| |
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
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For the quarterly period ended | Commission File No. 000-19860 |
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SCHOLASTIC CORPORATION | |
(Exact name of Registrant as specified in its charter) |
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Delaware |
| 13-3385513 |
(State or other jurisdiction of |
| (IRS Employer Identification No.) |
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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.
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.
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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). |
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Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
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Title | Number of shares outstanding | ||
of each class | as of | ||
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Common Stock, $.01 par value |
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Class A Stock, $.01 par value | 1,656,200 |
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SCHOLASTIC CORPORATION |
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED |
INDEX |
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SCHOLASTIC CORPORATION |
(Dollar amounts in millions, except per share data) |
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| Three months ended |
| Nine months ended |
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|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Revenues |
| $ | 393.7 |
| $ | 398.8 |
| $ | 1,360.3 |
| $ | 1,374.5 |
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Operating costs and expenses: |
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|
|
|
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|
|
|
Cost of goods sold (exclusive of depreciation and amortization) |
|
| 200.2 |
|
| 195.2 |
|
| 644.1 |
|
| 627.1 |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
| 203.0 |
|
| 185.1 |
|
| 605.9 |
|
| 577.1 |
|
Bad debt expense |
|
| 6.7 |
|
| 2.9 |
|
| 12.6 |
|
| 9.4 |
|
Depreciation and amortization |
|
| 14.5 |
|
| 14.2 |
|
| 43.4 |
|
| 43.7 |
|
Asset impairments |
|
| — |
|
| — |
|
| — |
|
| 40.1 |
|
Severance |
|
| 1.2 |
|
| 1.9 |
|
| 4.3 |
|
| 7.3 |
|
Total operating costs and expenses |
|
| 425.6 |
|
| 399.3 |
|
| 1,310.3 |
|
| 1,304.7 |
|
Operating (loss) income |
|
| (31.9 | ) |
| (0.5 | ) |
| 50.0 |
|
| 69.8 |
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|
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|
|
|
|
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Other (expense) income |
|
| 0.0 |
|
| 0.0 |
|
| (0.4 | ) |
| 0.9 |
|
Interest expense, net |
|
| 3.9 |
|
| 4.0 |
|
| 11.7 |
|
| 12.2 |
|
Loss on investments |
|
| — |
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| 1.5 |
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| — |
|
| 1.5 |
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|
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(Loss) earnings from continuing operations before income taxes |
|
| (35.8 | ) |
| (6.0 | ) |
| 37.9 |
|
| 57.0 |
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(Benefit) provision for income taxes |
|
| (10.5 | ) |
| (1.7 | ) |
| 20.5 |
|
| 29.1 |
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(Loss) earnings from continuing operations |
|
| (25.3 | ) |
| (4.3 | ) |
| 17.4 |
|
| 27.9 |
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Earnings (loss) from discontinued operations, net of tax |
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| 0.2 |
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| (1.3 | ) |
| (2.8 | ) |
| (1.0 | ) |
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Net (loss) earnings |
| $ | (25.1 | ) | $ | (5.6 | ) | $ | 14.6 |
| $ | 26.9 |
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Basic and diluted (loss) earnings per Share of Class A and Common Stock: |
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Basic: |
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(Loss) earnings from continuing operations |
| $ | (0.81 | ) | $ | (0.12 | ) | $ | 0.51 |
| $ | 0.76 |
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Earnings (loss) from discontinued operations, net of tax |
| $ | 0.00 |
| $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.02 | ) |
Net (loss) earnings |
| $ | (0.81 | ) | $ | (0.15 | ) | $ | 0.43 |
| $ | 0.74 |
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Diluted: |
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(Loss) earnings from continuing operations |
| $ | (0.81 | ) | $ | (0.12 | ) | $ | 0.50 |
| $ | 0.75 |
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Earnings (loss) from discontinued operations, net of tax |
| $ | 0.00 |
| $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.02 | ) |
Net (loss) earnings |
| $ | (0.81 | ) | $ | (0.15 | ) | $ | 0.42 |
| $ | 0.73 |
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Dividends declared per common share |
| $ | 0.100 |
| $ | 0.075 |
| $ | 0.275 |
| $ | 0.225 |
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See accompanying notes |
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| Three months ended |
| Six months ended |
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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Revenues |
| $ | 685.3 |
| $ | 667.9 |
| $ | 1,003.3 |
| $ | 958.3 |
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Operating costs and expenses: |
|
|
|
|
|
|
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Cost of goods sold (exclusive of depreciation and amortization) |
|
| 285.7 |
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| 291.2 |
|
| 446.1 |
|
| 438.5 |
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Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
| 229.6 |
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| 229.1 |
|
| 400.6 |
|
| 399.1 |
|
Bad debt expense |
|
| 3.3 |
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| 3.0 |
|
| 4.7 |
|
| 5.9 |
|
Depreciation and amortization |
|
| 15.5 |
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| 14.5 |
|
| 30.6 |
|
| 28.9 |
|
Loss on leases |
|
| 6.2 |
|
| — |
|
| 6.2 |
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| — |
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Severance |
|
| 5.0 |
|
| 1.0 |
|
| 8.3 |
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| 3.1 |
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Total operating costs and expenses |
|
| 545.3 |
|
| 538.8 |
|
| 896.5 |
|
| 875.5 |
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Operating income |
|
| 140.0 |
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| 129.1 |
|
| 106.8 |
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| 82.8 |
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Other expense |
|
| — |
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| (0.4 | ) |
| — |
|
| (0.4 | ) |
Interest expense, net |
|
| 3.9 |
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| 4.0 |
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| 7.8 |
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| 7.8 |
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Earnings from continuing operations before income taxes |
|
| 136.1 |
|
| 124.7 |
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| 99.0 |
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| 74.6 |
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Provision for income taxes |
|
| 52.8 |
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| 47.6 |
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| 40.8 |
|
| 31.4 |
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Earnings from continuing operations |
|
| 83.3 |
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| 77.1 |
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| 58.2 |
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| 43.2 |
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Loss from discontinued operations, net of tax |
|
| (0.5 | ) |
| (2.2 | ) |
| (2.5 | ) |
| (3.5 | ) |
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Net income |
| $ | 82.8 |
| $ | 74.9 |
| $ | 55.7 |
| $ | 39.7 |
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Basic and diluted earnings (loss) per Share of Class A and Common Stock |
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Basic: |
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Earnings from continuing operations |
| $ | 2.66 |
| $ | 2.23 |
| $ | 1.86 |
| $ | 1.22 |
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Loss from discontinued operations, net of tax |
| $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.10 | ) |
Net income |
| $ | 2.64 |
| $ | 2.17 |
| $ | 1.78 |
| $ | 1.12 |
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Diluted: |
