses, as well as assets, liabilities and other balance sheet items, including accounts payable and certain noncurrent liabilities.
The Company continues to monitor the expected cash proceeds to be realized from the disposition of discontinued operations assets, and adjusts asset values accordingly.
The Company continuously evaluates its portfolio of businesses for both impairment and economic viability. The Company did not cease anymonitors the expected cash proceeds to be realized from the disposition of discontinued operations’ assets, and adjusts asset values accordingly.
In the first quarter of fiscal 2012, the Company ceased operations in its direct-to-home catalog business specializing in toys. This business was a separate reporting unit included in theMedia, Licensing and Advertising segment. The current fiscal year loss before income taxes includes lease costs associated with a vacant facility which formerly served the Company’s direct-to-home toy catalog business.
In the fourth quarter of fiscal 2012, the Company reviewed the estimate of the fair value less cost to sell of its Maumelle facility and recognized an additional operations or classify any additional operations as “held for sale” during fiscal 2010.charge of $2.2. The Company used market value estimates of the property and an estimate of the anticipated costs to sell the asset.
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The following table summarizes the operating results of the discontinued operations for the fiscal years ended May 31:
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Revenues | | $ | 2.4 | | $ | 74.2 | | $ | 253.6 | |
(Loss) gain on sale | | | (0.9 | ) | | 32.0 | | | — | |
Non-cash impairment charge and loss on operations | | | 2.1 | | | 62.2 | | | 206.6 | |
Loss before income taxes | | | 3.0 | | | 30.2 | | | 206.6 | |
Income tax benefit (expense) | | | 0.4 | | | 2.7 | | | 72.1 | |
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Loss from discontinued operations, net of tax | | $ | 2.6 | | $ | 27.5 | | $ | 134.5 | |
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Revenues | | $ | 0.1 | | $ | 18.2 | | $ | 21.1 | |
Gain (loss) on sale | | | — | | | 0.3 | | | (0.9 | ) |
Non cash impairment charge and loss on operations | | | 8.2 | | | 8.2 | | | 7.7 | |
Earnings (loss) before income taxes | | | (8.2 | ) | | (7.9 | ) | | (6.8 | ) |
Income tax benefit (provision) | | | 1.9 | | | 1.8 | | | 1.9 | |
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Earnings (loss) from discontinued operations, net of tax | | $ | (6.3 | ) | $ | (6.1 | ) | $ | (4.9 | ) |
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The following table sets forth the assets and liabilities of the discontinued operations included in the Consolidated Balance Sheets of the Company as of May 31:
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| | | 2010 | | 2009 | | | | 2012 | | 2011 | |
| Accounts Receivable, net | | $ | 3.7 | | $ | 13.6 | | |
Inventories, net | | — | | 0.8 | | |
Accounts receivable, net | | Accounts receivable, net | | $ | 0.0 | | $ | 0.1 | |
Inventory | | Inventory | | 0.0 | | 1.2 | |
Other assets | | 16.7 | | 16.6 | | Other assets | | 7.0 | | 9.2 | |
| Current assets of discontinued operations | | $ | 20.4 | | $ | 31.0 | | Current assets of discontinued operations | | $ | 7.0 | | $ | 10.5 | |
| Accounts payable | | — | | 2.2 | | |
Accrued expenses and other current liabilities | | 3.9 | | 5.1 | | Accrued expenses and other current liabilities | | 2.1 | | 0.8 | |
| Current liabilities of discontinued operations | | $ | 3.9 | | $ | 7.3 | | Current liabilities of discontinued operations | | $ | 2.1 | | $ | 0.8 | |
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50
3.4. SEGMENT INFORMATION
The Company categorizes its businesses into fourfive reportable segments:Children’s Book Publishing and Distribution; Distribution;Educational Publishing; Technology and Services;Classroom and Supplemental Materials Publishing;Media, Licensing and Advertising(which collectively represent the Company’s domestic operations); andInternational. This classification reflects the nature of products and services consistent with the method by which the Company’s chief operating decision-maker assesses operating performance and allocates resources. Revenues and operating margin related to a segment’s products sold or services rendered through another segment’s distribution channel are reallocated to the segment originating the products or services.
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• | Children’s Book Publishing and Distributionoperates as an integrated business which includes the publication and distribution of children’s books, media and interactive products in the United States through school-based book clubs and book fairs and the trade channel. This segment is comprised of three operating segments. |
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• | Educational PublishingTechnology and Servicesincludes the production and/orand distribution to schools of curriculum-based learning technology and materials for grades pre-kindergarten to 12 in the United States, together with related implementation and assessment services and school consulting services. This segment is comprised of one operating segment. |
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• | Classroom and Supplemental Materials Publishingincludes the publication and distribution to schools and libraries of educational technology products, curriculum materials, children’s books, classroom magazines, supplemental classroom materials and print and on-line reference and non-fiction products for grades pre-kindergarten to 12 in the United States. This segment is comprised of two operating segments. |
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• | Media, Licensing and Advertisingincludes the production and/or distribution of digital media, consumer promotions and merchandising and advertising revenue, including sponsorship programs and consumer promotions.programs. This segment is comprised of threetwo operating segments. |
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• | Internationalincludes the publication and distribution of products and services outside the United States by the Company’s international operations, and its export and foreign rights businesses. This segment is comprised of two operating segments. |
In the first quarter of fiscal 2010, the Company reclassified certain revenues and operating expenses formerly included in theMedia, Licensing and Advertisingsegment to theChildren’s Book Publishing and Distributionsegment. This reclassification consists of revenues and operating expenses derived from sales of media and interactive products sold through the various channels employed by theChildren’s Book Publishing and Distributionsegment. This change in reporting is consistent with changes in the Company’s internal financial reporting structure, and reflects the chief operating decision maker’s assessment of performance and asset allocation. Prior period results have been reclassified for consistency with the change in reporting structure. Revenues and operating income of $26.9 and $12.1, respectively, for the fiscal year ending May 31, 2009, and $26.1 and $10.1, respectively, for the fiscal year ending May 31, 2008, were reclassified to theChildren’s Book Publishing and Distributionsegment from theMedia, Licensing and Advertisingsegment.
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The following table sets forth information for the Company’s segments for the three fiscal years ended May 31 for the Company’s segments:31:
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| | Children’s
Book
Publishing
and
Distribution(1) | | Educational
Publishing(1) | | Media,
Licensing
and
Advertising(1) | | Overhead(1)(2) | | Total
Domestic | | International(1) | | Total | |
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2010 | | | | | | | | | | | | | | | | | | | | | | |
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Revenues | | $ | 910.6 | | $ | 476.5 | | $ | 113.8 | | $ | — | | $ | 1,500.9 | | $ | 412.0 | | $ | 1,912.9 | |
Bad debts | | | 3.9 | | | 1.7 | | | 0.1 | | | — | | | 5.7 | | | 3.8 | | | 9.5 | |
Depreciation and amortization(3) | | | 14.2 | | | 3.0 | | | 0.7 | | | 35.6 | | | 53.5 | | | 6.0 | | | 59.5 | |
Amortization(4) | | | 12.0 | | | 25.9 | | | 10.2 | | | — | | | 48.1 | | | 2.9 | | | 51.0 | |
Asset Impairments | | | — | | | 36.3 | | | 3.0 | | | — | | | 39.3 | | | 3.8 | | | 43.1 | |
Royalty advances expensed | | | 20.3 | | | 0.7 | | | 0.9 | | | — | | | 21.9 | | | 4.1 | | | 26.0 | |
Segment operating income/(loss) | | | 117.9 | | | 67.2 | | | (4.2 | ) | | (82.5 | ) | | 98.4 | | | 30.0 | | | 128.4 | |
Segment assets | | | 516.3 | | | 344.3 | | | 59.2 | | | 369.5 | | | 1,289.3 | | | 290.7 | | | 1,580.0 | |
Goodwill | | | 54.3 | | | 88.4 | | | 5.4 | | | — | | | 148.1 | | | 8.5 | | | 156.6 | |
Expenditures for long-lived assets | | | 43.7 | | | 31.8 | | | 6.9 | | | 28.9 | | | 111.3 | | | 11.2 | | | 122.5 | |
Long-lived assets | | | 176.8 | | | 169.8 | | | 19.2 | | | 224.7 | | | 590.5 | | | 67.1 | | | 657.6 | |
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Revenues | | $ | 940.4 | | $ | 384.2 | | $ | 125.7 | | $ | — | | $ | 1,450.3 | | $ | 399.0 | | $ | 1,849.3 | |
Bad debts | | | 10.0 | | | 1.6 | | | 0.3 | | | — | | | 11.9 | | | 3.9 | | | 15.8 | |
Depreciation and amortization(3) | | | 16.3 | | | 3.8 | | | 1.0 | | | 33.8 | | | 54.9 | | | 5.8 | | | 60.7 | |
Amortization(4) | | | 12.3 | | | 22.5 | | | 7.9 | | | — | | | 42.7 | | | 2.1 | | | 44.8 | |
Asset Impairments | | | — | | | — | | | — | | | — | | | — | | | 17.0 | | | 17.0 | |
Royalty advances expensed | | | 26.3 | | | 1.7 | | | 0.6 | | | — | | | 28.6 | | | 3.6 | | | 32.2 | |
Segment operating income/(loss) | | | 101.8 | | | 55.8 | | | — | | | (94.5 | ) | | 63.1 | | | 7.3 | | | 70.4 | |
Segment assets | | | 560.7 | | | 331.2 | | | 59.4 | | | 373.6 | | | 1,324.9 | | | 252.9 | | | 1,577.8 | |
Goodwill | | | 54.3 | | | 88.4 | | | 5.8 | | | — | | | 148.5 | | | 8.5 | | | 157.0 | |
Expenditures for long-lived assets | | | 48.5 | | | 37.7 | | | 12.3 | | | 25.0 | | | 123.5 | | | 10.0 | | | 133.5 | |
Long-lived assets | | | 186.9 | | | 206.3 | | | 27.2 | | | 221.9 | | | 642.3 | | | 73.0 | | | 715.3 | |
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2008 | | | | | | | | | | | | | | | | | | | | | | |
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Revenues | | $ | 1,187.5 | | $ | 407.1 | | $ | 114.7 | | $ | — | | $ | 1,709.3 | | $ | 449.8 | | $ | 2,159.1 | |
Bad debts | | | 5.7 | | | (0.9 | ) | | 0.6 | | | — | | | 5.4 | | | 3.2 | | | 8.6 | |
Depreciation and amortization(3) | | | 18.1 | | | 3.2 | | | 1.4 | | | 32.6 | | | 55.3 | | | 6.9 | | | 62.2 | |
Amortization(4) | | | 12.4 | | | 24.6 | | | 6.8 | | | — | | | 43.8 | | | 2.3 | | | 46.1 | |
Royalty advances expensed | | | 23.2 | | | 1.2 | | | 0.6 | | | — | | | 25.0 | | | 3.8 | | | 28.8 | |
Segment operating income/(loss) | | | 185.1 | | | 65.9 | | | (2.8 | ) | | (77.1 | ) | | 171.1 | | | 42.3 | | | 213.4 | |
Segment assets | | | 538.8 | | | 333.8 | | | 59.7 | | | 430.6 | | | 1,362.9 | | | 305.8 | | | 1,668.7 | |
Goodwill | | | 38.2 | | | 89.0 | | | 5.8 | | | — | | | 133.0 | | | 31.4 | | | 164.4 | |
Expenditures for long-lived assets | | | 55.7 | | | 36.0 | | | 14.0 | | | 22.4 | | | 128.1 | | | 16.5 | | | 144.6 | |
Long-lived assets | | | 179.8 | | | 200.5 | | | 26.3 | | | 230.1 | | | 636.7 | | | 117.7 | | | 754.4 | |
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| | Children’s
Book
Publishing &
Distribution(1) | | Educational
Technology
& Services(1) (2) | | Classroom &
Supplemental
Materials
Publishing(1) (3) | | Media,
Licensing &
Advertising(1) | | Overhead(1) (4) | | Total
Domestic | | International(1) (5) | | Total | |
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2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Revenues | | $ | 1,111.3 | | $ | 254.7 | | $ | 208.2 | | $ | 85.0 | | $ | — | | $ | 1,659.2 | | $ | 489.6 | | $ | 2,148.8 | |
Bad debts | | | 6.4 | | | 0.7 | | | 1.9 | | | 0.1 | | | — | | | 9.1 | | | 3.2 | | | 12.3 | |
Depreciation and amortization(6) | | | 20.6 | | | 1.3 | | | 1.0 | | | 0.5 | | | 39.0 | | | 62.4 | | | 6.4 | | | 68.8 | |
Amortization(7) | | | 12.5 | | | 20.9 | | | 6.7 | | | 12.3 | | | — | | | 52.4 | | | 2.7 | | | 55.1 | |
Loss on leases and asset Impairments | | | 0.5 | | | — | | | — | | | — | | | 6.2 | | | 6.7 | | | 0.3 | | | 7.0 | |
Segment operating income (loss) | | | 153.0 | | | 49.2 | | | 18.3 | | | (4.7 | ) | | (87.1 | ) | | 128.7 | | | 57.6 | | | 186.3 | |
Segment assets at May 31, 2012 | | | 543.5 | | | 168.5 | | | 163.6 | | | 38.8 | | | 438.6 | | | 1,353.0 | | | 310.3 | | | 1,663.3 | |
Goodwill at May 31, 2012 | | | 54.3 | | | 22.7 | | | 65.4 | | | 5.4 | | | — | | | 147.8 | | | 9.9 | | | 157.7 | |
Expenditures for long-lived assets including royalty advances | | | 44.4 | | | 26.2 | | | 17.9 | | | 6.4 | | | 37.9 | | | 132.8 | | | 13.2 | | | 146.0 | |
Long-lived assets at May 31, 2012 | | | 167.5 | | | 101.1 | | | 90.3 | | | 11.7 | | | 246.7 | | | 617.3 | | | 67.1 | | | 684.4 | |
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Revenues | | $ | 922.0 | | $ | 230.8 | | $ | 197.2 | | $ | 93.0 | | $ | — | | $ | 1,443.0 | | $ | 444.9 | | $ | 1,887.9 | |
Bad debts | | | 8.7 | | | 0.7 | | | 1.2 | | | 0.2 | | | — | | | 10.8 | | | 2.8 | | | 13.6 | |
Depreciation and amortization(6) | | | 15.6 | | | 1.3 | | | 1.3 | | | 0.7 | | | 35.6 | | | 54.5 | | | 5.6 | | | 60.1 | |
Amortization(7) | | | 12.6 | | | 22.8 | | | 5.0 | | | 8.0 | | | — | | | 48.4 | | | 2.7 | | | 51.1 | |
Asset Impairments | | | — | | | — | | | 3.4 | | | — | | | — | | | 3.4 | | | — | | | 3.4 | |
Segment operating income (loss) | | | 78.1 | | | 38.0 | | | 13.6 | | | 3.0 | | | (67.0 | ) | | 65.7 | | | 38.3 | | | 104.0 | |
Segment assets at May 31, 2011 | | | 427.1 | | | 161.1 | | | 150.8 | | | 44.9 | | | 405.1 | | | 1,189.0 | | | 287.5 | | | 1,476.5 | |
Goodwill at May 31, 2011 | | | 54.3 | | | 21.8 | | | 64.0 | | | 5.4 | | | — | | | 145.5 | | | 8.7 | | | 154.2 | |
Expenditures for long-lived assets including royalty advances | | | 40.4 | | | 35.7 | | | 9.1 | | | 9.4 | | | 56.3 | | | 150.9 | | | 11.8 | | | 162.7 | |
Long-lived assets at May 31, 2011 | | | 175.9 | | | 97.6 | | | 80.2 | | | 20.1 | | | 249.0 | | | 622.8 | | | 71.2 | | | 694.0 | |
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Revenues | | $ | 910.6 | | $ | 262.8 | | $ | 213.7 | | $ | 95.1 | | $ | — | | $ | 1,482.2 | | $ | 412.0 | | $ | 1,894.2 | |
Bad debts | | | 3.9 | | | 0.4 | | | 1.3 | | | 0.1 | | | — | | | 5.7 | | | 3.8 | | | 9.5 | |
Depreciation and amortization(6) | | | 14.2 | | | 1.3 | | | 1.7 | | | 0.7 | | | 35.6 | | | 53.5 | | | 6.0 | | | 59.5 | |
Amortization(7) | | | 12.0 | | | 21.5 | | | 4.4 | | | 10.2 | | | — | | | 48.1 | | | 2.9 | | | 51.0 | |
Asset Impairments | | | — | | | — | | | 36.3 | | | — | | | — | | | 36.3 | | | 3.8 | | | 40.1 | |
Segment operating income (loss) | | | 117.9 | | | 71.8 | | | (4.6 | ) | | 0.4 | | | (83.3 | ) | | 102.2 | | | 30.0 | | | 132.2 | |
Segment assets at May 31, 2010 | | | 517.2 | | | 175.0 | | | 169.8 | | | 55.5 | | | 377.0 | | | 1,294.5 | | | 291.0 | | | 1,585.5 | |
Goodwill at May 31, 2010 | | | 54.3 | | | 21.0 | | | 67.4 | | | 5.4 | | | — | | | 148.1 | | | 8.5 | | | 156.6 | |
Expenditures for long-lived assets including royalty advances | | | 43.7 | | | 26.1 | | | 5.7 | | | 6.9 | | | 28.9 | | | 111.3 | | | 11.2 | | | 122.5 | |
Long-lived assets at May 31, 2010 | | | 176.8 | | | 92.5 | | | 77.3 | | | 19.2 | | | 232.2 | | | 598.0 | | | 67.1 | | | 665.1 | |
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(1) | As discussed in Note 2,3, “Discontinued Operations,” the Company determined to sellclosed or shut down its domestic, Canadian and UK continuities businesses, and intends to sell the Maumelle Facilitysold several operations during fiscal 2010 and the Danbury Facility. Duringfirst quarter of fiscal 2009, the Company also ceased its operations in Argentina2012 and Mexico, its door-to-door selling operations in Puerto Rico, as well as its continuities business in Australia and New Zealand, its corporate book fairs business and closed its Scarsdale, NY store. The Company also sold a trade magazine. Additionally, the Company sold a non-core market research business and a non-core on-line resourcepresently holds for teachers business. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business.sale one facility. All of the abovethese businesses are classified as discontinued operations in the Company’s financial statements and, as such, are not reflected in this table. During the first quarter of fiscal 2011, the Company determined that its Danbury Facility was no longer “held for sale.” Accordingly, the assets, liabilities and results of operations of the Danbury Facility are included in continuing operations for all periods presented. |
| |
(2) | Includes assets and results of operations acquired in a business acquisition as of September 9, 2010. |
| |
(3) | Includes assets and results of operations acquired in a business acquisition as of February 8, 2012. |
| |
(4) | Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, and its fulfillment and distribution facilities located in Missouri.Missouri and its facility located in Connecticut. Overhead also includes amounts previously allocated to theMedia, Licensing and Advertising segment for the Company’s direct-to-home toy catalog business that was discontinued in the first quarter of fiscal 2012. |
| |
(3)(5)
| Includes assets and results of operations acquired in a business acquisition as of January 3, 2012 |
| |
(6) | Includes depreciation of property, plant and equipment and amortization of intangible assets. |
| |
(4)(7)
| Includes amortization of prepublication and production costs. |
52
4.5. DEBT
The following table summarizes debt as of May 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value | | | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Lines of Credit (weighted average interest rates of 3.9% and 3.3%, respectively) | | $ | 7.5 | | $ | 7.5 | | $ | 10.9 | | $ | 10.9 | | |
Lines of Credit (weighted average interest rates of 5.3% and 6.7%, respectively) | | | $ | 6.5 | | $ | 6.5 | | $ | 0.7 | | $ | 0.7 | |
Loan Agreement: | | | | | | | | | | | | | | | | | | |
Revolving Loan | | — | | — | | — | | — | | | — | | — | | — | | — | |
Term Loan (interest rates of 1.1% and 1.2%, respectively) | | 93.0 | | 93.0 | | 135.8 | | 135.8 | | |
Term Loan (interest rates of n/a and 1.0%, respectively) | | | — | | — | | 50.2 | | 50.2 | |
5% Notes due 2013, net of discount | | 152.3 | | 151.3 | | 157.0 | | 129.6 | | | 152.8 | | 155.4 | | 152.5 | | 156.6 | |
| | | | | | | | | | | |
Total debt | | 252.8 | | 251.8 | | 303.7 | | 276.3 | | | $ | 159.3 | | $ | 161.9 | | $ | 203.4 | | $ | 207.5 | |
| | | | | | | | | | |
Less lines of credit and current portion of long-term debt | | (50.3 | ) | | (50.3 | ) | | (53.7 | ) | | (53.7 | ) | | (6.5 | ) | | (6.5 | ) | | (43.5 | ) | | (43.5 | ) |
| |
|
|
| | | | | | | | | |
Total long-term debt | | $ | 202.5 | | $ | 201.5 | | $ | 250.0 | | $ | 222.6 | | | $ | 152.8 | | $ | 155.4 | | $ | 159.9 | | $ | 164.0 | |
|
Short-termThe short-term debt’s carrying value approximates its fair value. FairThe fair value of the Loan Agreement approximatesapproximated its carrying value due to its variable interest rate and the Company’s stable credit rating. FairThe fair values of the Notes were estimated based on market quotes, where available, or dealer quotes.
