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

(SCHOLASTIC LOGO)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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


For the quarterly period ended August 31, 2012

2013

Commission File No. 000-19860

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

Delaware
13-3385513

SCHOLASTIC CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware

13-3385513

(State or other jurisdiction of

(IRS Employer Identification No.)

incorporation or organization)

557 Broadway, New York, New York

10012

(Address of principal executive offices)

(Zip Code)

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

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

YesxS  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).

YesxS  Noo£

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

Large accelerated filerxS

Accelerated filero£

Non-accelerated filero£

Smaller reporting companyo£

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

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

Title

Title

Number of shares outstanding

of each class

as of August 31, 2012

2013


Common Stock, $.01 par value

30,006,581

30,233,561

Class A Stock, $.01 par value

1,656,200



1

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2013

INDEX

 

Page

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2012

INDEX



Page


Part I - Financial Information

Item 1.

Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)

3

3

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

4

4

Condensed Consolidated Balance Sheets (Unaudited)

5

5

Consolidated Statements of Cash Flows (Unaudited)

6

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

8

Item 2.

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

24

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

34

Item 4.

Controls and Procedures

35

35

Part II – Other Information

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds36
Item 6.

Exhibits

36

37

Signatures

37

38


2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


 

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

August 31,

 

August 31,

 

 

 

 

 

 

 

 

 

2012

 

2011

 







Revenues

 

$

293.6

 

$

318.0

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

 

 

151.1

 

 

160.4

 

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

 

 

173.9

 

 

175.7

 

Depreciation and amortization

 

 

16.1

 

 

15.1

 









Total operating costs and expenses

 

 

341.1

 

 

351.2

 









Operating income (loss)

 

 

(47.5

)

 

(33.2

)

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(3.7

)

 

(3.9

)









Earnings (loss) from continuing operations before income taxes

 

 

(51.2

)

 

(37.1

)

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

(19.2

)

 

(12.0

)









 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

 

(32.0

)

 

(25.1

)

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

 

(0.1

)

 

(2.0

)









 

 

 

 

 

 

 

 

Net income (loss)

 

$

(32.1

)

$

(27.1

)









 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(1.02

)

$

(0.81

)

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.06

)

Net income (loss)

 

$

(1.02

)

$

(0.87

)

Diluted:

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(1.02

)

$

(0.81

)

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.06

)

Net income (loss)

 

$

(1.02

)

$

(0.87

)

 

 

 

 

 

 

 

 

Dividends declared per Class A and Common share

 

$

0.125

 

$

0.100

 









See accompanying notes



 


 

  Three months ended 
    
  August 31, 2013  August 31, 2012 
       
       
Revenues $276.3  $293.4 
         
Operating costs and expenses:        
Cost of goods sold (exclusive of depreciation)  137.9   150.8 
Selling, general and administrative expenses (exclusive of depreciation and amortization)  168.4   173.5 
Depreciation and amortization  15.9   16.1 
         
         
Total operating costs and expenses  322.2   340.4 
         
         
Operating income (loss)  (45.9)  (47.0)
         
Interest expense, net  (1.9)  (3.7)
         
         
Earnings (loss) from continuing operations before income taxes  (47.8)  (50.7)
         
Provision (benefit) for income taxes  (17.7)  (19.0)
         
         
Earnings (loss) from continuing operations  (30.1)  (31.7)
         
Earnings (loss) from discontinued operations, net of tax  0.2   (0.4)
         
         
         
Net income (loss) $(29.9) $(32.1)
         
         
Basic and diluted earnings (loss) per Share of Class A and Common Stock        
         
Basic:        
Earnings (loss) from continuing operations $(0.94) $(1.01)
         
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.01)
Net income (loss) $(0.94) $(1.02)
Diluted:        
Earnings (loss) from continuing operations $(0.94) $(1.01)
         
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.01)
Net income (loss) $(0.94) $(1.02)
         
Dividends declared per class A and common share $0.125  $0.125 
         

See accompanying notes

3

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(Dollar amounts in millions)



 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

August 31,

 

August 31,

 

 

 

 

 

 

 

 

 

2012

 

2011

 







Net income (loss)

 

$

(32.1

)

$

(27.1

)