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Earnings from continuing operations |
| $ | 2.62 |
| $ | 2.20 |
| $ | 1.83 |
| $ | 1.21 |
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Loss from discontinued operations, net of tax |
| $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.10 | ) |
Net income |
| $ | 2.60 |
| $ | 2.14 |
| $ | 1.75 |
| $ | 1.11 |
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Dividends declared per common share |
| $ | 0.100 |
| $ | 0.075 |
| $ | 0.200 |
| $ | 0.150 |
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See accompanying notes
|
SCHOLASTIC CORPORATION |
(Dollar amounts in millions, except per share data) |
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| February 28, 2011 |
| May 31, 2010 |
| February 28, 2010 |
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| November 30, 2011 |
| May 31, 2011 |
| November 30, 2010 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
| $ | 90.7 |
| $ | 244.1 |
| $ | 238.9 |
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| $ | 114.0 |
| $ | 105.3 |
| $ | 53.2 |
| ||||||||||||
Accounts receivable, net |
|
| 193.6 |
|
| 212.5 |
|
| 185.7 |
|
| 288.1 |
| 220.3 |
| 287.5 |
| |||||||||||||||
Inventories, net |
|
| 375.8 |
|
| 315.7 |
|
| 374.6 |
|
| 376.2 |
| 308.7 |
| 367.9 |
| |||||||||||||||
Deferred income taxes |
|
| 59.7 |
|
| 59.3 |
|
| 65.4 |
|
| 56.6 |
| 56.2 |
| 59.8 |
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Other current assets |
|
| 78.7 |
|
| 42.5 |
|
| 45.2 |
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Prepaid expenses and other current assets |
| 45.6 |
| 57.1 |
| 48.4 |
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Current assets of discontinued operations |
|
| 9.2 |
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| 12.9 |
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| 16.3 |
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| 9.3 |
| 10.5 |
| 18.2 |
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Total current assets |
|
| 807.7 |
|
| 887.0 |
|
| 926.1 |
|
| 889.8 |
| 758.1 |
| 835.0 |
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Property, plant and equipment, net |
|
| 337.5 |
|
| 316.6 |
|
| 308.7 |
|
| 328.7 |
| 339.0 |
| 343.5 |
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Prepublication costs |
|
| 113.4 |
|
| 110.7 |
|
| 109.4 |
|
| 118.4 |
| 117.7 |
| 109.8 |
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Royalty advances, net |
|
| 37.2 |
|
| 38.0 |
|
| 40.0 |
|
| 37.0 |
| 35.5 |
| 38.6 |
| |||||||||||||||
Production costs |
|
| 8.1 |
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| 7.1 |
|
| 7.0 |
|
| 7.1 |
| 7.4 |
| 7.6 |
| |||||||||||||||
Goodwill |
|
| 158.3 |
|
| 156.6 |
|
| 157.0 |
|
| 155.1 |
| 154.2 |
| 163.7 |
| |||||||||||||||
Other intangibles |
|
| 20.2 |
|
| 15.5 |
|
| 18.5 |
|
| 18.9 |
| 19.8 |
| 15.0 |
| |||||||||||||||
Noncurrent deferred income taxes |
|
| 33.7 |
|
| 33.6 |
|
| 59.4 |
|
| 20.0 |
| 20.2 |
| 33.4 |
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Other assets and deferred charges |
|
| 38.1 |
|
| 35.3 |
|
| 36.7 |
|
| 35.9 |
| 35.1 |
| 37.8 |
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Total assets |
| $ | 1,554.2 |
| $ | 1,600.4 |
| $ | 1,662.8 |
|
| $ | 1,610.9 |
| $ | 1,487.0 |
| $ | 1,584.4 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Lines of credit, short-term debt and current portion of long-term debt |
| $ | 49.5 |
| $ | 50.3 |
| $ | 52.2 |
|
| $ | 5.7 |
| $ | 43.5 |
| $ | 50.0 |
| ||||||||||||
Capital lease obligations |
|
| 0.5 |
|
| 0.9 |
|
| 1.6 |
|
| 0.6 |
| 0.5 |
| 0.5 |
| |||||||||||||||
Accounts payable |
|
| 163.0 |
|
| 101.0 |
|
| 126.1 |
|
| 146.0 |
| 120.1 |
| 162.5 |
| |||||||||||||||
Accrued royalties |
|
| 62.2 |
|
| 42.3 |
|
| 60.6 |
|
| 50.8 |
| 35.4 |
| 48.8 |
| |||||||||||||||
Deferred revenue |
|
| 66.2 |
|
| 39.8 |
|
| 59.0 |
|
| 92.2 |
| 49.1 |
| 81.7 |
| |||||||||||||||
Other accrued expenses |
|
| 166.6 |
|
| 156.2 |
|
| 167.7 |
|
| 205.1 |
| 173.3 |
| 165.8 |
| |||||||||||||||
Current liabilities of discontinued operations |
|
| 0.6 |
|
| 2.9 |
|
| 1.6 |
|
| 0.7 |
| 0.8 |
| 3.7 |
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Total current liabilities |
|
| 508.6 |
|
| 393.4 |
|
| 468.8 |
|
| 501.1 |
| 422.7 |
| 513.0 |
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Noncurrent Liabilities: |
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Long-term debt |
|
| 170.6 |
|
| 202.5 |
|
| 213.1 |
|
| 152.7 |
| 159.9 |
| 181.2 |
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Capital lease obligations |
|
| 54.7 |
|
| 55.0 |
|
| 54.7 |
|
| 55.5 |
| 55.0 |
| 54.5 |
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Other noncurrent liabilities |
|
| 118.8 |
|
| 119.1 |
|
| 101.2 |
|
| 110.1 |
| 109.4 |
| 115.0 |
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Total noncurrent liabilities |
|
| 344.1 |
|
| 376.6 |
|
| 369.0 |
|
| 318.3 |
| 324.3 |
| 350.7 |
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Commitments and Contingencies: |
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| — |
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| — |
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| — |
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| — |
| — |
| — |
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Stockholders’ Equity: |
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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 |
|
| 574.1 |
|
| 569.2 |
|
| 566.3 |
|
| 583.2 |
| 576.6 |
| 577.7 |
| |||||||||||||||
Accumulated other comprehensive loss |
|
| (67.6 | ) |
| (85.4 | ) |
| (70.5 | ) |
| (57.0 | ) |
| (53.9 | ) |
| (72.6 | ) | |||||||||||||
Retained earnings |
|
| 614.2 |
|
| 607.8 |
|
| 581.4 |
|
| 685.2 |
| 635.8 |
| 642.4 |
| |||||||||||||||
Treasury stock at cost |
|
| (419.6 | ) |
| (261.6 | ) |
| (252.6 | ) |
| (420.3 | ) |
| (418.9 | ) |
| (427.2 | ) | |||||||||||||
Total stockholders’ equity |
|
| 701.5 |
|
| 830.4 |
|
| 825.0 |
|
| 791.5 |
| 740.0 |
| 720.7 |
| |||||||||||||||
Total liabilities and stockholders’ equity |
| $ | 1,554.2 |
| $ | 1,600.4 |
| $ | 1,662.8 |
|
| $ | 1,610.9 |
| $ | 1,487.0 |
| $ | 1,584.4 |
| ||||||||||||
| ||||||||||||||||||||||||||||||||
See accompanying notes |
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
SCHOLASTIC CORPORATION |
(Dollar amounts in |
|
|
|
|
|
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|
|
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|
|
|
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|
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|
| Nine months ended |
|
| Six months ended |
| ||||||||
|
| 2011 |
| 2010 |
|
| 2011 |
| 2010 |
| ||||
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
| ||||||||
Net income |
| $ | 14.6 |
| $ | 26.9 |
|
| $ | 55.7 |
| $ | 39.7 |
|
Loss from discontinued operations, net of tax |
| (2.8 | ) |
| (1.0 | ) |
| (2.5 | ) |
| (3.5 | ) | ||
|
|
|
|
|
| |||||||||
Earnings from continuing operations |
| 17.4 |
| 27.9 |
|
| 58.2 |
| 43.2 |
| ||||
|
|
|
|
|
|
|
| |||||||
Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations: |
|
|
|
|
| |||||||||
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities of continuing operations: |
|
|
|
|
| |||||||||
Provision for losses on accounts receivable |
| 12.6 |
| 9.4 |
|
| 4.7 |
| 5.9 |
| ||||
Provision for losses on inventory |
| 18.4 |
| 20.2 |
|
| 11.6 |
| 12.0 |
| ||||
Provision for losses on royalty advances |
| 3.3 |
| 5.1 |
| |||||||||
Provision for losses on royalty |
| 2.3 |
| 1.7 |
| |||||||||
Amortization of prepublication and production costs |
| 35.3 |
| 36.6 |
|
| 24.4 |
| 24.5 |
| ||||
Depreciation and amortization |
| 43.4 |
| 43.7 |
|
| 30.6 |
| 28.9 |
| ||||
Deferred income taxes |
| 1.0 |
| (3.2 | ) |
| — |
| 1.0 |
| ||||
Stock-based compensation |
| 11.1 |
| 11.1 |
|
| 7.8 |
| 8.4 |
| ||||
Non-cash write off related to asset impairments |
| — |
| 40.1 |
| |||||||||
Unrealized loss on investment |
| — |
| 1.5 |
| |||||||||
Loss on leases |
| 6.2 |
| — |
| |||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
| 13.6 |
| 4.8 |
|
| (76.0 | ) |
| (75.5 | ) | |||
Inventories |
| (69.1 | ) |
| (47.1 | ) |
| (83.5 | ) |
| (60.1 | ) | ||
Other current assets |
| (38.8 | ) |
| (4.0 | ) |
| (8.1 | ) |
| (10.4 | ) | ||
Deferred promotion costs |
| (2.2 | ) |
| (0.7 | ) |
| (1.8 | ) |
| (1.6 | ) | ||
Royalty advances |
| (1.8 | ) |
| (3.8 | ) |
| (4.1 | ) |
| (1.9 | ) | ||
Accounts payable |
| 57.6 |
| (3.0 | ) |
| 25.3 |
| 57.6 |
| ||||
Other accrued expenses |
| 7.7 |
| 28.9 |
|
| 55.1 |
| 9.5 |
| ||||
Accrued royalties |
| 18.7 |
| 18.5 |
|
| 15.9 |
| 5.8 |
| ||||
Deferred revenue |
| 25.8 |
| 24.7 |
|
| 43.2 |
| 41.6 |
| ||||
Pension and postretirement liability |
| (4.4 | ) |
| (8.0 | ) | ||||||||
Pension and post-retirement liability |
| (2.8 | ) |
| (4.3 | ) | ||||||||
Other, net |
| 4.8 |
| (2.8 | ) |
| 0.1 |
| (0.1 | ) | ||||
Total adjustments |
| 137.0 |
| 172.0 |
|
| 50.9 |