53
The following table sets forth the maturities of the carrying values of the Company’s debt obligations as of May 31, 20102012 for the fiscal yearsyear ended May 31:
| | | | |
|
|
|
|
|
2011 | | $ | 50.3 | |
2012 | | | 42.8 | |
2013 | | | 159.7 | |
Thereafter | | | — | |
|
|
|
|
|
Total debt | | $ | 252.8 | |
|
|
|
|
|
| | | | |
|
|
|
|
|
2013 | | $ | 6.5 | |
2014 | | | — | |
2015 | | | 152.8 | |
|
|
|
|
|
Total debt | | $ | 159.3 | |
|
|
|
|
|
Loan Agreement
On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a new $525.0 credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 revolving credit component (the “Revolving Loan”) and a $200.0 amortizing term loan component (the “Term Loan”). The Loan Agreement is a contractually committed unsecured creditwas amended on August 16, 2010, and again on October 25, 2011. The October 25, 2011 amendment extended the maturity of the Revolving Loan facility that is scheduled to expire on June 1, 2012.2014 from June 1, 2012 and provided for the repayment of the outstanding balance of the Term Loan on October 25, 2011. The $325.0 Revolving Loan component allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes,
- 50 -
including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0. The $200.0 Term Loan component was established in order to fund the reacquisition by the Corporation of shares of its Common Stock pursuant to an Accelerated Share Repurchase Agreement (see Note 10, “Treasury Stock”) and was fully drawn on June 28, 2007 in connection with that transaction. The Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7, with the first payment on December 31, 2007, and a final payment of $7.4 due on June 1, 2012.
Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). AtThe interest pricing under the Revolving Loan is dependent upon the Borrower’s election of the Borrower, the interest rate charged for each loan made under the Loan Agreement is based on (1) a rate that is either:
| | |
| • | A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1% plus an applicable spread ranging from 0.18% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
| | |
| | - or - |
| | |
| • | A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio. |
As of May 31, 2012, the higher of (a)indicated spread on Base Rate Advances was 0.25% and the prime rate or (b) the prevailing Federal Funds rate plus 0.500% or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250%indicated spread on Eurodollar Rate Advances was 1.25%, both based on the Company’s prevailing consolidated debt to total capital ratio. AsThere were no Revolving Loan Advances outstanding as of May 31, 2010, the applicable margin on the Term Loan was 0.750%2012 and the applicable margin on the Revolving Loan was 0.600%. As of May 31, 2009, the applicable margin on the Term Loan was 0.875% and the applicable margin on the Revolving Loan was 0.700%. 2011, respectively.
The Loan Agreement also provides for athe payment of a facility fee ranging from 0.125%0.20% to 0.25%0.40% per annum onbased upon the Revolving Loan only, which was 0.150% and 0.175% atCompany’s prevailing consolidated debt to total capital ratio. At May 31, 2010 and 2009, respectively. As of2012, the facility fee rate was 0.25%.
At May 31, 2010, $93.0 was outstanding under2012, the Term Loan at an interest rate of 1.1%. As of May 31, 2009, $135.8 was outstanding under the Term Loan at an interest rate of 1.2%.
As of May 31, 2010,Company had open standby letters of credit outstandingtotaling $6.6 million issued under certain credit lines, including $1.4 million under the Loan Agreement totaled $0.4 million. agreement discussed above. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.
The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at May 31, 20102012, the Company was in compliance with these covenants.
Lines of Credit
As of May 31, 2012, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0. There were no outstanding borrowings under these credit lines at May 31, 2012 and 2011. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.
As of May 31, 2012, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $32.8, underwritten by banks primarily in the United States, Canada, Australia and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to $6.5 at May 31, 2012 at a weighted average interest rate of 5.3%, compared to the equivalent of $0.7 at May 31, 2011 at a weighted average interest rate of 6.7%.
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption.
In fiscal 2010,As noted above under “Loan Agreement,” the Company repurchased an additional $5.0amended the terms of the Revolving Loan to extend the maturity date from June 1, 2012 to June 1, 2014. The Company intends, and has the ability, to use a portion of this credit facility to fully redeem the 5% Notes due 2013. Accordingly, the balance of the 5% Notes is excluded from current liabilities and classified as Long-term debt on the open market, while $2.5 was repurchased in fiscal year 2009.
54
Lines of Credit
In November 2009 and May 2009, the Company entered into unsecured money market bid rate credit lines totaling $20.0. There were no outstanding borrowings under these credit lines at May 31, 2010 and May 31, 2009. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days, for fiscal 2010 and 180 days for fiscal 2009. These credit lines may be renewed, if requested by the Company, at the option of the lender.
AsCompany’s Consolidated Balance Sheet as of May 31, 2010, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $28.2, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these facilities equivalent to $7.5 at May 31, 2010 at a weighted average interest rate of 3.9%, compared to the equivalent of $10.9 at May 31, 2009 at a weighted average interest rate of 3.3%.2012.
5.6. COMMITMENTS AND CONTINGENCIES
Lease obligations
The Company leases warehouse space, office space and equipment under various capital and operating leases over periods ranging from one to forty years. Certain of these leases provide for scheduled rent increases based on price-level factors. The Company generally does not enter into leases that call for contingent rent. In most cases, managementthe Company expects that, in the normal course of business, leases will be renewed or
- 51 -
replaced. Net rent expense relating to the Company’s non-cancelable operating leases for the three fiscal years ended May 31, 2012, 2011 and 2010 2009was $38.9, $47.2 and 2008 was $44.8, $45.3 and $45.9,$44.7, respectively.
The Company was obligatedAmortization of assets under capital leases covering land, buildings and equipment inwas $1.1, $1.2 and $3.5 for the amount of $55.9 and $57.9 atfiscal years ended May 31, 2012, 2011 and 2010, respectively, and 2009, respectively. Amortizationis included in Depreciation and amortization expense. The most significant of assets underthe Company’s capital leases is included in depreciationfor the New York office where the Company’s headquarters are located. This capital lease has an imputed interest rate of 7.9% and amortization expense.the term ends July 2039.
The following table sets forth the composition of capital leases reflected as Property, Plant and Equipment in the Consolidated Balance Sheets at May 31:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Land | | $ | 3.5 | | $ | 3.5 | | | $ | 3.5 | | $ | 3.5 | |
Buildings | | 39.0 | | 39.0 | | | 39.0 | | 39.0 | |
Equipment | | 8.0 | | 19.0 | | | 1.0 | | 3.0 | |
| | | 50.5 | | 61.5 | | | 43.5 | | 45.5 | |
Accumulated amortization | | (17.6 | ) | | (25.3 | ) | | (12.3 | ) | | (14.1 | ) |
| | | | | | | |
Total | | $ | 32.9 | | $ | 36.2 | | | $ | 31.2 | | $ | 31.4 | |
|
|
|
The following table sets forth the aggregate minimum future annual rental commitments at May 31, 20102012 under all non-cancelable leases for fiscal years ending May 31:
| | | | | | | | | | | | | | |
| | | Operating Leases | | Capital Leases | | | Operating Leases | | Capital Leases | |
| 2011 | | 35.3 | | 5.9 | | |
2012 | | 31.1 | | 5.7 | | |
2013 | | 27.1 | | 6.2 | | | $ | 38.3 | | $ | 6.0 | |
2014 | | 21.0 | | 5.1 | | | 31.5 | | 5.4 | |
2015 | | 16.8 | | 5.1 | | | 26.6 | | 5.1 | |
2016 | | | 22.2 | | 5.1 | |
2017 | | | 16.4 | | 5.9 | |
Thereafter | | 55.7 | | 196.2 | | | 54.4 | | 185.2 | |
| Total minimum lease payments | | $ | 187.0 | | $ | 224.2 | | | $ | 189.4 | | $ | 212.7 | |
Less minimum sublease income to be received | | | $ | 18.0 | | $ | 20.3 | |
| |
| | | |
|
Minimum lease payments, net of sublease income | | | $ | 171.4 | | $ | 192.4 | |
Less amount representing interest | | | | 168.3 | | | 155.3 | |
| | | |
| | |
Present value of net minimum capital lease payments | | | | 55.9 | | | 57.4 | |
Less current maturities of capital lease obligations | | | | 0.9 | | | 1.0 | |
| | | |
| |
|
Long-term capital lease obligations | | | | $ | 55.0 | | | $ | 56.4 | |
| | | |
| |
|
Other Commitments
The Company hadfollowing table sets forth the aggregate minimum future contractual commitments at May 31, 2012 relating to royalty advances at May 31, 2010 totaling $10.6. The aggregate annual commitments for royalty advances are as follows: fiscal 2011 – $7.4; fiscal 2012 – $1.9; fiscal 2013 – $0.8; fiscal 2014 – $0.4; fiscal 2015 – $0.1.
The Company had contractual commitments relating toand minimum print quantities atfor fiscal years ending May 31, 2010 totaling $508.1. The annual commitments relating to minimum print quantities are as follows: fiscal 2011 –$46.2; fiscal 2012 – $47.1; fiscal 2013 – $48.1; fiscal 2014 – $49.2; fiscal 2015 – $50.2; thereafter – $267.3.31:
| | | | | | | |
|
|
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|
| | Royalty Advances | | Minimum Print Quantities | |
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|
2013 | | $ | 7.1 | | $ | 60.0 | |
2014 | | | 1.2 | | | 61.1 | |
2015 | | | 0.3 | | | 62.3 | |
2016 | | | 0.4 | | | 49.8 | |
2017 | | | — | | | 51.0 | |
Thereafter | | | — | | | 160.5 | |
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|
|
|
|
|
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|
Total commitments | | $ | 9.0 | | $ | 444.7 | |
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|
|
|
|
|
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55- 52 -
As of May 31, 2010, theThe Company had open standby letters of credit of $7.2$6.6 issued under certain credit lines compared to $7.4 as of May 31, 2009.2012 and 2011, respectively. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.
Contingencies
As previously reported, the Company is party to certain actions filed by each of Alaska Laborers Employee Retirement Fund and Paul Baicu, which were consolidated on November 8, 2007. On September 26, 2008, the plaintiff sought leave of the Court to file a second amended class action complaint, in order to add allegations relating to the Company’s restatement announced in the Company’s Annual Report on Form 10-K filed on July 30, 2008. The Court thereafter dismissed the Company’s pending motion to dismiss as moot. On October 20, 2008, the plaintiff filed the second amended complaint, and on October 31, 2008, the Company filed a motion to dismiss the second amended complaint, which remains pending. The second amended class action complaint continues to allege securities fraud relating to statements made by the Company concerning its operations and financial results between March 2005 and March 2006 and seeks unspecified compensatory damages. The Company continues to believe that the allegations in such complaint are without merit and is vigorously defending the lawsuit.
In addition to the above suits, variousVarious claims and lawsuits arising in the normal course of business are pending against the Company. The resultsCompany accrues a liability for such matters when it is probable that a liability has occurred and the amount of these proceedingssuch liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation loss contingencies are expensed in the period in which they are incurred. The Company does not expected toexpect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, after taking into account any amounts currently accrued, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.
Grolier Limited is an indirect subsidiary of Scholastic Corporation, located in the United Kingdom, which ceased operations in fiscal 2008 and the operations of which are included in discontinued operations. The Company is currently in the process of settling a Grolier Limited pension plan in effect at the time it ceased operations and is evaluating the potential pension liabilities under the plan relating to the status of the plan as a defined contribution or a defined benefit plan in the context of the conversion of the plan from a defined benefit to a defined contribution plan in 1986. The Company is not in a position to estimate a range of the reasonably possible liability at this time.
6.7. INVESTMENTS
Included in the Other Assetsassets and Deferred Charges Sectiondeferred charges section of the Company’s Consolidated Balance Sheets were investments of $20.6 and $27.1$20.4 at May 31, 20102012 and May 31, 2009,2011, respectively.
In fiscal 2010, the Company determined that a cost-method investment in a U.S. based internet company was other than temporarily impaired. Accordingly, the Company recognized a loss of $1.5 for the fiscal year ended May 31, 2010.
The Company owns a non-controlling interest in a book distribution business located in the United Kingdom.UK, which is accounted for as a cost-basis investment. In fiscal 2009,2011, the Company determined that these assets were other than temporarilyother-than-temporarily impaired. For the fiscal year ended May 31, 2009, theThe Company recorded impairments on investments related to these operationsemployed Level 3 fair value measures, including discounted cash flow projections, and recognized an impairment loss of $13.5.$3.6. The carrying value of these assets is $9.1was $5.2 as of May 31, 2010.2012.
In fiscal 2007, the Company participatedThe Company’s 26.2% non-controlling interest in a children’s book publishing business located in the organization of a new entity, the Children’s Network Venture LLC (“Children’s Network”) that produces and distributes educational children’s television programming under the name Qubo. Since inception in August 2006, the Company has contributed a total of $5.4 in cash and certain rights to existing television programming to the Children’s Network. The Company’s investment, which consists of a 12.25% equity interest,UK is accounted for using the equity method of accounting. The net value of this investment at May 31, 20102012 was $0.7, reflecting$15.4. The Company received $0.9 of dividends in fiscal 2012 from this investment.
The Company maintained an equity investment in an entity that produced and distributed educational children’s television programming. In the ongoing recognitionfourth quarter of losses.fiscal 2012, the Company determined that these assets were other-than-temporarily impaired, and the Company recognized an impairment loss of $1.3 in Selling, general and administrative expense.
Income from equity investments totaled $2.6 for the year ended May 31, 2012, $1.8 for the year ended May 31, 2011 and $1.0 for the year ended May 31, 2010.
