(SCHOLASTIC LOGO)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


 

 

For the quarterly period ended November 30, 2010August 31, 2011

Commission File No. 000-19860

SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)

(Exact name of Registrant as specified in its charter)


 

 

 

               Delaware

 

13-3385513

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

557 Broadway, New York, New York

10012

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (212) 343-6100

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filerx

Accelerated filero

Non-accelerated filero

Smaller reporting companyo

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Nox

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

 

 

Title
of each class

Number of shares outstanding

of each class

as of NovemberSeptember 30, 20102011



 

 

Common Stock, $.01 par value

29,190,03029,557,830

Class A Stock, $.01 par value

1,656,200



SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2010
INDEX

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2011

INDEX


 

 

 

 


 

 

 

Page

 

 

 


Part I - Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited)

 

1

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

2

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

3

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

5

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

22

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

34

31

 

 

 

 

Item 4.

Controls and Procedures

 

35

32

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

36

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

Item 6.

Exhibits

 

38

34

 

 

 

 

Signatures

 

 

39

35




PART I - FINANCIAL INFORMATION

 


Item 1. Financial Statements

 

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
November 30,

 

Six months ended
November 30,

 







 

 

2010

 

2009

 

2010

 

2009

 











Revenues

 

$

675.7

 

$

660.1

 

$

966.6

 

$

975.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

 

 

296.2

 

 

273.6

 

 

443.9

 

 

431.9

 

Selling, general and administrative expenses (exclusive of depreciation and amortization)

 

 

232.3

 

 

220.5

 

 

402.9

 

 

392.0

 

Bad debt expense

 

 

3.0

 

 

4.4

 

 

5.9

 

 

6.5

 

Depreciation and amortization

 

 

14.5

 

 

14.8

 

 

28.9

 

 

29.5

 

Asset impairments

 

 

 

 

40.1

 

 

 

 

40.1

 

Severance

 

 

1.0

 

 

1.1

 

 

3.1

 

 

5.4

 















Total operating costs and expenses

 

 

547.0

 

 

554.5

 

 

884.7

 

 

905.4

 















Operating income

 

 

128.7

 

 

105.6

 

 

81.9

 

 

70.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

(0.4

)

 

 

 

(0.4

)

 

0.9

 

Interest expense, net

 

 

4.0

 

 

4.3

 

 

7.8

 

 

8.2

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

 

124.3

 

 

101.3

 

 

73.7

 

 

63.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

47.4

 

 

44.5

 

 

31.0

 

 

30.8

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

76.9

 

 

56.8

 

 

42.7

 

 

32.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of tax

 

 

(2.0

)

 

(1.3

)

 

(3.0

)

 

0.3

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

74.9

 

$

55.5

 

$

39.7

 

$

32.5

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per Share of Class A and Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.23

 

$

1.56

 

$

1.20

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of tax

 

$

(0.06

)

$

(0.04

)

$

(0.08

)

$

0.01

 

Net income

 

$

2.17

 

$

1.52

 

$

1.12

 

$

0.89

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.19

 

$

1.54

 

$

1.19

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of tax

 

$

(0.05

)

$

(0.03

)

$

(0.08

)

$

0.00

 

Net income

 

$

2.14

 

$

1.51

 

$

1.11

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.075

 

$

0.075

 

$

0.150

 

$

0.150

 















 

 

 

 

 

 

 

 

 

 

Three months ended
August 31,

 







 

 

2011

 

2010

 

 

 

 

 

 

 







Revenues

 

$

318.0

 

$

290.4

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

 

 

160.4

 

 

147.3

 

Selling, general and administrative expenses (exclusive of depreciation and amortization)

 

 

171.0

 

 

170.0

 

Bad debt expense

 

 

1.4

 

 

2.9

 

Depreciation and amortization

 

 

15.1

 

 

14.4

 

Severance

 

 

3.3

 

 

2.1

 









Total operating costs and expenses

 

 

351.2

 

 

336.7

 









 

 

 

 

 

 

 

 

Operating loss

 

 

(33.2

)

 

(46.3

)

Interest expense, net

 

 

(3.9

)

 

(3.8

)









 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

 

(37.1

)

 

(50.1

)

 

 

 

 

 

 

 

 

Benefit from income taxes

 

 

(12.0

)

 

(16.2

)









 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(25.1

)

 

(33.9

)

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

 

(2.0

)

 

(1.3

)









 

 

 

 

 

 

 

 

Net loss

 

$

(27.1

)

$

(35.2

)









 

 

 

 

 

 

 

 

Basic and diluted loss per Share of Class A and Common Stock

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.81

)

$

(0.94

)

Loss from discontinued operations, net of tax

 

$

(0.06

)

$

(0.04

)

Net loss

 

$

(0.87

)

$

(0.98

)

Diluted:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.81

)

$

(0.94

)

Loss from discontinued operations, net of tax

 

$

(0.06

)

$

(0.04

)

Net loss

 

$

(0.87

)

$

(0.98

)

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.100

 

$

0.075

 









See accompanying notes



 

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2010

 

May 31, 2010

 

November 30, 2009

 

 

August 31, 2011

 

May 31, 2011

 

August 31, 2010

 


ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54.4

 

$

244.1

 

$

178.3

 

 

$

33.7

 

$

105.3

 

$

124.2

 

Accounts receivable, net

 

287.7

 

212.5

 

284.6

 

 

217.1

 

220.3

 

212.4

 

Inventories, net

 

371.6

 

315.7

 

374.7

 

 

422.8

 

308.7

 

429.8

 

Deferred income taxes

 

59.8

 

59.3

 

65.2

 

 

56.2

 

56.2

 

59.7

 

Other current assets

 

51.3

 

42.5

 

41.7

 

Prepaid expenses and other current assets

 

100.3

 

57.1

 

80.8

 

Current assets of discontinued operations

 

10.2

 

12.9

 

16.9

 

 

9.6

 

10.5

 

18.4

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

835.0

 

887.0

 

961.4

 

 

839.7

 

758.1

 

925.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

343.5

 

316.6

 

312.8

 

 

331.3

 

339.0

 

321.0

 

Prepublication costs

 

109.8

 

110.7

 

111.1

 

 

116.9

 

117.7

 

109.1

 

Royalty advances, net

 

38.6

 

38.0

 

41.3

 

 

34.6

 

35.5

 

37.9

 

Production costs

 

7.6

 

7.1

 

6.7

 

 

7.5

 

7.4

 

7.2

 

Goodwill

 

163.7

 

156.6

 

157.0

 

 

154.2

 

154.2

 

156.6

 

Other intangibles

 

15.0

 

15.5

 

18.8

 

 

19.4

 

19.8

 

15.4

 

Noncurrent deferred income taxes

 

33.4

 

33.6

 

59.6

 

 

20.2

 

20.2

 

33.0

 

Other assets and deferred charges

 

37.8

 

35.3

 

39.0

 

 

35.3

 

35.1

 

37.8

 


Total assets

 

$

1,584.4

 

$

1,600.4

 

$

1,707.7

 

 

$

1,559.1

 

$

1,487.0

 

$

1,643.3

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of credit, short-term debt and current portion of long-term debt

 

$

50.0

 

$

50.3

 

$

55.8

 

 

$

47.4

 

$

43.5

 

$

50.5

 

Capital lease obligations

 

0.5

 

0.9

 

2.2

 

 

0.5

 

0.5

 

0.9

 

Accounts payable

 

164.5

 

101.0

 

134.4

 

 

181.2

 

120.1

 

177.0

 

Accrued royalties

 

48.8

 

42.3

 

47.9

 

 

52.7

 

35.4

 

56.3

 

Deferred revenue

 

81.7

 

39.8

 

73.7

 

 

75.9

 

49.1

 

59.8

 

Other accrued expenses

 

165.8

 

156.2

 

184.2

 

 

169.7

 

173.3

 

138.9

 

Current liabilities of discontinued operations

 

1.7

 

2.9

 

2.1

 

 

1.2

 

0.8

 

3.9

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

513.0

 

393.4

 

500.3

 

 

528.6

 

422.7

 

487.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

181.2

 

202.5

 

223.8

 

 

152.6

 

159.9

 

191.8

 

Capital lease obligations

 

54.5

 

55.0

 

54.6

 

 

55.3

 

55.0

 

55.1

 

Other noncurrent liabilities

 

115.0

 

119.1

 

101.9

 

 

107.5

 

109.4

 

116.8

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noncurrent liabilities

 

350.7

 

376.6

 

380.3

 

 

315.4

 

324.3

 

363.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $1.00 par value

 

 

 

 

 

 

 

 

Class A Stock, $.01 par value

 

0.0

 

0.0

 

0.0

 

 

0.0

 

0.0

 

0.0

 

Common Stock, $.01 par value

 

0.4

 

0.4

 

0.4

 

 

0.4

 

0.4

 

0.4

 

Additional paid-in capital

 

577.7

 

569.2

 

559.8

 

 

578.2

 

576.6

 

574.5

 

Accumulated other comprehensive loss

 

(72.6

)

 

(85.4

)

 

(70.4

)

 

 

(52.1

)

 

(53.9

)

 

(81.6

)

Retained earnings

 

642.4

 

607.8

 

589.8

 

 

605.6

 

635.8

 

569.9

 

Treasury stock at cost

 

(427.2

)

 

(261.6

)

 

(252.5

)

 

 

(417.0

)

 

(418.9

)

 

(270.9

)


Total stockholders’ equity

 

720.7

 

830.4

 

827.1

 

 

715.1

 

740.0

 

792.3

 


Total liabilities and stockholders’ equity

 

$

1,584.4

 

$

1,600.4

 

$

1,707.7

 

 

$

1,559.1

 

$

1,487.0

 

$

1,643.3

 


See accompanying notes



 

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

Six months ended
November 30,

 







 

 

2010

 

2009

 







Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

 

Net income

 

$

39.7

 

$

32.5

 

(Loss) earnings from discontinued operations, net of tax

 

 

(3.0

)

 

0.3

 









Earnings from continuing operations

 

 

42.7

 

 

32.2

 

 

 

 

 

 

 

 

 

Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations:

 

 

 

 

 

 

 

Provision for losses on accounts receivable

 

 

5.9

 

 

6.5

 

Provision for losses on inventory

 

 

12.0

 

 

13.8

 

Provision for losses on royalty

 

 

1.7

 

 

4.0

 

Amortization of prepublication and production costs

 

 

24.5

 

 

24.3

 

Depreciation and amortization

 

 

28.9

 

 

29.5

 

Deferred income taxes

 

 

1.0

 

 

(3.5

)

Stock-based compensation

 

 

8.4

 

 

8.4

 

Non-cash write off related to asset impairments

 

 

 

 

40.1

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(75.7

)

 

(90.5

)

Inventories

 

 

(62.8

)

 

(39.1

)

Other current assets

 

 

(9.6

)

 

2.6

 

Deferred promotion costs

 

 

(4.4

)

 

(3.5

)

Royalty advances

 

 

(1.9

)

 

(3.6

)

Accounts payable

 

 

59.2

 

 

4.6

 

Other accrued expenses

 

 

9.1

 

 

43.7

 

Accrued royalties

 

 

5.8

 

 

5.7

 

Deferred revenue

 

 

41.6

 

 

39.3

 

Pension and postretirement liability

 

 

(4.3

)

 

(6.8

)

Other net

 

 

(0.1

)

 

(4.3

)









Total adjustments

 

 

39.3

 

 

71.2

 









 

 

 

 

 

 

 

 

Net cash provided by operating activities of continuing operations

 

 

82.0

 

 

103.4

 

Net cash provided by operating activities of discontinued operations

 

 

1.5

 

 

2.4

 









 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

83.5

 

 

105.8

 

 

 

 

 

 

 

 

 

Cash flows (used in) provided by investing activities:

 

 

 

 

 

 

 

Prepublication and production expenditures

 

 

(23.4

)

 

(22.1

)

Additions to property, plant and equipment

 

 

(24.2

)

 

(17.2

)

Net proceeds from sale of discontinued operations

 

 

 

 

0.2

 

Land acquisition

 

 

(24.3

)

 

 

Acquisition-related payments (net of cash received of $2.5)

 

 

(9.2

)

 

 









 

 

 

 

 

 

 

 

Net cash used in investing activities of continuing operations

 

 

(81.1

)

 

(39.1

)

Net cash used in investing activities of discontinued operations

 

 

 

 

 









 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(81.1

)

 

(39.1

)

See accompanying notes

 

 

 

 

 

 

 

 

 

 

Three months ended
August 31,

 







 

 

2011

 

2010

 







Cash flows (used in) provided by operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(27.1

)

$

(35.2

)

Loss from discontinued operations, net of tax

 

 

(2.0

)

 

(1.3

)









Loss from continuing operations

 

 

(25.1

)

 

(33.9

)

 

 

 

 

 

 

 

 

Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities of continuing operations:

 

 

 

 

 

 

 

Provision for losses on accounts receivable

 

 

1.4

 

 

2.9

 

Provision for losses on inventory

 

 

5.9

 

 

6.3

 

Provision for losses on royalty advances

 

 

1.2

 

 

1.4

 

Amortization of prepublication and production costs

 

 

11.9

 

 

12.1

 

Depreciation and amortization

 

 

15.1

 

 

14.4

 

Deferred income taxes

 

 

 

 

1.0

 

Stock-based compensation

 

 

2.2

 

 

5.3

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

2.0

 

 

(1.0

)

Inventories

 

 

(121.3

)

 

(120.2

)

Prepaid and other current assets

 

 

(24.3

)

 

(22.2

)

Deferred promotion costs

 

 

(4.3

)

 

(6.0

)

Royalty advances

 

 

(0.3

)

 

(1.1

)

Accounts payable

 

 

60.7

 

 

75.1

 

Other accrued expenses

 

 

(18.3

)

 

(33.3

)

Accrued royalties

 

 

17.3

 

 

13.8

 

Deferred revenue

 

 

26.8

 

 

19.9

 

Pension and post-retirement liability

 

 

(0.7

)

 

(2.9

)

Other noncurrent liability

 

 

(0.4

)

 

 

Other, net

 

 

0.6

 

 

1.0

 









Total adjustments

 

 

(24.5

)

 

(33.5

)









 

 

 

 

 

 

 

 

Net cash used in operating activities of continuing operations

 

 