| 43.0 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash provided by operating activities of continuing operations |
| 154.4 |
| 199.9 |
|
| 109.1 |
| 86.2 |
| ||||
Net cash provided by operating activities of discontinued operations |
| 0.5 |
| 1.0 |
| |||||||||
Net cash used in operating activities of discontinued operations |
| (1.3 | ) |
| (2.7 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash provided by operating activities |
| 154.9 |
| 200.9 |
|
| 107.8 |
| 83.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows (used in) provided by investing activities: |
|
|
|
|
| |||||||||
Cash flows used in investing activities: |
|
|
|
|
| |||||||||
Prepublication and production expenditures |
| (38.4 | ) |
| (33.1 | ) |
| (25.4 | ) |
| (23.4 | ) | ||
Additions to property, plant and equipment |
| (31.4 | ) |
| (28.4 | ) |
| (20.8 | ) |
| (24.2 | ) | ||
Repayment of loan from investee |
| 1.2 |
| — |
| |||||||||
Net proceeds from sale of discontinued operations |
| — |
| 0.2 |
| |||||||||
Land acquisition |
| (24.3 | ) |
| — |
|
| — |
| (24.3 | ) | |||
Acquisition-related payments (net of cash received of $2.5 and $0.0) |
| (9.2 | ) |
| (1.0 | ) | ||||||||
Acquisition-related payments (net of cash received of $2.5) |
| — |
| (9.2 | ) | |||||||||
|
|
|
|
|
| |||||||||
Net cash used in investing activities of continuing operations |
| (46.2 | ) |
| (81.1 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash used in investing activities |
| (102.1 | ) |
| (62.3 | ) |
| (46.2 | ) |
| (81.1 | ) | ||
|
|
|
|
|
| |||||||||
See accompanying notes |
|
|
|
|
|
See accompanying notes
|
SCHOLASTIC CORPORATION |
CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED |
(Dollar amounts in |
|
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|
|
|
| Nine months ended |
|
| Six months ended |
| ||||||||
|
| 2011 |
| 2010 |
|
| 2011 |
| 2010 |
| ||||
Cash flows (used in) provided by financing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Repayment of term loan |
| (32.1 | ) |
| (32.1 | ) |
| (50.2 | ) |
| (21.4 | ) | ||
Borrowings under Credit Agreement and Revolver |
| 70.0 |
| — |
|
| 28.8 |
| 70.0 |
| ||||
Repayment of Credit Agreement and Revolver |
| (70.0 | ) |
| — |
|
| (28.8 | ) |
| (70.0 | ) | ||
Repurchase of 5% notes |
| — |
| (4.1 | ) | |||||||||
Borrowings under lines of credit |
| 92.3 |
| 135.0 |
|
| 52.0 |
| 78.6 |
| ||||
Repayment of lines of credit |
| (94.6 | ) |
| (132.8 | ) |
| (45.0 | ) |
| (79.8 | ) | ||
Repayment of capital lease obligations |
| (1.9 | ) |
| (2.6 | ) |
| (0.2 | ) |
| (1.8 | ) | ||
Reacquisition of common stock |
| (166.9 | ) |
| (1.5 | ) |
| (5.0 | ) |
| (165.7 | ) | ||
Proceeds pursuant to stock-based compensation plans |
| 2.6 |
| 3.8 |
|
| 3.4 |
| 1.0 |
| ||||
Payment of dividends |
| (7.7 | ) |
| (8.2 | ) |
| (6.2 | ) |
| (5.4 | ) | ||
Other |
| (1.2 | ) |
| (0.6 | ) |
| (0.6 | ) |
| (0.9 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash used in financing activities of continuing operations |
| (51.8 | ) |
| (195.4 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net cash used in financing activities |
| (209.5 | ) |
| (43.1 | ) |
| (51.8 | ) |
| (195.4 | ) | ||
Effect of exchange rate changes on cash and cash equivalents |
| 3.3 |
| (0.2 | ) |
| (1.1 | ) |
| 3.3 |
| |||
|
|
|
|
|
|
|
|
|
|
| ||||
Net (decrease) increase in cash and cash equivalents |
| (153.4 | ) |
| 95.3 |
| ||||||||
Cash and cash equivalents at beginning of period |
| 244.1 |
| 143.6 |
| |||||||||
Net increase (decrease) in cash and cash equivalents |
| 8.7 |
| (189.7 | ) | |||||||||
|
|
|
|
| ||||||||||
Cash and cash equivalents at end of period |
| $ | 90.7 |
| $ | 238.9 |
| |||||||
Cash and cash equivalents at beginning of period, including cash of discontinued operations of $0.0 and $0.0 at June 1, 2011 and 2010, respectively. |
| 105.3 |
| 244.1 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
See accompanying notes |
|
|
|
|
| |||||||||
Cash and cash equivalents at end of period, including cash of discontinued operations of $0.0 and $1.2 at November 30, 2011 and 2010, respectively. |
| $ | 114.0 |
| $ | 54.4 |
| |||||||
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”). 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 twelve 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
The Company closed or sold several operations during fiscal 2008, 2009, fiscal 2010 and 2010the first quarter of fiscal 2012, and presently holds for sale one operation. All of these businesses are classified as discontinued operations in the Company’s financial statements.
The remaining assets and liabilities associated with the foregoing 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 February 28, 2011, May 31, 2010 and February 28, 2010. The aggregate results of operations of these businesses for the three and nine months ended February 28, 2011 and 2010 are included in the condensed consolidated statements of operations as “Earnings (loss) 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 nine months ended February 28, 2011 and 2010. 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.
facility. During the first quarter of fiscal 2011,2012, the Company determined thatceased operations in its distribution facilitydirect-to-home catalog business specializing in Danbury, Connecticut (the “Danbury Facility”)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 operationstheMedia, Licensing and Advertising segment and is now classified as a discontinued operation in the Company’s financial statements. Reference is made to Note 2, “Discontinued Operations,” for all periods presented.additional information concerning discontinued operations.
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 February 28,November 30, 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: collectability of accounts receivable; sales
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
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; taxes; recoverability of inventories, deferred income taxes and tax reserves, prepublication costs and royalty advances; and the fair value of goodwill reporting units and other intangibles.including; but not limited to:
• | 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 $1.1, $0.0$0.5, $0.5 and $0.0 as of February 28,$1.3 at November 30, 2011, May 31, 20102011 and February 28,November 30, 2010, respectively, which is reported in “Other current assets.” This restricted cash was acquired with the assets of Math Solutions. See Note 2, “Acquisition and Land Purchase,” for a further description of the acquisition.
New 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 be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the impact on the Company’s consolidated financial position, results of operations and cash flows.
In October 2009, the FASB issued an update to authoritative guidance related to certain revenue arrangements that include software elements. The accounting guidance update addresses the accounting revenue arrangements that contain tangible products and software and it affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The 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 be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has not chosen early adoption and is evaluating the update. The Company does not expect a significant impact on its consolidated financial position, results of operations and cash flows.
In December 2010,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 two-step testing required for impairmentcomparability of goodwillfair value measurements presented 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 a reporting unit exceeds its fair value. If it does, an entity must perform an additional test to determine whether goodwill has been impaireddisclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and to calculate the amount of that impairment.International Financial Reporting Standards (“IFRS”). The disclosure amendments in this update modify Step 1are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted.
In June 2011, the FASB issued an update related to the reporting of the goodwill 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 a goodwill impairment exists. In determining whether it is more likely than not that an impairment of goodwill exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist.other comprehensive income. The amendments require that all non-owner changes in this updatestockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2010.2011.
In September 2011, the FASB issued an update to the authoritative guidance related to goodwill impairment testing. The updated guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company can skip the two-step test. Companies are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any reporting unit in any period and proceed directly to Step 1 of the test. A company that validates its conclusion by measuring fair value can resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is not permitted. The Company is evaluating the impact on its consolidated financial position and results of operations.