The following table summarizes the Company’s investments as of May 31:
| | | | | | | |
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| | 2010 | | 2009 | |
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Cost method investments | | | | | | | |
The Book People, Ltd. | | $ | 9.1 | | $ | 9.1 | |
KIDZUI | | | — | | | 1.5 | |
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Total cost method investments | | | 9.1 | | | 10.6 | |
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Equity method investments | | | | | | | |
Usborne | | | 10.8 | | | 11.1 | |
Other | | | 0.7 | | | 5.4 | |
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Total equity method investments | | | 11.5 | | | 16.5 | |
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Total | | $ | 20.6 | | $ | 27.1 | |
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| | | | | | | |
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| | 2012 | | 2011 | |
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Cost method investments: | | | | | | | |
UK-based | | $ | 5.2 | | $ | 5.7 | |
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Total cost method investments | | $ | 5.2 | | $ | 5.7 | |
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| | | | | | | |
Equity method investments: | | | | | | | |
UK-based | | $ | 15.4 | | $ | 13.4 | |
U.S.-based | | | — | | | 1.3 | |
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Total equity method investments | | $ | 15.4 | | $ | 14.7 | |
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Total | | $ | 20.6 | | $ | 20.4 | |
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56- 53 -
7.8. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets with indefinite lives areis reviewed for impairment annually or more frequently if impairment indicators arise.
The following table summarizes the activity in Goodwill for the fiscal years ended May 31:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Gross beginning balance | | $ | 174.0 | | $ | 164.4 | | | $ | 175.0 | | $ | 174.0 | |
Accumulated impairment | | (17.0 | ) | | — | | | (20.8 | ) | | (17.4 | ) |
| Beginning balance | | 157.0 | | 164.4 | | | 154.2 | | 156.6 | |
Additions due to acquisition | | | 2.7 | | 1.0 | |
Impairment charge | | (0.4 | ) | | (17.0 | ) | | — | | (3.4 | ) |
Deferred tax adjustment | | — | | 16.1 | | |
Purchase adjustment | | — | | (0.7 | ) | |
Foreign currency translation | | — | | (5.8 | ) | | 0.0 | | 0.0 | |
Other | | | 0.8 | | — | |
| |
|
Gross ending balance | | | 178.5 | | 175.0 | |
Accumulated impairment | | | (20.8 | ) | | (20.8 | ) |
| Ending balance | | $ | 156.6 | | $ | 157.0 | | | $ | 157.7 | | $ | 154.2 | |
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|
|
The ending balancesOn February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.8 in assumed liabilities, which have been fulfilled by the Company as of May 31, 2010 include accumulated impairments2012. The Company utilized internally-developed discounted cash flow forecasts and market comparisons of $17.4.
At February 28, 2009,royalty rates to determine the total marketfair value of the Company’s outstanding Commonassets acquired and Class A shares was less than the carrying valueamount to be allocated to goodwill. As a result, the Company recognized $1.4 of the Company’s netgoodwill and $5.4 of intangible assets. DueThe results of operations of this business subsequent to the reduced total market value ofacquisition date are included in the Company’s Common Stock,Classroom and Supplemental Materials Publishing segment, and certain assets will benefit theChildren’s Book Publishing and Distribution segment.
On January 3, 2012, the Company evaluated the goodwillacquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for its reporting unitsEnglish-Language Learners, for impairment as$2.8, net of February 28, 2009.cash acquired. The Company employed internally developedutilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to determine the fair valuesvalue of its reporting units, based upon the best available financial data.assets acquired and the amount of goodwill to be allocated to the Learners Publishing business. As a result of this transaction, the Company recorded $1.3 of goodwill. The Company concluded that goodwill associated withresults of operations of this business subsequent to the Company’s United Kingdom operations was impaired as of February 28, 2009, and recognized a goodwill impairment of $17.0.
The deferred tax adjustment in fiscal 2009 relates to a prior acquisition date are included in the Children’s Book Publishing and DistributionInternational segment. The purchase adjustment in fiscal 2009 is related to the acquisition of a school consulting and professional development services company in fiscal 2007.
As of May 31, 2010,2011, the Company determined the carrying value of its direct-to-home catalogScholastic Library Publishing and Classroom Magazines business specializing in toyswithin theClassroom and Supplemental Materials Publishing segment exceeded the fair value of this reporting unit. The Company employed internally developedinternally-developed discounted cash flow forecastforecasts and market comparisons to determine the fair value of the reporting unit and the implied fair value of the reporting unit’s assets and liabilities. Accordingly, the Company recognized an impairment charge of $0.4$3.4 at May 31, 2010.2011.
On September 9, 2010, the Company purchased the assets of Math Solutions, an education resources and professional development company focusing on K-12 math instruction, for $8.2, net of cash acquired. The Company has integrated this business with its existing educational technology businesses. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Math Solutions business. As a result, the Company recognized $1.7 of goodwill and $5.6 of amortizable intangible assets.
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The following table summarizes Other intangibles subject to amortization as of May 31:
| | | | | | | |
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| | 2010 | | 2009 | |
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Beginning balance | | $ | 0.1 | | $ | 0.2 | |
Additions | | | 5.1 | | | — | |
Impairment charge | | | (3.8 | ) | | — | |
Other adjustments | | | (0.3 | ) | | — | |
Amortization expense | | | (0.2 | ) | | (0.1 | ) |
Foreign currency translation | | | (0.1 | ) | | — | |
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Customer lists, net of accumulated amortization of $1.1 and $0.9, respectively | | $ | 0.8 | | $ | 0.1 | |
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Beginning balance | | $ | 2.8 | | $ | 3.3 | |
Amortization expense | | | (0.6 | ) | | (0.5 | ) |
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Other intangibles, net of accumulated amortization of $6.2 and $5.6, respectively | | $ | 2.2 | | $ | 2.8 | |
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Total | | $ | 3.0 | | $ | 2.9 | |
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| | 2012 | | 2011 | |
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Beginning balance-Customer lists | | $ | 0.7 | | $ | 0.8 | |
Additions due to acquisition | | | 3.8 | | | — | |
Amortization expense | | | (0.2 | ) | | (0.2 | ) |
Foreign currency translation | | | 0.0 | | | 0.1 | |
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| | | | | | | |
Customer lists, net of accumulated amortization of $1.3 and $1.1, respectively | | $ | 4.3 | | $ | 0.7 | |
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Beginning balance-Other intangibles | | $ | 17.3 | | $ | 2.2 | |
Additions due to acquisition | | | — | | | 5.6 | |
Impairment charge | | | (5.4 | ) | | — | |
| | | | | | | |
Reclassified from indefinite-lived intangible assets | | | — | | | 10.7 | |
Amortization expense | | | (1.4 | ) | | (1.2 | ) |
Other | | | (0.1 | ) | | — | |
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Other intangibles, net of accumulated amortization of $10.5 and $4.2, respectively | | $ | 10.4 | | $ | 17.3 | |
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Total other intangibles subject to amortization | | $ | 14.7 | | $ | 18.0 | |
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Amortization expense for Other intangibles totaled $0.8, $0.6$6.5, $1.4 and $2.5$0.8 for the fiscal years ended May 31, 2012, 2011 and 2010, 2009 and 2008, respectively. Amortization
The following table reflects the estimated amortization expense for these assets is currently estimated to total $0.8intangibles for the fiscal year ending May 31, 2011, $0.7 fornext five fiscal years ending May 31, 2012 and 2013, $0.2 for the fiscal year ending May 31, 2014 and $0.1 for the fiscal year ending May 31, 2015. 31:
| | | | |
2013 | | $ | 2.0 | |
2014 | | | 1.9 | |
2015 | | | 1.8 | |
2016 | | | 1.7 | |
2017 | | | 1.7 | |
Intangible assets with definite lives consist principally of customer lists, and covenants not to compete.compete and trademarks. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is 8 years.
During the first quarter ofIn fiscal 2010, the Company and its joint venture partner terminated a book distribution joint venture in the United Kingdom. As a result of this transaction, the Company received a portion of the business and a related customer list previously held by the joint venture, in exchange for the partial forgiveness of amounts owed to the Company by the joint venture and related entities. The Company recognized this customer list in the first quarter of fiscal 2010 with a carrying value of $5.1, which the Company intended to operate apart from its existing customer list. In the second quarter of fiscal 2010,2011, the Company determined that certain intangible assets associated with publishing and trademark rights in theChildren’s Book Publishing and Distribution segment, which were previously accounted for as indefinite-lived assets, were no longer indefinite-lived. Accordingly, the Company assessed these assets for impairment as of September 1, 2010, and subsequently commenced amortization of the assets. The Company determined that the fair value of the assets exceeded their carrying value as of September 1, 2010, and therefore no impairment was recognized. In fiscal 2012, due to maximize profitability,declining revenues associated with these rights, the acquired customer list shouldCompany determined that these assets were not fully recoverable and recognized an impairment in amortization expense of $4.9 based upon the difference between the carrying value and the fair value of the asset and reduced the expected useful life of this asset. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets as of September 1, 2010, and as of May 31, 2012, including the relief from royalty method.
In fiscal 2011, the Company recognized $5.6 of amortizable intangible assets as a result of the Math Solutions acquisition. The Company utilized Level 3 fair value measurement inputs, using its own assumptions including internally-developed discounted cash flow forecasts and market comparisons, to determine the fair value of the intangible assets acquired.
57- 55 -
ultimately be combined with its existing customer list. As a result, the Company assessed this customer list for impairment and determined that the customer list was impaired based upon the highest and best use for this asset. This assessment incorporated internally developed cash flow projections to measure fair value, as market data for this asset is not readily available. Accordingly, the Company recognized an impairment charge in the second quarter of fiscal 2010 related to this asset of $3.8.
The Company implemented certain strategic initiatives during fiscal 2010 to centralize publishing efforts within theChildren’s Book Publishing and Distributionsegment. These initiatives included the elimination of the front list for certain library-specific titles. The Company will continue to serve the library market through other channels, notably the trade channel within theChildren’s Book Publishing and Distributionsegment. As a result of these initiatives, and in tandem with reduced expectations in certainEducational Publishingprint businesses, the Company determined that the intangible assets of $28.7 and prepublication costs of $7.6 associated with such businesses, totaling $36.3, were impaired. The Company employed qualitative and internally developed quantitative methods, including discounted cash flow models, to determine the fair value of the asset to a market participant. Significant inputs included a best use analysis of the existing market for the asset, including uses for the asset other than its current usage, resulting in a determination that the market for the asset had declined significantly.
In the fourth quarter of fiscal 2010, the Company determined that the fair value of the trademark associated with the Company’s direct-to-home catalog business specializing in toys was less than the carrying value of the trademark. The Company used historical and projected results while applying a residual income fair value method to make this determination and recognized an impairment of this trademark of $2.6.
The following table summarizes Other intangibles not subject to amortization as of May 31:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Net carrying value by major class: | | | | | | | | | | |
Titles | | $ | — | | $ | 28.7 | | |
Trademarks and other | | 12.5 | | 15.2 | | | $ | 2.0 | | $ | 1.8 | |
| Total | | $ | 12.5 | | $ | 43.9 | | |
Total other intangibles not subject to amortization | | | $ | 2.0 | | $ | 1.8 | |
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Total other intangibles | | | $ | 16.7 | | $ | 19.8 | |
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8.9. TAXES
The components of earnings from continuing operations before income taxes for the fiscal years ended May 31 are:
| | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2012 | | 2011 | | 2010 | |
| United States | | $ | 109.6 | | $ | 50.9 | | $ | 170.4 | | | $ | 146.3 | | $ | 77.2 | | $ | 113.4 | |
Non-United States | | 2.0 | | (16.3 | ) | | 15.8 | | | $ | 24.4 | | $ | 7.2 | | $ | 2.0 | |
| Total | | $ | 111.6 | | $ | 34.6 | | $ | 186.2 | | | $ | 170.7 | | $ | 84.4 | | $ | 115.4 | |
|
The provision for income taxes for the fiscal years ended May 31 consistconsists of the following components:
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| | 2010 | | 2009 | | 2008 | |
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Federal | | | | | | | | | | |
Current | | $ | 10.2 | | $ | 10.4 | | $ | 49.4 | |
Deferred | | | 29.8 | | | 2.9 | | | 4.3 | |
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| | $ | 40.0 | | $ | 13.3 | | $ | 53.7 | |
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State and local | | | | | | | | | | |
Current | | $ | 1.8 | | $ | 1.1 | | $ | 5.8 | |
Deferred | | | 1.1 | | | 0.3 | | | 0.4 | |
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| | $ | 2.9 | | $ | 1.4 | | $ | 6.2 | |
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International | | | | | | | | | | |
Current | | $ | 8.6 | | $ | 5.5 | | $ | 9.3 | |
Deferred | | | 1.4 | | | 1.2 | | | (0.3 | ) |
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| | $ | 10.0 | | $ | 6.7 | | $ | 9.0 | |
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Total | | | | | | | | | | |
Current | | $ | 20.6 | | $ | 17.0 | | $ | 64.5 | |
Deferred | | | 32.3 | | | 4.4 | | | 4.4 | |
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| | $ | 52.9 | | $ | 21.4 | | $ | 68.9 | |
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58
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| | 2012 | | 2011 | | 2010 | |
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Federal | | | | | | | | | | |
Current | | $ | 49.4 | | $ | 10.3 | | $ | 11.5 | |
Deferred | | | (8.2 | ) | | 9.1 | | | 29.8 | |
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| | $ | 41.2 | | $ | 19.4 | | $ | 41.3 | |
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| | | | | | | | | | |
State and local | | | | | | | | | | |
Current | | $ | 12.1 | | $ | 3.8 | | $ | 2.0 | |
Deferred | | | (0.7 | ) | | 2.2 | | | 1.1 | |
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| | $ | 11.4 | | $ | 6.0 | | $ | 3.1 | |
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| | | | | | | | | | |
International | | | | | | | | | | |
Current | | $ | 12.8 | | $ | 12.5 | | $ | 8.6 | |
Deferred | | | (3.4 | ) | | 1.0 | | | 1.4 | |
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| | $ | 9.4 | | $ | 13.5 | | $ | 10.0 | |
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Total | | | | | | | | | | |
Current | | $ | 74.3 | | $ | 26.6 | | $ | 22.1 | |
Deferred | | | (12.3 | ) | | 12.3 | | | 32.3 | |
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| | $ | 62.0 | | $ | 38.9 | | $ | 54.4 | |
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Effective Tax Rate Reconciliation
A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on earnings from continuing operations before income taxes for the fiscal years ended May 31 is as follows:
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| | 2010 | | 2009 | | 2008 | |
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Computed federal statutory provision | | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income tax provision, net of federal income tax benefit | | | 5.2 | % | | 4.3 | % | | 3.3 | % |
Difference in effective tax rates on earnings of foreign subsidiaries | | | -0.4 | % | | -0.9 | % | | -0.8 | % |
Charitable contributions | | | -1.1 | % | | -1.2 | % | | 0.0 | % |
Tax credits | | | -0.2 | % | | 0.0 | % | | -1.3 | % |
Valuation allowances | | | 5.4 | % | | 14.7 | % | | 1.8 | % |
Other – net | | | 3.5 | % | | 9.9 | % | | -1.0 | % |
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Effective tax rates | | | 47.4 | % | | 61.8 | % | | 37.0 | % |
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Total provision for income taxes | | $ | 52.9 | | $ | 21.4 | | $ | 68.9 | |
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- 56 -
| | | | | | | | | | |
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| | 2012 | | 2011 | | 2010 | |
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Computed federal statutory provision | | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income tax provision, net of federal income tax benefit | | | 4.3 | % | | 5.2 | % | | 5.2 | % |
Difference in effective tax rates on earnings of foreign subsidiaries | | | 0.2 | % | | -0.8 | % | | -0.4 | % |
Charitable contributions | | | -0.7 | % | | -1.5 | % | | -1.1 | % |
Tax credits | | | -0.1 | % | | -0.2 | % | | -0.2 | % |
Valuation allowances | | | -1.4 | % | | 5.9 | % | | 5.3 | % |
Other - net | | | -1.0 | % | | 2.5 | % | | 3.4 | % |
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Effective tax rates | | | 36.3 | % | | 46.1 | % | | 47.2 | % |
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Total provision for income taxes | | $ | 62.0 | | $ | 38.9 | | $ | 54.4 | |
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Unremitted Earnings
At May 31, 2010,2012, the Company had not provided U.S. income taxes on accumulated but undistributed earnings of its non-U.S. subsidiaries of approximately $63.4,$78.6, as the Company intendssubstantially all of these undistributed earnings are expected to reinvest those earnings in operations outside of the U.S.be permanently reinvested. However, if any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings. Determining the unrecognized deferred tax liability related to those investments in these non-U.S. subsidiaries is not practicable. The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in foreign subsidiaries are indefinitely invested.