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

5.1

 

 

0.5

 

 

 

 

 

 

 

 

 

Pension and post-retirement adjustments:

 

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

(0.1

)

 

(0.1

)

Amortization of unrecognized gain (loss) included in net periodic cost

 

 

1.2

 

 

1.4

 









Total other comprehensive income (loss)

 

$

6.2

 

$

1.8

 









 

 

 

 

 

 

 

 









Comprehensive income (loss)

 

$

(25.9

)

$

(25.3

)









See accompanying notes



 


 

  Three months ended 
    
  August 31, 2013  August 31, 2012 
       
         
Net income (loss) $(29.9) $(32.1)
         
Other comprehensive income (loss), net:        
Foreign currency translation adjustments  (5.6)  5.1 
         
Pension and post-retirement adjustments:        
Amortization of prior service cost (credit)  (0.1)  (0.1)
Amortization of unrecognized gain (loss) included in net periodic cost  0.9   1.2 
         
         
Total other comprehensive income (loss) $(4.8) $6.2 
         
         
         
         
         
Comprehensive income (loss) $(34.7) $(25.9)
         

See accompanying notes

4

SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 












Cash and cash equivalents

 

$

193.1

 

$

194.9

 

$

33.7

 

Accounts receivable, net

 

 

211.6

 

 

314.1

 

 

217.1

 

Inventories, net

 

 

396.4

 

 

295.3

 

 

422.8

 

Deferred income taxes

 

 

71.5

 

 

71.4

 

 

56.2

 

Prepaid expenses and other current assets

 

 

97.7

 

 

47.2

 

 

100.3

 

Current assets of discontinued operations

 

 

7.0

 

 

7.0

 

 

9.6

 












 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

977.3

 

 

929.9

 

 

839.7

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

327.3

 

 

327.2

 

 

331.3

 

Prepublication costs

 

 

129.2

 

 

125.8

 

 

116.9

 

Royalty advances, net

 

 

35.4

 

 

34.8

 

 

34.6

 

Production costs

 

 

2.1

 

 

1.6

 

 

7.5

 

Goodwill

 

 

157.7

 

 

157.7

 

 

154.2

 

Other intangibles

 

 

16.4

 

 

16.7

 

 

19.4

 

Noncurrent deferred income taxes

 

 

42.6

 

 

42.3

 

 

20.2

 

Other assets and deferred charges

 

 

34.8

 

 

34.3

 

 

35.3

 












Total assets

 

$

1,722.8

 

$

1,670.3

 

$

1,559.1

 












 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

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

 

$

0.6

 

$

6.5

 

$

47.4

 

Capital lease obligations

 

 

0.8

 

 

1.0

 

 

0.5

 

Accounts payable

 

 

211.3

 

 

119.6

 

 

181.2

 

Accrued royalties

 

 

109.1

 

 

92.7

 

 

52.7

 

Deferred revenue

 

 

72.4

 

 

47.1

 

 

75.9

 

Other accrued expenses

 

 

188.1

 

 

233.5

 

 

169.7

 

Current liabilities of discontinued operations

 

 

2.0

 

 

2.1

 

 

1.2

 












 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

584.3

 

 

502.5

 

 

528.6

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

152.8

 

 

152.8

 

 

152.6

 

Capital lease obligations

 

 

56.7

 

 

56.4

 

 

55.3

 

Other noncurrent liabilities

 

 

123.3

 

 

128.3

 

 

107.5

 












 

 

 

 

 

 

 

 

 

 

 

Total noncurrent liabilities

 

 

332.8

 

 

337.5

 

 

315.4

 

 

 

 

 

 

 

 

 

Commitments and Contingencies:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $1.00 par value

 

 

 

 

 

 

 

Class A Stock, $.01 par value

 

 

0.0

 

 

0.0

 

 

0.0

 

Common Stock, $.01 par value

 

 

0.4

 

 

0.4

 

 

0.4

 

Additional paid-in capital

 

 

584.7

 

 

583.0

 

 

578.2

 

Accumulated other comprehensive income (loss)

 

 

(68.0

)

 

(74.2

)

 

(52.1

)

Retained earnings

 

 

687.8

 

 

723.9

 