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
2. Acquisition and Land Purchase
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 acquired. The Company has integrated this business with its existing educational technology businesses. As a result of this transaction, the Company recognized $1.5 of goodwill and $5.6 of amortizable intangible assets.
Transaction costs of $0.4 were expensed in fiscal 2011 and are included in “Other (expense) income” on the Company’s condensed consolidated statements of operations. The results of operations of this acquisition subsequent to the acquisition date are included in theEducational Publishing segment.
In the second quarter of fiscal 2011, the Company purchased the land on which its corporate headquarters are located for $24.3 and also satisfied capital lease obligations on this property of $1.3.
3. Discontinued Operations
The Company monitors 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” during the nine-month period ended February 28, 2011. Duringassets, and adjusts asset values accordingly. In the first quarter of fiscal 2011,2012, 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 current fiscal year 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:
|
|
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|
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | 2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale |
|
| — |
|
| — |
|
| — |
|
| (1.1 | ) |
Earnings (loss) before income taxes |
|
| 0.2 |
|
| (1.5 | ) |
| (3.3 | ) |
| 0.4 |
|
Income tax benefit (expense) |
|
| — |
|
| 0.2 |
|
| 0.5 |
|
| (0.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax |
| $ | 0.2 |
| $ | (1.3 | ) | $ | (2.8 | ) | $ | (1.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Six months ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Revenues |
| $ | — |
| $ | 7.8 |
| $ | 0.1 |
| $ | 8.3 |
|
|
|
|
|
|
|
|
|
|
| ||||
Non-cash impairment |
|
| — |
|
| — |
|
| 0.9 |
|
| — |
|
Loss before income taxes |
|
| (0.7 | ) |
| (2.5 | ) |
| (3.3 | ) |
| (4.4 | ) |
Income tax benefit |
|
| 0.2 |
|
| 0.3 |
|
| 0.8 |
|
| 0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
| $ | (0.5 | ) | $ | (2.2 | ) | $ | (2.5 | ) | $ | (3.5 | ) |
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:
|
|
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|
|
|
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| ||
|
| February 28, 2011 |
| May 31, 2010 |
| February 28, 2010 |
|
| November 30, 2011 |
| May 31, 2011 |
| November 30, 2010 |
| ||||||||||||||||||
Accounts receivable, net |
| $ | — |
| $ | 3.7 |
| $ | 7.0 |
|
| $ | 0.1 |
| $ | 0.1 |
| $ | 0.2 |
| ||||||||||||
Inventories, net |
| — |
| 1.2 |
| 3.7 |
| |||||||||||||||||||||||||
Other assets |
| 9.2 |
| 9.2 |
| 9.3 |
|
| 9.2 |
| 9.2 |
| 14.3 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Current assets of discontinued operations |
| $ | 9.2 |
| $ | 12.9 |
| $ | 16.3 |
|
| $ | 9.3 |
| $ | 10.5 |
| $ | 18.2 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Accounts payable |
| $ | — |
| $ | — |
| $ | 0.2 |
|
| $ | 0.1 |
| $ | 0.2 |
| $ | 1.9 |
| ||||||||||||
Accrued expenses and other liabilities |
| 0.6 |
| 2.9 |
| 1.4 |
| |||||||||||||||||||||||||
Accrued expenses and other current liabilities |
| 0.6 |
| 0.6 |
| 1.8 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Current liabilities of discontinued operations |
| $ | 0.6 |
| $ | 2.9 |
| $ | 1.6 |
|
| $ | 0.7 |
| $ | 0.8 |
| $ | 3.7 |
| ||||||||||||
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
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 Publishingincludes the production and/or publication and distribution to schools and libraries of educational technology products and services, curriculum materials, children’s books, classroom magazines 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 three 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 three 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 |
| Educational |
| Media, |
| Overhead(2) |
| Total |
| International |
| Total |
| |||||||
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 193.0 |
| $ | 81.3 |
| $ | 24.3 |
| $ | — |
| $ | 298.6 |
| $ | 95.1 |
| $ | 393.7 |
|
Bad debt expense |
|
| 4.7 |
|
| 1.0 |
|
| 0.1 |
|
| — |
|
| 5.8 |
|
| 0.9 |
|
| 6.7 |
|
Depreciation and amortization(3) |
|
| 4.1 |
|
| 0.6 |
|
| — |
|
| 8.3 |
|
| 13.0 |
|
| 1.5 |
|
| 14.5 |
|
Amortization(4) |
|
| 3.2 |
|
| 5.2 |
|
| 1.8 |
|
| — |
|
| 10.2 |
|
| 0.6 |
|
| 10.8 |
|
Royalty advances expensed |
|
| 5.0 |
|
| 0.2 |
|
| 0.1 |
|
| — |
|
| 5.3 |
|
| 0.9 |
|
| 6.2 |
|
Segment operating loss |
|
| (9.2 | ) |
| (2.7 | ) |
| (5.7 | ) |
| (12.9 | ) |
| (30.5 | ) |
| (1.4 | ) |
| (31.9 | ) |
Expenditures for long-lived assets including royalty advances |
|
| 8.6 |
|
| 9.2 |
|
| 1.6 |
|
| 5.7 |
|
| 25.1 |
|
| 1.6 |
|
| 26.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 192.1 |
| $ | 88.0 |
| $ | 30.0 |
| $ | — |
| $ | 310.1 |
| $ | 88.7 |
| $ | 398.8 |
|
Bad debt expense |
|
| 2.0 |
|
| 0.2 |
|
| 0.1 |
|
| — |
|
| 2.3 |
|
| 0.6 |
|
| 2.9 |
|
Depreciation and amortization(3) |
|
| 3.4 |
|
| 0.7 |
|
| 0.1 |
|
| 8.5 |
|
| 12.7 |
|
| 1.5 |
|
| 14.2 |
|
Amortization(4) |
|
| 3.2 |
|
| 6.0 |
|
| 2.2 |
|
| — |
|
| 11.4 |
|
| 0.9 |
|
| 12.3 |
|
Royalty advances expensed |
|
| 4.9 |
|
| 0.2 |
|
| 0.2 |
|
| — |
|
| 5.3 |
|
| 1.3 |
|
| 6.6 |
|
Segment operating income (loss) |
|
| 6.9 |
|
| 8.3 |
|
| (1.5 | ) |
| (14.0 | ) |
| (0.3 | ) |
| (0.2 | ) |
| (0.5 | ) |
Expenditures for long-lived assets including royalty advances |
|
| 8.0 |
|
| 7.8 |
|
| 1.5 |
|
| 8.0 |
|
| 25.3 |
|
| 3.6 |
|
| 28.9 |
|
• 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 Technology and Services includes the production and 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 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 two 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. |
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Children’s Book |
| Educational |
| Media, |
| Overhead(2) |
| Total |
| International |
| Total |
| |||||||
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 653.2 |
| $ | 301.5 |
| $ | 82.7 |
| $ | — |
| $ | 1,037.4 |
| $ | 322.9 |
| $ | 1,360.3 |
|
Bad debt expense |
|
| 9.0 |
|
| 1.0 |
|
| 0.2 |
|
| — |
|
| 10.2 |
|
| 2.4 |
|
| 12.6 |
|
Depreciation and amortization(3) |
|
| 11.6 |
|
| 2.0 |
|
| 0.5 |
|
| 25.2 |
|
| 39.3 |
|
| 4.1 |
|
| 43.4 |
|
Amortization(4) |
|
| 9.5 |
|
| 18.7 |
|
| 5.1 |
|
| — |
|
| 33.3 |
|
| 2.0 |
|
| 35.3 |
|
Asset impairments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Royalty advances expensed |
|
| 13.3 |
|
| 0.6 |
|
| 0.3 |
|
| — |
|
| 14.2 |
|
| 2.3 |
|
| 16.5 |
|
Segment operating income (loss) |
|
| 36.5 |
|
| 36.8 |
|
| (3.9 | ) |
| (41.1 | ) |
| 28.3 |
|
| 21.7 |
|
| 50.0 |
|
Segment assets at February 28, 2011 |
|
| 483.6 |
|
| 297.8 |
|
| 42.0 |
|
| 433.5 |
|
| 1,256.9 |
|
| 288.1 |
|
| 1,545.0 |
|
Goodwill at February 28, 2011 |
|
| 54.3 |
|
| 89.9 |
|
| 5.4 |
|
| — |
|
| 149.6 |
|
| 8.7 |
|
| 158.3 |
|
Expenditures for long-lived assets including royalty advances |
|
| 29.5 |
|
| 31.7 |
|
| 5.8 |
|
| 42.6 |
|
| 109.6 |
|
| 8.7 |
|
| 118.3 |
|
Long-lived assets at February 28, 2011 |
|
| 177.9 |
|
| 178.9 |
|
| 19.5 |
|
| 247.2 |
|
| 623.5 |
|
| 74.4 |
|
| 697.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 637.1 |
| $ | 359.3 |
| $ | 82.9 |
| $ | — |
| $ | 1,079.3 |
| $ | 295.2 |
| $ | 1,374.5 |
|
Bad debt expense |
|
| 4.4 |
|
| 1.4 |
|
| 0.1 |
|
| — |
|
| 5.9 |
|
| 3.5 |
|
| 9.4 |
|
Depreciation and amortization(3) |
|
| 10.3 |
|
| 2.3 |
|
| 0.5 |
|
| 26.1 |
|
| 39.2 |
|
| 4.5 |
|
| 43.7 |
|
Amortization(4) |
|
| 8.7 |
|
| 19.4 |
|
| 6.4 |
|
| — |
|
| 34.5 |
|
| 2.1 |
|
| 36.6 |
|
Asset impairments |
|
| — |
|
| 36.3 |
|
| — |
|
| — |
|
| 36.3 |
|
| 3.8 |
|
| 40.1 |
|
Royalty advances expensed |
|
| 14.5 |
|
| 0.4 |
|
| 0.6 |
|
| — |
|
| 15.5 |
|
| 3.1 |
|
| 18.6 |
|
Segment operating income (loss) |
|
| 67.2 |
|
| 45.5 |
|
| (2.6 | ) |
| (53.0 | ) |
| 57.1 |
|
| 12.7 |
|
| 69.8 |
|
Segment assets at February 28, 2010 |
|
| 478.3 |
|
| 285.6 |
|
| 51.6 |
|
| 577.9 |
|
| 1,393.4 |
|
| 253.1 |
|
| 1,646.5 |
|
Goodwill at February 28, 2010 |
|
| 54.3 |
|
| 88.4 |
|
| 5.9 |
|
| — |
|
| 148.6 |
|
| 8.4 |
|
| 157.0 |
|
Expenditures for long-lived assets including royalty advances |
|
| 31.7 |
|
| 20.4 |
|
| 4.6 |
|
| 15.1 |
|
| 71.8 |
|
| 8.0 |
|
| 79.8 |
|
Long-lived assets at February 28, 2010 |
|
| 177.9 |
|
| 166.0 |
|
| 23.9 |
|
| 225.0 |
|
| 592.8 |
|
| 69.4 |
|
| 662.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Children’s Book |
| Educational |
| Classroom and |
| Media, |
| Overhead(1)(3) |
| Total |
| International(1) |
| Total |
| ||||||||
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 388.6 |
| $ | 65.4 |
| $ | 58.7 |
| $ | 28.5 |
| $ | — |
| $ | 541.2 |