Deferred Taxes
The significant components for deferred income taxes for the fiscal years ended May 31, including deferred income taxes related to discontinued operations, are as follows:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Deferred tax assets | | | | | | | | | | |
Tax uniform capitalization | | $ | 19.8 | | $ | 22.2 | | | $ | 16.8 | | $ | 17.1 | |
Inventory reserves | | 25.0 | | 24.8 | | | 29.8 | | 25.8 | |
Allowance for doubtful accounts | | 5.3 | | 5.0 | | | 7.8 | | 6.5 | |
Other reserves | | 18.7 | | 8.6 | | | 41.2 | | 23.2 | |
Post-retirement, post-employment and pension obligations | | 24.0 | | 21.6 | | | 23.1 | | 21.3 | |
Tax carryforwards | | 38.2 | | 68.7 | | | 40.3 | | 41.0 | |
Lease accounting | | 8.6 | | 8.0 | | | 10.1 | | 9.4 | |
Other – net | | 29.4 | | 43.5 | | |
Other - net | | | 34.2 | | 29.1 | |
| Gross Deferred Tax Asset | | 169.0 | | 202.4 | | |
Gross deferred tax assets | | | 203.3 | | 173.4 | |
Valuation allowance | | (36.0 | ) | | (30.1 | ) | | (34.4 | ) | | (36.8 | ) |
| Total deferred tax asset | | 133.0 | | 172.3 | | |
Total deferred tax assets | | | $ | 168.9 | | $ | 136.6 | |
| Deferred Tax Liabilities | | | | | | |
Deferred tax liabilities | | | | | | |
Prepaid expenses | | (0.8 | ) | | — | | | (0.6 | ) | | (0.8 | ) |
Depreciation and amortization | | (39.3 | ) | | (50.9 | ) | | (54.6 | ) | | (59.4 | ) |
| Total deferred tax liability | | (40.1 | ) | | (50.9 | ) | | $ | (55.2 | ) | $ | (60.2 | ) |
| | | | | | |
Total net deferred tax assets | | $ | 92.9 | | $ | 121.4 | | | $ | 113.7 | | $ | 76.4 | |
|
Total net deferred tax assets of $92.9$113.7 at May 31, 20102012 and $121.4$76.4 at May 31, 20092011 include $59.2$71.4 and $62.7,$56.2, respectively, in Other current assets. Total non currentnoncurrent deferred tax assets of $33.7$42.3 and $58.7$20.2 are reflected in Other noncurrent assets at May 31, 20102012 and 2009,2011, respectively. The change in deferred tax asset reflects a utilization of net operating losses generated during
For the fiscal year ended May 31, 2009 of $88.5.
For2012, the yearsvaluation allowance decreased by $2.4 and for the year ended May 31, 2010 and 2009,2011, the valuation allowance increased by $5.9 and $15.6, respectively.$0.8. The valuation allowance is based on the Company’s assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. The valuation allowance at May 31, 2012 primarily relates to foreign operating loss carryforwards of $105.7$125.0, principally in the UK, which do not expire and charitable contributions of $19.0 at May 31, 2010.
During fiscal 2010, the Patient Protection and Affordable Care Act was signed into law. This legislation eliminated the benefit the Company received as a result of deducting the federal subsidy for Medicare Subpart D. As a result of this lost benefit, the Company will not receive the corresponding deferred tax asset of approximately $1.5.expire.
59- 57 -
As of June 1, 2007, the Company adopted the provisions of Topic 740. The benefits of uncertain tax positions are recorded in the financial statements only after determining a more likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. These uncertain tax positions are included in long-term income taxes payable, reduced by the associated federal deduction for state taxes and non-U.S. tax credits, and may also include other long-term tax liabilities that are not uncertain but have not yet been paid. The interest and penalties related to these uncertain tax positions are recorded as part of the Company’s income tax expense and part of the income tax liability on the Company’s Consolidated Balance Sheets.
The total amount of unrecognized tax benefits at May 31, 2012, 2011 and 2010 2009 and 2008 were $30.6,$38.7, excluding $5.7$7.1 accrued for interest and penalties, $33.6,$30.8, excluding $8.5$5.9 accrued for interest and penalties, and $33.1,$30.6, excluding $6.7$5.7 for interest and penalties, respectively. The total amount of accrued interest and penalties, was a net benefit of $2.8 and expense of $1.8 at May 31, 2010 and May 31, 2009, respectively. Of the total amount of unrecognized tax benefits at May 31, 2012, 2011 and 2010, 2009$18.1, $19.2 and 2008, $19.5, $15.1 and $16.2, respectively, would impact the Company’s effective tax rate.
During the years presented, the Company recognized interest and penalties related to unrecognized tax benefits with the provision for taxes on the consolidated financial statements. The Company recognized an expense of $2.4, $1.0, and $1.9 at May 31, 2012, 2011, and 2010, respectively.
- 58 -
A reconciliation of the unrecognized tax benefits for the fiscal yearyears ended May 31 2010 is as follows:
| | | | | | | | |
| |
Gross unrecognized benefits at June 1, 2007 | | $ | 34.0 | | |
Decreases related to prior year tax positions | | (5.4 | ) | |
Increases related to current year tax positions | | 4.7 | | |
Lapse of statute of limitation | | (0.2 | ) | |
| |
Gross unrecognized benefits at May 31, 2008 | | 33.1 | | |
Decreases related to prior year tax position | | (1.2 | ) | |
Increases related to current year tax positions | | 1.7 | | |
| Gross unrecognized benefits at May 31, 2009 | | 33.6 | | | $ | 33.6 | |
Decreases related to prior year tax positions | | (17.6 | ) | | (17.6 | ) |
Increases related to prior year tax position | | 15.1 | | |
Increase related to prior year tax positions | | | 15.1 | |
Increases related to current year tax positions | | 4.0 | | | 4.0 | |
Settlements during the period | | (1.3 | ) | | (1.3 | ) |
Lapse of statute of limitation | | (3.2 | ) | | (3.2 | ) |
| Gross unrecognized benefits at May 31, 2010 | | $ | 30.6 | | | $ | 30.6 | |
Decreases related to prior year tax positions | | | (2.9 | ) |
Increase related to prior year tax positions | | | 2.5 | |
Increases related to current year tax positions | | | 2.8 | |
Settlements during the period | | | (2.2 | ) |
Lapse of statute of limitation | | | — | |
|
|
|
Gross unrecognized benefits at May 31, 2011 | | | $ | 30.8 | |
Decreases related to prior year tax positions | | | (0.8 | ) |
Increase related to prior year tax positions | | | 9.5 | |
Increases related to current year tax positions | | | 1.7 | |
Settlements during the period | | | (2.4 | ) |
Lapse of statute of limitation | | | (0.1 | ) |
| |
|
Gross unrecognized benefits at May 31, 2012 | | | $ | 38.7 | |
| |
|
Unrecognized tax benefits for the Company decreasedincreased by approximately $3.0$7.9 and increased by approximately $0.5$0.2 for the years ended May 31, 20102012 and 2009,2011, respectively. Although the timing of the resolution and/or closure on audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next twelve months. However, given the number of years remaining subject to examination and the number of matters being examined, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
The Company, including subsidiaries, files income tax returns in the U.S., various states and various foreign jurisdictions. The Company is routinely audited by various tax authorities. TheAt May 31, 2012, the Company is currently under audit by the Internal Revenue Service for its fiscal years ended May 31, 2004, 20052007, 2008 and 2006, and is also subject to changes for May 2003.2009. The Company is also contesting the disallowance of certain deductions in the fiscal year ended May 31, 2006. During fiscal 2012, New York State completed the audit for fiscal years ended May 31, 2002, 2003, 2004, and 2005. The Company is currently under audit by both New York State for its fiscal years ended May 31, 2006, 2007 and 2008 and New York City for its fiscal years ended May 31, 2002, 20032005, 2006 and 2004.2007. If any of these tax examinations are concluded within the next twelve months, the Company will make any necessary adjustments to its unrecognized tax benefits.
Non-income Taxes
Additionally, theThe Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where appropriate,a liability associated with these examinations and assessments is probable and can be reliably estimable, the Company has made accruals for these matters which are reflected in the Company’s Consolidated Financial Statements. MostIn the third quarter of these mattersfiscal 2012, the Company recorded accruals of $19.7 based on the current status of sales tax assessments in two jurisdictions. These amounts are immaterialincluded in the Consolidated Financial Statements in Selling, general and administrative expenses. Future developments relating to the Company’s operations. However, during the current year, the Company settled a sales tax audit for $12.5 million.
9. CAPITAL STOCK AND STOCK-BASED AWARDS
Scholastic Corporation has authorized capital stock of: 4,000,000 shares of Class A Stock; 70,000,000 shares of Common Stock; and 2,000,000 shares of Preferred Stock.foregoing could result in adjustments being made to these accruals.
60- 59 -
10. CAPITAL STOCK AND STOCK-BASED AWARDS
Class A Stock and Common Stock
Capital stock consisted of the following as of May 31, 2012:
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| | Class A Stock | | Common Stock | | Preferred Stock | |
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Authorized | | | 4,000,000 | | | 70,000,000 | | | 2,000,000 | |
| | | | | | | | | | |
Reserved for Issuance | | | 1,499,000 | | | 7,480,698 | | | — | |
| | | | | | | | | | |
Outstanding | | | 1,656,200 | | | 29,795,911 | | | — | |
The only voting rights vested in the holders of Common Stock, except as required by law, are the election of such number of directors as shall equal at least one-fifth of the members of the Board. The Class A Stockholders are entitled to elect all other directors and to vote on all other matters. The Class A Stockholders and the holders of Common Stock are entitled to one vote per share on matters on which they are entitled to vote. The Class A Stockholders have the right, at their option, to convert shares of Class A Stock into shares of Common Stock on a share-for-share basis.
With the exception of voting rights and conversion rights, and as to the rights of holders of Preferred Stock if issued, the Class A Stock and the Common Stock are equal in rank and are entitled to dividends and distributions, when and if declared by the Board.
At May 31, 2010, there were 1,656,200 shares of Class A Stock and 34,598,258 shares of Common Stock outstanding. At May 31, 2010, there were 1,499,000 shares of Class A Stock authorized for issuance under the Company’s stock-based compensation plans. At May 31, 2010, Scholastic Corporation had reserved for issuance 9,244,047 shares of Common Stock, which includes both shares of Common Stock that were reserved for issuance under the Company’s stock-based compensation plans and the 3,155,200 shares of Common Stock that were reserved for the potential issuance of Common Stock upon conversion of the outstanding shares of Class A Stock and the shares of Class A Stock that were reserved for issuance under the Company’s stock-based compensation plans.
Preferred Stock
The Preferred Stock may be issued in one or more series, with the rights of each series, including voting rights, to be determined by the Board before each issuance. To date, no shares of Preferred Stock have been issued.
Stock-based awards
At May 31, 2010,2012, the Company maintained twothree stockholder-approved employee stock-based compensation plans with regard to the Common Stock: the Scholastic Corporation 1995 Stock Option Plan (the “1995 Plan”), under which no further awards can be made; and the Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”), under which no further awards can be made; and the Scholastic Corporation 2011 Stock Incentive Plan (the “2011 Plan”). The 20012011 Plan was adopted in July 2011, and provides for the issuance of:of incentive stock options, which qualify for favorable treatment under the Internal Revenue Code;options; options that are not so qualified, called non-qualified stock options; restricted stock; and other stock-based awards.
The Company’s stock-based compensation vests over periods not exceeding four years. Provisions in the Company’s stock-based compensation plans allow for the acceleration of vesting for certain retirement eligible employees.retirement-eligible employees, as well as in certain other events.
Stock Options – At May 31, 2010,2012, non-qualified stock options to purchase 785,795198,740 shares, 2,354,423 shares and 2,939,342610,912 shares of Common Stock were outstanding under the 1995 Plan, the 2001 Plan and 2001the 2011 Plan, respectively. During fiscal 2010, the Company awarded2012, Mr. Robinson, 250,000the Chief Executive Officer of the Corporation, was granted 224,172 options at an exercise price of $19.33$28.18 under the 20012011 Plan, and an additional 157,000395,380 options were granted under the 20012011 Plan to other employeesgrantees at a weighted average exercise price of $22.35.$28.47.
At May 31, 2010, 923,1222012, 1,285,278 shares of Common Stock were available for additional awards under the 20012011 Plan.
The Company also maintains the 1997 Outside Directors’ Stock Option Plan (the “1997 Directors’ Plan”), a stockholder-approved stock option plan for outside directors under which no further awards may be made. The 1997 Directors’ Plan, as amended, provided for the automatic grant to each non-employee director on the date of each annual stockholders’ meeting of non-qualified stock options to purchase 6,000 shares of Common Stock.
At May 31, 2010,2012, options to purchase 270,000174,000 shares of Common Stock were outstanding under the 1997 Directors’ Plan.
In September 2007, the Corporation adopted the Scholastic Corporation 2007 Outside Directors’ Stock OptionIncentive Plan (the “2007 Directors’Directors Plan”). TheFrom September 2007 Directors’through September 2011, the 2007 Directors Plan providesprovided for the automatic grant to each non-employee director on the date of each annual
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stockholders’ meeting of stockholders of non-qualified stock options to purchase 3,000 shares of Common Stock at a purchase price per share equal to the fair market value of a share of Common Stock on the date of grant and 1,200 restricted stock units. In September 2009, 24,0002011, 27,000 options at an exercise price of $24.54$26.73 per share and 9,60010,800 restricted stock units were granted under the 2007 Directors’Directors Plan. As of May 31, 2010, 67,8002012, 111,000 options and 8,400 restricted stock units were outstanding under the 2007 Directors’Directors Plan and 404,600333,800 shares of Common Stock remained available for additional awards under the 2007 Directors’Directors Plan.
In July 2012, the Board approved an amended and restated 2007 Outside Directors Plan (the “Amended 2007 Directors Plan”), which is subject to receiving stockholder approval at the September 2012 annual meeting of stockholders. The Amended 2007 Directors Plan provides for the automatic grant to each non-employee director, on the date of each annual meeting of stockholders, of stock options and restricted stock
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units with a value equal to a fixed dollar amount. Such dollar amount, as well as the split of such amount between stock options and restricted stock units, will be determined annually by the Board (or committee designated by the Board) in advance of the grant date. Under the Amended 2007 Directors Plan, the value of the stock option portion of the annual grant is determined based on the Black-Scholes option pricing method, with the exercise price being the fair market value of the Common Stock on the grant date, and the value of the restricted stock unit portion is the fair market value of the Common Stock on the grant date. In July 2012, the Board approved the automatic grant, on September 19, 2012, the date of the next annual meeting of stockholders, of stock options and restricted stock units with a value of $70,000, with 40% of such value to be in the form of options and 60% in the form of restricted stock units.
The Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) provided for the grant to Richard Robinson, the Chief Executive Officer of the Corporation as of the effective date of the Class A Plan, of options to purchase Class A Stock (the “Class A Options”). In fiscal 2010,2012, there were no awards granted under the Class A Plan. AtAs of May 31, 2010,2012, there were 1,499,000 Class A Options granted to Mr. Robinson outstanding under the Class A Plan, and no shares of Class A Stock remained available for additional awards under the Class A Plan.
Generally, options granted under the various plans may not be exercised for a minimum of one year after the date of grant and expire approximately ten years after the date of grant.
The total aggregate intrinsic value of stock options exercised during the year ended May 31, 2010 and 2009 was $0.3 and $0.0, respectively. The intrinsic value of these stock options is deductible by the Company for tax purposes.purposes upon exercise. The totalCompany amortizes the fair value of stock options as stock-based compensation expense over the requisite service period on a straight-line basis, or sooner if the employee effectively vests upon termination of employment under certain circumstances.
The following table sets forth the intrinsic value of stock options exercised, pretax stock-based compensation cost and related tax benefits for share-based payment arrangements recognized in incomethe Class A Stock and Common Stock plans for the fiscal 2010, 2009 and 2008 was $14.0, $11.6 and $7.0, respectively. The total recognized tax benefit related thereto for fiscal 2010, 2009 and 2008 was $2.1, $1.9 and $4.2, respectively.years ended May 31:
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Total intrinsic value of stock options exercised | | $ | 5.0 | | $ | 0.4 | | $ | 0.3 | |
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Stock-based compensation cost (pretax) | | $ | 12.2 | | $ | 13.7 | | $ | 14.0 | |
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Tax benefits related to stock-based compensation cost | | $ | 1.8 | | $ | 1.8 | | $ | 2.1 | |
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Weighted average grant date fair value per option | | $ | 9.30 | | $ | 8.15 | | $ | 8.34 | |
As of May 31, 2010,2012, the total pre-taxpretax compensation cost not yet recognized by the Company with regard to outstanding unvested stock options was $9.1.$3.1. The weighted average period over which this compensation cost is expected to be recognized is 1.92.0 years.
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The following table sets forth the stock option activity for the Class A Stock and Common Stock plans for the fiscal year ended May 31, 2010:
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| | Options | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Aggregate
Intrinsic
Value | |
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Outstanding at May 31, 2009 | | | 6,026,232 | | $ | 31.58 | | | | | | | |
Granted | | | 431,000 | | | 22.35 | | | | | | | |
Exercised | | | (134,045 | ) | | 27.21 | | | | | | | |
Cancellations and forfeitures | | | (734,031 | ) | | 29.27 | | | | | | | |
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Outstanding at May 31, 2010 | | | 5,589,156 | | $ | 31.26 | | | 5.3 | | | 3.2 | |
Vested and expected to vest at May 31, 2010 | | | 5,116,917 | | | 29.28 | | | 7.8 | | | 0.9 | |
Exercisable at May 31, 2010 | | | 4,017,455 | | | 32.80 | | | 4.1 | | | 0.4 | |
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| | Options | | Weighted
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Exercise Price | | Weighted
Average
Remaining
Contractual
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Intrinsic Value | |
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Outstanding at May 31, 2011 | | | 5,404,866 | | $ | 30.28 | | | | | | | |
Granted | | | 646,552 | | $ | 28.38 | | | | | | | |
Exercised | | | (724,613 | ) | $ | 27.75 | | | | | | | |
Expired | | | (335,040 | ) | $ | 41.44 | | | | | | | |
Cancellations and forfeitures | | | (43,690 | ) | $ | 26.31 | | | | | | | |
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Outstanding at May 31, 2012 | | | 4,948,075 | | $ | 29.69 | | | 5.2 | | $ | 5.1 | |
Exercisable at May 31, 2012 | | | 3,497,113 | | $ | 31.30 | | | 4.0 | | $ | 2.2 | |
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Restricted Stock Units– In addition to stock options, the Company has issued restricted stock units to certain officers and key executives under the 20012011 Plan (“Stock Units”). During fiscal 2010 and 2009, the Company granted 401,541 and 144,322 Stock Units, respectively, with weighted average grant date prices of $20.11 and $26.62 per share, respectively. The Stock Units automatically convert to shares of Common Stock on a one-for-one basis as the award vests, which is typically over a four-year period beginning thirteen months from the grant date and thereafter annually on the anniversary of the grant date. There were 62,895255,684 shares of Common Stock issued upon conversion of Stock Units during fiscal 2010.2012. The Company measures the value of Stock Units at fair value based on the number of Stock Units granted atand the price of the underlying Common Stock on the date of grant.grant date. The Company amortizes the fair value of outstanding stock unitsStock Units as stock-based compensation expense over the vesting termrequisite service period on a straight-line basis.basis, or sooner if the employee effectively vests upon termination of employment under certain circumstances.