 

605.6

 

Treasury stock at cost

 

 

(399.2

)

 

(402.8

)

 

(417.0

)












Total stockholders’ equity

 

 

805.7

 

 

830.3

 

 

715.1

 












Total liabilities and stockholders’ equity

 

$

1,722.8

 

$

1,670.3

 

$

1,559.1

 












See accompanying notes



 


 

  August 31, 2013  May 31, 2013  August 31, 2012 
ASSETS            
Current Assets:            
             
             
Cash and cash equivalents $15.8  $87.4  $193.1 
Accounts receivable, net  211.6   214.9   211.5 
Inventories, net  374.6   278.1   396.4 
Deferred income taxes  79.2   79.2   71.5 
Prepaid expenses and other current assets  107.1   61.2   97.7 
Current assets of discontinued operations  0.4   0.4   8.1��
             
             
Total current assets  788.7   721.2   978.3 
             
Property, plant and equipment, net  302.6   311.6   326.4 
Prepublication costs  148.9   147.3   129.1 
Royalty advances, net  37.9   37.0   35.4 
Production costs  2.3   1.7   2.1 
Goodwill  157.9   157.9   157.7 
Other intangibles  14.0   14.6   16.4 
Noncurrent deferred income taxes  14.7   14.9   42.6 
Other assets and deferred charges  39.4   34.8   34.8 
             
             
Total assets $1,506.4  $1,441.0  $1,722.8 
             
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current Liabilities:            
Lines of credit, short-term debt and current portion of long-term debt $29.2  $2.0  $0.6 
Capital lease obligations  0.1   0.2   0.8 
Accounts payable  207.3   156.2   211.3 
Accrued royalties  45.5   34.4   109.1 
Deferred revenue  81.9   48.1   72.4 
Other accrued expenses  160.0   179.5   188.1 
Current liabilities of discontinued operations  1.3   1.3   2.0 
             
             
Total current liabilities  525.3   421.7   584.3 
             
Noncurrent Liabilities:            
Long-term debt        152.8 
Capital lease obligations  57.7   57.5   56.7 
Other noncurrent liabilities  95.5   97.4   123.3 
             
             
Total noncurrent liabilities  153.2   154.9   332.8 
             
Commitments and Contingencies:         
             
Stockholders’ Equity:            
Preferred Stock, $1.00 par value         
Class A Stock, $.01 par value  0.0   0.0   0.0 
Common Stock, $.01 par value  0.4   0.4   0.4 
Additional paid-in capital  581.2   582.9   584.7 
Accumulated other comprehensive income (loss)  (70.2)  (65.4)  (68.0)
Retained earnings  705.3   738.9   687.8 
Treasury stock at cost  (388.8)  (392.4)  (399.2)
             
             
Total stockholders’ equity  827.9   864.4   805.7 
             
             
Total liabilities and stockholders’ equity $1,506.4  $1,441.0  $1,722.8 
             

See accompanying notes

5

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)



 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 









Cash flows - operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(32.1

)

$

(27.1

)

Earnings (loss) from discontinued operations, net of tax

 

 

(0.1

)

 

(2.0

)









 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

 

(32.0

)

 

(25.1

)

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

 

 

 

 

 

 

 

Provision for losses on accounts receivable

 

 

0.5

 

 

1.4

 

Provision for losses on inventory

 

 

5.4

 

 

5.9

 

Provision for losses on royalty advances

 

 

1.3

 

 

1.2

 

Amortization of prepublication and production costs

 

 

11.8

 

 

11.9

 

Depreciation and amortization

 

 

16.1

 

 

15.1

 

Stock-based compensation

 

 

2.0

 

 

2.2

 

Non cash net gain on equity investments

 

 

(0.5

)

 

(0.4

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

106.3

 

 

2.0

 

Inventories

 

 

(102.9

)

 

(121.3

)

Other current assets

 

 

(44.6

)

 

(24.3

)

Deferred promotion costs

 

 

(5.7

)

 

(4.3

)

Royalty advances

 

 

(1.7

)

 

(0.3

)

Accounts payable

 

 

90.1

 

 

60.7

 

Other accrued expenses

 

 

(46.9

)

 

(18.3

)