(49.6

)

 

(67.4

)

Net cash provided by (used in) operating activities of discontinued operations

 

 

0.3

 

 

(5.7

)









 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(49.3

)

 

(73.1

)

 

 

 

 

 

 

 

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

Prepublication and production expenditures

 

 

(11.5

)

 

(10.8

)

Additions to property, plant and equipment

 

 

(7.2

)

 

(13.0

)

Acquisition related payments

 

 

 

 

(1.0

)









 

 

 

 

 

 

 

 

Net cash used in investing activities of continuing operations

 

 

(18.7

)

 

(24.8

)

 

 

 

 

 

 

 

 

See accompanying notes

 

 

 

 

 

 

 



 

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

Six months ended
November 30,

 









 

 

2010

 

2009

 









Cash flows (used in) provided by financing activities:

 

 

 

 

 

 

 

Repayment of term loan

 

 

(21.4

)

 

(21.4

)

Borrowings under Credit Agreement and Revolver

 

 

70.0

 

 

 

Repayment of Credit Agreement and Revolver

 

 

(70.0

)

 

 

Repurchase of 5% notes

 

 

 

 

(4.1

)

Borrowings under lines of credit

 

 

78.6

 

 

104.5

 

Repayment of lines of credit

 

 

(79.8

)

 

(99.4

)

Repayment of capital lease obligations

 

 

(1.8

)

 

(1.8

)

Reacquisition of common stock

 

 

(165.7

)

 

(1.0

)

Proceeds pursuant to stock-based compensation plans

 

 

1.0

 

 

 

Payment of dividends

 

 

(5.4

)

 

(5.5

)

Other

 

 

(0.9

)

 

(0.5

)









 

 

 

 

 

 

 

 

Net cash used in financing activities of continuing operations

 

 

(195.4

)

 

(29.2

)

Net cash used in financing activities of discontinued operations

 

 

 

 

 









 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(195.4

)

 

(29.2

)

Effect of exchange rate changes on cash and cash equivalents

 

 

3.3

 

 

(2.8

)









 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(189.7

)

 

34.7

 

Cash and cash equivalents at beginning of period

 

 

244.1

 

 

143.6

 









Cash and cash equivalents at end of period

 

$

54.4

 

$

178.3

 









See accompanying notes

 

 

 

 

 

 

 

 

 

 

Three months ended
August 31,

 







 

 

2011

 

2010

 







Cash flows (used in) provided by financing activities:

 

 

 

 

 

 

 

Repayment of term loan

 

 

(10.7

)

 

(10.7

)

Borrowings under lines of credit

 

 

18.5

 

 

12.6

 

Repayment under lines of credit

 

 

(9.6

)

 

(12.6

)

Repayment of capital lease obligations

 

 

(0.1

)

 

(0.3

)

Reacquisition of common stock

 

 

 

 

(9.7

)

Proceeds pursuant to stock-based compensation plans

 

 

1.3

 

 

 

Payment of dividends

 

 

(3.1

)

 

(2.7

)

Other

 

 

(0.3

)

 

 









 

 

 

 

 

 

 

 

Net cash used in financing activities of continuing operations

 

 

(4.0

)

 

(23.4

)

Net cash used in financing activities

 

 

(4.0

)

 

(23.4

)

Effect of exchange rate changes on cash and cash equivalents

 

 

0.4

 

 

1.4

 









 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(71.6

)

 

(119.9

)

Cash and cash equivalents at beginning of period

 

 

105.3

 

 

244.1

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

33.7

 

$

124.2

 









 

 

 

 

 

 

 

 

See accompanying notes

 

 

 

 

 

 

 



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


1. Basis of Presentation

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of Scholastic Corporation (the “Corporation”) and all wholly-owned and majority-owned subsidiaries (collectively, “Scholastic” or the “Company”). IntercompanyAll significant intercompany transactions are eliminated in consolidation. These financial statements have not been audited but reflect those adjustments consisting of normal recurring items that management considers necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated financial statements and related notes in the Annual Report on Form 10-K for the fiscal year ended May 31, 20102011 (the “Annual Report”).



The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 20102011 relate to the twelvetwelve- month period ended May 31, 2010.2011.

Change in Reportable Segments

During the quarter ended August 31, 2011, the Company determined that its reportable segment structure is now comprised of five reportable segments:

Children’s Book Publishing and Distribution

Educational Technology and Services

Classroom and Supplemental Materials Publishing

Media, Licensing and Advertising

International

Accordingly, the Company has presented segment data in prior periods consistent with this change in reportable segments.

Discontinued Operations

As more fully described in Note 3, “Discontinued Operations,” theThe Company closed or sold several operations during fiscal 20082009, fiscal 2010 and 2009,the first quarter of fiscal 2012, and presently holds for sale one operation. All of these businesses arefacility. In the current fiscal period, 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 and it is now classified as a discontinued operationsoperation in the Company’s financial statements.

The remaining assets and liabilities associated with the foregoing Reference is made to Note 2, “Discontinued Operations,” for additional information concerning discontinued businesses or operations are presented in the Company’s condensed consolidated balance sheets as “Current assets of discontinued operations” and “Current liabilities of discontinued operations” as of November 30, 2010, May 31, 2010 and November 30, 2009. In fiscal 2010, the Company sold a previously discontinued non-core book distribution business. The aggregate results of operations of these businesses for the six months ended November 30, 2010 and 2009 are included in the condensed consolidated statements of operations as “(Loss) earnings from discontinued operations, net of tax.” The aggregate cash flows of these businesses are also presented separately in the Company’s consolidated statements of cash flows for the six months ended November 30, 2010 and 2009. All corresponding prior year periods presented in the Company’s condensed consolidated financial statements and accompanying notes have been reclassified to reflect the discontinued operations presentation.

During the first quarter of fiscal 2011, the Company determined that its distribution facility in Danbury, Connecticut (the “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.

Reclassificationoperations.

The current presentation includes a net reclassification of certain costs to “Cost of goods sold” from “Selling, general and administrative expenses,” which totaled $3.9 for the three months ended November 30, 2009 and $6.1 for the six months ended November 30, 2009.

Seasonality

The Company’s school-based book clubs, school-based book fairs and most of its magazines operate on a school-year basis. Therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based book club and book fair revenues are greatest in the second and fourth quarters of the fiscal year, while revenues from the sale of instructional materials and educational technology products are highest in the first and fourth quarters. The Company typically experiences losses from operations in the first and third quarters of each fiscal year. Due to the seasonal fluctuations that occur, the November 30, 2009August 31, 2010 condensed consolidated balance sheet is included for comparative purposes.

Use of estimates

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Regulation S-X. The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the condensed 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 basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to:



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


including, but not limited to: collectability of accounts receivable; sales returns; gross margin rates used to determine inventory values; gross profits for book fair operations during interim periods; amortization periods; stock-based compensation expense; pension and other post-retirement obligations; tax rates; recoverability of inventories, deferred income taxes and tax reserves, prepublication costs and royalty advances; and the fair value of goodwill and other intangibles.

Accounts receivable, returns and allowances

Pension and other post-retirement obligations

Uncertain tax positions

Inventory reserves

Gross profits for book fair operations during interim periods

Sales taxes

Royalty advance reserves

Customer reward programs

Impairment testing for goodwill, intangibles and other long-lived assets

Restricted Cash

The condensed consolidated balance sheets include restricted cash of $1.3, $0.0 and $0.0 as of November 30, 2010, May 31, 2010 and November 30, 2009, respectively, which is reported in “Other current assets.” This restricted cash was acquired with the assets of Marilyn Burn Education Associates (d/b/a Math Solutions) (“Math Solutions”), See Note 2, “Acquisition and Land Purchase,” for a further description of the acquisition.

NewRecently Adopted Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (the “FASB”) issued an update to authoritative guidance on the revenue recognition related to multiple deliverable revenue arrangements. The guidance 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. The current authoritative guidance establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue-generating activities. Specifically, this guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. This guidance will beis effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. EarlyTo date, the adoption is permitted. The Companyof this standard has not chosen early adoption and is evaluating thehad a significant impact on the Company’s consolidated financial position, results of operations andor cash flows.

In October 2009, the FASB issued an update to authoritative guidance related to certain revenue arrangements that include software elements. The accounting guidance update addresses the accounting for 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 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 “Software – Revenue Recognition.” The amendment requires that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This guidance will beis effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. EarlyThe adoption is permitted. The Companyof this standard has not chosen early adoption and is evaluating thehad no impact on the Company’s consolidated financial position, results of operations andor cash flows.

In AprilDecember 2010, the FASB issued an update to the authoritative guidance on the milestone methodtwo-step testing required for impairment of revenue recognition. The objectivegoodwill and other intangible assets. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of this update isa reporting unit exceeds its fair value. If it does, an entity must perform an additional test to provide guidance on defining a milestonedetermine whether goodwill has been impaired and determining when it may be appropriate to applycalculate the milestone methodamount of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method.that impairment. The amendments in this update provide guidance onmodify Step 1 of the criteriagoodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that should be met fora goodwill impairment exists. In determining whether the milestone methodit is more likely than not that an impairment of revenue recognition is appropriate.goodwill exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The amendments in this update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after JuneDecember 15, 2010. EarlyThe adoption is permitted. The Company has not chosen early adoption and is evaluating theof this standard had no impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2010, the FASB issued an update to the authoritative guidance related to business combinations. The amendments in this update specify that, for material business combinations, on an individual or aggregate basis, when comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination had occurred as of the beginning of the comparable prior annual reporting period. The amendments in this update also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this standard had no impact on the Company’s consolidated financial position, results of operations or cash flows.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


2. AcquisitionNew 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 Land Purchasedisclosed 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. Early application is not permitted.

On September 9, 2010,In June 2011, the Company purchasedFASB issued an update related to the assetsreporting of Math Solutions, an education resourcesother 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. Regardless of the approach chosen, a company will be required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and professional development company focusing on K-12 math instruction,the components of other comprehensive income are presented. The amendments in this update are to be applied retrospectively. The amendments are effective for $8.0, net of cash.fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company intendshas not chosen early adoption.

In September 2011, the FASB issued an update to integratethe 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 business with its existing educational technology businesses. Asis the case, it must perform the two-step test. Otherwise, a result of this transaction,company can skip the Company recognized $6.9 of goodwill. Transaction costs of $0.4 were expensed intwo-step test. Companies are not required to perform the second quarter of fiscal 2011,qualitative assessment and are includedpermitted to skip the qualitative assessment for any reporting unit in “Other expense income” onany period and proceed directly to Step 1 of the Company’s condensed consolidated statements of operations.test. A company that validates its conclusion by measuring fair value can resume performing the qualitative assessment in any subsequent period. The results of operations of this acquisition subsequent to the acquisition dateamendments are included in theEducational Publishing segment.

In the currenteffective for annual and interim goodwill impairment tests performed for fiscal period, the Company purchased the land where its Corporate Headquarters are located for $24.3 and also satisfied capital lease obligations on this property of $1.3.years beginning after December 15, 2011. Early adoption is permitted.

3.2. Discontinued Operations

During fiscal 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”). 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. 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.

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 any additionalmonitors the expected cash proceeds to be realized from the disposition of discontinued operations or classify any additional operations as “held for sale” duringassets, and adjusts asset values accordingly. In the six-monthcurrent fiscal period, ended November 30, 2010. During the first quarter of fiscal 2011, the Company determined that the Danbury Facilityceased operations in its direct-to-home catalog business specializing in toys. This business was no longer “held for sale.” Accordingly, the assets, liabilities and results of operations of the Danbury Facility area separate reporting unit included in continuing operations for all periods presented.

During the second quarter of fiscal 2011, the Company began the process of settling the pension plan of Grolier Limited, a Canadian entity in the continuities business. Losses related to the recognition of prior service costs associated with the portion of the settlement completed in the second quarter are reflected in the table below. See Note 10, “Employee Benefit Plans,” for further details pertaining to the settlement.Media, Licensing and Advertising segment.

The following table summarizes the operating results of the discontinued operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
November 30,

 

Six months ended
November 30,

 







 

 

2010

 

2009

 

2010

 

2009

 











Revenues

 

 

 

$

1.1

 

 

 

$

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale

 

 

 

 

(1.1

)

 

 

 

(1.1

)

(Loss) earnings before income taxes

 

 

(2.1

)

 

0.1

 

 

(3.4

)

 

2.0

 

Income tax benefit (expense)

 

 

0.1

 

 

(0.3

)

 

0.4

 

 

(0.6

)















 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of tax

 

$

(2.0

)

$

(1.3

)

$

(3.0

)

$

0.3

 















 

 

 

 

 

 

 

 

 

 

Three months ended August 31,

 







 

 

2011

 

2010

 







Revenues

 

$

0.1

 

$

0.6

 

 

Asset impairments

 

 

0.9

 

 

 

Loss before income taxes

 

 

2.6

 

 

1.8

 

Income tax benefit

 

 

0.6

 

 

0.5

 









 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

$

2.0

 

$

1.3

 











 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The following table sets forth the assets and liabilities of the discontinued operations included in the condensed consolidated balance sheets of the Company as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

November 30, 2010

 

May 31, 2010

 

November 30, 2009

 









Accounts receivable, net

 

 

 

 

 

 

$

3.7

 

 

 

 

7.4

 

 

Inventories, net

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

Other assets

 

 

 

10.2

 

 

 

 

9.2

 

 

 

 

9.4

 

 


















 

 

Current assets of discontinued operations

 

 

$

10.2

 

 

 

$

12.9

 

 

 

$

16.9

 

 


















 

 

Accounts payable

 

 

 

 

 

 

 

 

 

 

 

0.5

 

 

Accrued expenses and other liabilities

 

 

 

1.7

 

 

 

 

2.9

 

 

 

 

1.6

 

 


















Current liabilities of discontinued operations

 

 

$

1.7

 

 

 

$

2.9

 

 

 

$

2.1

 

 




















SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

August 31, 2011

 

May 31, 2011

 

August 31, 2010

 









Accounts receivable, net

 

 

$

0.1

 

 

 

$

0.1

 

 

 

$

3.4

 

 

Inventory

 

 

 

0.3

 

 

 

 

1.2

 

 

 

 

3.2

 

 

Other assets

 

 

 

9.2

 

 

 

 

9.2

 

 

 

 

11.8

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets of discontinued operations

 

 

$

9.6

 

 

 

$

10.5

 

 

 

$

18.4

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

$

0.1

 

 

 

$

0.2

 

 

 

$

1.1

 

 

Accrued expenses and other liabilities

 

 

 

1.1

 

 

 

 

0.6

 

 

 

 

2.8

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities of discontinued operations

 

 

$

1.2

 

 

 

$

0.8

 

 

 

$

3.9

 

 


















4.3. Segment Information

The Company categorizes its businesses into fourfive reportable segments:Children’s Book Publishing and Distribution; Educational Technology and Services; Classroom and Supplemental Materials Publishing; Media, Licensing and Advertising;and International. 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.