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The following table sets forth the RSU activity for the fiscal year ended May 31:
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RSUs granted | | | 205,620 | | | 141,600 | | | 401,541 | |
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Weighted average grant date price per unit | | $ | 27.92 | | $ | 25.03 | | $ | 20.11 | |
As of May 31, 2012, the total pretax compensation cost not yet recognized by the Company with regard to unvested Stock Units was $5.6. The weighted average period over which this compensation cost is expected to be recognized is 2.5 years.
Management Stock Purchase Plan
- The Company maintains a Management Stock Purchase Plan (“MSPP”), which allows certain members of senior management to defer up to 100% of their annual cash bonus paymentpayments in the form of restricted stock unitsRestricted Stock Units (“RSUs”). The RSUs which are purchased by the employee at a 25% discount from the lowest closing price of the Common Stock on NASDAQ on any day during the fiscal quarter in which such bonuses are payable andpayable. The RSUs are converted into shares of Common Stock on a one-for-one basis at the end of the applicable deferral period. During fiscal 2010 and 2009, the Company allocated 17,191 RSUs and 57,543 RSUs, respectively, to participants under the MSPP at a price of $13.90 and $18.77 per RSU, respectively. At May 31, 2010, there were 204,171 shares of Common Stock authorized for issuance under the MSPP. The Company measures the value of RSUs at fair value based on the number of RSUs granted and the price of the underlying Common Stock aton the grant date, of grant, giving effect to the 25% discount. The Company amortizes this discount as stock-based compensation expense over the vesting term on a straight-line basis.basis, or sooner if the employee effectively vests upon termination of employment under certain circumstances.
The following table sets forth the MSPP RSU activity for the fiscal year ended May 31:
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MSPP RSUs allocated | | | 22,486 | | | 121,550 | |
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Purchase price per unit | | $ | 17.78 | | $ | 16.90 | |
At May 31, 2012, there were 468,372 shares of Common Stock remaining authorized for issuance under the MSPP.
As of May 31, 2012, the total pretax compensation cost not yet recognized by the Company with regard to unvested RSUs under the MSPP was $0.1. The weighted average period over which this compensation cost is expected to be recognized is 1.5 years.
The following table sets forth Stock Unit and RSU activity for the year ended May 31, 2010:2012:
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| | | Stock
Units | | Weighted
Average
Grant Date
Fair Value | | | Stock Units/RSUs | | Weighted
Average
grant date
fair value | |
| Nonvested as of May 31, 2009 | | 359,102 | | $ | 24.44 | | |
Nonvested as of May 31, 2011 | | | 752,404 | | $ | 21.51 | |
Granted | | 401,541 | | 20.11 | | | 238,906 | | $ | 27.14 | |
Vested | | (89,758 | ) | | 28.92 | | | (255,684 | ) | $ | 23.49 | |
Forfeited | | (7,455 | ) | | 6.50 | | | (24,731 | ) | $ | 20.59 | |
| Nonvested as of May 31, 2010 | | 663,430 | | | | |
Nonvested as of May 31, 2012 | | | 710,895 | | $ | 22.81 | |
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The total fair value of shares vested during the fiscal years ended May 31, 2012, 2011 and 2010 was $6.0, $4.1 and $2.6, respectively.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the “ESPP”), which is offered to eligible United States employees. The ESPP permits participating employees to purchase Common Stock, with after-tax
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payroll deductions, on a quarterly basis at a 15% discount from the closing price of the Common Stock on NASDAQNASDAQ. In fiscal 2012, the ESPP was amended to provide that the purchase of Common Stock occurs on the last business day of the fiscalcalendar quarter. Upon adoption of ASC 718,The Company recognizes the Company began recognizing the fair valuediscount of the Common Stock issued under the ESPP as stock-based compensation expense in the quarter in which the employees participated in the plan. During fiscal 2010 and 2009, the Company issued 73,021 shares and 111,887 shares of Common Stock under
The following table sets forth the ESPP at a weighted average price of $20.82 and $12.78 per share respectively. activity for the fiscal year ended May 31:
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Shares issued | | | 54,967 | | | 88,370 | |
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Weighted average purchase price per share | | $ | 23.45 | | $ | 22.75 | |
At May 31, 2010,2012, there were 431,310287,973 shares of Common Stock remaining authorized for issuance under the ESPP. In fiscal 2009, the Board adopted, and the Class A Stockholders approved, an amendment to the ESPP that increased the total number of shares of Common Stock authorized for issuance under the ESPP by 500,000.
10.11. TREASURY STOCK
On June 1, 2007,The Company has authorizations made by the Corporation entered into an agreement with a financial institution to repurchase $200.0 of its outstanding Common Stock under an Accelerated Share Repurchase Agreement (the “ASR”). The entire $200.0 repurchase was executed under a “collared” transaction whereby a price range for the shares was established. Under the ASR, the Corporation initially received 5.1 million shares on June 28, 2007 (the “Initial Execution Date”), representing the minimum number of shares to be received based on a calculation using the “cap” or high-end of the price range collar. On October 29, 2007 (the “Settlement Date”), the Corporation received an additional 0.7 million shares at no additional cost, bringing the total number of shares repurchased under the ASR to 5.8 million shares, which is reflected in the Treasury Stock component of Stockholders’ Equity. The total number of shares received under the ASR was determined based on the adjusted volume weighted average price of the Common Stock, as defined in the ASR, during the four month period from the Initial Execution Date through the Settlement Date, which was $34.64 per share.
On December 20, 2007, the Corporation announced that its Board of Directors had authorized a program to repurchase up to $20.0 of Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. transactions, as summarized in the table below:
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December 2007 | | $ | 20.0 | |
May 2008 | | | 20.0 | |
November 2008 | | | 10.0 | |
February 2009 | | | 5.0 | |
December 2009 | | | 20.0 | |
September 2010 | | | 44.0 | (a) |
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Subtotal | | $ | 119.0 | |
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Less repurchases made from December 2007 through May 2012 | | | (87.6 | ) |
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Remaining Board authorization at May 31, 2012 | | $ | 31.4 | |
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(a) Represents the remainder of a $200.0 authorization after giving effect to the purchase of 5,199,699 shares at $30.00 per share pursuant to a large share repurchase in the form of a modified Dutch auction tender offer that was completed by the Company on November 3, 2010 for a total cost of $156.0, excluding related fees and expenses.
During the fivetwelve months ended May 31, 2008,2012, the Corporation purchasedCompany repurchased approximately 0.70.5 million shares on the open market for approximately $20.0$13.1 at an average cost of $30.09$27.48 per share. On May 28, 2008, the Company announced that its Board of Directors had authorized a new program to repurchase up to $20.0 of Common Stock as conditions allow, on the open market or through negotiated private transactions. On November 20, 2008 the Board of Directors authorized a further program to repurchase up to an additional $10.0 of its Common Stock and on February 4, 2009, the Board of Directors authorized an additional program to repurchase up to another $5.0 of its Common Stock, which will be funded with available cash, pursuant to which the Company may purchase shares, from time to time as conditions allow, on the open market. On December 16, 2009, the Company announced that its Board of Directors had authorized a further program to repurchase up to $20.0 of its Common Stock, from time to time as conditions allow, on the open market or in negotiated private transactions.
The Company’s repurchase program may be suspended at any time without prior notice.
During the twelve months ended May 31, 2010, the Company repurchased approximately 0.4 million shares on the open market for approximately $10.8 at an average cost of $26.26 per share. See Part II, Item 5, “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
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12. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has a cash balance retirement plan (the “Pension Plan”), which covers the majority of United States employees who meet certain eligibility requirements. The Company funds all of the contributions for the Pension Plan. Benefits generally
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are based on the Company’s contributions and interest credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. It is the Company’s policy to fund the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended.
Effective June 1, 2009, no further benefits will accrue to employees under the Pension Plan. Accordingly, the Company recognized a curtailment loss of $0.5 associated with this action in fiscal 2009.
Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom, has a defined benefit pension plan (the “UK Pension Plan”) that covers its employees who meet various eligibility requirements. Benefits are based on years of service and on a percentage of compensation near retirement. The UK Pension Plan is funded by contributions from Scholastic Ltd. and its employees.
Grolier Ltd., an indirect subsidiary of Scholastic Corporation located in Canada, providesprovided a defined benefit pension plan (the “Grolier Canada Pension Plan”) that coverscovered its employees who meetmet certain eligibility requirements. All full-time employees arewere eligible to participate in the plan after two years of employment. Employees arewere not required to contribute to the fund. In fiscal 2011, the Company completed the settlement of its outstanding liabilities under the Grolier Canada Pension Plan by purchasing non-participating annuities to service these liabilities prospectively. Accordingly, net liabilities of $1.3 were settled with $1.2 of contributions above plan assets, and the Company recognized $4.2 of expense in fiscal 2011 related to the settlement of this pension plan.
The Company’s pension plans have a measurement date of May 31, 2010.31.
Post-Retirement Benefits
The Company provides post-retirement benefits to retired United States-based employees (the “Post-Retirement Benefits”) consisting of certain healthcare and life insurance benefits. Employees may become eligible for these benefits after completing certain minimum age and service requirements. At May 31, 2010,2012, the unrecognized prior service credit remaining was $2.2.
$0.8. Effective June 1, 2009, the Company modified the terms of the Post RetirementPost-Retirement Benefits, effectively excluding a large percentage of employees from the plan. Accordingly, the Company recognized a $3.0 curtailment gain associated with this action in fiscal 2009.
The Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) as well as a Federal subsidy of 28% to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D. In response to the Medicare Act, Topic 715, Subtopic 60 “Defined Benefit Plans – Other Postretirement” provides additional disclosure and guidance in implementing the federal subsidy provided by the Medicare Act. Based on this guidance, theThe Company has determined that the Post-Retirement Benefits provided to the retiree population are in aggregate the actuarial equivalent of the benefits under Medicare.Medicare Part D. As a result, in fiscal 2010, 20092012, 2011 and 2008,2010, the Company recognized a cumulative reduction of its accumulated post-retirement benefit obligation of $2.8, $9.4$2.9, $3.0 and $10.5,$2.8, respectively, due to the federalFederal subsidy under the Medicare Act.
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The following table sets forth the weighted average actuarial assumptions utilized to determine the benefit obligations for the Pension Plan, the UK Pension Plan and the Grolier Canada Pension Plan (collectively the “Pension Plans”), including the Post-Retirement Benefits, at May 31:
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| | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | | | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 | |
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| Weighted average assumptions used to | | | |
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Weighted average assumptions used to determine benefit obligations: | | | | | | | | | | | | | | |
| Discount rate | | 5.4 | % | 6.5 | % | — | | 5.4 | % | 6.7 | % | — | | | 4.0 | % | | 5.1 | % | | 5.4 | % | | 3.9 | % | | 5.0 | % | | 5.4 | % |
| Rate of compensation increase | | 4.3 | % | 3.6 | % | — | | —- | | — | | — | | | 3.3 | % | | 4.3 | % | | 4.3 | % | | — | | — | | — | |
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| determine net periodic benefit cost: | | | |
Weighted average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | | | |
| Discount rate | | 6.7 | % | 6.5 | % | 5.8 | % | 6.7 | % | 6.6 | % | 6.0 | % | | 5.1 | % | | 5.4 | % | | 6.7 | % | | 5.0 | % | | 5.4 | % | | 6.7 | % |
| Expected long-term return on plan assets | | 7.7 | % | 8.5 | % | 8.5 | % | — | | — | | — | | | 7.7 | % | | 7.5 | % | | 7.7 | % | | — | | — | | — | |
| Rate of compensation increase | | 3.6 | % | 3.6 | % | 3.6 | % | — | | — | | — | | | 4.3 | % | | 4.3 | % | | 3.6 | % | | — | | — | | — | |
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To develop the expected long-term rate of return on assets assumption for the Pension Plans, the Company considers historical returns and future expectations. Over the 20 year period ended May 31, 2010, the returns on the portfolio, assuming it was invested at the current target asset allocation in the prior periods, would have been a compounded annual average of 8.0%. Considering this information and the potential for lower future returns due to a generally lower interest rate environment, the Company selected an assumed weighted average long-term rate of return of 7.7% for all of the Pension Plans.
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The following table sets forth the change in benefit obligation for the Pension Plans and Post-Retirement Benefits at May 31:
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Change in benefit obligation: | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 153.9 | | $ | 173.6 | | $ | 23.3 | | $ | 31.6 | |
Service cost | | | 0.1 | | | 7.7 | | | — | | | 0.1 | |
Interest cost | | | 9.7 | | | 10.5 | | | 1.6 | | | 1.5 | |
Plan participants’ contributions | | | — | | | — | | | 0.4 | | | 0.3 | |
Settlements | | | (1.3 | ) | | — | | | — | | | — | |
Curtailment gain | | | (0.3 | ) | | (5.9 | ) | | — | | | (0.5 | ) |
Special termination benefits | | | — | | | 0.7 | | | — | | | — | |
Actuarial (gains) losses | | | 21.4 | | | (5.3 | ) | | 12.0 | | | (7.0 | ) |
Foreign currency translation | | | (2.6 | ) | | (6.0 | ) | | — | | | — | |
Benefits paid | | | (9.8 | ) | | (21.4 | ) | | (2.9 | ) | | (2.7 | ) |
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Benefit obligation at end of year | | $ | 171.1 | | $ | 153.9 | | $ | 34.4 | | $ | 23.3 | |
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| | | | | | | | | | | | | |
| | Pension Plans | | Post-Retirement Benefits | |
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| | 2012 | | 2011 | | 2012 | | 2011 | |
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Change in benefit obligation: | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 173.9 | | $ | 171.1 | | $ | 38.3 | | $ | 34.4 | |
Service cost | | | — | | | 0.3 | | | 0.0 | | | — | |
Interest cost | | | 8.4 | | | 8.9 | | | 1.7 | | | 1.9 | |
Plan participants’ contributions | | | — | | | — | | | 0.4 | | | 0.5 | |
Settlements | | | — | | | (7.5 | ) | | — | | | — | |
Actuarial losses | | | 11.1 | | | 6.0 | | | 1.7 | | | 4.7 | |
Foreign currency translation | | | (1.9 | ) | | 3.7 | | | — | | | — | |
Benefits paid, including expenses | | | (9.3 | ) | | (8.6 | ) | | (2.5 | ) | | (3.2 | ) |
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Benefit obligation at end of year | | $ | 182.2 | | $ | 173.9 | | $ | 39.6 | | $ | 38.3 | |
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The following table sets forth the change in plan assets for the Pension Plans and Post-Retirement Benefits at May 31:
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| | Pension Plans | | Post-Retirement
Benefits | | | Pension Plans | | Post-Retirement Benefits | |
| | | 2010 | | 2009 | | 2010 | | 2009 | | | 2012 | | 2011 | | 2012 | | 2011 | |
| Change in plan assets: | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 105.3 | | $ | 144.0 | | $ | — | | $ | — | | | $ | 146.7 | | $ | 126.5 | | $ | — | | $ | — | |
Actual return on plan assets | | 18.1 | | (25.7 | ) | | — | | — | | | (0.2 | ) | | 24.6 | | — | | — | |
Employer contributions | | 15.9 | | 13.6 | | 2.5 | | 2.4 | | | 9.9 | | 9.2 | | 2.2 | | 2.7 | |
Benefits paid, including expenses | | (9.7 | ) | | (21.6 | ) | | (2.9 | ) | | (2.7 | ) | | (9.3 | ) | | (8.6 | ) | | (2.6 | ) | | (3.2 | ) |
Settlements | | (1.3 | ) | | — | | | | | | | — | | (7.5 | ) | | — | | — | |
Measurement change and other adjustments | | (0.2 | ) | | 0.1 | | — | | — | | |
Plan participants’ contributions | | — | | — | | 0.4 | | 0.3 | | | — | | — | | 0.4 | | 0.5 | |
Foreign currency translation | | (1.6 | ) | | (5.1 | ) | | — | | — | | | (1.3 | ) | | 2.5 | | — | | — | |
| Fair value of plan assets at end of year | | $ | 126.5 | | $ | 105.3 | | $ | — | | $ | — | | | $ | 145.8 | | $ | 146.7 | | $ | — | | $ | — | |
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The following table sets forth the fundednet underfunded status of the Pension Plans and Post-Retirement Benefits and the related amounts recognized on the Company’s Consolidated Balance Sheets at May 31:
| | | | | | | | | | | | | |
Amounts recognized in the Consolidated
Balance Sheets | | Pension Plans | | Post-Retirement
Benefits | |
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| | 2010 | | 2009 | | 2010 | | 2009 | |
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Current assets | | $ | — | | $ | — | | $ | — | | $ | — | |
Current liabilities | | | — | | | — | | | (2.5 | ) | | (2.7 | ) |
Non-current liabilities | | | (44.6 | ) | | (48.6 | ) | | (31.9 | ) | | (20.6 | ) |
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Net amounts recognized | | $ | (44.6 | ) | $ | (48.6 | ) | $ | (34.4 | ) | $ | (23.3 | ) |
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| | | | | | | | | | | | | |
| | Pension Plans | | Post-Retirement Benefits | |
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| | 2012 | | 2011 | | 2012 | | 2011 | |
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Current liabilities | | $ | — | | $ | — | | $ | 3.4 | | $ | 2.8 | |
Non-current liabilities | | | 36.4 | | | 27.2 | | | 36.2 | | | 35.5 | |
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Net underfunded balance | | $ | 36.4 | | $ | 27.2 | | $ | 39.6 | | $ | 38.3 | |
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- 65 -
The following amounts were recognized in Accumulated other comprehensive loss for the Pension Plans and Post-RetirementPost- Retirement Benefits in the Company’s Consolidated Balance Sheets at May 31:
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| | 2010 | | 2009 | |
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| | Pension
Plans | | Post-
Retirement
Benefits | | Total | | Pension
Plans | | Post-
Retirement
Benefits | | Total | |
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Net actuarial loss | | $ | (69.5 | ) | $ | (19.2 | ) | $ | (88.7 | ) | $ | (61.3 | ) | $ | (8.4 | ) | $ | (69.7 | ) |
Net prior service credit (cost) | | | — | | | 2.2 | | | 2.2 | | | — | | | 2.8 | | | 2.8 | |
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Net amount recognized in accumulated other comprehensive loss | | $ | (69.5 | ) | $ | (17.0 | ) | $ | (86.5 | ) | $ | (61.3 | ) | $ | (5.6 | ) | $ | (66.9 | ) |
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| | Pension
Plans | | 2012
Post -
Retirement
Benefits | | Total | | Pension
Plans | | 2011
Post -
Retirement
Benefits | | Total | |
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Net actuarial gain (loss) | | $ | (76.4 | ) | $ | (19.2 | ) | $ | (95.6 | ) | $ | (56.4 | ) | $ | (21.3 | ) | $ | (77.7 | ) |
Net prior service credit | | | — | | | 0.8 | | | 0.8 | | | — | | | 1.5 | | | 1.5 | |
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Net amount recognized in Accumulated other comprehensive income (loss) | | $ | (76.4 | ) | $ | (18.4 | ) | $ | (94.8 | ) | $ | (56.4 | ) | $ | (19.8 | ) | $ | (76.2 | ) |
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The estimated net loss for the Pension Plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the Company’s fiscal year ending May 31, 20112013 is $1.7 and less than $0.1, respectively.$2.2. The estimated net loss and prior service credit for the Post-Retirement Benefits that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the fiscal year ending May 31, 20112013 are $2.2$3.8 and $0.7,$0.4, respectively. Income tax benefitsbenefit of $6.5 and income tax expense of $4.0 were recognized in Accumulated other comprehensive income were $9.1 and $3.4loss at May 31, 20102012 and 2009,2011, respectively.