Accrued royalties

 

 

15.8

 

 

17.3

 

Deferred revenue

 

 

25.1

 

 

26.8

 

Pension and post-retirement liability

 

 

(3.2

)

 

(0.7

)

Other noncurrent liability

 

 

(0.9

)

 

(0.4

)

Other, net

 

 

(1.6

)

 

1.0

 









Total adjustments

 

 

66.4

 

 

(24.5

)









 

 

 

 

 

 

 

 

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

 

 

34.4

 

 

(49.6

)

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

 

 

(0.2

)

 

0.3

 









 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

34.2

 

 

(49.3

)

 

 

 

 

 

 

 

 

Cash flows - investing activities:

 

 

 

 

 

 

 

Prepublication and production expenditures

 

 

(15.7

)

 

(11.5

)

Additions to property, plant and equipment

 

 

(14.5

)

 

(7.2

)

Other

 

 

(0.1

)

 

 









Net cash provided by (used in) investing activities of continuing operations

 

 

(30.3

)

 

(18.7

)









 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(30.3

)

 

(18.7

)

See accompanying notes



 


 

  Three months ended 
  August 31, 2013  August 31, 2012 
       
       
Cash flows - operating activities:        
Net income (loss) $(29.9) $(32.1)
Earnings (loss) from discontinued operations, net of tax  0.2   (0.4)
         
         
Earnings (loss) from continuing operations  (30.1)  (31.7)
Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations:        
Provision for losses on accounts receivable  1.4   0.5 
Provision for losses on inventory  4.8   5.4 
Provision for losses on royalty advances  1.0   1.3 
Amortization of prepublication and production costs  13.3   11.8 
Depreciation and amortization  16.3   16.1 
Stock-based compensation  1.1   2.0 
Non cash net (gain) loss on equity investments  (0.7)  (0.5)
Changes in assets and liabilities:        
Accounts receivable  (1.1)  106.2 
Inventories  (105.0)  (102.9)
Other current assets  (40.7)  (45.0)
Deferred promotion costs  (5.5)  (5.7)
Royalty advances  (1.8)  (1.7)
Accounts payable  52.5   90.1 
Other accrued expenses  (18.3)  (46.9)
Accrued royalties  11.3   15.8 
Deferred revenue  34.0   25.1 
Pension and post-retirement liability  (3.1)  (3.2)
Other noncurrent liability  (0.9)  (0.9)
Other, net  0.5   (1.6)
         
         
Total adjustments  (40.9)  65.9 
         
         
Net cash provided by (used in) operating activities of continuing operations  (71.0)  34.2 
Net cash provided by (used in) operating activities of discontinued operations  0.2   (0.0)
         
         
Net cash provided by (used in) operating activities  (70.8)  34.2 
         
Cash flows - investing activities:        
Prepublication and production expenditures  (15.7)  (15.7)
Additions to property, plant and equipment  (7.3)  (13.6)
Other  (1.0)  (0.1)
         
         
Net cash provided by (used in) investing activities of continuing operations  (24.0)  (29.4)
Net cash used in investing activities of discontinued operations     (0.9)
         
         
Net cash provided by (used in) investing activities  (24.0)  (30.3)

See accompanying notes

6

SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)



 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 









Cash flows - financing activities:

 

 

 

 

 

 

 

Repayment of term loan

 

 

 

 

(10.7

)

Borrowings under lines of credit

 

 

5.0

 

 

18.5

 

Repayment of lines of credit

 

 

(10.8

)

 

(9.6

)

Repayment of capital lease obligations

 

 

(0.3

)

 

(0.1

)

Proceeds pursuant to stock-based compensation plans

 

 

2.8

 

 

1.3

 

Payment of dividends

 

 

(4.0

)

 

(3.1

)

Other

 

 

0.6

 

 

(0.3

)









 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities of continuing operations

 

 

(6.7

)

 

(4.0

)

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(6.7

)

 

(4.0

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1.0

 

 

0.4

 









 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(1.8

)

 

(71.6

)

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

194.9

 

 

105.3

 









 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

193.1

 

$

33.7

 









See accompanying notes



 


 