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.

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.

• Classroom and Supplemental Materials Publishing includes the publication and distribution to schools and libraries of educational technology products and services, 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.

Media, Licensing and Advertisingincludes the production and/or distribution of media, consumer promotions and merchandising and advertising revenue, including sponsorship programs. This segment is comprised of threetwo operating segments.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Children’s Book
Publishing
and
Distribution

 

Educational
Publishing(1)

 

Media,
Licensing
and
Advertising

 

Overhead(2)

 

Total
Domestic

 

International

 

Total

 

















Three months ended
November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
























Revenues

 

$

387.3

 

$

101.6

 

$

40.9

 

$

 

$

529.8

 

$

145.9

 

$

675.7

 

Bad debt expense

 

 

2.3

 

 

 

 

0.1

 

 

 

 

2.4

 

 

0.6

 

 

3.0

 

Depreciation and amortization(3)

 

 

3.9

 

 

0.8

 

 

 

 

8.5

 

 

13.2

 

 

1.3

 

 

14.5

 

Amortization(4)

 

 

3.0

 

 

7.0

 

 

1.6

 

 

 

 

11.6

 

 

0.8

 

 

12.4

 

Asset impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty advances expensed

 

 

3.2

 

 

0.2

 

 

0.1

 

 

 

 

3.5

 

 

0.8

 

 

4.3

 

Segment operating income (loss)

 

 

97.3

 

 

11.0

 

 

4.7

 

 

(9.6

)

 

103.4

 

 

25.3

 

 

128.7

 

Expenditures for long-lived assets including royalty advances

 

 

7.9

 

 

15.6

 

 

2.2

 

 

31.4

 

 

57.1

 

 

4.0

 

 

61.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
November 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
























Revenues

 

$

368.8

 

$

122.6

 

$

37.8

 

$

 

$

529.2

 

$

130.9

 

$

660.1

 

Bad debt expense

 

 

1.4

 

 

1.0

 

 

 

 

 

 

2.4

 

 

2.0

 

 

4.4

 

Depreciation and amortization(3)

 

 

3.6

 

 

0.7

 

 

0.2

 

 

8.8

 

 

13.3

 

 

1.5

 

 

14.8

 

Amortization(4)

 

 

3.0

 

 

6.6

 

 

2.0

 

 

 

 

11.6

 

 

0.6

 

 

12.2

 

Asset impairments

 

 

 

 

36.3

 

 

 

 

 

 

36.3

 

 

3.8

 

 

40.1

 

Royalty advances expensed

 

 

4.5

 

 

 

 

0.3

 

 

 

 

4.8

 

 

0.3

 

 

5.1

 

Segment operating income (loss)

 

 

107.8

 

 

(4.1

)

 

2.6

 

 

(15.5

)

 

90.8

 

 

14.8

 

 

105.6

 

Expenditures for long-lived assets including royalty advances

 

 

11.0

 

 

7.0

 

 

1.5

 

 

4.2

 

 

23.7

 

 

1.6

 

 

25.3

 


























 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Children’s Book
Publishing
and
Distribution

 

Educational
Publishing(1)

 

Media,
Licensing
and
Advertising

 

Overhead(2)

 

Total
Domestic

 

International

 

Total

 

















Six months ended
November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
























Revenues

 

$

460.2

 

$

220.2

 

$

58.4

 

$

 

$

738.8

 

$

227.8

 

$

966.6

 

Bad debt expense

 

 

4.3

 

 

 

 

0.1

 

 

 

 

4.4

 

 

1.5

 

 

5.9

 

Depreciation and amortization(3)

 

 

7.5

 

 

1.4

 

 

0.5

 

 

16.9

 

 

26.3

 

 

2.6

 

 

28.9

 

Amortization(4)

 

 

6.3

 

 

13.5

 

 

3.3

 

 

 

 

23.1

 

 

1.4

 

 

24.5

 

Asset impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty advances expensed

 

 

8.3

 

 

0.4

 

 

0.2

 

 

 

 

8.9

 

 

1.4

 

 

10.3

 

Segment operating income (loss)

 

 

45.7

 

 

39.5

 

 

1.8

 

 

(28.2

)

 

58.8

 

 

23.1

 

 

81.9

 

Segment assets

 

 

540.0

 

 

304.5

 

 

56.2

 

 

375.5

 

 

1,276.2

 

 

298.0

 

 

1,574.2

 

Goodwill

 

 

54.3

 

 

95.3

 

 

5.4

 

 

 

 

155.0

 

 

8.7

 

 

163.7

 

Expenditures for long-lived assets including royalty advances

 

 

20.9

 

 

22.5

 

 

4.2

 

 

36.9

 

 

84.5

 

 

7.1

 

 

91.6

 

Long-lived assets

 

 

182.4

 

 

175.6

 

 

19.8

 

 

249.9

 

 

627.7

 

 

73.0

 

 

700.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended
November 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
























Revenues

 

$

445.0

 

$

271.3

 

$

52.9

 

$

 

$

769.2

 

$

206.5

 

$

975.7

 

Bad debt expense

 

 

2.4

 

 

1.2

 

 

 

 

 

 

3.6

 

 

2.9

 

 

6.5

 

Depreciation and amortization(3)

 

 

6.9

 

 

1.6

 

 

0.4

 

 

17.6

 

 

26.5

 

 

3.0

 

 

29.5

 

Amortization(4)

 

 

5.5

 

 

13.4

 

 

4.2

 

 

 

 

23.1

 

 

1.2

 

 

24.3

 

Asset impairments

 

 

 

 

36.3

 

 

 

 

 

 

36.3

 

 

3.8

 

 

40.1

 

Royalty advances expensed

 

 

9.6

 

 

0.2

 

 

0.4

 

 

 

 

10.2

 

 

1.8

 

 

12.0

 

Segment operating income (loss)

 

 

60.3

 

 

37.2

 

 

(1.1

)

 

(39.0

)

 

57.4

 

 

12.9

 

 

70.3

 

Segment assets

 

 

523.3

 

 

314.0

 

 

66.7

 

 

516.2

 

 

1,420.2

 

 

270.6

 

 

1,690.8

 

Goodwill

 

 

54.3

 

 

88.4

 

 

5.9

 

 

 

 

148.6

 

 

8.4

 

 

157.0

 

Expenditures for long-lived assets including royalty advances

 

 

23.7

 

 

12.6

 

 

3.1

 

 

7.1

 

 

46.5

 

 

4.4

 

 

50.9

 

Long-lived assets

 

 

181.5

 

 

167.5

 

 

25.0

 

 

225.6

 

 

599.6

 

 

72.0

 

 

671.6

 
























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Children’s
Book
Publishing
and
Distribution(1)

 

Educational
Technology
and
Services(1)(2)

 

Classroom
and
Supplemental
Materials
Publishing(1)(2)

 

Media,
Licensing
and
Advertising(1)

 

Overhead(1)(3)

 

Total
Domestic

 

International(1)

 

Total

 



























Three months ended
August 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

77.3

 

$

96.6

 

$

45.7

 

$

10.7

 

$

 

$

230.3

 

$

87.7

 

$

318.0

 

Bad debts

 

 

 

 

0.3

 

 

0.4

 

 

 

 

 

 

0.7

 

 

0.7

 

 

1.4

 

Depreciation and amortization(4)

 

 

3.7

 

 

0.3

 

 

0.3

 

 

0.1

 

 

9.2

 

 

13.6

 

 

1.5

 

 

15.1

 

Amortization(5)

 

 

3.1

 

 

5.2

 

 

1.4

 

 

1.5

 

 

 

 

11.2

 

 

0.7

 

 

11.9

 

Royalty advances expensed

 

 

5.0

 

 

0.2

 

 

0.1

 

 

0.1

 

 

 

 

5.4

 

 

0.8

 

 

6.2

 

Segment operating (loss) income

 

 

(49.8

)

 

38.8

 

 

2.1

 

 

(5.0

)

 

(19.2

)

 

(33.1

)

 

(0.1

)

 

(33.2

)

Segment assets at 8/31/11

 

 

506.5

 

 

185.8

 

 

149.8

 

 

40.6

 

 

396.6

 

 

1,279.3

 

 

270.2

 

 

1,549.5

 

Goodwill at 8/31/11

 

 

54.3

 

 

21.9

 

 

64.0

 

 

5.4

 

 

 

 

145.6

 

 

8.6

 

 

154.2

 

Expenditures for long-lived assets, including royalty advances

 

 

8.2

 

 

5.3

 

 

1.3

 

 

1.9

 

 

5.0

 

 

21.7

 

 

2.3

 

 

24.0

 

Long-lived assets at 8/31/11

 

 

172.5

 

 

97.1

 

 

79.7

 

 

20.2

 

 

244.6

 

 

614.1

 

 

71.0

 

 

685.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
August 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

72.8

 

$

82.1

 

$

36.5

 

$

17.1

 

$

 

$

208.5

 

$

81.9

 

$

290.4

 

Bad debts

 

 

2.0

 

 

0.3

 

 

(0.3

)

 

 

 

 

 

2.0

 

 

0.9

 

 

2.9

 

Depreciation and amortization(4)

 

 

3.6

 

 

0.3

 

 

0.3

 

 

0.5

 

 

8.4

 

 

13.1

 

 

1.3

 

 

14.4

 

Amortization(5)

 

 

3.3

 

 

5.8

 

 

0.7

 

 

1.7

 

 

 

 

11.5

 

 

0.6

 

 

12.1

 

Royalty advances expensed

 

 

5.1

 

 

0.2

 

 

 

 

0.1

 

 

 

 

5.4

 

 

0.6

 

 

6.0

 

Segment operating (loss) income

 

 

(51.6

)

 

30.2

 

 

(1.7

)

 

(2.2

)

 

(18.8

)

 

(44.1

)

 

(2.2

)

 

(46.3

)

Segment assets at 8/31/10

 

 

553.1

 

 

204.6

 

 

143.5

 

 

51.5

 

 

384.0

 

 

1,336.7

 

 

288.2

 

 

1,624.9

 

Goodwill at 8/31/10

 

 

54.3

 

 

21.0

 

 

67.4

 

 

5.4

 

 

 

 

148.1

 

 

8.5

 

 

156.6

 

Expenditures for long-lived assets, including royalty advances

 

 

13.0

 

 

6.1

 

 

0.8

 

 

2.0

 

 

5.5

 

 

27.4

 

 

3.1

 

 

30.5

 

Long-lived assets at 8/31/10

 

 

183.8

 

 

91.5

 

 

76.7

 

 

20.1

 

 

227.1

 

 

599.2

 

 

69.7

 

 

668.9

 





























SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

(1)

As discussed under “Discontinued Operations” in Note 1, “Basis of Presentation,” the Company closed or sold several operations during fiscal 2009, fiscal 2010 and the first quarter of fiscal 2012 and presently holds for sale one facility. All of these businesses are classified as discontinued operations in the Company’s financial statements and, as such, are not reflected in this table.

(2)

Includes assets and results of operations acquired in a business combinationacquisition as of September 9, 2010.

 

 

(2)(3)

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, its fulfillment and distribution facilities located in Missouri and its facility located in Connecticut. Overhead also includes amounts previously allocated to the Danbury facility.Media,Licensing and Advertising segment for the Company’s direct-to-home toy catalog business that was discontinued inthe first quarter of fiscal 2012.

 

 

(3)(4)

Includes depreciation of property, plant and equipment and amortization of intangible assets.

 

 

(4)(5)

Includes amortization of prepublication and production costs.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


5.4. Debt

The following table summarizes debt as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




























 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 




























 

November 30, 2010

 

May 31, 2010

 

November 30, 2009

 

 

August 31, 2011

 

May 31, 2011

 

August 31, 2010

 




 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of Credit (weighted average interest rates of 4.0%, 3.9% and 3.0%, respectively)

 

$

7.2

 

$

7.2

 

$

7.5

 

$

7.5

 

$

13.0

 

$

13.0

 

Lines of Credit (weighted average interest rates of 4.0%, 6.7% and 3.9%, respectively)

 

$

7.9

 

$

7.9

 

$

0.7

 

$

0.7

 

$

7.7

 

$

7.7

 

Loan Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan (interest rates of 1.0%, 1.1% and 1.1%, respectively)

 

71.6

 

71.6

 

93.0

 

93.0

 

114.4

 

114.4

 

Term Loan (interest rates of 1.0%, 1.0% and 1.1%, respectively)

 

39.5

 

39.5

 

50.2

 

50.2

 

82.3

 

82.3

 

5% Notes due 2013, net of discount

 

152.4

 

154.8

 

152.3

 

151.3

 

152.2

 

143.8

 

 

152.6

 

153.0

 

152.5

 

156.6

 

152.3

 

149.2

 





 

Total debt

 

231.2

 

233.6

 

252.8

 

251.8

 

279.6

 

271.2

 

 

$

200.0

 

$

200.4

 

$

203.4

 

$

207.5

 

$

242.3

 

$

239.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less lines of credit, short-term debt and current portion of long-term debt

 

(50.0

)

 

(50.0

)

 

(50.3

)

 

(50.3

)

 

(55.8

)

 

(55.8

)

 

(47.4

)

 

(47.4

)

 

(43.5

)

 

(43.5

)

 

(50.5

)

 

(50.5

)




 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

181.2

 

$

183.6

 

$

202.5

 

$

201.5

 

$

223.8

 

$

215.4

 

 

$

152.6

 

$

153.0

 

$

159.9

 

$

164.0

 

$

191.8

 

$

188.7

 




Short-term debt’s carrying value approximates fair value. Fair value of the Loan Agreement approximates its carrying value due to its variable interest rate and stable credit rating. Fair values of the Notes were estimated based on market quotes, where available, or dealer quotes.