| $ | 144.1 |
| $ | 685.3 |
|
Bad debt expense |
|
| 1.6 |
|
| 0.4 |
|
| 0.5 |
|
| — |
|
| — |
|
| 2.5 |
|
| 0.8 |
|
| 3.3 |
|
Depreciation and amortization(4) |
|
| 3.8 |
|
| 0.4 |
|
| 0.2 |
|
| 0.3 |
|
| 9.4 |
|
| 14.1 |
|
| 1.4 |
|
| 15.5 |
|
Amortization(5) |
|
| 3.1 |
|
| 5.1 |
|
| 1.7 |
|
| 2.1 |
|
| — |
|
| 12.0 |
|
| 0.5 |
|
| 12.5 |
|
Loss on leases |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6.2 |
|
| 6.2 |
|
| — |
|
| 6.2 |
|
Royalty advances expensed |
|
| 2.7 |
|
| — |
|
| (0.1 | ) |
| — |
|
| — |
|
| 2.6 |
|
| 0.5 |
|
| 3.1 |
|
Segment operating income (loss) |
|
| 108.6 |
|
| 14.6 |
|
| 10.3 |
|
| 2.6 |
|
| (22.7 | ) |
| 113.4 |
|
| 26.6 |
|
| 140.0 |
|
Expenditures for long-lived assets including royalty advances |
|
| 12.9 |
|
| 6.0 |
|
| 3.1 |
|
| 2.1 |
|
| 7.6 |
|
| 31.7 |
|
| 1.6 |
|
| 33.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 387.3 |
| $ | 49.1 |
| $ | 52.5 |
| $ | 33.1 |
| $ | — |
| $ | 522.0 |
| $ | 145.9 |
| $ | 667.9 |
|
Bad debt expense |
|
| 2.3 |
|
| 0.2 |
|
| (0.2 | ) |
| 0.1 |
|
| — |
|
| 2.4 |
|
| 0.6 |
|
| 3.0 |
|
Depreciation and amortization(4) |
|
| 3.9 |
|
| 0.5 |
|
| 0.3 |
|
| — |
|
| 8.5 |
|
| 13.2 |
|
| 1.3 |
|
| 14.5 |
|
Amortization(5) |
|
| 3.0 |
|
| 5.5 |
|
| 1.5 |
|
| 1.6 |
|
| — |
|
| 11.6 |
|
| 0.8 |
|
| 12.4 |
|
Loss on leases |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Royalty advances expensed |
|
| 3.2 |
|
| (0.1 | ) |
| 0.3 |
|
| 0.1 |
|
| — |
|
| 3.5 |
|
| 0.8 |
|
| 4.3 |
|
Segment operating income (loss) |
|
| 97.3 |
|
| 3.4 |
|
| 7.6 |
|
| 5.2 |
|
| (9.7 | ) |
| 103.8 |
|
| 25.3 |
|
| 129.1 |
|
Expenditures for long-lived assets including royalty advances |
|
| 7.9 |
|
| 13.9 |
|
| 1.7 |
|
| 2.2 |
|
| 31.4 |
|
| 57.1 |
|
| 4.0 |
|
| 61.1 |
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Children’s Book |
| Educational |
| Classroom and |
| Media, |
| Overhead(1)(3) |
| Total |
| International(1) |
| Total |
| ||||||||
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 465.9 |
| $ | 162.0 |
| $ | 104.4 |
| $ | 39.2 |
| $ | — |
| $ | 771.5 |
| $ | 231.8 |
| $ | 1,003.3 |
|
Bad debt expense |
|
| 1.6 |
|
| 0.7 |
|
| 0.9 |
|
| — |
|
| — |
|
| 3.2 |
|
| 1.5 |
|
| 4.7 |
|
Depreciation and amortization(4) |
|
| 7.5 |
|
| 0.7 |
|
| 0.5 |
|
| 0.4 |
|
| 18.6 |
|
| 27.7 |
|
| 2.9 |
|
| 30.6 |
|
Amortization(5) |
|
| 6.2 |
|
| 10.3 |
|
| 3.1 |
|
| 3.6 |
|
| — |
|
| 23.2 |
|
| 1.2 |
|
| 24.4 |
|
Loss on leases |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6.2 |
|
| 6.2 |
|
| — |
|
| 6.2 |
|
Royalty advances expensed |
|
| 7.7 |
|
| 0.2 |
|
| — |
|
| 0.1 |
|
| — |
|
| 8.0 |
|
| 1.3 |
|
| 9.3 |
|
Segment operating income (loss) |
|
| 58.8 |
|
| 53.4 |
|
| 12.4 |
|
| (2.4 | ) |
| (41.9 | ) |
| 80.3 |
|
| 26.5 |
|
| 106.8 |
|
Segment assets (at 11/30/11) |
|
| 541.4 |
|
| 157.6 |
|
| 158.8 |
|
| 44.2 |
|
| 419.5 |
|
| 1,321.5 |
|
| 280.1 |
|
| 1,601.6 |
|
Goodwill (at 11/30/11) |
|
| 54.3 |
|
| 22.7 |
|
| 64.0 |
|
| 5.4 |
|
| — |
|
| 146.4 |
|
| 8.7 |
|
| 155.1 |
|
Expenditures for long-lived assets including royalty advances |
|
| 21.1 |
|
| 11.3 |
|
| 4.4 |
|
| 4.0 |
|
| 12.6 |
|
| 53.4 |
|
| 3.9 |
|
| 57.3 |
|
Long-lived assets (at 11/30/11) |
|
| 175.6 |
|
| 98.6 |
|
| 81.0 |
|
| 20.2 |
|
| 242.4 |
|
| 617.8 |
|
| 69.9 |
|
| 687.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 460.2 |
| $ | 131.2 |
| $ | 89.0 |
| $ | 50.1 |
| $ | — |
| $ | 730.5 |
| $ | 227.8 |
| $ | 958.3 |
|
Bad debt expense |
|
| 4.3 |
|
| 0.5 |
|
| (0.5 | ) |
| 0.1 |
|
| — |
|
| 4.4 |
|
| 1.5 |
|
| 5.9 |
|
Depreciation and amortization(4) |
|
| 7.5 |
|
| 0.8 |
|
| 0.6 |
|
| 0.5 |
|
| 16.9 |
|
| 26.3 |
|
| 2.6 |
|
| 28.9 |
|
Amortization(5) |
|
| 6.3 |
|
| 11.3 |
|
| 2.2 |
|
| 3.3 |
|
| — |
|
| 23.1 |
|
| 1.4 |
|
| 24.5 |
|
Loss on leases |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Royalty advances expensed |
|
| 8.3 |
|
| 0.1 |
|
| 0.3 |
|
| 0.2 |
|
| — |
|
| 8.9 |
|
| 1.4 |
|
| 10.3 |
|
Segment operating income (loss) |
|
| 45.7 |
|
| 33.6 |
|
| 5.9 |
|
| 3.0 |
|
| (28.5 | ) |
| 59.7 |
|
| 23.1 |
|
| 82.8 |
|
Segment assets (at 11/30/10) |
|
| 540.0 |
|
| 150.7 |
|
| 153.8 |
|
| 48.2 |
|
| 375.5 |
|
| 1,268.2 |
|
| 298.0 |
|
| 1,566.2 |
|
Goodwill (at 11/30/10) |
|
| 54.3 |
|
| 27.9 |
|
| 67.4 |
|
| 5.4 |
|
| — |
|
| 155.0 |
|
| 8.7 |
|
| 163.7 |
|
Expenditures for long-lived assets including royalty advances |
|
| 20.9 |
|
| 20.0 |
|
| 2.5 |
|
| 4.2 |
|
| 36.9 |
|
| 84.5 |
|
| 7.1 |
|
| 91.6 |
|
Long-lived assets (at 11/30/10) |
|
| 182.4 |
|
| 95.2 |
|
| 80.4 |
|
| 19.8 |
|
| 249.9 |
|
| 627.7 |
|
| 73.0 |
|
| 700.7 |
|
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 |
|
|
| 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 |
|
|
| Includes depreciation of property, plant and equipment and amortization of intangible assets. |
|
|
| Includes amortization of prepublication and production costs. |
4. Debt
The following table summarizes debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying |
| Fair Value |
| Carrying |
| Fair Value |
| Carrying |
| Fair Value |
| ||||||
|
| November 30, 2011 |
| May 31, 2011 |
| November 30, 2010 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of Credit (weighted average interest rates of 3.7%, 6.7% and 4.0%, respectively) |
| $ | 5.7 |
| $ | 5.7 |
| $ | 0.7 |
| $ | 0.7 |
| $ | 7.2 |
| $ | 7.2 |
|
Loan Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Loan |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Term Loan (interest rates of n/a, 1.0% and 1.0%, respectively) |
|
| — |
|
| — |
|
| 50.2 |
|
| 50.2 |
|
| 71.6 |
|
| 71.6 |
|
5% Notes due 2013, net of discount |
|
| 152.7 |
|
| 153.8 |
|
| 152.5 |
|
| 156.6 |
|
| 152.4 |
|
| 154.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
| $ | 158.4 |
| $ | 159.5 |
| $ | 203.4 |
| $ | 207.5 |
| $ | 231.2 |
| $ | 233.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less lines of credit, short-term debt and current portion of long-term debt |
|
| (5.7 | ) |
| (5.7 | ) |
| (43.5 | ) |
| (43.5 | ) |
| (50.0 | ) |
| (50.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
| $ | 152.7 |
| $ | 153.8 |
| $ | 159.9 |
| $ | 164.0 |
| $ | 181.2 |
| $ | 183.6 |
|
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
5. Debt
The following table summarizes debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying |
| Fair Value |
| Carrying |
| Fair Value |
| Carrying |
| Fair Value |
| ||||||
|
| February 28, 2011 |
| May 31, 2010 |
| February 28, 2010 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of Credit (weighted average interest rates of 4.0%, 3.9% and 3.9%, respectively) |
| $ | 6.7 |
| $ | 6.7 |
| $ | 7.5 |
| $ | 7.5 |
| $ | 9.4 |
| $ | 9.4 |
|
Loan Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Loan |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Term Loan (interest rates of 1.1%, 1.1% and 1.0%, respectively) |
|
| 60.9 |
|
| 60.9 |
|
| 93.0 |
|
| 93.0 |
|
| 103.7 |
|
| 103.7 |
|
5% Notes due 2013, net of discount |
|
| 152.5 |
|
| 155.3 |
|
| 152.3 |
|
| 151.3 |
|
| 152.2 |
|
| 146.9 |
|
Total debt |
| $ | 220.1 |
| $ | 222.9 |
| $ | 252.8 |
| $ | 251.8 |
| $ | 265.3 |
| $ | 260.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less lines of credit, short-term debt and current portion of long-term debt |
|
| (49.5 | ) |
| (49.5 | ) |
| (50.3 | ) |
| (50.3 | ) |
| (52.2 | ) |
| (52.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
| $ | 170.6 |
| $ | 173.4 |
| $ | 202.5 |
| $ | 201.5 |
| $ | 213.1 |
| $ | 207.8 |
|
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 5% Notes were estimated based on market quotes, where available, or dealer quotes.
The following table sets forth the maturities of the Company’s debt obligations as of February 28,November 30, 2011, for the remainder of fiscal 2011 and thereafter:twelve-month periods ended November 30:
|
|
|
|
|
|
|
|
|
|
Three-month period ending May 31: |
|
|
|
|
2011 |
| $ | 17.4 |
|
Fiscal years ending May 31: |
|
|
|
|
2012 |
|
| 42.8 |
|
2013 |
|
| 159.9 |
|
2014 |
|
| — |
|
2015 |
|
| — |
|
Thereafter |
|
| — |
|
|
|
|
|
|
Total debt |
| $ | 220.1 |
|
|
|
|
|
|
2012 |
| $ | 5.7 |
|
2013 |
|
| 152.7 |
|
|
|
|
|
|
Total debt |
| $ | 158.4 |
|
Lines of Credit
As of February 28,November 30, 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 February 28,November 30, 2011, May 31, 20102011 and February 28,November 30, 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 February 28,November 30, 2011, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $30.1,$34.1, 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 and weighted average interest rates for these lines of credit are presented in the table above.
|
|
|
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 was amended on August 16, 2010, and again on October 25, 2011. The October 25, 2011 amendment effectively extended the maturity of the Revolving Loan facility to June 1, 2014 from June 1, 2012 and provided for the repayment of the outstanding balance of the Term Loan on October 25, 2011.