  Three months ended 
  August 31, 2013  August 31, 2012 
       
       
Cash flows - financing activities:        
Borrowings under credit agreement and revolving loan  15.0    
Borrowings under lines of credit  35.0   5.0 
Repayment of lines of credit  (22.9)  (10.8)
Repayment of capital lease obligations  (0.1)  (0.3)
Reacquisition of common stock  (0.4)   
Proceeds pursuant to stock-based compensation plans  1.3   2.8 
Payment of dividends  (4.0)  (4.0)
Other  0.1   0.6 
         
         
Net cash provided by (used in) financing activities of continuing operations  24.0   (6.7)
         
Effect of exchange rate changes on cash and cash equivalents  (0.8)  1.0 
         
         
Net increase (decrease) in cash and cash equivalents  (71.6)  (1.8)
         
Cash and cash equivalents at beginning of period  87.4   194.9 
         
         
Cash and cash equivalents at end of period $15.8  $193.1 
         

See accompanying notes

7

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, 2012 (the “Annual Report”).

The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2012 relate to the twelve-month period ended May 31, 2012.

Segment

The Company determined that a software business previously reported in theMedia, Licensing and Advertising segment should be reported in theChildren’s Book Publishing and Distribution segment consistent with changes in the Company’s internal reporting structure. All prior periods reflect this change.

Other Comprehensive Income (Loss)

The Company reported net amortization expense of prior service and gains and losses for pension and post-retirement benefit plans in Selling, general and administrative expenses of $1.1 and $1.3 for the three months ended August 31, 2012 and 2011, respectively. These amounts had previously been recognized as a component of accumulated other comprehensive income.

Discontinued Operations

The Company closed or sold several operations during fiscal 2009, fiscal 2010 and fiscal 2012, and presently holds for sale one facility. All of these businesses are classified as discontinued operations in the Company’s financial statements. See Note 2, “Discontinued Operations,” for additional information.

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 and services are highest in the first and fourth quarters. The Company generally experiences a loss from operations in the first and third quarters of each fiscal year.

Use of estimates

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, 2013 (the “Annual Report”).

The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 2013 relate to the twelve-month period ended May 31, 2013.

Reclassifications

Certain reclassifications have been made to conform to the current year presentation.

Discontinued Operations

The Company closed or sold several operations during fiscal 2012 and fiscal 2013. All of these businesses are classified as discontinued operations in the Company’s financial statements. See Note 2, “Discontinued Operations,” for additional information.

Seasonality

The Company’sChildren’s Book Publishing and Distribution school-based channels 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 these school-based channel 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 and services are highest in the first and fourth quarters. The Company generally experiences a loss from operations in the first and third quarters of each fiscal year.

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,



8

 


SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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 $0.2, $1.0 and $0.8 at August 31, 2013, May 31, 2013 and August 31, 2012, respectively, which is reported in “Other current assets.”

 

New Accounting Pronouncements

Accounts receivable, returns

In July 2013, the Financial Accounting Standards Board (the “FASB”) issued an update to the authoritative guidance related to the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists to address diversity in practice in the presentation of unrecognized tax benefits.

An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows:

To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and allowancesthe entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. No new disclosures are required as a result of this update. The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013 for all unrecognized tax benefits that exist at the effective date. This new guidance is not yet effective for the fiscal period covered by this quarterly report. The Company is evaluating the impact that this update will have on its consolidated financial position, results of operations and cash flows.

9

 

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 $0.8, $1.0 and $0.2 at August 31, 2012, May 31, 2012 and August 31, 2011, respectively, which is reported in “Other current assets.”

New Accounting Pronouncements

In July 2012, the FASB issued an update to the authoritative guidance related to the impairment testing of indefinite-lived intangible assets. Similar to the guidance for goodwill impairment testing, companies will have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. 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 the asset is less than its carrying amount. If a company concludes that this is the case, the company is required to perform the quantitative impairment test by comparing the fair value with the carrying value. Otherwise, a company can skip the quantitative test. Companies are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any indefinite-lived asset in any period and proceed directly to the quantitative impairment test. The company may resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company is evaluating the impact of this update on its consolidated financial position and results of operations.