The following table sets forth the maturities of the carrying values of Company’s debt obligations as of November 30, 2010,August 31, 2011, for the remainder of fiscal 2011 and thereafter:twelve-month periods ended August 31:

 

 

 

 

 






 

 

 

 

 

Six-month period ending May 31:

 

 

 

 

2011

 

$

28.6

 

Fiscal years ending May 31:

 

 

 

 

2012

 

 

42.8

 

2013

 

 

159.8

 

2014

 

 

 

2015

 

 

 

Thereafter

 

 

 






 

 

 

 

 

Total debt

 

$

231.2

 






 

 

 

 

 






2012

 

$

47.4

 

2013

 

 

152.6

 






 

 

 

 

 

Total debt

 

$

200.0

 






Lines of Credit

As of November 30, 2010,August 31, 2011, 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 November 30, 2010,August 31, 2011, May 31, 20102011 and November 30, 2009.August 31, 2010. 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 November 30, 2010,August 31, 2011, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $33.8,$30.1, 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. Borrowings andThere were borrowings outstanding under these international facilities equivalent to $7.9 at August 31, 2011, at a weighted average interest rates for these linesrate of credit are presented in the table above.4.0%; $0.7 at May 31, 2011, at a weighted average interest rate of 6.7%; and $7.7 at August 31, 2010, at a weighted average interest rate of 3.9%.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $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 credit facility that is scheduled to expire on June 1, 2012. 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, 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 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.

On August 16, 2010, the Borrowers entered into an amendment to the Loan Agreement, which added certain provisions related to covenants and interest.

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). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement, as amended, is based on (1) a 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%; or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250% based upon the Company’s prevailing consolidated debt to total capital ratio. As of November 30, 2010,August 31, 2011, there were no borrowings outstanding under the Revolving Loan.

As of November 30, 2010,August 31, 2011, the applicable margin on the Term Loan was 0.750% and the applicable margin on the Revolving Loan was 0.600%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to 0.250% per annum on the Revolving Loan only, which at November 30, 2010,August 31, 2011, was 0.150%. As of November 30, 2010, $71.6August 31, 2011, $39.5 was outstanding under the Term Loan at an interest rate of 1.01%1.0%.

As of November 30, 2010,August 31, 2011, standby letters of credit outstanding under the Loan Agreement totaled $1.4. 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 November 30, 2010,August 31, 2011, the Company was in compliance with these covenants.

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.

The Company repurchased $5.0 of the 5% Notes on the open market in fiscal 2010. The Company did not make any additional purchases during the six-month period ended November 30, 2010.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


6.5. Comprehensive IncomeLoss

The following table sets forth comprehensive incomeloss for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

Three months ended August 31,

 










 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 








Net income

 

$

74.9

 

$

55.5

 

$

39.7

 

$

32.5

 

Net loss

 

$

(27.1

)

$

(35.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

4.8

 

2.2

 

8.2

 

5.5

 

 

0.5

 

3.3

 

Pension and post-retirement adjustments

 

4.0

 

0.7

 

4.6

 

1.2

 

 

1.3

 

0.5

 

 


 


 


 


 

 


 


 

Total other comprehensive income, net:

 

8.8

 

2.9

 

12.8

 

6.7

 

 

1.8

 

3.8

 




Total comprehensive income

 

$

83.7

 

$

58.4

 

$

52.5

 

$

39.2

 

Total comprehensive loss

 

$

(25.3

)

$

(31.4

)




7. Earnings (Loss)6. Loss Per Share

A portion of the Company’s restricted stock units (“RSUs”)Stock Units granted to employees participate in earnings through cumulative non-forfeitable dividends payable to the employees upon vesting of the RSUs.Stock Units. For periods in which the Company has Netnet income, basic earnings per Common and Class A shares outstanding (the “Issued Shares”) is calculated as the lesser of:

 

 

 

Net earnings divided by the weighted average shares outstanding of the Issued Shares during the period (the “Treasury Stock Method”); or

 

 

 

 

The sum of earnings distributed in the period to the Issued Shares and undistributed earnings available to the Issued Shares (excluding earnings attributable to the participating RSUs)Stock Units) divided by the weighted average shares outstanding of the Issued Shares during the period (the “Two Class“Two-Class Method”).

 

 

 

Diluted earnings per share for periods in which the Company has Netnet income is calculated as the lesser of:

 

 

 

 

The Treasury Stock Method incorporating the effect of dilutive shares; or

 

 

 

 

The Two ClassTwo-Class Method incorporating the effect of dilutive shares.

In periods of Netnet loss, dilutive earnings per share are not reported as the effect of the potentially dilutive shares becomes anti-dilutive.

In the three and six months ended November 30, 2009, the Treasury Stock Method and the Two Class Method did not produce different earnings per share values. In the three and six month periods ended November 30, 2010, the Treasury Stock Method produced higher earnings per share values of $0.01; accordingly, the Two Class method was used to calculate earnings per share for the three and six month periods ended November 30, 2010.

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. The Company calculates per share figures prior to rounding in millions.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar(Dollar amounts in millions, except per share data)


The following table summarizes the reconciliation of the numerators and denominators for the basicBasic and diluted earnings (loss)Diluted loss per share computation for the periods indicated:

 

 

 

 

 

 

 

 





 

 

Three months ended
August 31,

 





 

 

2011

 

2010

 







 

 

 

 

 

 

 

 

Loss from continuing operations attributable to Class A and Common Shares

 

$

(25.1

)

$

(33.9

)

 

 

 

 

 

 

 

 

Loss from discontinued operations attributable to Class A and Common Shares, net of tax

 

 

(2.0

)

 

(1.3

)





 

 

 

 

 

 

 

 

Net loss attributable to Class A and Common Shares

 

 

(27.1

)

 

(35.2

)

 

 

 

 

 

 

 

 

Weighted average Shares of Class A Stock and Common Stock outstanding for basic loss per share (in millions)

 

 

31.0

 

 

36.1

 

 

 

 

 

 

 

 

 

Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)

 

 

*

 

 

*

 

 

 

 

 

 

 

 

 

Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted loss per share (in millions)

 

 

*

 

 

*

 

 

 

 

 

 

 

 

 

Loss per share of Class A and Common Stock:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.81

)

$

(0.94

)

Loss from discontinued operations, net of tax

 

$

(0.06

)

$

(0.04

)

Net loss

 

$

(0.87

)

$

(0.98

)

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.81

)

$

(0.94

)

Loss from discontinued operations, net of tax

 

$

(0.06

)

$

(0.04

)

Net loss

 

$

(0.87

)

$

(0.98

)









* In the three months ended August 31, 2011 and six month periods ended November 30, 2010:

 

 

 

 

 

 

 

 









 

 

Three months ended
November 30, 2010

 

Six months ended
November 30, 2010

 









Earnings from continuing operations attributable to Class A and Common Shares

 

$

76.6

 

$

42.5

 

 

 

 

 

 

 

 

 

(Loss) from discontinued operations attributable to Class A and Common Shares, net of tax

 

 

(2.0

)

 

(3.0

)

 

 

 

 

 

 

 

 

Net income attributable to Class A and Common Shares

 

 

74.6

 

 

39.5

 

Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions)

 

 

34.4

 

 

35.3

 

 

 

 

 

 

 

 

 

Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)

 

 

0.5

 

 

0.4

 

 

 

 

 

 

 

 

 

Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions)

 

 

34.9

 

 

35.7

 

 

 

 

 

 

 

 

 

Earnings (loss) per share of Class A Stock and Common Stock:

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.23

 

$

1.20

 

Loss from discontinued operations, net of tax

 

$

(0.06

)

$

(0.08

)

Net earnings

 

$

2.17

 

$

1.12

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.19

 

$

1.19

 

Loss from discontinued operations, net of tax

 

$

(0.05

)

$

(0.08

)

Net earnings

 

$

2.14

 

$

1.11

 









Earnings2010, the Company experienced a loss from continuing operations exclude earnings of $0.3 and $0.2 for the three and six months ended November 30, 2010, respectively, in respect of earnings attributable to participating RSUs.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


The Company calculates pertherefore did not report any dilutive share figures prior to rounding in millions. The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the three and six month periods ended November 30, 2009:impact.

 

 

 

 

 

 

 

 









 

 

Three months ended
November 30, 2009

 

Six months ended
November 30, 2009

 









 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

56.8

 

$

32.2

 

(Loss) earnings from discontinued operations, net of tax

 

 

(1.3

)

 

0.3

 

Net income

 

 

55.5

 

 

32.5

 

Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions)

 

 

36.4

 

 

36.4

 

 

 

 

 

 

 

 

 

Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)

 

 

0.4

 

 

0.3

 

 

 

 

 

 

 

 

 

Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions)

 

 

36.8

 

 

36.7

 

 

 

 

 

 

 

 

 

Earnings (loss) per share of Class A Stock and Common Stock:

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.56

 

$

0.88

 

(Loss) earnings from discontinued operations, net of tax

 

$

(0.04

)

$

0.01

 

Net earnings

 

$

1.52

 

$

0.89

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.54

 

$

0.88

 

Loss from discontinued operations, net of tax

 

$

(0.03

)

$

0.00

 

Net earnings

 

$

1.51

 

$

0.88

 









Potentially dilutive shares outstandingoptions pursuant to compensation plans that were not included in the computation of diluted earnings per share calculation because they wereto do so would have been anti-dilutive were 4.44.5 million and 5.35.0 million for the three monthsthree-month periods ended November 30,August 31, 2011 and 2010, respectively. Had the Company reported net income for the three-month periods ended August 31, 2011 and 2009,2010, the dilutive effect for the periods ended August 31, 2011 and 4.82010 would have been 0.6 million and 5.50.4 million, for the six months ended November 30, 2010 and 2009, respectively.

During the six months ended November 30, 2010, the Company repurchased 388,426 common shares on the open market for approximately $9.7 Options outstanding pursuant to a share buy-back program authorized by the Board of Directors.

In addition, on November 3, 2010, the Company announced the final results of a modified Dutch auction tender offer which expired on October 28, 2010. The Company accepted for purchase 5,199,699 of its common shares at a price of $30.00 per share for a total cost of $156.0, excluding related feescompensation plans were 6.0 million and expenses. The common shares purchased pursuant to the tender offer represented approximately 15.1% of the common shares outstanding6.4 million as of October 27, 2010. The Company funded the purchase of the shares in the tender offer using cash on handAugust 31, 2011 and short term borrowings under its existing credit facility, which borrowings were repaid prior to November 30, 2010.2010, respectively.

As of November 30, 2010,August 31, 2011, $44.5 remainsremained available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 13,12, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


8. Goodwill and Other Intangibles

Goodwill and other intangible assets with indefinite lives are reviewed annually for impairment or more frequently if impairment indicators arise.

The following table summarizes the activity in Goodwill for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

Six months ended
November 30, 2010

 

Twelve months ended
May 31, 2010

 

Six months ended
November 30, 2009

 









Gross beginning balance

 

$

174.0

 

$

174.0

 

$

174.0

 

Accumulated impairment

 

 

(17.4

)

 

(17.0

)

 

(17.0

)












 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

156.6

 

$

157.0

 

$

157.0

 

Additions

 

 

7.1

 

 

 

 

 

Impairment charge

 

 

 

 

(0.4

)

 

 












Ending balance

 

$

163.7

 

$

156.6

 

$

157.0

 












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 $8.0, net of cash. The Company intends to integrate this business with its existing educational technology businesses. As a result of this acquisition the Company recognized $6.9 of goodwill in the second quarter of fiscal 2011. The Company is currently reviewing its purchase accounting for the acquisition of Math Solutions, and, upon completion of such review, expects to recognize other intangible assets apart from goodwill. The Company also recognized $0.2 of goodwill associated with an international acquisition in the second quarter.

As of May 31, 2010, the Company determined that the carrying value of its direct-to-home catalog business specializing in toys exceeded the fair value of this reporting unit. The Company employed internally developed discounted cash flow forecasts 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 at May 31, 2010.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


The following table summarizes the activity in Total other intangibles subject to amortization for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

Six months ended
November 30, 2010

 

Twelve months ended
May 31, 2010

 

Six months ended
November 30, 2009

 









Beginning balance

 

$

0.8

 

$

0.1

 

$

0.1

 

Additions

 

 

 

 

5.1

 

 

5.1

 

Impairment charge

 

 

 

 

(3.8

)

 

(3.8

)

Other adjustments

 

 

 

 

(0.3

)

 

(0.3

)

Amortization expense

 

 

(0.1

)

 

(0.2

)

 

 

Foreign currency translation

 

 

0.1

 

 

(0.1

)

 

 












Customer lists, net of accumulated amortization of $1.0, $0.9 and $0.7, respectively

 

$

0.8

 

$

0.8

 

$

1.1

 












 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2.2

 

$

2.8

 

$

2.8

 

Reclassified from indefinite-lived intangible assets

 

 

10.7

 

 

 

 

 

Amortization expense

 

 

(0.5

)

 

(0.6

)

 

(0.2

)












Other intangibles, net of accumulated amortization of $3.5, $3.0 and $2.7, respectively

 

$

12.4

 

$

2.2

 

$

2.6

 












 

 

 

 

 

 

 

 

 

 

 












Total other intangibles subject to amortization

 

$

13.2

 

$

3.0

 

$

3.7

 












Amortization expense for Total other intangibles totaled $0.6 for the six months ended November 30, 2010, $0.8 for the twelve months ended May 31, 2010 and $0.2 for the six months ended November 30, 2009.

During the first quarter of 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, the Company determined that, to maximize profitability, the acquired customer list should 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 Distribution segment. 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 Distribution segment and various digital initiatives. As a result of these initiatives, and in tandem with reduced expectations in certainEducational Publishing print businesses, the Company determined that 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.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


In the three month period ended November 30, 2010, the Company determined that certain intangible assets associated with publishing and trademark rights, 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. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets as of September 1, 2010, including primarily the relief from royalty method.