The Loan Agreement, as amended, is a contractually committed unsecured credit facility that is scheduled to expire on June 1, 2012.2014. 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 having been due 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.
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
Interest on both the Term Loan and Revolving Loan is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). AtThe interest pricing under the Revolving Loan is dependent upon the Borrower’s election of the Borrower, the interest rate charged for each loan made under the Loan Agreement, as amended, is based on:(1) a rate that is either:
• | A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii) the Eurodollar Rate for a one month interest period plus 1% plus an applicable spread ranging from 0.18% to 0.60%, as determined by the Company’s prevailing Consolidated Debt Ratio, as defined in the Loan Agreement. | |
- or - | ||
• | A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing Consolidated Debt Ratio, as defined in the Loan Agreement. |
As of November 30, 2011, the indicated spread on Base Rate Advances was 0.25% and the indicated spread on 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%Advances was 1.25%, both based uponon the Company’s prevailing consolidated debt to total capital ratio. As of February 28, 2011, thereConsolidated Debt Ratio. There were no borrowings outstanding under the Revolving Loan.
As of February 28, 2011, the applicable margin on the Term Loan was 0.750% and the applicable margin on the Revolving Loan was 0.600%. Advances outstanding on November 30, 2011.
The Loan Agreement also provides for the payment of a facility fee ranging from 0.125%0.20% to 0.250%0.40% per annum onbased upon the Revolving Loan only, which at February 28,Company’s prevailing Consolidated Debt Ratio. At November 30, 2011, the facility fee rate was 0.150%. As of February 28, 2011, $60.9 was outstanding under the Term Loan at an interest rate of 1.06%0.25%.
As of February 28,November 30, 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 February 28,November 30, 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: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.
5. Comprehensive Income
The Company repurchased $5.0 offollowing table sets forth comprehensive income for the 5% Notes on the open market in fiscal 2010. The Company did not make any additional purchases during the nine-month period ended February 28, 2011.periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended November 30, |
| Six months ended November 30, |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Net income |
| $ | 82.8 |
| $ | 74.9 |
| $ | 55.7 |
| $ | 39.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (6.4 | ) |
| 4.8 |
|
| (5.9 | ) |
| 8.2 |
|
Pension and post-retirement adjustments |
|
| 1.5 |
|
| 4.0 |
|
| 2.8 |
|
| 4.6 |
|
|
|
|
|
|
| ||||||||
Total other comprehensive (loss) income, net: |
|
| (4.9 | ) |
| 8.8 |
|
| (3.1 | ) |
| 12.8 |
|
Total comprehensive income |
| $ | 77.9 |
| $ | 83.7 |
| $ | 52.6 |
| $ | 52.5 |
|
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
6. Comprehensive (Loss) Income
The following table sets forth comprehensive (loss) income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended February 28, |
| Nine months ended February 28, |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Net (loss) earnings |
| $ | (25.1 | ) | $ | (5.6 | ) | $ | 14.6 |
| $ | 26.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 4.3 |
|
| (1.1 | ) |
| 12.5 |
|
| 4.3 |
|
Pension and post-retirement adjustments |
|
| 0.7 |
|
| 1.0 |
|
| 5.3 |
|
| 2.3 |
|
|
|
|
|
|
| ||||||||
Total other comprehensive income (loss), net: |
|
| 5.0 |
|
| (0.1 | ) |
| 17.8 |
|
| 6.6 |
|
Total comprehensive (loss) income |
| $ | (20.1 | ) | $ | (5.7 | ) | $ | 32.4 |
| $ | 33.5 |
|
7. Earnings (Loss) Per Share
A portionThe following table summarizes the reconciliation of the Company’s restricted stock units (“RSUs”) granted to employees participate innumerators and denominators for the basic and diluted earnings through cumulative non-forfeitable dividends payable to(loss) per share computation for the employees upon vesting of the RSUs. Forthree and six month periods in which the Company has net income, basic earnings per Commonended November 30, 2011 and Class A shares outstanding (the “Issued Shares”) is calculated as the lesser of:2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Six months ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Earnings from continuing operations attributable to Class A and Common Shares |
| $ | 82.9 |
| $ | 76.8 |
| $ | 57.9 |
| $ | 43.0 |
|
Loss from discontinued operations attributable to Class A and Common Shares, net of tax |
|
| (0.5 | ) |
| (2.2 | ) |
| (2.5 | ) |
| (3.5 | ) |
Net income attributable to Class A and Common Shares |
| $ | 82.4 |
| $ | 74.6 |
| $ | 55.4 |
| $ | 39.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions) |
|
| 31.2 |
|
| 34.4 |
|
| 31.1 |
|
| 35.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) |
|
| 0.5 |
|
| 0.5 |
|
| 0.5 |
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average Shares of Class A Stock and Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock outstanding for diluted earnings per share (in millions) |
|
| 31.7 |
|
| 34.9 |
|
| 31.6 |
|
| 35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of Class A Stock and Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
| $ | 2.66 |
| $ | 2.23 |
| $ | 1.86 |
| $ | 1.22 |
|
Loss from discontinued operations, net of tax |
| $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.10 | ) |
Net income |
| $ | 2.64 |
| $ | 2.17 |
| $ | 1.78 |
| $ | 1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
| $ | 2.62 |
| $ | 2.20 |
| $ | 1.83 |
| $ | 1.21 |
|
Loss from discontinued operations, net of tax |
| $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.10 | ) |
Net income |
| $ | 2.60 |
| $ | 2.14 |
| $ | 1.75 |
| $ | 1.11 |
|
|
| |
|
| |
| ||
| ||
|
| |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED | ||
(Dollar amounts in millions, except per share data) | ||
|
|
In periods of netNet loss, dilutive earnings per share are not reported as the effect of the potentially dilutive shares becomes anti-dilutive.
In a period in which the Company reports a discontinued operation, Earnings (loss) from continuing operations is used as the “control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive.
A portion of the Company’s Restricted Stock Units (“RSUs”) granted to employees participate in earnings through cumulative non-forfeitable dividends payable to the employees upon vesting of the RSUs. Accordingly, the Company measures earnings per share based upon the two-class method.
Earnings from continuing operations exclude earnings of $0.4 and $0.3 for the three and six months ended November 30, 2011, and $0.3 and $0.2 for the three and six months ended November 30, 2010, respectively, in respect of earnings attributable to participating RSUs.
Potentially dilutive shares outstanding pursuant to compensation plans that were not included in the diluted earnings per share calculation because they were anti-dilutive were 4.8 million and 4.4 million for the three months ended November 30, 2011 and 2010, respectively, and 4.6 million and 4.8 million for the six months ended November 30, 2011 and 2010, respectively. Options outstanding pursuant to compensation plans were 5.8 million and 5.5 million as of November 30, 2011 and 2010, respectively.
As of November 30, 2011, $38.9 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 12, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.
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:
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended |
| Twelve months ended |
| Six months ended |
| |||
Gross beginning balance |
| $ | 175.0 |
| $ | 174.0 |
| $ | 174.0 |
|
Accumulated impairment |
|
| (20.8 | ) |
| (17.4 | ) |
| (17.4 | ) |
|
| $ | 154.2 |
| $ | 156.6 |
| $ | 156.6 |
|
Additions |
|
| — |
|
| 1.0 |
|
| 7.1 |
|
Impairment charge |
|
| — |
|
| (3.4 | ) |
| — |
|
Other |
|
| 0.9 |
|
| — |
|
| — |
|
Gross ending balance |
| $ | 175.9 |
| $ | 175.0 |
| $ | 181.1 |
|
Accumulated impairment |
|
| (20.8 | ) |
| (20.8 | ) |
| (17.4 | ) |
Ending balance |
| $ | 155.1 |
| $ | 154.2 |
| $ | 163.7 |
|
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 calculates per share figures priorhas integrated this business with its existing educational technology businesses. The Company utilized Level 3 fair value measurement inputs, using its own assumptions, including internally-developed discounted cash flow forecasts, to rounding in millions.determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Math Solutions business. As a result, the Company recognized $1.7 of goodwill and $5.6 of amortizable intangible assets. In the second quarter of fiscal 2011, the Company also recognized $0.2 of goodwill associated with a previously acquired international entity.
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
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 nine month periods ended February 28, 2011 and 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
| $ | (25.3 | ) | $ | (4.3 | ) | $ | 17.4 |
| $ | 27.9 |
|
Earnings (loss) from discontinued operations, net of tax |
|
| 0.2 |
|
| (1.3 | ) |
| (2.8 | ) |
| (1.0 | ) |
Net (loss) earnings |
|
| (25.1 | ) |
| (5.6 | ) |
| 14.6 |
|
| 26.9 |
|
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share (in millions) |
|
| 30.9 |
|
| 36.6 |
|
| 33.8 |
|
| 36.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions) |
|
| * |
|
| * |
|
| 0.5 |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share (in millions) |
|
| 30.9 |
|
| 36.6 |
|
| 34.3 |
|
| 36.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share of Class A Stock and Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
| $ | (0.81 | ) | $ | (0.12 | ) | $ | 0.51 |
| $ | 0.76 |
|
Earnings (loss) from discontinued operations, net of tax |
| $ | 0.00 |
| $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.02 | ) |
Net (loss) earnings |
| $ | (0.81 | ) | $ | (0.15 | ) | $ | 0.43 |
| $ | 0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
| $ | (0.81 | ) | $ | (0.12 | ) | $ | 0.50 |
| $ | 0.75 |
|
Earnings (loss) from discontinued operations, net of tax |
| $ | 0.00 |
| $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.02 | ) |
Net (loss) earnings |
| $ | (0.81 | ) | $ | (0.15 | ) | $ | 0.42 |
| $ | 0.73 |
|
* In the three months ended February 28, 2011 and 2010, the Company experienced a loss from continuing operations and therefore did not reflect any dilutive share impact.