In June 2011, the FASB issued an update related to the reporting of other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments also require the presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued an update that effectively deferred the requirements related to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the FASB time to re-deliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private and non-profit entities. The Company adopted this update during the current fiscal quarter and has presented a separate statement of comprehensive income.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


2. Discontinued Operations

The Company continuously evaluates its portfolio of businesses for both impairment and economic viability. The Company monitors the expected cash proceeds to be realized from the disposition of discontinued operations’ assets, and adjusts asset values accordingly.

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

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

August 31,
2012

 

August 31,
2011

 







Revenues

 

$

0.0

 

$

0.1

 

Non-cash impairment

 

 

 

 

0.9

 

Earnings (loss) before income taxes

 

 

(0.1

)

 

(2.6

)

Income tax benefit (expense)

 

 

0.0

 

 

0.6

 









Earnings (loss) from discontinued operations, net of tax

 

$

(0.1

)

$

(2.0

)









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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 









Accounts receivable, net

 

 

$

0.0

 

 

 

$

0.0

 

 

 

$

0.1

 

 

Inventories, net

 

 

 

0.0

 

 

 

 

0.0

 

 

 

 

0.3

 

 

Other assets

 

 

 

7.0

 

 

 

 

7.0

 

 

 

 

9.2

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets of discontinued operations

 

 

$

7.0

 

 

 

$

7.0

 

 

 

$

9.6

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

$

0.0

 

 

 

$

0.0

 

 

 

$

0.1

 

 

Accrued expenses and other current liabilities

 

 

 

2.0

 

 

 

 

2.1

 

 

 

 

1.1

 

 


















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities of discontinued operations

 

 

$

2.0

 

 

 

$

2.1

 

 

 

$

1.2

 

 




















 


2. Discontinued Operations

 

The Company continuously evaluates its portfolio of businesses for both impairment and economic viability. The Company monitors the expected cash proceeds to be realized from the disposition of discontinued operations’ assets, and adjusts asset values accordingly.

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

  Three months ended     
  August 31, 2013  August 31, 2012     
Revenues $0.0  $0.2     
Earnings (loss) before income taxes  0.3   (0.7)    
Income tax benefit (provision)  (0.1)  0.3     
Earnings (loss) from discontinued operations, net of tax $0.2  $(0.4)    

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:

   August 31, 2013   May 31, 2013   August 31, 2012 
Accounts receivable, net $0.0  $0.0  $0.1 
Other assets  0.4   0.4   8.0 
             
Current assets of discontinued operations $0.4  $0.4  $8.1 
             
Accrued expenses and other current liabilities  1.3   1.3   2.0 
             
Current liabilities of discontinued operations $1.3  $1.3  $2.0 
10

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


3. Segment Information

3. Segment Information

The Company categorizes its businesses into five 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 and other products in the United States through school-based book clubs and book fairs, ecommerce and the trade channel. This segment is comprised of three operating segments.

Distribution; 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.

Services; 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.

Publishing; Media, Licensing and AdvertisingAdvertising;includesand International.This classification reflects the production and/or distribution of digital media, consumer promotions and merchandising and advertising revenue, including sponsorship programs. This segment is comprised of two operating segments.

Internationalincludes the publication and distributionnature of products and services outsideconsistent with the United Statesmethod by which the Company’s international operations,chief operating decision-maker assesses operating performance and its export and foreign rights businesses.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 book fairs and book clubs in its school channels and through 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 digital 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 three operating segments.



11

 


SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Children’s
Book
Publishing
and
Distribution(1)(2)

 

Educational
Technology
and Services(1)

 

Class room and
Supplemental
Materials
Publishing(1)(3)

 

Media,
Licensing
and
Advertising(1)(2)

 

Overhead(1)(4)

 

Total
Domestic

 

International(1)(5)

 

Total

 



























Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

71.1

 

$

80.0

 

$

37.9

 

$

14.4

 

$

 

$

203.4

 

$

90.2

 

$

293.6

 

Bad debt expense

 

 

(0.2

)

 

0.3

 

 

(0.2

)

 

0.0

 

 

 

 

(0.1

)

 

0.6

 

 

0.5

 

Depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization(6)

 

 

3.8

 

 

0.3

 

 

0.4

 

 

0.1

 

 