The following table summarizes Other intangibles not subject to amortization at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 












 

 

November 30, 2010

 

May 31, 2010

 

November 30, 2009

 












Net carrying value by major class:

 

 

 

 

 

 

 

 

 

 

Titles

 

$

 

$

 

$

 

Trademarks and Other

 

 

1.8

 

 

12.5

 

 

15.1

 












Total

 

$

1.8

 

$

12.5

 

$

15.1

 












9. Investments

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $22.5, $20.6 and $23.8 at November 30, 2010, May 31, 2010 and November 30, 2009, respectively.

The Company owns a non-controlling interest in a book distribution business located in the United Kingdom. The carrying value of this cost-method investment was $9.1 as of November 30, 2010.

The Company’s investment in Usborne, which consists of a 26.2% non controlling interest in a children’s book publishing business located in the UK, is accounted for using the equity method of accounting. The net value of this investment at November 30, 2010 was $12.8.

The Company maintains a 12.25% equity interest in an entity that produces and distributes educational children’s television programming which is accounted for using the equity method of accounting. The net value of this investment at November 30, 2010 was $0.6. The Company does not have a contractual commitment to fund this entity prospectively, and has not guaranteed any liabilities of the entity.

Income from equity joint ventures totaled $1.1 for the six months ended November 30, 2010 and $0.6 for the six months ended November 30, 2009.

In the fourth quarter of 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.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


The following table summarizes the Company’s investments as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

November 30, 2010

 

May 31, 2010

 

November 30, 2009

 









Cost method investments:

 

 

 

 

 

 

 

 

 

 

The Book People, Ltd.

 

$

9.1

 

$

9.1

 

$

9.1

 

KIDZUI

 

 

 

 

 

 

1.5

 












Total cost method investments

 

$

9.1

 

$

9.1

 

$

10.6

 












 

 

 

 

 

 

 

 

 

 

 

Equity method investments:

 

 

 

 

 

 

 

 

 

 

Usborne

 

$

12.8

 

$

10.8

 

$

12.5

 

Other

 

 

0.6

 

 

0.7

 

 

0.7

 












Total equity method investments

 

 

13.4

 

 

11.5

 

 

13.2

 












 

 

 

 

 

 

 

 

 

 

 












Total

 

$

22.5

 

$

20.6

 

$

23.8

 














 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


10.7. Goodwill and Other Intangibles

Goodwill and other intangible assets with indefinite lives are reviewed annually for impairment or more frequently if impairment indicators arise.

The following table summarizes the activity in Goodwill for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

Three months ended
August 31, 2011

 

Twelve months ended
May 31, 2011

 

Three months ended
August 31, 2010

 









Gross beginning balance

 

$

175.0

 

$

174.0

 

$

174.0

 

Accumulated impairment

 

 

(20.8

)

 

(17.4

)

 

(17.4

)












 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

154.2

 

$

156.6

 

$

156.6

 

Additions due to acquisition

 

 

 

 

1.0

 

 

 

Impairment charge

 

 

 

 

(3.4

)

 

 












Gross ending balance

 

 

175.0

 

 

175.0

 

 

174.0

 

Accumulated impairment

 

 

(20.8

)

 

(20.8

)

 

(17.4

)












Ending balance

 

$

154.2

 

$

154.2

 

$

156.6

 












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 itsEducational Technology and Servicessegment. 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 $0.8 of goodwill and $5.6 of amortizable intangible assets. In the second quarter of fiscal 2011, the Company also recognized $0.2 of goodwill associated with a previously acquired international entity.

As of May 31, 2011, the 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. The Company employed internally-developed discounted cash flow forecasts 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 $3.4 at May 31, 2011.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The following table summarizes the activity in Other intangibles subject to amortization for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

Three months ended
August 31, 2011

 

Twelve months ended
May 31, 2011

 

Three months ended
August 31, 2010

 









 

 

 

 

 

 

 

 

 

 

 

Beginning balance - Customer lists

 

$

0.7

 

$

0.8

 

$

0.8

 

Amortization expense

 

 

0.0

 

 

(0.2

)

 

(0.1

)

Foreign currency translation

 

 

0.0

 

 

0.1

 

 

0.1

 












Customer lists, net of accumulated amortization of $1.1, $1.1 and $1.0, respectively

 

$

0.7

 

$

0.7

 

$

0.8

 












 

 

 

 

 

 

 

 

 

 

 

Beginning balance - Other intangibles

 

$

17.3

 

$

2.2

 

$

2.2

 

Additions due to acquisition

 

 

 

 

5.6

 

 

 

Reclassified from indefinite-lived intangible assets

 

 

 

 

10.7

 

 

 

Amortization expense

 

 

(0.4

)

 

(1.2

)

 

(0.1

)












Other intangibles, net of accumulated amortization of $4.5, $4.2 and $3.1, respectively

 

$

16.9

 

$

17.3

 

$

2.1

 












 

 

 

 

 

 

 

 

 

 

 












Total other intangibles subject to amortization

 

$

17.6

 

$

18.0

 

$

2.9

 












Amortization expense for Other intangibles totaled $0.4 for the three months ended August 31, 2011, $1.4 for the twelve months ended May 31, 2011, and $0.2 for the three months ended August 31, 2010. Intangible assets with definite lives consist principally of customer lists and covenants not to compete. Intangible assets with definite lives are amortized over their estimated useful lives. The average remaining useful lives of all amortizable intangible assets is 7 years.

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.



SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The following table summarizes Other intangibles not subject to amortization at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

August 31, 2011

 

May 31, 2011

 

August 31, 2010

 









Net carrying value by major class:

 

 

 

 

 

 

 

 

 

 

Trademarks and Other

 

$

1.8

 

$

1.8

 

$

12.5

 












Total

 

$

1.8

 

$

1.8

 

$

12.5

 












8. Investments

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $21.2, $20.4 and $21.7 at August 31, 2011, May 31, 2011 and August 31, 2010, respectively.

The Company owns non-controlling interests in a book distribution business located in the United Kingdom. In fiscal 2011, the Company determined that these assets were other than temporarily impaired. The Company employed Level 3 fair value measures, including discounted cash flow projections, and recognized an impairment loss of $3.6. The carrying value of these assets was $5.7 as of August 31, 2011.

In fiscal 2007, the Company participated in the organization of a new entity that produces and distributes educational children’s television programming. Since inception in August 2006, the Company has contributed a total of $6.0 in cash and certain rights to existing television programming. The Company’s investment, which consists of a 12.25% equity interest, is accounted for using the equity method of accounting. The net value of this investment at August 31, 2011 was $1.3.

The Company’s 26.2% non-controlling interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting. The net value of this investment at August 31, 2011 was $14.2.

Income from equity joint ventures totaled $0.4 and $0.3 for the three months ended August 31, 2011 and 2010, respectively.

The following table summarizes the Company’s investments as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 









 

 

August 31, 2011

 

May 31, 2011

 

August 31, 2010

 









Cost method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

5.7

 

$

5.7

 

$

9.1

 












Total cost method investments

 

$

5.7

 

$

5.7

 

$

9.1

 












 

 

 

 

 

 

 

 

 

 

 

Equity method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

14.2

 

$

13.4

 

$

11.7

 

U.S. - based

 

 

1.3

 

 

1.3

 

 

0.9

 












Total equity method investments

 

$

15.5

 

$

14.7

 

$

12.6

 












 

 

 

 

 

 

 

 

 

 

 












Total

 

$

21.2

 

$

20.4

 

$

21.7

 














SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


9. Employee Benefit Plans

The following table sets forth components of the net periodic benefit costs for the periods indicated under the Company’s cash balance retirement plan for its United States employees meeting certain eligibility requirements (the “U.S. Pension Plan”), the defined benefit pension plan of Scholastic Ltd.,Limited, an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan”), and the defined benefit pension plan of Grolier Limited, an indirect subsidiary of Scholastic Corporation located in Canada (the “Canadian Pension Plan” and together with the U.S. Pension Plan and the UK Pension Plan, the “Pension Plans”). Also included are the post-retirement benefits, consisting of certain healthcare and life insurance benefits, provided by the Company to its eligible retired United States-based employees (the “Post-Retirement Benefits”). The Pension Plans and Post-Retirement Benefits include participants associated with both continuing operations and discontinued operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plans
Three months ended November 30,

 

Post-Retirement Benefits
Three months ended November 30,

 







 

 

2010

 

2009

 

2010

 

2009

 











Components of net periodic benefit costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.1

 

$

 

$

 

$

 

Interest cost

 

 

2.2

 

 

2.5

 

 

0.4

 

 

0.4

 

Expected return on assets

 

 

(2.3

)

 

(2.0

)

 

 

 

 

Net amortization of prior service credit

 

 

 

 

 

 

(0.2

)

 

(0.2

)

Amortization of loss

 

 

0.4

 

 

0.2

 

 

0.6

 

 

0.2

 

Settlement of Canadian plan

 

 

3.4

 

 

 

 

 

 

 

 

 

 















Net periodic benefit costs

 

$

3.8

 

$

0.7

 

$

0.8

 

$

0.4

 
















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plans
Six months ended November 30,

 

Post-Retirement Benefits
Six months ended November 30,

 

 

Pension Plans
Three months ended August 31,

 

Post-Retirement Benefits
Three months ended August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 

2011

 

2010

 


Components of net periodic benefit costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.2

 

$

0.1

 

$

 

$

 

 

$

 

$

0.1

 

$

0.0

 

$

 

Interest cost

 

4.4

 

4.9

 

0.9

 

0.7

 

 

2.1

 

2.2

 

0.5

 

0.5

 

Expected return on assets

 

(4.7

)

 

(4.1

)

 

 

 

 

(2.7

)

 

(2.4

)

 

 

 

Net amortization of prior service credit

 

 

 

(0.3

)

 

(0.3

)

 

 

 

(0.2

)

 

(0.2

)

Amortization of loss

 

0.9

 

1.4

 

1.1

 

0.3

 

 

0.3

 

0.5

 

1.0

 

0.5

 

Settlement of Canadian plan

 

3.4

 

 

 

 


Net periodic benefit costs

 

$

4.2

 

$

2.3

 

$

1.7

 

$

0.7

 

 

$

(0.3

)

$

0.4

 

$

1.3

 

$

0.8

 


Effective June 1, 2009,In the second quarter of fiscal 2011, the Company modifiedcompleted the U.S Pension Plan, such that no further benefits will accrue to employees under the plan.

Effective June 1, 2009, the Company modified the terms of the Post-Retirement Benefits, effectively excluding a large percentage of current employees from the plan. Under the plan amendments, only employees with 10 or more years of service to the Company and whose age plus service is at least 65 as of June 1, 2009 will be eligible to receive benefits upon retirement.

In the three months ended November 30, 2010, the Company settled the majoritysettlement of its outstanding liabilities ofunder the Canadian 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 pension expense through other comprehensive income of $3.4.

The Company’s funding practice with respect to the Pension Plans is to contribute on an annual basis at least the minimum amounts required by applicable laws. For the sixthree months ended November 30, 2010,August 31, 2011, the Company contributed $2.3$0.0 to the U.S. Pension Plan $0.3and $0.2 to the UK Pension Plan and $1.2 to the Canadian Pension Plan.

The Company expects, based on actuarial calculations to contribute cash of approximately $6.0$8.5 to the Pension Plans for the fiscal year ending May 31, 2011.2012.

10. Stock-Based Compensation

The following table summarizes stock-based compensation included in Selling, general and administrative expenses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

Three months ended August 31,

 





 

 

2011

 

2010

 







Stock option expense

 

$

1.5

 

$

3.8

 

Restricted stock unit expense

 

 

0.7

 

 

1.4

 

Management stock purchase plan expense

 

 

0.0

 

 

0.0

 

Employee stock purchase plan expense

 

 

0.0

 

 

0.1

 









 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

2.2

 

$

5.3

 









During each of the three months ended August 31, 2011 and 2010, shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


11. Stock-Based CompensationSeverance

The following table summarizes stock-based compensation includedCompany implemented new cost reduction initiatives, notably a voluntary retirement program, in Selling, generalthe current fiscal year and administrative expenses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 







 

 

2010

 

2009

 

2010

 

2009

 











Stock option expense

 

$

1.6

 

$

2.1

 

$

5.4

 

$

5.1

 

Restricted stock unit expense

 

 

0.9

 

 

0.9

 

 

2.3

 

 

2.8

 

Management stock purchase plan

 

 

0.5

 

 

0.4

 

 

0.5

 

 

0.4

 

Employee stock purchase plan

 

 

0.1

 

 

0.1

 

 

0.2

 

 

0.1

 















Total stock-based compensation

 

$

3.1

 

$

3.5

 

$

8.4

 

$

8.4

 















During eachincurred severance expense of the three and six month periods ended November 30, 2010 and 2009, shares of Common Stock issued by the Corporation pursuant$2.1 million related to its stock-based compensation plans were not material.

12. Severance

this program. The table below provides information regarding the severance cost appearing onreported in the Company’s condensed consolidated statements of operations, associated with certain cost reduction measures.including the costs related to this program.

Accrued severance of $0.9, $3.4$2.4, $1.9 and $1.5$1.7 as of November 30, 2010,August 31, 2011, May 31, 20102011 and November 30, 2009,August 31, 2010, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended
November 30, 2010

 

Twelve months ended
May 31, 2010

 

Six months ended
November 30, 2009

 

 

Three months ended
August 31, 2011

 

Twelve months ended
May 31, 2011

 

Three months ended
August 31, 2010

 


Beginning balance

 

$

3.4

 

$

3.4

 

$

3.4

 

 

$

1.9

 

$

3.4

 

$

3.4

 

Accruals

 

3.1

 

9.2

 

5.4

 

 

3.3

 

6.7

 

2.1

 

Payments

 

(5.6

)

 

(9.2

)

 

(7.3

)

 

 

(2.8

)

 

(8.2

)

 

(3.8

)

 


Ending balance

 

$

0.9

 

$

3.4

 

$

1.5

 

 

$

2.4

 

$

1.9

 

$

1.7

 


13.12. Treasury Stock

On June 1, 2007, 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 16, 2009,20, 2007, the Company announced that its Board of Directors had authorized a further program to purchaserepurchase up to $20.0 of its Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. During the sixfive months ended May 31, 2008, the Corporation purchased approximately 0.7 million shares on the open market for approximately $20.0 at an average cost of $30.09 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 30, 2010,20, 2008, the Board of Directors authorized a further program to repurchase up to an additional $10.0 of Common Stock and, on February 4, 2009, the Board of Directors authorized an additional program to repurchase up to another $5.0 of Common Stock, in each case, 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 Common Stock, from time to time as conditions allow, on the open market or in negotiated private transactions. During the twelve months ended May 31, 2011, the Company repurchased 388,426approximately 0.4 million shares on the open market for approximately $9.7 at an average cost of $24.98 per share pursuant to this program.share.