67
The accumulated benefit obligation for the Pension Plans was $170.3 and $152.8 at May 31, 2010 and 2009, respectively. The following table sets forth information with respect to the Pension Plans with accumulated benefit obligations in excess of plan assets for the fiscal years ended May 31:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Projected benefit obligations | | $ | 171.1 | | $ | 153.9 | | | $ | 182.2 | | $ | 173.9 | |
Accumulated benefit obligations | | 170.3 | | 152.8 | | | 181.1 | | 172.8 | |
Fair value of plan assets | | 126.5 | | 105.3 | | | 145.8 | | 146.7 | |
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The following table sets forth the net periodic (benefit) cost for the Pension Plans and Post-Retirement Benefits for the fiscal years ended May 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Plans | | Post-Retirement Benefits | | | Pension Plans | | Post - Retirement Benefits | |
| | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | | | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 | |
| Components of net periodic benefit cost: | | | | | | | | | | | | | | |
Components of net periodic (benefit) cost: | | | | | | | | | | | | | | |
Service cost | | $ | 0.1 | | $ | 7.8 | | $ | 8.2 | | $ | — | | $ | 0.1 | | $ | 0.2 | | | $ | — | | $ | 0.3 | | $ | 0.1 | | $ | 0.0 | | $ | — | | $ | — | |
Interest cost | | 9.7 | | 10.5 | | 10.2 | | 1.6 | | 1.5 | | 1.9 | | | 8.4 | | 8.9 | | 9.7 | | 1.7 | | 1.9 | | 1.6 | |
Expected return on assets | | (8.1 | ) | | (11.5 | ) | | (11.9 | ) | | — | | — | | — | | | (10.8 | ) | | (9.4 | ) | | (8.1 | ) | | — | | — | | — | |
Net amortization and deferrals | | (0.1 | ) | | (0.1 | ) | | (0.1 | ) | | (0.7 | ) | | (0.8 | ) | | (0.9 | ) | | — | | — | | (0.1 | ) | | (0.6 | ) | | (0.7 | ) | | (0.7 | ) |
Curtailment loss (gain) | | — | | 0.5 | | — | | — | | (3.0 | ) | | — | | |
Settlement | | 0.8 | | — | | — | | — | | — | | — | | | — | | 4.2 | | 0.8 | | — | | — | | — | |
Special termination benefits | | — | | 0.7 | | — | | — | | — | | — | | |
Recognized net actuarial loss | | 1.6 | | 1.9 | | 2.0 | | 1.2 | | 0.6 | | 1.4 | | | 1.4 | | 1.8 | | 1.6 | | 3.8 | | 2.6 | | 1.2 | |
| Net periodic cost (benefit) | | $ | 4.0 | | $ | 9.8 | | $ | 8.4 | | $ | 2.1 | | $ | (1.6 | ) | $ | 2.6 | | |
Net periodic (benefit) cost | | | $ | (1.0 | ) | $ | 5.8 | | $ | 4.0 | | $ | 4.9 | | $ | 3.8 | | $ | 2.1 | |
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Plan Assets
The Company’s investment policy with regard to the assets in the Pension Plans is to actively manage, within acceptable risk parameters, certain asset classes where the potential exists to outperform the broader market.
The following table sets forth the total weighted average asset allocations for the Pension Plans by asset category at May 31:
| | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Equity securities | | 60.9 | % | | 61.6 | % | | 63.5 | % | | 68.7 | % |
Debt securities | | 32.4 | | 37.4 | | | 26.5 | % | | 23.4 | % |
Real estate | | 0.7 | | 0.8 | | | 1.0 | % | | 1.1 | % |
Other | | 6.0 | | 0.2 | | | 9.0 | % | | 6.8 | % |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
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- 66 -
The following table sets forth the targeted weighted average target asset allocations for the Pension Plans included in the Company’s investment policy:
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| | Pension
Plan | | U.K.
Pension
Plan | | Grolier
Canada
Pension
Plan | |
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Equity | | | 70 | % | | 55 | % | | — | % |
Debt and cash equivalents | | | 30 | | | 8 | | | 82 | |
Real estate and other | | | — | | | 37 | | | 18 | |
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| | | 100.0 | % | | 100.0 | % | | 100.0 | % |
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68
| | | | | | | |
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| | US
Pension
Plan | | UK
Pension
Plan | |
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Equity | | | 70 | % | | 40 | % |
Debt and cash equivalents | | | 30 | % | | 30 | % |
Real estate and other | | | 0 | % | | 30 | % |
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| | | 100 | % | | 100 | % |
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The fair values of the Company’s Pension Plans’ assets are measured using Level 1, Level 2 and Level 23 fair value measurements. The fair values of the Level 1 Pension Plans’ assets are determined based on quoted market prices in active markets for identical assets. The fair values of the Level 2 and Level 3 Pension Plans’ assets are based on the net asset values of the funds, which are based on quoted market prices of the underlying investments. For a more complete description of fair value measurements see Note 19, “Fair Value Measurements.”
The following table sets forth the measurement of the Company’s Pension Plans’ assets at fair value by asset category at the respective dates:
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| | Assets at Fair Value as of May 31, 2012 | |
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| | Level 1 | | Level 2 | | Level 3 | | Total | |
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Cash and cash equivalents | | $ | 7.4 | | $ | — | | $ | — | | $ | 7.4 | |
Equity securities: | | | | | | | | | | | | | |
U.S.(1) | | | 73.0 | | | — | | | — | | | 73.0 | |
International(2) | | | 11.2 | | | 8.3 | | | — | | | 19.5 | |
Fixed Income(3) | | | 32.2 | | | 6.4 | | | — | | | 38.6 | |
Annuities | | | — | | | — | | | 5.8 | | | 5.8 | |
Real estate(4) | | | — | | | 1.5 | | | | | | 1.5 | |
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Total | | $ | 123.8 | | $ | 16.2 | | $ | 5.8 | | $ | 145.8 | |
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| | | | | | | | | | | | | |
| | Assets at Fair Value as of May 31, 2011 | |
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| | Level 1 | | Level 2 | | Level 3 | | Total | |
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Cash and cash equivalents | | $ | 4.4 | | $ | — | | $ | — | | $ | 4.4 | |
Equity securities: | | | | | | | | | | | | | |
U.S.(1) | | | 71.4 | | | — | | | — | | | 71.4 | |
International(2) | | | 17.8 | | | 11.5 | | | — | | | 29.3 | |
Fixed Income(3) | | | 31.1 | | | 3.1 | | | — | | | 34.2 | |
Annuities | | | — | | | — | | | 5.7 | | | 5.7 | |
Real estate(4) | | | — | | | 1.7 | | | — | | | 1.7 | |
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Total | | $ | 124.7 | | $ | 16.3 | | $ | 5.7 | | $ | 146.7 | |
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(1) | Funds which invest in a diversified portfolio of publicly traded U.S. common stocks of large-cap, medium-cap and small-cap companies. There are no restrictions on these investments. |
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(2) | Funds which invest in a diversified portfolio of publicly traded common stock of non-U.S. companies, primarily in Europe and Asia. There are no restrictions on these investments. |
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(3) | Funds which invest in a diversified portfolio of publicly traded government bonds, corporate bonds and mortgage-backed securities. There are no restrictions on these investments. |
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(4) | Represents assets of a non-U.S. entity plan invested in a fund whose underlying investments are comprised of properties. The fund has publicly available quoted market prices and there are no restrictions on these investments. |
- 67 -
The Company purchaseshas purchased annuities to service fixed payments to certain retired plan participants in the UK. These annuities are purchased from investment grade counterparties. These annuities are not traded on open markets, and are therefore valued based upon the actuarial determined valuation, and related assumptions, of the underlying projected benefit obligation, a Level 3 valuation technique. The fair value of these assets was $5.8 and $5.7 at May 31, 2010 was $4.9.
For a more complete description of fair value measurements see Note 19, “Fair Value Measurements.”
2012 and May 31, 2011, respectively. The following table sets forthsummarizes the measurement of the Company’s Pension Plans’ assets atchanges in fair value by asset category atof these Level 3 assets for the fiscal years ended May 31, 2010:2012 and 2011:
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| | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
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Cash and cash equivalents | | $ | 2.5 | | $ | 2.5 | | $ | — | | $ | — | |
Equity securities: | | | | | | | | | | | | | |
U.S.(1) | | | 54.0 | | | 54.0 | | | — | | | — | |
International(2) | | | 23.1 | | | 13.7 | | | 9.4 | | | — | |
Fixed Income(3) | | | 41.0 | | | 34.7 | | | 6.3 | | | — | |
Annuities | | | 4.9 | | | — | | | — | | | 4.9 | |
Real estate(4) | | | 1.0 | | | — | | | 1.0 | | | — | |
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| | $ | 126.5 | | $ | 104.9 | | $ | 16.7 | | $ | 4.9 | |
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(1)
| Funds which invest in a diversified portfolio of publicly traded U.S. common stocks of large-cap, medium-cap and small-cap companies. There are no restrictions on these investments.
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(2)
| Funds which invest in a diversified portfolio of publicly traded common stock of non-U.S. companies, primarily in Europe and Asia. There are no restrictions on these investments.
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(3)
| Funds which invest in a diversified portfolio of publicly traded government bonds, corporate bonds and mortgage-backed securities. There are no restrictions on these investments.
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(4)
| Represents assets of a non-U.S. entity plan invested in a fund whose underlying investments are comprised of properties. The fund has publicly available quoted market prices and there are no restrictions on these investments.
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69
| | | | |
Balance at May 31, 2010 | | $ | 4.9 | |
Actual Return on Plan Assets: | | | | |
Relating to assets still held at May 31, 2011 | | | 0.2 | |
Relating to assets sold during the year | | | — | |
Purchases, sales and settlements, net | | | — | |
Transfers in and/or out of Level 3 | | | — | |
Foreign currency translation | | | 0.6 | |
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Balance at May 31, 2011 | | $ | 5.7 | |
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Actual Return on Plan Assets: | | | | |
Relating to assets still held at May 31, 2012 | | | 0.7 | |
Relating to assets sold during the year | | | — | |
Purchases, sales and settlements, net | | | (0.3 | ) |
Transfers in and/or out of Level 3 | | | — | |
Foreign currency translation | | | (0.3 | ) |
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Balance at May 31, 2012 | | $ | 5.8 | |
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Contributions
In fiscal 2011,2013, the Company expects to contribute $11.2$10.6 to the Pension Plan.Plans.
Estimated future benefit payments
The following table sets forth the expected future benefit payments under the Pension Plans and the Post-Retirement Benefits by fiscal year:
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| | | | | Post-Retirement | | | | | Post - Retirement | |
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| | Pension
Benefits | | Benefit
Payments | | Medicare
Subsidy
Receipts | | | Pension
Benefits | | Benefit
Payments | | Medicare
Subsidy
Receipts | |
| 2011 | | 18.2 | | 3.2 | | 0.2 | | |
2012 | | 11.4 | | 2.7 | | 0.2 | | |
| | | | | | | | |
2013 | | 10.8 | | 2.7 | | 0.3 | | | $ | 14.7 | | $ | 3.1 | | $ | 0.2 | |
2014 | | 10.6 | | 2.7 | | 0.3 | | | 16.2 | | 3.2 | | 0.2 | |
2015 | | 10.5 | | 2.7 | | 0.3 | | | 11.3 | | 3.2 | | 0.3 | |
2016-2020 | | 52.8 | | 12.7 | | 1.5 | | |
2016 | | | 11.4 | | 3.1 | | 0.3 | |
2017 | | | 11.1 | | 3.1 | | 0.3 | |
2018-2022 | | | 50.6 | | 14.2 | | 1.6 | |
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Assumed health care cost trend rates at May 31:
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| | | 2010 | | 2009 | | | 2012 | | 2011 | |
| Health care cost trend rate assumed for the next fiscal year | | 8.3 | % | | 7.5 | % | | 7.5 | % | | 8.3 | % |
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | | 5.0 | % | | 5.0 | % | | 5.0 | % | | 5.0 | % |
Year that the rate reaches the ultimate trend rate | | 2019 | | 2017 | | | 2020 | | 2020 | |
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Assumed health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
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| | 2010 | | 2009 | |
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Total service and interest cost | | $ | 0.1 | | $ | 0.2 | |
Post-retirement benefit obligation | | | 3.4 | | | 2.7 | |
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| | 2012 | | 2011 | |
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Total service and interest cost - 1% increase | | $ | 0.2 | | $ | 0.2 | |
Total service and interest cost - 1% decrease | | | (0.2 | ) | | (0.2 | ) |
Post-retirement benefit obligation - 1% increase | | | 4.3 | | | 4.1 | |
Post-retirement benefit obligation - 1% decrease | | | (3.7 | ) | | (3.5 | ) |
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- 68 -
Defined contribution plans
The Company also provides defined contribution plans for certain eligible employees. In the United States, the Company sponsors a 401(k) retirement plan and has contributed $5.0, $7.1$7.4, $6.9 and $6.9$5.0 for fiscal 2010, 20092012, 2011 and 2008,2010, respectively.
12.13. ACCRUED SEVERANCE
During fiscal 2009, the Company initiated certain cost reduction measures, including a previously announced voluntary retirement program and a workforce reduction program. The table set forth below provides information regarding severance costs appearing on the Company’s Consolidated Statements of Operationsseverance cost associated with certain cost reduction measures. Accrued severance, which includes the severance associated with these cost reduction measures. The severance accrualmeasures, of $3.4$2.7 and $3.4$1.9 as of May 31, 20102012 and 2009,2011, respectively, is included in Other“Other accrued expensesexpenses” on the Company’s Consolidated Balance Sheets.
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Beginning balance | | $ | 3.4 | | $ | 0.4 | |
Accruals | | | 9.2 | | | 23.9 | |
Payments | | | (9.2 | ) | | (20.9 | ) |
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Ending balance | | $ | 3.4 | | $ | 3.4 | |
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13. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share for the fiscal years ended May 31:
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Earnings from continuing operations | | $ | 58.7 | | $ | 13.2 | | $ | 117.3 | |
Loss from discontinued operations, net of tax | | | (2.6 | ) | | (27.5 | ) | | (134.5 | ) |
Net income (loss) | | | 56.1 | | | (14.3 | ) | | (17.2 | ) |
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions) | | | 36.5 | | | 37.2 | | | 38.7 | |
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Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) | | | 0.3 | | | 0.2 | | | 0.5 | |
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Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions) | | | 36.8 | | | 37.4 | | | 39.2 | |
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Earnings (loss) per share of Class A Stock and Common Basic earnings per share: | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.61 | | $ | 0.35 | | $ | 3.03 | |
Loss from discontinued operations, net of tax | | $ | (0.07 | ) | $ | (0.74 | ) | $ | (3.47 | ) |
Net income (loss) | | $ | 1.54 | | $ | (0.39 | ) | $ | (0.44 | ) |
Diluted earnings per share: | | | | | | | | | | |
Earnings from continuing operations | | $ | 1.59 | | $ | 0.35 | | $ | 2.99 | |
Loss from discontinued operations, net of tax | | $ | (0.07 | ) | $ | (0.73 | ) | $ | (3.43 | ) |
Net income (loss) | | $ | 1.52 | | $ | (0.38 | ) | $ | (0.44 | ) |
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See Note 10, “Treasury Stock.”