10.3

 

 

14.9

 

 

1.2

 

 

16.1

 

Amortization(7)

 

 

3.5

 

 

5.5

 

 

1.7

 

 

0.5

 

 

 

 

11.2

 

 

0.6

 

 

11.8

 

Segment operating income (loss)

 

 

(55.2

)

 

24.8

 

 

(2.6

)

 

0.0

 

 

(17.3

)

 

(50.3

)

 

2.8

 

 

(47.5

)

Segment assets at 8/31/12

 

 

526.4

 

 

219.6

 

 

171.4

 

 

41.5

 

 

441.4

 

 

1,400.3

 

 

315.5

 

 

1,715.8

 

Goodwill at 8/31/12

 

 

54.3

 

 

22.7

 

 

65.4

 

 

5.4

 

 

 

 

147.8

 

 

9.9

 

 

157.7

 

Expenditures for long-lived assets including royalty advances

 

 

15.1

 

 

8.2

 

 

1.8

 

 

2.0

 

 

7.5

 

 

34.6

 

 

2.4

 

 

37.0

 

Long-lived assets at 8/31/12

 

 

170.1

 

 

103.3

 

 

90.0

 

 

13.1

 

 

244.0

 

 

620.5

 

 

68.8

 

 

689.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

77.5

 

$

96.6

 

$

45.7

 

$

10.5

 

$

 

$

230.3

 

$

87.7

 

$

318.0

 

Bad debt expense

 

 

 

 

0.3

 

 

0.4

 

 

 

 

 

 

0.7

 

 

0.7

 

 

1.4

 

Depreciation and amortization(6)

 

 

3.7

 

 

0.3

 

 

0.3

 

 

0.1

 

 

9.2

 

 

13.6

 

 

1.5

 

 

15.1

 

Amortization(7)

 

 

3.1

 

 

5.2

 

 

1.4

 

 

1.5

 

 

 

 

11.2

 

 

0.7

 

 

11.9

 

Segment operating income (loss)

 

 

(50.2

)

 

38.8

 

 

2.1

 

 

(4.6

)

 

(19.2

)

 

(33.1

)

 

(0.1

)

 

(33.2

)

Segment assets at 8/31/11

 

 

506.5

 

 

185.8

 

 

149.8

 

 

40.6

 

 

396.6

 

 

1,279.3

 

 

270.2

 

 

1,549.5

 

Goodwill at 8/31/11

 

 

54.3

 

 

21.9

 

 

64.0

 

 

5.4

 

 

 

 

145.6

 

 

8.6

 

 

154.2

 

Expenditures for long-lived assets including royalty advances

 

 

8.2

 

 

5.3

 

 

1.3

 

 

1.9

 

 

5.0

 

 

21.7

 

 

2.3

 

 

24.0

 

Long-lived assets at 8/31/11

 

 

172.5

 

 

97.1

 

 

79.7

 

 

20.2

 

 

244.6

 

 

614.1

 

 

71.0

 

 

685.1

 





























 

  Children’s
Book
Publishing
and
Distribution (1)
  Educational
Technology
and
Services (1)
  Classroom and
Supplemental
Materials
Publishing(1)
  Media,
Licensing
and
Advertising (1)
  Overhead (1) (2)  Total
Domestic
  International (1)  Total 
Three months ended                                
August 31, 2013                                
Revenues $54.6  $94.8  $37.8  $10.4  $  $197.6  $78.7  $276.3 
Bad debt expense  0.4   0.4            0.8   0.6   1.4 
Depreciation and amortization(3)  4.0   0.3   0.3   0.1   10.0   14.7   1.2   15.9 
Amortization(4)  4.0   6.0   2.3   0.5      12.8   0.5   13.3 
Segment operating income (loss)  (61.5)  36.2   (1.6)  (1.9)  (16.4)  (45.2)  (0.7)  (45.9)
Segment assets at 8/31/13  464.2   207.8   153.6   25.1   407.7   1,258.4   247.6   1,506.0 
Goodwill at 8/31/13  54.3   22.7   65.4   5.4      147.8   10.1   157.9 
Expenditures for long-lived assets including royalty advances  11.4   8.5   2.0   1.1   5.2   28.2   2.5   30.7 
Long-lived assets at 8/31/13  163.6   118.6   90.5   12.2   236.2   621.1   64.4   685.5 
                                 