In addition, pursuant to a subsequent Board of Directors authorization, on November 3, 2010 the Company commencedcompleted a modified Dutch auction tender offer on September 28, 2010, which expired on October 28, 2010. Pursuant to this offer, theoffer. The Company purchasedaccepted for purchase 5,199,699 of its commonCommon shares at a price of $30.00 per share for a total cost of $156.0, excluding related fees and expenses. The commonCommon shares purchased pursuant to the tender offer represented approximately 15.1% of the commonCommon shares outstanding as of October 27, 2010. The Company funded the purchase of the shares in the tender offer using cash on hand and short term borrowings under its existing credit facility, which borrowings were repaid prior to November 30, 2010. Fees for the modified Dutch auction tender offer were $1.2.

As of November 30, 2010,August 31, 2011, $44.5 remainsremained available for future purchases under the current Board of Directors authorization, which purchases may be made from time to time as conditions allow, on the open market or in negotiated private transactions.

The repurchase program may be suspended at any time without prior notice.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


14.13. Fair Value Measurements

The accounting standard regarding fair value measurements 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:

 

 

 

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

 

 

Level 2Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities such as

 

 

 

o

Quoted prices for similar assets or liabilities in active markets

 

o

Quoted prices for identical or similar assets or liabilities in inactive markets

 

o

Inputs other than quoted prices that are observable for the asset or liability

 

o

Inputs that are derived principally from or corroborated by observable market data by correlation or other means

 

 

 

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. 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. See Note 5,4, “Debt,” for a more complete description of fair value measurements employed. 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. See Note 16,15, “Derivatives and Hedging,” for a more complete description of fair value measurements employed.

Non-financialNon financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis include:

 

 

 

 

long-lived assets

investments

 

assets acquired in a business combination

 

goodwill and indefinite-lived intangible assets

 

long-lived assets held for sale

Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities. In fiscal 2010,2011, the Company recognized impairmentsa loss related to an other-than-temporary impairment of indefinite-lived and long-lived assets totaling $43.1.$3.6 for a UK-based cost method investment. The Company utilized Level 3 measurements in the fair value assessment (see Note 8, “Investments”). In fiscal 2011, the Company acquired certain assets inrecognized a business combination for $8.0, netloss of cash acquired. The Company has not yet completed its purchase price allocation for this acquisition.$3.4 related to an impairment of goodwill. See Note 8,7, “Goodwill and Other Intangibles,” for a discussion of the fair value measures employed in these asset impairment and acquisition analyses.



 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


15.14. Income Taxes

The Company calculates its interim income tax provision in accordance with current authoritative accounting guidance. 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 and applies that rate to its ordinary year to date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s annual effective tax rate for the fiscal year ending May 31, 20112012 is currently expected to be approximately 43%45%. The Company’s expected full year effective tax rate exceeds statutory rates primarily as a result of net operating losses in foreign jurisdictions, mainly in the United Kingdom, where the Company does not expect to realize future tax benefits. As a result, valuation allowances are provided for the net operating loss carry forwards in these jurisdictions.

The Company recognizes tax benefits of uncertain tax positions in accordance with the current accounting guidance pertaining to uncertainty in income taxes. The Company does not currently anticipate a material change to its unrecognized tax benefits within twelve months of November 30, 2010, notwithstanding changes expected to result from the settlement of the IRS examination for fiscal years ended MayAugust 31, 2003 through 2006.2011. However, actual developments can change these expectations, including the final terms of settlement of such audit.current audits.

The Corporation, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Corporation file income tax returns in foreign jurisdictions. The Company is routinely audited by various tax authorities. The Company is currently under audit by the Internal Revenue Service for its fiscal years ended May 31, 2007, 2008 and 2009. The Company is also currently under audit by New York State for its fiscal years ended May 31, 2002, through 2004. It is possible that state2003 and foreign tax examinations will be settled during the next twelve months.2004 and New York City for its fiscal years ended May 31, 2005, 2006 and 2007. If any of these tax examinations are settledconcluded within that period,the next twelve months, the Company will make any necessary adjustments to its unrecognized tax benefits.

16.15. Derivatives and Hedging

The Company enters into foreign currency derivative contracts to economically hedge the 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 in other current assets or liabilities. Unrealized gains of $0.1 were recognized at November 30, 2010 and unrealized losses of $1.0 were recognized at November 30, 2009.

The Company also enters into foreign currency derivative contracts to hedge the foreign exchange risk associated with certain receivables denominated in foreign currencies. The Company marks-to-market these instrumentsAugust 31, 2011 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 $0.2 and $0.0 at November 30, 2010, and 2009, respectively.

17.16. Subsequent Event

On December 15, 2010,September 21, 2011, the Company announced that the Board of Directors declared a cash dividend of $0.10 per Class A and Common share.share in respect of the second quarter of fiscal 2012. The dividend is payable on MarchDecember 15, 2011 to shareholders of record as of Januaryon October 31, 2011.



 

SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)


Overview and Outlook

The Company’s first quarter is generally its smallest revenue period as most schools are not in session, resulting in a seasonal loss.

Revenues forin the first quarter of the current fiscal year rose $27.6 million, or 9.5%, to $318.0 million, compared to $290.4 million in the prior year period. Increased technology product and service sales in theEducational Technology and Servicessegment were driven by sales of the Company’s technology-based reading intervention programREAD 180® Next Generation.Revenues also increased in theClassroom and Supplemental Materials Publishingsegment as a result of increased sales of literacy initiative materials. InChildren’s Book Publishing and Distribution, trade revenues increased driven by continued strong sales of theHunger Games trilogy, in both print and ebook formats, and ofHarry Potter titles.

For the quarter ended November 30, 2010 were $675.7August 31, 2011 net loss was $27.1 million, up 2.4% from $660.1compared to a net loss of $35.2 million in the prior fiscal year period. Net income for the quarter ended November 30, 2010 was $74.9 million, up $19.4 million from $55.5 million in the prior fiscal year period. Consolidated earnings per diluted share were $2.14 versus $1.51 in the prior fiscal year quarter. The prior year fiscal quarter includes non-cash asset write-downs of $40.1 million. The current fiscal quarterStronger results includereflected higher revenues in Trade, School Book Fairs and International, partially offset by lower sales of educational technology relativeproducts and services to a year ago,schools, as well as higher promotion spendingsales of children’s books in retail trade channels. The Company typically records a loss in its fiscal first quarter, when most schools are not in session and its School Book Clubs and increased investmentsFairs generate minimal revenue.

During fiscal 2012, the Company will continue to move forward with digital growth initiatives in digital initiatives.

Thethe Children’s Book Publishing and Distributionsegment reflected increased revenueand it remains on schedule to roll out the children’s e-reading app and online store later this fiscal year. To help fund this strategic spending, the Company is reducing costs in School Book Fairs and Trade, with School Book Clubs maintaining last year’s sales and teacher participation levels.non-digital areas, including the implementation of a voluntary retirement program. The Company continuedcontinues to execute its long-term strategic plan and move forward with key digital initiatives and achieved continued growth in on-line ordering, following full implementation of the new Clubs ordering platform. In addition, the Company began testing its children’s eBook offering with children and families, as well as previewing it with publishers, in preparation for a spring beta launch and full rollout next fall.

Sales of educational technology did not reach last year’s record levels, when the Company benefited from the 2009 federal stimulus program. However, sales were up over 50% compared to pre-stimulus levels two years ago, driven by a larger customer base.

During the second quarter the Company repurchased approximately 5.2 million shares of its Common Stock at $30.00 per share, returning approximately $156 million to shareholders, funded with cash and a temporary draw-down under its credit facility, which was repaid by quarter end. The Company hadanticipate total debt of $231.2 million at the end of the second quarter, down from $279.6 million a year ago and continued to maintain a strong balance sheet and free cash flow.

While positive, these results were below the Company’s fiscal 2011 plan, reflecting lower spending by school districts and lower than expected revenue in Clubs. For the remainder of the fiscal year, the Company expects that sustained higher service revenue and new product launches will enable it to hold sales in Scholastic Education level with those in the prior year period, in spite of a continued challenging funding environment. In addition, the Company believes that increased on-line ordering, as well as this fall’s increased promotional spending, will generate modest growth in clubs during the remainder of the year.

Based on the factors referred to above and its year-to-date results, the Company expects fiscal 2011 revenue of approximately $1.9 to $1.95 billion and earnings per diluted share from continuing operations in the range of $1.80$1.75 to $2.05,$2.10, before the impact of any one-time items. The foregoing includes a benefit of approximately $0.15 per diluted shareitems associated with the Company’s share repurchase pursuant to the tender offer. The Company continues to expect free cash flow of $90 million to $100 million.cost reductions or non-cash, non-operating items.

Results of Continuing Operations and Discontinued Operations

Revenues for the quarter ended November 30, 2010August 31, 2011 increased by $15.6$27.6 million, or 2.4%9.5%, to $675.7$318.0 million, compared to $660.1$290.4 million in the prior fiscal year quarter, driven byquarter. This was due to higher revenues in theEducational Technology and Services, Classroom and Supplemental Materials Publishing, InternationalandChildren’s Book Publishing and Distributionsegment segments of $18.5$14.5 million, theInternationalsegment of $15.0$9.2 million, $5.8 million and theMedia, Licensing and Advertisingsegment of $3.1$4.5 million, respectively, partially offset by lower revenues in theEducational Publishing segment of $21.0 million. Revenues for the six months ended November 30, 2010 decreased by $9.1 million to $966.6 million, compared to $975.7 million in the prior year fiscal period primarily due to the lower revenues of $51.1 million in theEducational Publishing segment, partially offset by higher revenues in theChildren’s Book Publishing and Distribution, Media, Licensing and Advertisingand Internationalsegments. segment of $6.4 million.



SCHOLASTIC CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)


Cost of goods sold as a percentage of revenue for the quarter ended November 30, 2010 increasedAugust 31, 2011 decreased slightly to 43.8%50.4%, compared to 41.4%50.7% in the prior fiscal year quarter. Cost of goods sold as a percentage of revenue forquarter, primarily due to product mix in the six months ended November 30, 2010 increased to 45.9%,International segment and higher revenues compared to 44.3% in the prior fiscal year. The increase in both periods is primarily related to product, fulfillmentrelatively consistent prepublication and postage costs attributable to increased promotional activities in the Company’sChildren’s Book Publishing and Distribution segment.production amortization costs. Components of Cost of goods sold for the three and six months ended November 30,August 31, 2011 and 2010 and 2009 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Three months ended November 30,

 

Six months ended November 30,

 

 

Three months ended August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 


Product, service and production costs

 

$

180.1

 

$

167.6

 

$

257.4

 

$

255.7

 

 

$

79.5

 

$

77.1

 

Royalty costs

 

27.4

 

30.2

 

46.7

 

50.6

 

 

22.9

 

19.2

 

Prepublication and production amortization

 

12.4

 

12.2

 

24.5

 

24.3

 

 

11.8

 

12.1

 

Postage, freight, shipping, fulfillment and all other costs

 

76.3

 

63.6

 

115.3

 

101.3

 

 

46.2

 

38.9

 


Total

 

$

296.2

 

$

273.6

 

$

443.9

 

$

431.9

 

 

$

160.4

 

$

147.3

 


Selling, general and administrative expenses increased slightly to $232.3$171.0 million in the quarter, or 34.4%53.8% of revenue, compared to $220.5$170.0 million, or 33.4%58.5% of revenue, in the prior fiscal year quarter. Selling, general and administrative expenses for the six months ended November 30, 2010 were $402.9 million, or 41.7% or revenue, compared to $392.0 million, or 40.2% of revenue, in the prior fiscal year period. The increases over the prior periods are primarily due to increased technology spending on digital growth initiatives, as well as higher promotional expenses.

Bad debt expense decreased by $1.4 million, to $3.0 million, for the quarter ended November 30, 2010, compared to $4.4 million in the prior fiscal year quarter. Bad debt expense decreased by $0.6 million to $5.9 million for the six months ended November 30, 2010, compared to $6.5 million in the prior fiscal year period.

The prior year fiscal quarter reflects a non-cash charge of $36.3 million in theEducational Publishing segment for impairment of intangible and prepublication costs associated with print publishing for libraries, as well as a non-cash impairment charge of $3.8 million in theInternational segment related to a customer list acquired in connection with the dissolution of a joint venture.

Severance expense decreased slightly to $1.0 million for the quarter ended November 30, 2010, compared to $1.1 million in the prior fiscal year quarter. For the six months ended November 30, 2010, severance expense decreased by $2.3 million, to $3.1 million, compared to $5.4 million in the prior year fiscal period when the Company was implementing its cost reduction plans.

The resulting operating income for the quarter ended November 30, 2010 was $128.7 million, compared to $105.6 million in the prior fiscal year quarter. For the six months ended November 30, 2010, the resulting operating income was $81.9 million, compared to $70.3 million in the prior fiscal year period.

Net interest expense decreased by $0.3 million to $4.0 million in the quarter ended November 30, 2010, compared to $4.3 million in the prior fiscal year quarter, due to lower average borrowings. Forhigher commissions in the six months ended November 30, 2010, net interestEducational Technology and Servicessegment.

Bad debt expense decreased by $0.4to $1.4 million to $7.8 million,for the quarter ended August 31, 2011, compared to $8.2$2.9 million in the prior fiscal year period, also duequarter, primarily in theChildren’s Book Publishing and Distribution segment.

Severance expense increased to lower average borrowings.

The Company’s effective tax rates were 38.1% and 43.9%$3.3 million for the fiscal quartersquarter ended November 30, 2010 and 2009, respectively. Significant factors that impact the effective tax rate include changesAugust 31, 2011, compared to $2.1 million in the Company’s assessmentprior fiscal year quarter, as the Company implemented new cost reduction initiatives, notably a voluntary retirement program, in the current fiscal year and incurred severance expense of certain tax contingencies$2.1 million related to this program. The Company expects additional severance costs of approximately $8 million to $13 million during the balance of fiscal 2012 related to this and other programs.