Earnings from continuing operations exclude earnings of less than $0.1 for the nine months ended February 28, 2011, in respect of earnings attributable to participating RSUs.
|
|
|
Potentially dilutive options outstanding pursuant to compensation plans that were not included in the diluted earnings per share calculation because they were anti-dilutive were 5.4 million and 5.6 million for the three-month periods ended February 28, 2011 and 2010, respectively, and 4.4 million and 5.3 million for the nine-month periods ended February 28, 2011 and 2010, respectively.
Had the Company reported net income for the three-month period ended February 28, 2011 and 2010, the dilutive effect for the periods ended February 28, 2011 and 2010 would have been 0.7 million and 0.5 million, respectively.
During the nine months ended February 28, 2011, the Company repurchased 388,426 common shares on the open market for approximately $9.7 pursuant to a share buy-back program authorized by the Board of Directors.
In addition, on November 3, 2010, the Company completed a modified Dutch auction tender offer. 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 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 existing credit facility, which borrowings were repaid prior to November 30, 2010.
As of February 28, 2011, $44.5 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 13, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.
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:
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended |
| Twelve months ended |
| Nine months ended |
| |||
Gross beginning balance |
| $ | 174.0 |
| $ | 174.0 |
| $ | 174.0 |
|
Accumulated impairment beginning balance |
|
| (17.4 | ) |
| (17.0 | ) |
| (17.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 156.6 |
| $ | 157.0 |
| $ | 157.0 |
|
Additions due to acquisition |
|
| 1.7 |
|
| — |
|
| — |
|
Impairment charge |
|
| — |
|
| (0.4 | ) |
| — |
|
Ending balance |
| $ | 158.3 |
| $ | 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 acquired. The Company has integrated this business with its existing educational technology businesses. The Company utilized Level 3 fair value measurement inputs, using its own assumptions including internally developed discounted cash flow forecasts, to determine the fair value of the assets acquired and the amount of goodwill to be allocated to the Math Solutions business. As a result, the Company recognized $1.5 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, 2010,2011, the Company determined that the carrying value of its direct-to-home catalogScholastic Library Publishing and Classroom Magazines business specializing in toyswithin theClassroom and Supplemental Materials Publishingsegment exceeded the fair value of this reporting unit. The Company employed internally developedinternally-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$3.4 at May 31, 2010.
As of February 28, 2011, goodwill of $76.8 resides in reporting units within theEducational Publishing segment, with fair values that modestly exceed the reporting units’ carrying values. A decline in the business environment could result in a goodwill impairment.2011.
|
|
|
The following table summarizes the activity in Total other intangibles subject to amortization for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Customer Lists |
| Nine months ended |
| Twelve months ended |
| Nine months ended |
| |||
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| (0.2 | ) |
| (0.2 | ) |
| — |
|
Foreign currency translation |
|
| 0.1 |
|
| (0.1 | ) |
| — |
|
Customer lists, net of accumulated amortization of $1.1, $0.9 and $0.7, respectively |
| $ | 0.7 |
| $ | 0.8 |
| $ | 1.1 |
|
Other Intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2.2 |
| $ | 2.8 |
| $ | 2.8 |
|
Additions due to acquisition |
|
| 5.6 |
|
| — |
|
| — |
|
Reclassified from indefinite-lived intangible assets |
|
| 10.7 |
|
| — |
|
| — |
|
Amortization expense |
|
| (0.8 | ) |
| (0.6 | ) |
| (0.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
Other intangibles, net of accumulated amortization of $3.8, $3.0 and $2.9, respectively |
| $ | 17.7 |
| $ | 2.2 |
| $ | 2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangibles subject to amortization |
| $ | 18.4 |
| $ | 3.0 |
| $ | 3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended |
| Twelve months ended |
| Six months ended |
| |||
|
|
|
|
|
|
|
|
|
|
|
Beginning balance - Customer lists |
| $ | 0.7 |
| $ | 0.8 |
| $ | 0.8 |
|
Amortization expense |
|
| (0.1 | ) |
| (0.2 | ) |
| (0.1 | ) |
Foreign currency translation |
|
| 0.0 |
|
| 0.1 |
|
| 0.1 |
|
Customer lists, net of accumulated amortization of $1.2, $1.1 and $1.0, respectively |
| $ | 0.6 |
| $ | 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 |
|
| 10.7 |
|
Amortization expense |
|
| (0.8 | ) |
| (1.2 | ) |
| (0.5 | ) |
Other intangibles, net of accumulated amortization of $5.0, $4.2 and $3.5, respectively |
| $ | 16.5 |
| $ | 17.3 |
| $ | 12.4 |
|
| ||||||||||
Total other intangibles subject to amortization |
| $ | 17.1 |
| $ | 18.0 |
| $ | 13.2 |
|
Amortization expense for Total other intangibles was $1.0$0.9 for the ninesix months ended February 28,November 30, 2011, $0.8$1.4 for the twelve months ended May 31, 20102011 and $0.5$0.6 for the ninesix months ended February 28,November 30, 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 weighted-average remaining useful lives of all amortizable intangible assets is 15.2 years.
During the first quarter ofIn fiscal 2010,2011, the Company and its joint venture partner terminated a book distribution joint venture in the United Kingdom. Asrecognized $5.6 of amortizable intangible assets as a result of this transaction, the Math Solutions acquisition. The Company received a portionutilized 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 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.intangible assets acquired.
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
In the current fiscal year, 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.
In the current fiscal year,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 the relief from royalty method.2010.
The following table summarizes Other intangibles not subject to amortization at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
| February 28, 2011 |
| May 31, 2010 |
| February 28, 2010 |
| |||
Net carrying value by major class: |
|
|
|
|
|
|
|
|
|
|
Trademarks and Other |
|
| 1.8 |
|
| 12.5 |
|
| 15.1 |
|
Total |
| $ | 1.8 |
| $ | 12.5 |
| $ | 15.1 |
|
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 on-line and 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, including a best use analysis of the existing market for the asset, and an analysis of the uses for the asset other than its current usage resulted 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.
|
|
|
|
|
|
|
|
|
|
|
|
| November 30, 2011 |
| May 31, 2011 |
| November 30, 2010 |
| |||
Net carrying value by major class: |
|
|
|
|
|
|
|
|
|
|
Trademarks and Other |
| $ | 1.8 |
| $ | 1.8 |
| $ | 1.8 |
|
Total |
| $ | 1.8 |
| $ | 1.8 |
| $ | 1.8 |
|
98.Investments
Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $23.2, $20.6$22.5, $20.4 and $21.6$22.5 at February 28,November 30, 2011, May 31, 20102011 and February 28,November 30, 2010, respectively.
The Company owns a non-controlling interest 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 this cost-method investmentthese assets was $9.1$5.5 as of February 28,November 30, 2011.
The Company’sCompany maintains an investment in Usborne Publishing Ltd. (“Usborne”),an entity that produces and distributes educational children’s television programming. The Company’s investment, which consists of a 26.2% non controlling14.0% equity interest, in a children’s book publishing business located in the United Kingdom, is accounted for using the equity method of accounting. The net value of this investment at February 28,November 30, 2011 was $13.4.$1.3.
The Company maintains a 12.25% equityCompany’s 26.2% non-controlling interest in an entity that produces and distributes educationala children’s television programming whichbook publishing business located in the UK is accounted for using the equity method of accounting. The net value of this investment at February 28,November 30, 2011 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.$15.7.
Income from equity joint ventures totaled $1.2$1.7 for the ninesix months ended February 28,November 30, 2011 and $0.6$1.1 for the ninesix months ended February 28,November 30, 2010.