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Beginning balance | | $ | 1.9 | | $ | 3.4 | |
Accruals | | | 14.9 | | | 6.7 | |
Payments | | | (14.1 | ) | | (8.2 | ) |
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Ending balance | | $ | 2.7 | | $ | 1.9 | |
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70- 69 -
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14. EARNINGS (LOSS) PER SHARE |
The following table summarizes the reconciliation of the numerators and denominators for the Basic and Diluted earnings (loss) per share computation for the fiscal years ended May 31:
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Earnings (loss) from continuing operations attributable to Class A and Common Shares | | $ | 108.2 | | $ | 45.2 | | $ | 61.0 | |
Earnings (loss) from discontinued operations attributable to Class A and Common Shares, net of tax | | | (6.3 | ) | | (6.1 | ) | | (4.9 | ) |
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Net income (loss) attributable to Class A and Common Shares | | | 101.9 | | | 39.1 | | | 56.1 | |
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Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions) | | | 31.2 | | | 33.1 | | | 36.5 | |
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Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) | | | 0.5 | | | 0.5 | | | 0.3 | |
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Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions) | | | 31.7 | | | 33.6 | | | 36.8 | |
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Earnings (loss) per share of Class A Stock and Common Stock: | | | | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | | | |
Earnings (loss) from continuing operations | | $ | 3.47 | | $ | 1.36 | | $ | 1.67 | |
Earnings (loss) from discontinued operations, net of tax | | $ | (0.20 | ) | $ | (0.18 | ) | $ | (0.13 | ) |
Net income (loss) | | $ | 3.27 | | $ | 1.18 | | $ | 1.54 | |
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Diluted earnings (loss) per share: | | | | | | | | | | |
Earnings (loss) from continuing operations | | $ | 3.41 | | $ | 1.34 | | $ | 1.65 | |
Earnings (loss) from discontinued operations, net of tax | | $ | (0.20 | ) | $ | (0.18 | ) | $ | (0.13 | ) |
Net income (loss) | | $ | 3.21 | | $ | 1.16 | | $ | 1.52 | |
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Earnings from continuing operations exclude earnings of $0.5 and $0.3 for the years ended May 31, 2012 and 2011, respectively, for earnings attributable to participating restricted stock units.
In a period in which the Company reports a discontinued operation, Earnings (loss) from continuing operations is used as the “control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive.
A portion of the Company’s restricted stock units granted to employees participates in earnings through cumulative non-forfeitable dividends payable to the employees upon vesting of the restricted stock units. Accordingly, the Company measures earnings per share based upon the two-class method.
Options that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive totaled: 3,962,650 at May 31, 2012; 4,341,331 at May 31, 2011; and 5,264,202 at May 31, 2010. Options outstanding pursuant to compensation plans were 4.9 million and 5.4 million as of May 31, 2012 and 2011, respectively.
As of May 31, 2012, $31.4 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors.
See Note 11, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.
14. ACCRUED EXPENSES
Accrued- 70 -
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15. OTHER ACCRUED EXPENSES |
Other accrued expenses consist of the following at May 31:
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| Accrued payroll, payroll taxes and benefits | | $ | 76.1 | | $ | 57.5 | | | $ | 48.1 | | $ | 45.0 | |
Accrued bonus and commissions | | | 57.3 | | 32.6 | |
Accrued other taxes | | 8.8 | | 19.3 | | | 42.8 | | 20.1 | |
Accrued commissions | | 15.9 | | 8.7 | | |
Accrued advertising and promotions | | 23.6 | | 19.6 | | | 36.1 | | 27.2 | |
Accrued income taxes | | | 10.2 | | 5.5 | |
Accrued insurance | | | 8.4 | | 8.4 | |
Other accrued expenses | | 30.8 | | 33.8 | | | 30.6 | | 34.5 | |
| Total accrued expenses | | $ | 155.2 | | $ | 138.9 | | | $ | 233.5 | | $ | 173.3 | |
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15. OTHER INCOME
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16. OTHER INCOME (EXPENSE) |
Other income net for fiscal 2010 was $0.9 consisting(expense) consisted of a gain related to the repurchase of 5% Notes. Other income, net for fiscal 2009 was $0.7 consisting of a gain of $0.4 related to the repurchase of 5% Notes and a gain of $0.3 related to an accelerated payment of a note. Other income, net for fiscal 2008 was $2.6 consisting of $1.4 related to a currency gain on settlement of a loan and income of $2.1 related to the repurchase of 5% Notes, partially offset by a $0.9 expense resulting from the early termination of a lease.
16. OTHER FINANCIAL DATA
Other advertising expenses were $134.2, $137.6 and $142.8following for the fiscal years ended May 31, 2010, 2009 and 2008, respectively.31:
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Acquisition costs | | $ | (0.1 | ) | $ | (0.4 | ) | $ | — | |
Gain on repurchase of notes | | | — | | | — | | | 0.9 | |
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Total Other income (expense) | | $ | (0.1 | ) | $ | (0.4 | ) | $ | 0.9 | |
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17. OTHER FINANCIAL DATA
Prepublication and production costs were $117.8, $127.5 and $115.5 at May 31, 2010, 2009 and 2008, respectively. The Company amortized $51.0, $44.8 and $46.1Other financial data consisted of prepublication and production coststhe following for the fiscal years ended May 31, 2010, 2009 and 2008, respectively.31:
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Advertising expense | | $ | 147.9 | | $ | 155.7 | | $ | 149.6 | |
Prepublication and production costs | | | 127.4 | | | 125.1 | | | 117.8 | |
Amortization of prepublication and production costs | | | 55.1 | | | 51.1 | | | 51.0 | |
Foreign currency translation gain (loss) | | | 0.7 | | | (1.3 | ) | | 0.5 | |
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Purchases related to contractual commitments relating to minimum print quantities during fiscal years | | $ | 61.1 | | $ | 44.9 | | $ | 39.1 | |
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Unredeemed credits issued in conjuction with the Company’s school-based book club and book fair operations (included in other accrued expenses) | | $ | 9.2 | | $ | 9.0 | |
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Components of Accumulated other comprehensive income (loss): | | | | | | | |
Foreign Currency Translation | | $ | (10.9 | ) | $ | (2.7 | ) |
Pension Obligations (net of tax of $31.5 and $25.0) | | | (63.3 | ) | | (51.2 | ) |
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Accumulated other comprehensive income (loss) | | $ | (74.2 | ) | $ | (53.9 | ) |
Other accrued expenses include a reserve for unredeemed credits issued in conjunction with the Company’s school-based book club and book fair operations of $7.2 and $11.0 at May 31, 2010 and 2009, respectively.
The components of Accumulated other comprehensive loss at May 31, 2010 and 2009 include $28.0 and $30.8, respectively, of foreign currency translation and $86.5 ($57.4 net of tax) and $66.9 ($46.3 net of tax), respectively, of pension obligation in accordance with Topic 715.
17. RELATED PARTY TRANSACTIONS- 72 -
On October 10, 2008, the Company agreed to purchase 100,000 shares of Common Stock from Richard Robinson, Chairman of the Board, President and Chief Executive Officer of the Company, at a price of $20.59 per share, or an aggregate purchase price of $2.1, pursuant to the Company’s previously announced stock repurchase program which had been approved by the Board in May 2008. The purchase price was determined with reference to the last transaction price reported on NASDAQ immediately prior to the purchase. The closing price of the Common Stock on NASDAQ on October 10, 2008 was $23.11 per share. The shares became available for sale due to Mr. Robinson, as a result of current market conditions, being required to sell the shares in order to protect the collateral value underlying a personal loan with a bank secured by the shares. The aforementioned transaction was approved by the Audit Committee and ratified by the Board.
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18. DERIVATIVES AND HEDGING |
The Company enters into foreign currency derivative contracts to economically hedge itsthe exposure to foreign currency fluctuations associated with the forecasted purchase of inventory.inventory and the foreign exchange risk associated with certain receivables denominated in foreign currencies. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, and it recognizes the unrealized gain or loss is recognized in other current assets or liabilities. At May 31, 2010, unrealizedUnrealized gains of $0.5 were recognized. Atrecognized at May 31, 2009,2012 and unrealized losses of $3.1$0.5 were recognized.
The Company also enters into foreign currency derivative contracts to hedge its foreign exchange risk associated with certain receivables denominated in foreign currencies. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, offsetting the foreign exchange gains and losses arising from the effect of changes in exchange rates used to measure the related assets. Unrealized gains related to these derivatives were $0.6recognized at May 31, 2010. At May 31, 2009, unrealized losses of $0.4 were recognized.2011, respectively.
71
19. FAIR VALUE MEASUREMENTS
On June 1, 2008,The Company determines the Company adopted a new accounting standard regardingappropriate level in the fair value measurementshierarchy for financialeach fair value measurement of assets and liabilities as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the Company’s financial statements. The Financial Accounting Standards Board issued a one year deferral of the fair value measurement requirements for non financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis at the time of issuance. The Company adopted the remainder of the new standard on June 1, 2009. The accounting standard requires that the Company determine the appropriate level in the fair value hierarchy for each fair value measurement. The fair value hierarchy prioritizes the inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and best use, into three levels as follows:
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| • | Level 1Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. |
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| • | Level 3Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions. |
The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents, debt and foreign currency forward contracts, which were not material as of the reporting date. The Company’s debt is reported at fair value.contracts. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The Company employs Level 2 fair value measurements for the disclosure of the fair value of its 5% Notes and its various lines of credit. For a more complete description of fair value measurements employed, see Note 4,5, “Debt.” The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure.
Non financialNon-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis include:
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Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities. In the twelve months ended May 31, 2010, the Company recognized impairments of goodwillThe following tables present non-financial assets that were measured and indefinite-lived and long-lived assets totaling $43.1. The Company used Level 3 inputs in its determination of therecorded at fair value of these impaired assets. See Note 7, “Goodwillon a non-recurring basis and Other Intangibles,” for a discussion of the fair value measures employed in these assettotal impairment analyses.losses and additions recognized on those assets:
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for fiscal year
ended May 31, 2012 | | Additions due
to acquisitions | |
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Goodwill | | $ | 2.7 | | $ | — | | $ | — | | $ | 2.7 | | $ | — | | $ | 2.7 | |
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Other Intangible assets impairment | | | 4.9 | | | — | | | — | | | 4.9 | | | 6.8 | | | — | |
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Other Intangible assets | | | 5.4 | | | — | | | — | | | 5.4 | | | — | | | 5.4 | |
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Production assets | | | 0.6 | | | — | | | — | | | 0.6 | | | 4.0 | | | — | |
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Investments | | | — | | | — | | | — | | | — | | | 1.3 | | | — | |
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Goodwill impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 3.4 | | $ | — | |
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Goodwill | | | 1.0 | | | — | | | — | | | 1.0 | | | — | | | 1.0 | |
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Other Intangible assets | | | 5.6 | | | — | | | — | | | 5.6 | | | — | | | 5.6 | |
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Property, plant and equipment, net | | | — | | | — | | | — | | | — | | | 1.4 | | | — | |
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Prepublication assets | | | — | | | — | | | — | | | — | | | 2.7 | | | — | |
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Investments | | | 5.7 | | | — | | | — | | | 5.7 | | | 3.6 | | | — | |
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for fiscal year
ended May 31, 2010 | | Additions due
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Goodwill impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 0.4 | | $ | — | |
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Other Intangible assets impairment | | | — | | | — | | | — | | | — | | | 31.3 | | | — | |
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Other Intangible assets | | | 0.8 | | | — | | | — | | | 0.8 | | | 3.8 | | | 5.1 | |
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Prepublication assets | | | — | | | — | | | — | | | — | | | 7.6 | | | — | |
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Investments | | | — | | | — | | | — | | | — | | | 1.5 | | | — | |
20. SUBSEQUENT EVENTS
InOn July 2010,18, 2012, the Board of Directors declared a regular cash dividend of $0.075$0.125 per Class A and Common share in respect of the first quarter of fiscal 2011.2013. The dividend is payable on September 15, 201017, 2012 to shareholders of record on August 31, 2010.2012.
72- 74 -
ReReport of Iport of Independentndependent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF SCHOLASTIC CORPORATION
We have audited the accompanying consolidated balance sheets of Scholastic Corporation as of May 31, 20102012 and 2009,2011, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2010.2012. Our audits also included the financial statement schedule included in the Index at Item 15(a). These financial statements and the schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial position of Scholastic Corporation at May 31, 20102012 and 2009,2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2010,2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Scholastic Corporation’s internal control over financial reporting as of May 31, 2010,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 26, 20102012 expressed an unqualified opinion thereon.
New York, New York
July 26, 20102012
73- 75 -
Report of Independent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF SCHOLASTIC CORPORATION
We have audited Scholastic Corporation’s internal control over financial reporting as of May 31, 2010,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Scholastic Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Scholastic Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2010,2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Scholastic Corporation as of May 31, 20102012 and 2009,2011, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 20102012, and our report dated July 26, 20102012 expressed an unqualified opinion thereon.
New York, New York
July 26, 20102012
74- 76 -
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Supplementary Financial Information |
Supplementary Financial Information
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Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data) |
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|
Revenues | | $ | 315.6 | | $ | 660.1 | | $ | 398.8 | | $ | 538.4 | | $ | 1,912.9 | |
Cost of goods sold | | | 158.3 | | | 273.6 | | | 195.2 | | | 232.7 | | | 859.8 | |
(Loss) earnings from continuing operations | | | (24.6 | ) | | 56.8 | | | (4.6 | ) | | 31.1 | | | 58.7 | |
Earnings (loss) from discontinued operations, net of tax | | | 1.6 | | | (1.3 | ) | | (1.0 | ) | | (1.9 | ) | | (2.6 | ) |
Net (loss) income | | | (23.0 | ) | | 55.5 | | | (5.6 | ) | | 29.2 | | | 56.1 | |
(Loss) earnings per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
(Loss) earnings from continuing operations | | | (0.68 | ) | | 1.56 | | | (0.12 | ) | | 0.85 | | | 1.61 | |
Earnings (loss) from discontinued operations, net of tax | | | 0.05 | | | (0.04 | ) | | (0.03 | ) | | (0.05 | ) | | (0.07 | ) |
Net (loss) income | | | (0.63 | ) | | 1.52 | | | (0.15 | ) | | 0.80 | | | 1.54 | |
Diluted: | | | | | | | | | | | | | | | | |
(Loss) earnings from continuing operations | | | (0.68 | ) | | 1.54 | | | (0.12 | ) | | 0.84 | | | 1.59 | |
Earnings (loss) from discontinued operations, net of tax | | | 0.05 | | | (0.03 | ) | | (0.03 | ) | | (0.05 | ) | | (0.07 | ) |
Net (loss) income | | | (0.63 | ) | | 1.51 | | | (0.15 | ) | | 0.79 | | | 1.52 | |
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2009 | | | | | | | | | | | | | | | | |
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Revenues | | $ | 276.4 | | $ | 653.3 | | $ | 423.6 | | $ | 496.0 | | $ | 1,849.3 | |
Cost of goods sold | | | 148.5 | | | 284.8 | | | 216.6 | | | 231.8 | | | 881.7 | |
(Loss) earnings from continuing operations | | | (42.9 | ) | | 58.5 | | | (34.5 | ) | | 32.1 | | | 13.2 | |
Loss from discontinued operations, net of tax | | | (6.2 | ) | | (15.4 | ) | | (1.5 | ) | | (4.4 | ) | | (27.5 | ) |
Net (loss) income | | | (49.1 | ) | | 43.1 | | | (36.0 | ) | | 27.7 | | | (14.3 | ) |
(Loss) earnings per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
(Loss) earnings from continuing operations | | | (1.13 | ) | | 1.56 | | | (0.93 | ) | | 0.88 | | | 0.35 | |
Loss from discontinued operations, net of tax | | | (0.17 | ) | | (0.41 | ) | | (0.05 | ) | | (0.12 | ) | | (0.74 | ) |
Net (loss) income | | | (1.30 | ) | | 1.15 | | | (0.98 | ) | | 0.76 | | | (0.39 | ) |
Diluted: | | | | | | | | | | | | | | | | |
(Loss) earnings from continuing operations | | | (1.13 | ) | | 1.55 | | | (0.93 | ) | | 0.88 | | | 0.35 | |
Loss from discontinued operations, net of tax | | | (0.17 | ) | | (0.40 | ) | | (0.05 | ) | | (0.12 | ) | | (0.73 | ) |
Net (loss) income | | | (1.30 | ) | | 1.15 | | | (0.98 | ) | | 0.76 | | | (0.38 | ) |
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| | | | | | | | | | | | | | | | |
| | | | Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data) | |
|
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| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Fiscal
Year
Ended
May 31, | |
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2012 | | | | | | | | | | | | | | | | |
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Revenues | | $ | 318.0 | | $ | 685.3 | | $ | 467.0 | | $ | 678.5 | | $ | 2,148.8 | |
| | | | | | | | | | | | | | | | |
Cost of Goods Sold | | | 160.4 | | | 285.7 | | | 219.6 | | | 323.5 | | | 989.2 | |
Earnings (loss) from continuing operations | | | (25.1 | ) | | 83.3 | | | (9.9 | ) | | 60.4 | | | 108.7 | |
Earnings (loss) from discontinued operations, net of tax | | | (2.0 | ) | | (0.5 | ) | | (0.4 | ) | | (3.4 | ) | | (6.3 | ) |
Net income (loss) | | | (27.1 | ) | | 82.8 | | | (10.3 | ) | | 57.0 | | | 102.4 | |
Earnings (loss) per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | (0.81 | ) | | 2.66 | | | (0.32 | ) | | 1.91 | | | 3.47 | |
Earnings (loss) from discontinued operations, net of tax | | | (0.06 | ) | | (0.02 | ) | | (0.01 | ) | | (0.11 | ) | | (0.20 | ) |
Net income (loss) | | | (0.87 | ) | | 2.64 | | | (0.33 | ) | | 1.80 | | | 3.27 | |
Diluted: | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | (0.81 | ) | | 2.62 | | | (0.32 | ) | | 1.86 | | | 3.41 | |
Earnings (loss) from discontinued operations, net of tax | | | (0.06 | ) | | (0.02 | ) | | (0.01 | ) | | (0.10 | ) | | (0.20 | ) |
Net income (loss) | | | (0.87 | ) | | 2.60 | | | (0.33 | ) | | 1.76 | | | 3.21 | |
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2011 | | | | | | | | | | | | | | | | |
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Revenues | | $ | 290.4 | | $ | 667.9 | | $ | 384.3 | | $ | 545.3 | | $ | 1,887.9 | |
Cost of Goods Sold | | | 147.3 | | | 291.2 | | | 193.8 | | | 241.4 | | | 873.7 | |
Earnings (loss) from continuing operations | | | (33.9 | ) | | 77.1 | | | (24.0 | ) | | 26.3 | | | 45.5 | |
Earnings (loss) from discontinued operations, net of tax | | | (1.3 | ) | | (2.2 | ) | | (1.1 | ) | | (1.5 | ) | | (6.1 | ) |
Net income (loss) | | | (35.2 | ) | | 74.9 | | | (25.1 | ) | | 24.8 | | | 39.4 | |
Earnings (loss) per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | (0.94 | ) | | 2.23 | | | (0.77 | ) | | 0.84 | | | 1.36 | |
Earnings (loss) from discontinued operations, net of tax | | | (0.04 | ) | | (0.06 | ) | | (0.04 | ) | | (0.04 | ) | | (0.18 | ) |
Net income (loss) | | | (0.98 | ) | | 2.17 | | | (0.81 | ) | | 0.80 | | | 1.18 | |
Diluted: | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | (0.94 | ) | | 2.20 | | | (0.77 | ) | | 0.83 | | | 1.34 | |
Earnings (loss) from discontinued operations, net of tax | | | (0.04 | ) | | (0.06 | ) | | (0.04 | ) | | (0.05 | ) | | (0.18 | ) |
Net income (loss) | | | (0.98 | ) | | 2.14 | | | (0.81 | ) | | 0.78 | | | 1.16 | |
75- 77 -
|
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A | Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of May 31, 2010,2012, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
- 78 -
Management’s Report on Internal Control Overover Financial Reporting
The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation. A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management (with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer), after conducting an evaluation of the effectiveness of the Corporation’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, concluded that the Corporation’s internal control over financial reporting was effective as of May 31, 2010.2012.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the Corporation’s internal control over financial reporting as of May 31, 2010,2012, which is included herein. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended May 31, 20102012 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Item 9B | Other Information
None.