Net interest expense increased slightly to $3.9 million in the mix of earnings amongquarter ended August 31, 2011, compared to $3.8 million in the Company’s U.S. and international operations.prior fiscal year quarter.



 

SCHOLASTIC CORPORATION

Item 2. MD&A


Earnings from continuing operations were $76.9 million or $2.19 per diluted share, for the quarter ended November 30, 2010, compared to earnings of $56.8 million, or $1.54 per diluted share, for the prior year fiscal quarter. For the six months ended November 30, 2010, earnings from continuing operations were $42.7 million, or $1.19 per diluted share, compared to $32.2 million, or $0.88 per diluted share, in the prior fiscal year period.

The Lossloss from discontinued operations, net of tax, was $2.0 million, or $0.05$0.06 per share, for the quarter ended November 30, 2010,August 31, 2011, compared to a loss of $1.3 million, or $0.03$0.04 per share, for the prior year fiscal quarter. The Loss from discontinued operations for the six months ended November 30, 2010 was $3.0 million, or $0.08 per share, compared to Earnings from discontinued operations of $0.3 million, or less than $0.01 per share, for the prior fiscal year period. The six months ended November 30, 2010 includes a charge associated with the partial settlement of the pension plan of Grolier Limited, a Canadian entity in the continuities business.

The Net income was $74.9 million or $2.14 per diluted share, for the quarter ended November 30, 2010, compared to $55.5 million, or $1.51 per diluted share, in the prior fiscal year quarter. Net income was $39.7 million, or $1.11 per diluted share, for the six months ended November 30, 2010, compared to $32.5 million, or $0.88 per diluted share,The increase in such loss reflects asset impairments recorded in the prior fiscal year period.quarter ended August 31, 2011.

Results of Continuing Operations

Children’s Book Publishing and Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Three months ended
November 30,

 

Six months ended
November 30,

 

 

Three months ended
August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 


 

 

 

 

 

 

 

 

 

Revenues

 

$

387.3

 

$

368.8

 

$

460.2

 

$

445.0

 

 

$

77.3

 

$

72.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

97.3

 

107.8

 

45.7

 

60.3

 

Operating loss

 

(49.8

)

 

(51.6

)


 

 

 

 

 

 

 

 

 

Operating margin

 

25.1

%

 

29.2

%

 

9.9

%

 

13.6

%

 

*

 

*

 

          * Not meaningful

Revenues in theChildren’s Book Publishing and Distribution segment for the quarter ended November 30, 2010August 31, 2011 increased by $18.5$4.5 million, or 5.0%6.2%, to $387.3$77.3 million, compared to $368.8$72.8 million in the prior fiscal year quarter. TheThis increase is principallywas primarily related to increased revenueshigher revenue in the Company’s trade business, which was driven by strong sales of the Hunger Gamestrilogy, in both print and ebook formats, and ofHarry Potter titles. School book clubs and book fairs business, driven primarilyhave minimal activity in the Company’s first fiscal quarter, as most schools are not in session.

Segment operating loss for the quarter ended August 31, 2011 decreased by an increase in revenue per fair and,$1.8 million, or 3.5%, to a lesser extent, an increase in the numberloss of fairs held as compared to the prior fiscal year quarter. Revenues for the six months ended November 30, 2010 increased by $15.2 million to $460.2$49.8 million, compared to $445.0a loss of $51.6 million in the prior fiscal year period. This increase is relatedquarter, principally due to higher revenuesthe increased revenue in the Company’s trade business, driven by a strong frontlist that includedMockingjay by Suzanne Collins, which completedbusiness. The Hunger Gamestrilogy, andThe 39 Cluesseries, as well asimproved results were also partially offset by the increased revenuesCompany’s continued investment in its digital initiatives.

Educational Technology and Services

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Three months ended
August 31,

 





 

 

2011

 

2010

 







 

 

 

 

 

 

 

 

Revenues

 

$

96.6

 

$

82.1

 

 

 

 

 

 

 

 

 

Operating income

 

 

38.8

 

 

30.2

 









 

 

 

 

 

 

 

 

Operating margin

 

 

40.2

%

 

36.8

%

Revenues in the Company’s book fairs business discussed above.Educational Technology and Servicessegment for the quarter ended August 31, 2011 increased by $14.5 million, or 17.7%, to $96.6 million, compared to $82.1 million in the prior fiscal year quarter. This increase was primarily due to strong sales of educational technology, led byREAD 180® Next Generation, and continued strength in math, early learning and services.

Segment operating income for the quarter ended November 30, 2010 decreasedAugust 31, 2011 increased by $10.5$8.6 million or 9.7%, to $97.3$38.8 million, compared to $107.8$30.2 million in the prior fiscal year quarter, primarily related to increased promotional spendingprincipally driven by the increase in the Company’s book club business and increased expenditures related to the Company’s children’s book digital format. Segment operating income for the six months ended November 30, 2010, decreased by $14.6 million, or 24.2%, to $45.7 million, compared to $60.3 million in the prior fiscal year period, principally due to increased expenditures related to the Company’s children’s books digital format, e-commerce and eBook initiatives, as well as higher promotional spending in book clubs.revenues described above.



 

SCHOLASTIC CORPORATION

Item 2. MD&A


EducationalClassroom and Supplemental Materials Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Three months ended
November 30,

 

Six months ended
November 30,

 

 

Three months ended
August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 


 

 

 

 

 

 

 

 

 

Revenues

 

$

101.6

 

$

122.6

 

$

220.2

 

$

271.3

 

 

$

45.7

 

$

36.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

11.0

 

(4.1

)

 

39.5

 

37.2

 

 

2.1

 

(1.7

)


 

 

 

 

 

 

 

 

 

 

Operating margin

 

10.8

%

 

*

 

17.9

%

 

13.7

%

 

4.6

%

 

*

 

          * Not meaningful

Revenues in theEducationalClassroom and Supplemental Materials Publishingsegment for the quarter ended November 30, 2010 decreasedAugust 31, 2011 increased by $21.0$9.2 million, or 17.1%25.2%, to $101.6$45.7 million, compared to $122.6$36.5 million in the prior fiscal year quarter. This decrease was principally driven by the strong growth in sales of educational technology products in the prior year period, which have experienced a significant change in the funding environment for these programs in fiscal 2011 and the absence of a large library sale to New York City in the current period. This was partially offset by incremental revenues of $2.2 million from the Math Solutions business in the current fiscal quarter. Revenues for the six months ended November 30, 2010 decreased by $51.1 million, or 18.8%, to $220.2 million, compared to $271.3 million in the prior fiscal year period. The decreaseincrease was primarily due to the strong levelincreased sales of sales in the prior year period as referred to above, as well as lower school classroom books, driven by contracts for summer reading and library revenues in the current period.custom book collections.

Segment operating income for the quarter ended November 30, 2010 increased by $15.1August 31, 2011 was $2.1 million to $11.0which was a $3.8 million from an operating loss of $4.1 million inimprovement over the prior fiscal year quarter when the Company recognized an asset impairment chargeloss of $36.3 million in connection with its decision to consolidate supplemental non-fiction and library publishing activities into theChildren’s Book Publishing and Distribution segment.$1.7 million. This increase was partially offsetprincipally driven by the unfavorable resultsincrease in educational technology products and services notedrevenues described above. Segment operating income for the six months ended November 30, 2010, increased by $2.3 million, or 6.2%, to $39.5 million, from $37.2 million in the prior fiscal year period, related to the prior year’s impairment charge noted above, partially offset by declines in revenue.

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Three months ended
November 30,

 

Six months ended
November 30,

 

 

Three months ended
August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 


 

 

 

 

 

 

 

 

 

Revenues

 

$

145.9

 

$

130.9

 

$

227.8

 

$

206.5

 

 

$

87.7

 

$

81.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

25.3

 

14.8

 

23.1

 

12.9

 

Operating loss

 

(0.1

)

 

(2.2

)


 

 

 

 

 

 

 

 

 

 

Operating margin

 

17.3

%

 

11.3

%

 

10.1

%

 

6.2

%

 

*

 

*

 

          * Not meaningful

Revenues in the Internationalsegment for the quarter ended November 30, 2010August 31, 2011 increased by $15.0$5.8 million, or 11.5%7.1%, to $145.9$87.7 million, compared to $130.9$81.9 million in the prior fiscal year quarter, primarily due to the favorable impact of foreign currency exchange rates of $5.8$9.8 million, in addition to an increase in revenue of $6.2 millionas well as higher revenues in the Company’s Asia operations, partially offset by lower revenues in the Company’s Australian, New Zealand and Canadian and Australian operations. Revenues

Segment operating loss for the six monthsquarter ended November 30, 2010 increased $21.3August 31, 2011 decreased by $2.1 million or 10.3%, to $227.8a loss of $0.1 million, compared to $206.5a loss of $2.2 million duringin the prior fiscal year period,quarter, primarily due to higher revenues of $10.5 million in the Company’s Australian and Canadian operations and the favorable impact of foreign currency exchange rates of $9.0 million.rates.



 

SCHOLASTIC CORPORATION

Item 2. MD&A


Segment operating income for the quarter ended November 30, 2010 increased by $10.5 million, or 70.9%, to $25.3 million, compared to $14.8 million in the prior fiscal year quarter, which included an impairment charge of $3.8 million related to customer lists acquired in connection with the dissolution of a joint venture, as well as restructuring costs of $1.9 million related to the consolidation of distribution facilities in the UK, as well as favorable results in the current fiscal quarter in the foreign rights business of $1.6 million. Segment operating income for the six months ended November 30, 2010 increased by $10.2 million, or 79.1%, to $23.1 million, compared to $12.9 million in the prior fiscal year period, primarily due to the reasons noted above, as well as the favorable results in the current period in the Company’s Australian and Canadian operations.

Media, Licensing and Advertising

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Three months ended
November 30,

 

Six months ended
November 30,

 

 

Three months ended
August 31,

 


 

2010

 

2009

 

2010

 

2009

 

 

2011

 

2010

 


 

 

 

 

 

 

 

 

 

Revenues

 

$

40.9

 

$

37.8

 

$

58.4

 

$

52.9

 

 

$

10.7

 

$

17.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

4.7

 

2.6

 

1.8

 

(1.1

)

Operating loss

 

(5.0

)

 

(2.2

)


 

 

 

 

 

 

 

 

 

 

Operating margin

 

11.5

%

 

6.9

%

 

3.1

%

 

*

 

 

*

 

*

 

          * Not meaningful

Revenues in the Media, Licensing and Advertising segment for the quarter ended November 30, 2010 increasedAugust 31, 2011 decreased by $3.1$6.4 million, or 8.2%37.4%, to $40.9$10.7 million, compared to $37.8$17.1 million in the prior fiscal year quarter, as a result of a planned decrease in custom marketing programs for third party sponsors in the current period, as well as higher, non-recurring production revenue in the prior year period.

Segment operating loss for the quarter ended August 31, 2011 increased to a loss of $5.0 million, compared to a loss of $2.2 million in the prior fiscal year quarter, primarily due to increased revenues related to magazine advertising, partially offset by lower sales of software and interactive products. Revenues for the six months ended November 30, 2010 increased by $5.5 million, or 10.4%, to $58.4 million, compared to $52.9 million in the prior year fiscal period, primarily due to higher advertising and production revenues partially offset by lower sales of software and interactive products.

Segment operating income for the quarter ended November 30, 2010 increased by $2.1 million to $4.7 million, compared to $2.6 million in the prior fiscal year quarter primarily due to higher magazine advertising revenues. Segment operating income for the six months ended November 30, 2010 increased by $2.9 million to $1.8 million, compared to a segment operating loss of $1.1 million in the prior fiscal year period, primarily due to the higher magazine advertising results.factors discussed above.

Seasonality

The Company’s school-based book clubs, school-based book fairs and most of its magazines operate on a school-year basis. Therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based book club and book fair revenues are greatest in the second and fourth quarters of the fiscal year, while revenues from the sale of instructional materials and educational technology products are highest in the first and fourth quarters. The Company typically experiences losses from operations in the first and third quarters of each fiscal year.



SCHOLASTIC CORPORATION

Item 2. MD&A


Liquidity and Capital Resources

The Company’s cash and cash equivalents totaled $54.4$33.7 million at November 30, 2010,August 31, 2011, compared to $244.1$105.3 million at May 31, 20102011 and $178.3$124.2 million at November 30, 2009.August 31, 2010.

Cash provided byused in operating activities decreasedimproved by $22.3$23.8 million to $83.5$49.3 million for the sixthree months ended November 30, 2010,August 31, 2011, compared to $105.8$73.1 million of cash provided by operating activities in the prior fiscal year period.



SCHOLASTIC CORPORATION

Item 2. MD&A


While Net income Primary drivers of the improvement include the higher sales and earnings ofREAD 180® Next Generationfrom theEducational Technology and Servicessegment and increased deferred revenue from this segment. TheEducational Technology and Services segment defers revenue related to services until the services are rendered to the customer, even if payment for these services has been received by the Company. The Company continues to manage its required inventory levels and monitors its trade receivables and payables closely. Working capital levels generally build in the current period increased from $32.5first quarter, as the Company builds inventory for the upcoming school year.

Cash used in investing activities decreased by $6.1 million to $39.7$18.7 million for the prior period included $40.1 million of non-cash impairment charges. Accordingly, Net income adjusted for non-cash items yielded cash from operations of $122.1 million in the current year,three months ended August 31, 2011, compared to $155.6$24.8 million in the prior period, as a result of lower cash from operations of $33.5 millionfiscal year period. Spending decreased for property plant and equipment costs. The Company continues to invest in the current year.its ongoing digital initiatives.

The Company’s working capital and other operating accounts increased by $43.1 million in the six months ended November 30, 2010, compared to an increase of $51.9 million in the prior period. The decrease in net cash provided by operations of $8.8 million in the current period compared to the prior period was attributable to:

a $75.7 million increase in accounts receivable in the current period compared to a $90.5 million increase in accounts receivable in the prior year period. Higher prior period sales of education technology products drove higher receivables in the first six months of fiscal 2010, and

an increase in accounts payable in the current period of $59.2 million compared to an increase in the prior period of $4.6 million. Higher accounts payable resulted from inventory purchases and the timing of payments.