InThe following table summarizes the third quarterCompany’s investments as 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.dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
| November 30, 2011 |
| May 31, 2011 |
| November 30, 2010 |
| |||
Cost method investments: |
|
|
|
|
|
|
|
|
|
|
UK - based |
| $ | 5.5 |
| $ | 5.7 |
| $ | 9.1 |
|
Total cost method investments |
| $ | 5.5 |
| $ | 5.7 |
| $ | 9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments: |
|
|
|
|
|
|
|
|
|
|
UK - based |
| $ | 15.7 |
| $ | 13.4 |
| $ | 12.8 |
|
U.S. - based |
|
| 1.3 |
|
| 1.3 |
|
| 0.6 |
|
Total equity method investments |
| $ | 17.0 |
| $ | 14.7 |
| $ | 13.4 |
|
| ||||||||||
Total |
| $ | 22.5 |
| $ | 20.4 |
| $ | 22.5 |
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
| February 28, 2011 |
| May 31, 2010 |
| February 28, 2010 |
| |||
Cost method investments: |
|
|
|
|
|
|
|
|
|
|
The Book People Ltd. |
| $ | 9.1 |
| $ | 9.1 |
| $ | 9.1 |
|
Total cost method investments |
| $ | 9.1 |
| $ | 9.1 |
| $ | 9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments: |
|
|
|
|
|
|
|
|
|
|
Usborne |
| $ | 13.4 |
| $ | 10.8 |
| $ | 11.9 |
|
Childrens television programming holdings |
|
| 0.6 |
|
| 0.7 |
|
| 0.6 |
|
Other |
|
| 0.1 |
|
| — |
|
| — |
|
Total equity method investments |
| $ | 14.1 |
| $ | 11.5 |
| $ | 12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 23.2 |
| $ | 20.6 |
| $ | 21.6 |
|
10.9. 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., 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 |
| Post-Retirement Benefits |
| |||||||||||||||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| |||||||||||||||||
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Service cost |
| $ | 0.1 |
| $ | — |
| $ | — |
| $ | — |
| |||||||||||||
Interest cost |
| 2.2 |
| 2.4 |
| 0.5 |
| 0.4 |
| |||||||||||||||||
Expected return on assets |
| (2.3 | ) |
| (2.0 | ) |
| — |
| — |
| |||||||||||||||
Net amortization of prior service credit |
| — |
| — |
| (0.2 | ) |
| (0.2 | ) | ||||||||||||||||
Amortization of loss |
| 0.3 |
| 0.1 |
| 0.7 |
| 0.2 |
| |||||||||||||||||
Settlement of Canadian plan |
| 0.2 |
| — |
| — |
| — |
| |||||||||||||||||
Net periodic benefit costs |
| $ | 0.5 |
| $ | 0.5 |
| $ | 1.0 |
| $ | 0.4 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Pension Plans |
| Post-Retirement Benefits |
| ||||||||||||
|
| Pension Plans |
| Post-Retirement Benefits |
|
| Three months ended November 30, |
| Three months ended November 30, |
| ||||||||||||||||
| ||||||||||||||||||||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||||||
| ||||||||||||||||||||||||||
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Service cost |
| $ | 0.2 |
| $ | 0.1 |
| $ | — |
| $ | — |
|
| $ | 0.0 |
| $ | 0.1 |
| $ | 0.0 |
| $ | 0.0 |
|
Interest cost |
| 6.6 |
| 7.3 |
| 1.4 |
| 1.1 |
|
| 2.1 |
| 2.2 |
| 0.5 |
| 0.4 |
| ||||||||
Expected return on assets |
| (7.0 | ) |
| (6.1 | ) |
| — |
| — |
|
| (2.7 | ) |
| (2.3 | ) |
| — |
| — |
| ||||
Net amortization of prior service credit |
| — |
| — |
| (0.5 | ) |
| (0.5 | ) |
| — |
| — |
| (0.2 | ) |
| (0.2 | ) | ||||||
Amortization of loss |
| 1.4 |
| 1.5 |
| 1.9 |
| 0.5 |
|
| 0.3 |
| 0.4 |
| 1.0 |
| 0.6 |
| ||||||||
Settlement of Canadian plan |
| 3.6 |
| — |
| — |
| — |
|
| — |
| 3.4 |
| — |
| — |
| ||||||||
| ||||||||||||||||||||||||||
Net periodic benefit costs |
| $ | 4.8 |
| $ | 2.8 |
| $ | 2.8 |
| $ | 1.1 |
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Net periodic benefit (credit) costs |
| $ | (0.3 | ) | $ | 3.8 |
| $ | 1.3 |
| $ | 0.8 |
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| Pension Plans |
| Post-Retirement Benefits |
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| Six months ended November 30, |
| Six months ended November 30, |
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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Components of net periodic benefit costs: |
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Service cost |
| $ | 0.0 |
| $ | 0.2 |
| $ | 0.0 |
| $ | 0.0 |
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Interest cost |
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| 4.2 |
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| 4.4 |
|
| 0.9 |
|
| 0.9 |
|
Expected return on assets |
|
| (5.4 | ) |
| (4.7 | ) |
| — |
|
| — |
|
Net amortization of prior service credit |
|
| — |
|
| — |
|
| (0.3 | ) |
| (0.3 | ) |
Amortization of loss |
|
| 0.7 |
|
| 0.9 |
|
| 2.1 |
|
| 1.1 |
|
Settlement of Canadian plan |
|
| — |
|
| 3.4 |
|
| — |
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| — |
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Net periodic benefit (credit) costs |
| $ | (0.5 | ) | $ | 4.2 |
| $ | 2.7 |
| $ | 1.7 |
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In the second quarter of fiscal 2011, the Company completed the settlement of its outstanding liabilities under the Canadian Pension Plan by purchasing non-participating annuities to service these liabilities prospectively.
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 six months ended November 30, 2011, the Company contributed $0.1 to the U.S. Pension Plan and $1.3 to the UK Pension Plan.
The Company expects, based on actuarial calculations, to contribute cash of approximately $8.4 to the Pension Plans for the fiscal year ending May 31, 2012.
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
Effective June 1, 2009, the Company modified 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 second quarter of fiscal 2011, the Company settled the majority of its outstanding liabilities of the Canadian Pension Plan by purchasing 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 of $3.4. The third quarter of fiscal 2011 includes pension expense of $0.2 recognized related to the partial settlement of this pension plan.
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 nine months ended February 28, 2011, the Company contributed $2.3 to the U.S. Pension Plan, $0.4 to the UK Pension Plan and $1.4 to the Canadian Pension Plan.
The Company expects, based on actuarial calculations, to contribute cash of approximately $5.8 to the Pension Plans for the fiscal year ending May 31, 2011.
11.10. Stock-Based Compensation
The following table summarizes stock-based compensation expense included in Selling, general and administrative expenses for the periods indicated:
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| Three months ended February 28, |
| Nine months ended February 28, |
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| Three months ended |
| Six months ended |
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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Stock option expense |
| $ | 1.7 |
| $ | 1.7 |
| $ | 7.1 |
| $ | 6.8 |
|
| $ | 3.4 |
| $ | 1.6 |
| $ | 4.8 |
| $ | 5.4 |
|
Restricted stock unit expense |
| 0.9 |
| 0.9 |
| 3.2 |
| 3.7 |
|
| 2.0 |
| 0.9 |
| 2.6 |
| 2.3 |
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Management stock purchase plan expense |
| 0.0 |
| 0.0 |
| 0.6 |
| 0.4 |
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Employee stock purchase plan expense |
| 0.1 |
| 0.1 |
| 0.2 |
| 0.2 |
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Management stock purchase plan |
| 0.2 |
| 0.5 |
| 0.2 |
| 0.5 |
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Employee stock purchase plan |
| 0.1 |
| 0.1 |
| 0.2 |
| 0.2 |
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Total stock-based compensation expense |
| $ | 2.7 |
| $ | 2.7 |
| $ | 11.1 |
| $ | 11.1 |
|
| $ | 5.7 |
| $ | 3.1 |
| $ | 7.8 |
| $ | 8.4 |
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During each of the three and nine monthsix-month periods ended February 28,November 30, 2011 and 2010, shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.
12.11. Severance and Exit Costs
The Company implemented new cost reduction initiatives, notably a voluntary retirement program, in the current fiscal year and incurred severance expense of $6.8 related to this program. The table below provides information regarding the Company’s severance cost associated with certain cost reduction measures. reported in the Company’s condensed consolidated statements of operations, including the costs related to this program.
Accrued severance of $1.5, $3.4$2.4, $1.9 and $1.9$0.9 as of February 28,November 30, 2011, May 31, 20102011 and February 28,November 30, 2010, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets.
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| Nine months ended |
| Twelve months ended |
| Nine months ended |
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| Six months ended |
| Twelve months ended |
| Six months ended |
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Beginning balance |
| $ | 3.4 |
| $ | 3.4 |
| $ | 3.4 |
|
| $ | 1.9 |
| $ | 3.4 |
| $ | 3.4 |
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Accruals |
| 4.3 |
| 9.2 |
| 7.3 |
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| 8.3 |
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| 6.7 |
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| 3.1 |
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Payments |
| (6.2 | ) |
| (9.2 | ) |
| (8.8 | ) |
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|
| (7.8 | ) |
| (8.2 | ) |
| (5.6 | ) | ||||||||||||
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Ending balance |
| $ | 1.5 |
| $ | 3.4 |
| $ | 1.9 |
|
| $ | 2.4 |
| $ | 1.9 |
| $ | 0.9 |
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Consistent with the Company’s efforts to reduce costs and realign resources, during the three-month period ended November 30, 2011, the Company entered into sublease arrangements for certain leased properties in lower Manhattan. These subleases enable the Company to reduce utilized space, effectively reducing net rental costs prospectively. The sublease arrangements provide for rents to be paid to the Company from unrelated subtenants for the remainder of the Company’s lease terms through 2018. The net rents to be received from the subtenants are less than the Company’s lease commitments for these properties over the remaining term of the leases. Accordingly, the Company recognized a loss on these subleases of $6.2 in the three and six-month periods ended November 30, 2011.
|
SCHOLASTIC CORPORATION |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED |
(Dollar amounts in millions, except per share data) |
13.12. Treasury Stock
On December 16, 2009,The Company has announced authorizations made by the Company announced that its Board of Directors had authorized a program to purchase up to $20.0 of itsrepurchase Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. Duringtransactions, as summarized in the nine months ended February 28, 2011,table below:
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Authorization |
| Amount |
| |
| ||||
December 2007 |
| $ | 20.0 |
|
May 2008 |
|
| 20.0 |
|
November 2008 |
|
| 10.0 |
|
February 2009 |
|
| 5.0 |
|
December 2009 |
|
| 20.0 |
|
September 2010(a) |
|
| 44.0 |
|
| ||||
Subtotal |
| $ | 119.0 |
|
| ||||
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Less Repurchases made from December 2007 to November 2011 |
|
| (80.1 | ) |
| ||||
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Remaining Board Authorization at November 30, 2011 |
| $ | 38.9 |
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(a) Represents the Company repurchased 388,426remainder of $200.0 authorization after giving effect to the purchase of 5,199,699 shares on the open market for approximately $9.7 at an average cost of $24.98$30.00 per share pursuant to this program.
In addition, pursuant to a subsequent Board of Directors authorization, on November 3, 2010 the Company completed a modified Dutch auction tender offer. Theoffer that was completed by the Company accepted for purchase 5,199,699 of its common shares at a price of $30.00 per shareon November 3, 2010, 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 February 28, 2011, $44.5 remains available for future purchases under the current Board of Directors authorizations, 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.
14.13. Fair Value Measurements