76- 79 -
|
Part III |
Item 10 | Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 22, 201019, 2012 to be filed with the SEC pursuant to Regulation 14A under the Exchange Act. Certain information regarding the Corporation’s Executive Officers is set forth in Part I - Item 1 - Business.
Item 11 | Executive Compensation
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 22, 201019, 2012 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 22, 201019, 2012 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 13 | Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 22, 201019, 2012 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 14 | Principal Accounting Fees and Services
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 22, 201019, 2012 to be filed pursuant to Regulation 14A under the Exchange Act.
77- 80 -
|
Part IV |
Item 15 | Exhibits, Financial Statement Schedules
| | |
(a)(1) | Financial Statements: |
| | |
| | The following consolidated financial statements are included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data”: |
| | |
| | Consolidated Statements of Operations for the years ended May 31, 2010, 20092012, 2011 and 20082010 |
| | |
| | Consolidated Balance Sheets at May 31, 20102012 and 20092011 |
| | |
| | Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss) for the years ended May 31, 2010, 20092012, 2011 and 20082010 |
| | |
| | Consolidated Statements of Cash Flows for the years ended May 31, 2010, 20092012, 2011 and 20082010 |
| | |
| | Notes to Consolidated Financial Statements |
| | |
(a)(2) | Supplementary Financial Information - Summary of Quarterly Results of Operations Financial Statement Schedule: |
| | |
and (c) | | |
| | |
| The following consolidated financial statement schedule is included with this report: Schedule II-Valuation and Qualifying Accounts and Reserves. |
| | |
| All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto. |
| | |
(a)(3) and (b) |
|
| |
| Exhibits: |
| | |
3.1 | Amended and Restated Certificate of Incorporation of the Corporation, as amended to date (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 5, 2006, SEC File No. 000-19860) (the “August 31, 2006 10-Q”). |
| | |
3.2 | Bylaws of the Corporation, amended and restated as of December 12, 2007 (incorporated by reference to the Corporation’s Current Report on Form 8-K as filed with the SEC on December 14, 2007, SEC File No. 000-19860). |
| | |
4.1 | Credit Agreement, dated as of June 1, 2007, among the Corporation and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC., as joint lead arrangers and joint bookrunners, Bank of America, N. A. and Wachovia Bank, N. A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc, as Documentation Agents (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on July 30, 2007, SEC File No. 000-19860) (the “2007 10-K”). |
| |
4.2 | Amendment No. 1, dated as of August 16, 2010, to the Credit Agreement, dated as of June 1, 2007 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 1, 2010) (the “August 30, 2010 10-Q”). |
| |
4.2*4.3
| Amendment No. 2, dated as of October 25, 2011 to the Credit Agreement, dated as of June 1, 2007 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on December 22, 2011) (the “November 30, 2011 10-Q”). |
| |
4.4* | Indenture dated April 4, 2003 for 5% Notes due 2013 issued by the Corporation. |
78- 81 -
| |
10.1** | Scholastic Corporation 1995 Stock Option Plan, effective as of September 21, 1995 (incorporated by reference to the Corporation’s Registration Statement on Form S-8 (Registration No. 33-98186), as filed with the SEC on October 16, 1995), together with Amendment No. 1, effective September 16, 1998 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 15, 1998, SEC File No. 000-19860), Amendment No. 2, effective as of July 18, 2001 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 24, 2001, SEC File No. 000-19860), Amendment No. 3, effective as of May 25, 2006 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 9, 2006, SEC File No. 000-19860 (the “2006 10-K”)), Amendment No. 4, dated as of March 21, 2007 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on March 30, 2007 (the “February 28, 2007 10-Q”)) and Amendment No. 5, dated as of May 20, 2008 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on July 30, 2008 (the “2008 10-K”). |
| |
10.2** | Scholastic Corporation Management Stock Purchase Plan, amended and restated effective as of September 23, 2008 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on July 30, 2009, SEC File No. 000-19860 (the “2009 10-K”)). |
| |
10.3** | Scholastic Corporation 1997 Outside Directors’ Stock Option Plan, amended and restated as of May 25, 1999 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999, SEC File No. 000-19860 (the “1999 10-K”)), together with Amendment No. 1, dated September 20, 2001 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 14, 2002, SEC File No. 000-19860), Amendment No. 2, effective as of September 23, 2003 (incorporated by reference to Appendix B to the Corporation’s definitive Proxy Statement as filed with the SEC on August 19, 2003, SEC File No. 000-19860), and Amendment No. 3, effective as of May 25, 2006 (incorporated by reference to the 2006 10-K). |
| |
10.4** | Scholastic Corporation Director’s Deferred Compensation Plan, amended and restated effective as of September 23, 2008 (incorporated by reference to the 2009 10-K). |
| |
10.5** | Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (the “2007 Directors’ Plan”) effective as of September 23, 2008 (incorporated by reference to the 2009 10-K). |
| |
10.6** | Form of Stock Option Agreement under the 2007 Directors’ Plan (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 9, 2008, SEC File No. 000-19860). |
| |
10.7** | Form of Restricted Stock Unit Agreement under the 2007 Directors’ Plan effective as of September 23, 2008 (incorporated by reference to the 2009 10-K). |
| |
10.8** | Scholastic Corporation Executive Performance Incentive Plan, effective as of May 21, 2008 (incorporated by reference to Appendix B to the Corporation’s definitive Proxy Statement as filed with the SEC on August 15, 2008, SEC File No. 000-19860). |
| |
10.9** | Scholastic Corporation 2001 Stock Incentive Plan, amended and restated as of July 21, 2009 (“the 2001(the “2001 Plan”) (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 10, 2009, SEC File No. 000-19860 (the “August 31, 2009 10-Q”)). |
| |
10.10** | Form of Stock Unit Agreement under the 2001 Plan (incorporated by reference to the August 31, 2009 10-Q). |
79
| |
10.11** | Amended and Restated Guidelines for Stock Units granted under the 2001 Plan, amended and restated as of July 21, 2009 (incorporated by reference to the August 31, 2009 10-Q). |
| |
10.12** | Form of Non-Qualified Stock Option Agreement under the 2001 Plan (incorporated by reference to the August 31, 2009 10-Q). |
| |
10.13** | Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) (incorporated by reference to Appendix A to the Corporation’s definitive Proxy Statement as filed with the SEC on August 2, 2004, SEC File No. 000-19860), Amendment No. 1, effective as of May 25, 2006 (incorporated by reference to the 2006 10-K), Amendment No. 2, dated July 18, 2006 (incorporated by reference to Appendix C to the Corporation’s definitive Proxy Statement as filed with the SEC on August 1, 2006), and Amendment No. 3, dated as of March 20, 2007 (incorporated by reference to the February 28, 2007 10-Q). |
- 82 -
| |
|
| |
10.14** | Form of Class A Option Agreement under the Class A Plan (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 8, 2005, SEC File No. 000-19860). |
| |
10.15*10.16**
| Agreement between Devereux Chatillon and Scholastic Inc., dated November 30, 2008, with regard to certain severance arrangements.
|
| |
10.16
| Amended and Restated Lease, effective as of August 1, 1999, between ISE 555 Broadway, LLC, and Scholastic Inc., tenant, for the building known as 555 Broadway, NY, NY (incorporated by reference to the 1999 10-K). |
| |
10.1710.17**
| Amended and Restated Sublease, effective as of October 9, 1996, between Kalodop Corp. and Scholastic Inc., as subtenant, for the premises known as 557 Broadway, NY, NY (incorporated by reference to the 1999 10-K). |
| |
10.18** | Scholastic Corporation 2011 Stock Incentive Plan (incorporated by reference to the November 30, 2011 10-Q). |
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10.19** | Form of Non-Qualified Stock Option Agreement under the Scholastic Corporation 2011 Stock Incentive Plan (incorporated by reference to the November 30, 2011 10-Q). |
| |
10.20** | Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2011 Stock Incentive Plan (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on March 23, 2012). |
| |
10.21** | Amendment No. 1 to the Amended and Restated Management Stock Purchase Plan. |
| |
21 | Subsidiaries of the Corporation, as of July 26, 2010.20, 2012. |
| |
23 | Consent of Ernst & Young LLP. |
| |
31.1 | Certification of the Chief Executive Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31.2 | Certification of the Chief Financial Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 | Certifications of the Chief Executive Officer and the Chief Financial Officer of the Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
101.INS | XBRL Instance Document *** |
| |
101.SCH | XBRL Taxonomy Extension Schema Document *** |
| |
101.CAL | XBRL Taxonomy Extension Calculation Document *** |
| |
101.DEF | XBRL Taxonomy Extension Definitions Document *** |
| |
101.LAB | XBRL Taxonomy Extension Labels Document *** |
| |
101.PRE | XBRL Taxonomy Extension Presentation Document *** |
| |
| |
| |
* | Such long-term debt does not individually amount to more than 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such instrument is not filed herewith. The Corporation hereby agrees to furnish a copy of any such instrument to the SEC upon request. |
| |
** | The referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K. |
| |
*** | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.” |
80- 83 -
|
Signatures |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
Dated: July 26, 20102012 | SCHOLASTIC CORPORATION |
| |
| By: /s/ Richard Robinson |
|
|
| Richard Robinson, Chairman of the Board, |
| President and Chief Executive Officer |
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard Robinson his or her true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary and requisite to be done, as fully and to all the intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
|
|
|
|
|
| | | | |
/s/ Richard Robinson | | Chairman of the Board, President and | | July 26, 20102012 |
| | Chief Executive Officer and Director | | |
Richard Robinson | | (principal executive officer) | | |
| | | | |
/s/ Maureen O’Connell | | Executive Vice President, Chief Administrative | | July 26, 20102012 |
| | Officer and Chief Financial Officer | | |
Maureen O’Connell | | (principal financial officer) | | |
| | | | |
/s/ Robert J. Jackson
| | Senior Vice President, Chief Accounting Officer
| | July 26, 2010
|
| | (principaland accounting officer)
| | |
Robert J. Jackson
| | | | |
| | | | |
/s/ James W. Barge | | Director | | July 26, 20102012 |
| | | | |
James W. Barge | | | | |
| | | | |
/s/ Marianne Caponnetto | | Director | | July 26, 2012 |
| | | | |
Marianne Caponnetto | | | | |
- 84 -
| | | | |
|
| | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ John L. Davies | | Director | | July 26, 20102012 |
| | | | |
John L. Davies | | | | |
| | | | |
/s/ Andrew S. Hedden | | Director | | July 26, 20102012 |
| | | | |
Andrew S. Hedden | | | | |
| | | | |
/s/ Mae C. Jemison | | Director | | July 26, 20102012 |
| | | | |
Mae C. Jemison | | | | |
81
| | | | |
Signature
| | Title
| | Date
|
|
|
|
|
|
| | | | |
/s/ Peter M. Mayer | | Director | | July 26, 20102012 |
| | | | |
Peter M. Mayer | | | | |
| | | | |
/s/ John G. McDonald | | Director | | July 26, 20102012 |
| | | | |
John G. McDonald | | | | |
| | | | |
/s/ Augustus K. Oliver | | Director | | July 26, 20102012 |
| | | | |
Augustus K. Oliver | | | | |
| | | | |
/s/ Richard M. Spaulding | | Director | | July 26, 20102012 |
| | | | |
Richard M. Spaulding | | | | |
| | | | |
/s/ Margaret A. Williams | | Director | | July 26, 20102012 |
| | | | |
Margaret A. Williams | | | | |
82- 85 -
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED MAY 31, 20102012
ITEM 15(c)
S-1
SScchedulehedule II
Valuation and Qualifying Accounts and Reserves
| | | | | | | | | | | | | |
(Amounts in millions)
Years Ended May 31, | |
|
|
| | Balance at
Beginning
of Year | | Expensed | | Write-Offs
and Other | | Balance at
End of Year | |
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2010 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 15.2 | | $ | 9.5 | | $ | 6.2 | | $ | 18.5 | |
Reserve for returns | | | 34.5 | | | 62.8 | | | 66.4 | (1) | | 30.9 | |
Reserves for obsolescence | | | 74.4 | | | 27.2 | | | 23.5 | | | 78.1 | |
Reserve for royalty advances | | | 72.6 | | | 6.8 | | | 10.5 | | | 68.9 | |
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2009 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 14.2 | | $ | 15.8 | | $ | 14.8 | | $ | 15.2 | |
Reserve for returns | | | 40.3 | | | 66.2 | | | 72.0 | (1) | | 34.5 | |
Reserves for obsolescence | | | 69.2 | | | 28.4 | | | 23.2 | | | 74.4 | |
Reserve for royalty advances | | | 64.0 | | | 12.6 | | | 4.0 | | | 72.6 | |
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2008 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 13.8 | | $ | 8.6 | | $ | 8.2 | | $ | 14.2 | |
Reserve for returns | | | 38.5 | | | 94.5 | | | 92.7 | (1) | | 40.3 | |
Reserves for obsolescence | | | 57.4 | | | 29.4 | | | 17.6 | | | 69.2 | |
Reserve for royalty advances | | | 58.4 | | | 6.8 | | | 1.2 | | | 64.0 | |
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(1) Represents actual returns charged to the reserve. | | | | | | | | | | | | | |
| | (Amounts in millions)
Years ended May 31, | |
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| | Balance at Beginning
of Year | | Expensed | | Write-Offs and Other | | Balance at End of Year | |
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2012 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 22.3 | | $ | 12.3 | | $ | 8.7 | | $ | 25.9 | |
Reserve for returns | | | 33.0 | | | 81.8 | | | 57.3 | (1) | | 57.5 | |
Reserves for obsolescence | | | 82.2 | | | 48.1 | | | 39.5 | | | 90.8 | |
Reserve for royalty advances | | | 71.8 | | | 6.5 | | | 0.5 | | | 77.8 | |
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2011 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 18.5 | | $ | 13.6 | | $ | 9.8 | | $ | 22.3 | |
Reserve for returns | | | 30.9 | | | 69.6 | | | 67.5 | (1) | | 33.0 | |
Reserves for obsolescence | | | 78.1 | | | 27.3 | | | 23.2 | | | 82.2 | |
Reserve for royalty advances | | | 68.9 | | | 4.5 | | | 1.6 | | | 71.8 | |
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2010 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 15.2 | | $ | 9.5 | | $ | 6.2 | | $ | 18.5 | |
Reserve for returns | | | 34.5 | | | 62.8 | | | 66.4 | (1) | | 30.9 | |
Reserves for obsolescence | | | 74.4 | | | 27.2 | | | 23.5 | | | 78.1 | |
Reserve for royalty advances | | | 72.6 | | | 6.8 | | | 10.5 | | | 68.9 | |
| |
(1) | Represents actual returns charged to the reserve |
S-2