Partially offsetting these items were:

a $62.8 million increase in inventories in the current period compared to an increase of $39.1 million in the prior year period driven by higher inventory purchases in the current period to re-stock following significant inventory reductions during the second half of fiscal 2010;

a greater increase of prepaid expenses and other current assets in the current period than in the prior year period;

higher accruals in the prior year period than in the current period for employee-related and other costs, some of which were paid in fiscal 2011; and

higher income tax payments in the current period of $8.8 million.

Cash used in investing activities increased by $42.0 million to $81.1 million for the six months ended November 30, 2010, compared to $39.1 million in the prior fiscal year period. This change was primarily related to:

investment in property, plant and equipment, and prepublication and production costs in the current period of $47.6 million, compared to $39.3 million in the prior period, largely related to increased spending on digital initiatives;

acquisitions and related payments of $9.2 million in the current period; and

the purchase of the land upon which the Company’s corporate headquarters are located for $24.3 million in the current period.

Cash used in financing activities was $195.4$4.0 million for the sixthree months ended November 30, 2010,August 31, 2011, compared to $29.2$23.4 million for the prior fiscal year period. The change was primarily due to the completionrepurchases of a modified Dutch tender offerCommon Stock of $9.7 million in the current period. The Company accepted for purchase 5,199,699prior period and the timing of its common shares at a price of $30.00 per share, for a total cost of $156.0 million, exclusive of related fees and expenses. The common shares purchased pursuant to the tender offer represented approximately 15.1 % of the common shares outstanding as of October 27, 2010. The Company funded the purchase of the shares in the tender offer using cash on hand and short term borrowings under its existingthe Company’s foreign credit facility, which, borrowings were repaid prior to November 30, 2010.lines.

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period. As a result of the Company’s business cycle, borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May.

The Company’s operating philosophy is to use cash provided from operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. The Company believes that funds generated by its operations and funds available under its current credit facilities will be sufficient to finance its short-and long-term capital requirements for the foreseeable future.



SCHOLASTIC CORPORATION

Item 2. MD&A


The Company has maintained sufficient liquidity to fund ongoing operations, dividends, authorized common share repurchases, (including its recently-completed tender offer), debt service, planned capital expenditures and other investments. As of November 30, 2010,August 31, 2011, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $54.4$33.7 million, cash from operations, and borrowings remaining available under the Revolving Loan (as described under “Financing” below) totaling $325.0 million. Approximately 69%76% of the Company’s outstanding debt is not due until fiscal 2013, 28% is spread ratably over each preceding period and the remaining 3% represents borrowings under the Company’s lines of credit.2013. 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 ongoing operating needs, as well as its financing and investing activities. The Company’s credit rating from Standard & Poor’s Rating Services is “BB-” and its credit rating from Moody’s Investors Service is “Ba2.” Moody’s Investors Service has rated the outlook for the Company as “Positive,” and Standard and Poor’s Rating Services has rated the outlook for the Company as “Stable.” The Company believes that existing committed credit lines and the ability to obtain similar financing credit upon expiration of current commitments, cash from operations and other sources of cash are sufficient to meet the Company’s liquidity needs for the near term. The Company is currently compliant with its debt covenants and expects to remain compliant for the 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.



SCHOLASTIC CORPORATION

Item 2. MD&A


Financing

Lines of Credit

As of November 30, 2010,August 31, 2011, the Company’s credit lines available under unsecured money market bid rate credit lines totaled $20.0 million. There were no outstanding borrowings under these credit lines at November 30, 2010,August 31, 2011, May 31, 20102011 and November 30, 2009.August 31, 2010. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term, not to exceed 365 days, 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.made.

As of November 30, 2010,August 31, 2011, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $33.8$30.1 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 international facilities equivalent to $7.2$7.9 million at November 30, 2010August 31, 2011 at a weighted average interest rate of 4.0%; $7.5$0.7 million at May 31, 2011 at a weighted average interest rate of 6.7%; and $7.7 million at August 31, 2010 at a weighted average interest rate of 3.9%; and $13.0 million at November 30, 2009 at a weighted average interest rate of 3.0%.

Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $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 credit facility that is scheduled to expire on June 1, 2012. 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 Term Loan, which may be prepaid at any time without penalty, requires quarterly principal payments of $10.7 million, with the first payment on December 31, 2007, and a final payment of $7.4 million due on June 1, 2012.

On August 16, 2010, the Borrowers entered into an amendment to the Loan Agreement, which added certain provisions related to covenants and interest.

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). At the election of the Borrower, the interest rate charged for each loan made under the Loan Agreement, as amended, is based on (1) a 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%; or (2) an adjusted LIBOR rate plus an applicable margin, ranging from 0.500% to 1.250% based upon the Company’s prevailing consolidated debt to total capital ratio. As of November 30, 2010,August 31, 2011, there were no borrowings outstanding under the Revolving Loan.



SCHOLASTIC CORPORATION

Item 2. MD&A


As of November 30, 2010,August 31, 2011, the applicable margin of the Term Loan was 0.750% and the applicable margin on the Revolving Loan was 0.600%. The Loan Agreement also provides for the payment of a facility fee ranging from 0.125% to 0.250% per annum on the Revolving Loan only, which at November 30, 2010,August 31, 2011, was 0.150%. As of November 30, 2010, $71.6August 31, 2011, $39.5 million was outstanding under the Term Loan at an interest rate of 1.01%1.0%.

As of November 30, 2010,August 31, 2011, there was $1.4 million of outstanding standby letters of credit outstanding issued under the Loan Agreement totaled $1.4 million.Agreement. 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 November 30, 2010,August 31, 2011, the Company was in compliance with these covenants. See Note 54 of Notes to condensed consolidated financial statements – unaudited in Item 1, “Financial Statements,” for outstanding balances and interest rates for these notes.



SCHOLASTIC CORPORATION

Item 2. MD&A


5% Notes due 2013

In April 2003, ScholasticThe Corporation issued $175.0 million 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. The Company repurchased $5.0 million and $2.5 million of the 5% Notes on the open market in fiscal 2010 and 2009, respectively. The Company did not make any additional repurchases during the six-month period ended November 30, 2010.

The Company’s total debt obligations were $231.2$200.0 million at November 30, 2010, $252.8August 31, 2011, $203.4 million at May 31, 20102011 and $279.6$242.3 million at November 30, 2009.August 31, 2010. The lower level of debt at November 30, 2010 asAugust 31, 2011 and May 31, 2011 compared to MayAugust 31, 2010 and November 30, 2009 was primarily due to repayments made on the Term Loan, repurchases of the Company’s 5% Notes on the open market in fiscal 2010 and reduced borrowings resulting from lower debt requirements.Loan.

For a more complete description of the Company’s debt obligations, see Note 54 of Notes to condensed consolidated financial statements – unaudited in Item 1, “Financial Statements.”



 

SCHOLASTIC CORPORATION

Item 2. MD&A


New Accounting Pronouncements

Reference is made to Note 1 of Notes to condensed consolidated financial statementsstatements- unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report.



 

SCHOLASTIC CORPORATION

Item 2. MD&A


Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission (“SEC”) filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, plans, conditions in the children’s book and educational material markets and acceptance of the Company’s products in those markets, earnings per share, levels of government spending for educational programs, e-commerce and digital initiatives, strategies, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, severance costs, merit pay, operating margins, working capital, liquidity, capital needs, expected investing activity, interest costs and income, are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and other risks and factors identified from time to time in the Company’s filings with the SEC.

The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.



 

SCHOLASTIC CORPORATION

Item 3. 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. 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. As of November 30, 2010,August 31, 2011, these transactions were not significant. 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 34%25% of the Company’s debt at November 30, 2010August 31, 2011 and May 31, 2011 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately 40% at MayAugust 31, 2010 and 45% at November 30, 2009.2010. The decrease in variable-rate debt as of November 30, 2010August 31, 2011 and May 31, 2011, compared to MayAugust 31, 2010, and November 30, 2009, 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 2, “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 November 30, 2010August 31, 2011 (see Note 54 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements”):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions )

 

Fiscal Year Maturity

 

($ amounts in millions)

 

Fiscal Year Maturity

 























 

2012(1)

 

2013

 

2014

 

2015

 

2016

 

Thereafter

 

Total

 

Fair Value at
August 31, 2011

 

 

2011(1)

 

2012

 

2013

 

2014

 

2015

 

Thereafter

 

Total

 


































Debt Obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of Credit

 

$

7.2

 

$

 

$

 

$

 

$

 

$

 

$

7.2

 

 

$

7.9

 

$

 

$

 

$

 

$

 

$

 

$

7.9

 

$

7.9

 

Average interest rate

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt including current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt

 

$

 

$

 

$

153.0

 

$

 

$

 

$

 

$

153.0

 

 

$

 

$

153.0

 

$

 

$

 

$

 

$

 

$

153.0

 

$

153.0

 

Interest rate

 

 

 

 

 

5.0

%

 

 

 

 

 

 

 

 

 

Average interest rate

 

5.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate debt

 

$

21.4

 

$

42.8

 

$

7.4

(3)

$

 

$

 

$

 

$

71.6

 

Variable-rate debt

 

$

32.1

 

$

7.4

(3)

$

 

$

 

$

 

$

 

$

39.5

 

$

39.5

 

Interest rate(2)

 

1.0

%

 

1.0

%

 

1.0

%

 

 

 

 

 

 

 

 

 

 

1.0

%

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

(1)

Fiscal 20112012 includes the remaining sixnine months of the current fiscal year, ending May 31, 2011.year.

 

 

(2)

Represents the interest rate under the Term Loan at November 30, 2010;August 31, 2011; the interest rate is subject to change over the life of the Term Loan.

 

 

(3)

Represents the final payment under the Term Loan, which has a final maturity of June 1, 2012 but may be repaid at any time.



 

SCHOLASTIC CORPORATION

Item 4. Controls and Procedures


The Chief Executive Officer and the 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 November 30, 2010,August 31, 2011, 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 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 Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended November 30, 2010August 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.



 

PART II – OTHER INFORMATION

 

SCHOLASTIC CORPORATION

Item 1. Legal Proceedings


As previously reported, the Company iswas party to certain actions originally filed by each of Alaska Laborer EmployersLaborers 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. On September 30, 2010, the Court granted the Company’s motion to dismiss the second amended complaint for failure to state a cause of action, while also granting leave to the plaintiff to move to file a new proposed amended complaint. On December 1, 2010, the plaintiff filed a motion for leave to file a proposed third amended class action complaint, as well as a motion to replace Alaska Laborer Employers Retirement Fund with City of Sterling Heights Police and Fire Retirement System as lead plaintiff.plaintiff, and, on January 14, 2011, the Company filed an opposition to plaintiff’s motions for leave to file a third amended class action complaint and to substitute lead plaintiff, which was argued on March 3, 2011. The proposed third amended class action complaint shortensshortened the original class action period to end on December 16, 2005 rather than on March 23, 2006, but otherwise continuescontinued to allege securities fraud relating to statements made by the Company concerning its operations and financial results, now for the period between March 18, 2005 and December 16, 2005, and seekssought unspecified compensatory damages. The Company continuesOn August 3, 2011, the Court denied plaintiff’s motions for leave to believe thatfile a proposed third amended class action complaint and to substitute a new lead plaintiff and dismissed the allegationslawsuit. Accordingly, with the time for appeal having expired on September 2, 2011 with no appeal being filed, the action has now been terminated in such complaint are without merit and is vigorously defendingfavor of the lawsuit.Company.



SCHOLASTIC CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the three months ended November 30, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuer Purchases of Equity Securities
(Dollars in millions, except per share amounts)

 



Period

 

Total number of
shares purchased

 

Average price paid
per share

 

Total
number of shares
purchased as part of
publicly announced
plans or programs

 

Maximum number of
shares (or approximate
dollar value) that may
yet be purchased
under the plans or
programs(1)

 











September 1, 2010 through
September 30, 2010

 

 

 

 

$

 

 

 

 

 

 

 

 

$

0.5

 

 

October 1, 2010 through
October 31, 2010

 

5,199,699

 

 

 

$

30.00

 

 

 

 

5,199,699

 

 

 

$

44.5

 

 

November 1, 2010 through
November 30, 2010

 

 

 

 

$

 

 

 

 

 

 

 

$

44.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

5,199,699

 

 

 

$

30.00

 

 

 

 

5,199,699

 

 

 

 

 

 

 






















(1)

On December 16, 2009, the Company announced that its Board of Directors had authorized a new program to purchase up to $20.0 million of Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. As of September 30, 2010 approximately $0.5 million remained of such authorization.

On September 28, 2010, the Company announced the commencement of a modified Dutch auction tender offer to purchase up to $150 million of its common stock at a price not less than $27.00 per share and not more than $33.00 per share. On November 3, 2010, the Company announced that it had purchased the shares indicated in the table above at a purchase price of $30.00 per share, for an aggregate purchase price of approximately $156 million, and that approximately $44.5 million remained for the repurchase of common stock under the current Board authorizations, which amount includes the $0.5 million remaining from the prior Board authorization. These purchases may be made from time to time on the open market or through negotiated private transactions. Accordingly, as of November 30, 2010, approximately $44.5 million remained of the current Board authorizations.



 

SCHOLASTIC CORPORATION

Item 6. Exhibits



Exhibits:

 

 

31.1

Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32

Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished 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



 

SCHOLASTIC CORPORATION

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

SCHOLASTIC CORPORATION

 

 

(Registrant)

 

 

 

Date: December 22, 2010October 5, 2011

By:

/s/ Richard Robinson

 

 


 

 

 

 

Richard Robinson

 

 

Chairman of the Board,

 

 

President and Chief

 

 

Executive Officer

 

 

 

 

 

 

Date: December 22, 2010

 

Date: October 5, 2011

By:

/s/ Maureen O’Connell

 

 


 

 

 

 

 

Maureen O’Connell

 

 

Executive Vice President,

 

 

Chief Administrative Officer

 

 

and Chief Financial Officer

 

 

(Principal Financial Officer)principal financial and

accounting officer)



 

SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED NOVEMBER 30, 2010AUGUST 31, 2011

Exhibits Index



 

 

 

Exhibit Number

 

Description of Document


 


 

 

 

31.1

 

Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32

 

Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished 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 *

* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

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