Three months ended                                
August 31, 2012                                
                                 
Revenues $70.9  $80.0  $37.9  $14.4  $  $203.2  $90.2  $293.4 
Bad debt expense  (0.2)  0.3   (0.2)  0.0      (0.1)  0.6   0.5 
Depreciation and amortization(3)  3.8   0.3   0.4   0.1   10.3   14.9   1.2   16.1 
Amortization(4)  3.5   5.5   1.7   0.5      11.2   0.6   11.8 
Segment operating income (loss)  (54.9)  24.8   (2.6)  0.2   (17.3)  (49.8)  2.8   (47.0)
Segment assets at 8/31/12  526.9   219.6   171.4   40.4   440.9   1,399.2   315.5   1,714.7 
Goodwill at 8/31/12  54.3   22.7   65.4   5.4      147.8   9.9   157.7 
Expenditures for long-lived assets including royalty advances  15.1   8.2   1.8   1.1   7.5   33.7   2.4   36.1 
Long-lived assets at 8/31/12  170.1   103.3   90.0   12.1   244.0   619.5   68.8   688.3 
12

 

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 2012 and fiscal 2013. 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)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 Children’s Book Publishing and Distribution segment for the computer club business that was discontinued in the fourth quarter of fiscal 2013.
(3)Includes depreciation of property, plant and equipment and amortization of intangible assets.
(4)Includes amortization of prepublication and production costs.

 

(1)4. Debt

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)

As discussed under “Segment” in Note 1, a business previously reported in the Media, Licensing and Advertising segment is now included in the Children’s Book Publishing and Distribution segment.

(3)

Includes assets and results of operations acquired in a business acquisitionThe following table summarizes debt as of February 8, 2012.the dates indicated:

 

  Carrying
Value
  Fair
Value
  Carrying
Value
  Fair
Value
  Carrying
Value
  Fair
Value
 
  August 31, 2013  May 31, 2013  August 31, 2012 
                         
Unsecured lines of credit (weighted average interest rates of 3.6%, 9.0% and 4.9%, respectively) $14.2  $14.2  $2.0  $2.0  $0.6  $0.6 
Loan Agreement:                        
Revolving Loan (interest rates of 1.4%, n/a and n/a, respectively)  15.0   15.0             
Term Loan                  
5% Notes due 2013, net of discount              152.8   153.6 
                         
Total debt $29.2  $29.2  $2.0  $2.0  $153.4  $154.2 
                         
Less lines of credit, short-term debt and current portion of long-term debt  (29.2)  (29.2)  (2.0)  (2.0)  (0.6)  (0.6)
                         
Total long-term debt $  $  $  $  $152.8  $153.6 
13

 

(4)

Overhead includes all domestic corporate amounts not allocated to segments, including expenses and costs related to the management of corporate assets. Unallocated assets are principally comprised of deferred income taxes and property, plant and equipment related to the Company’s headquarters in the metropolitan New York area, its fulfillment and distribution facilities located in Missouri and its facility located in Connecticut. Overhead also includes amounts previously allocated to the Media, Licensing and Advertising segment for the Company’s direct-to-home toy catalog business that was discontinued in the first quarter of fiscal 2012.

(5)

Includes assets and results of operations acquired in a business acquisition as of January 3, 2012.

(6)

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

(7)

Includes amortization of prepublication and production costs.

4. Debt

The following table summarizes debt as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





















 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 















 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 









 

Lines of Credit (weighted average interest rates of
4.9%, 5.3% and 4.0%, respectively)

 

$

0.6

 

$

0.6

 

$

6.5

 

$

6.5

 

$

7.9

 

$

7.9

 

Loan Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan (interest rates of n/a, n/a
and 1.0%, respectively)

 

 

 

 

 

 

 

 

 

 

39.5

 

 

39.5

 

5% Notes due 2013, net of discount

 

 

152.8

 

 

153.6

 

 

152.8

 

 

155.4

 

 

152.6

 

 

153.0

 





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt

 

$

153.4

 

$

154.2

 

$

159.3

 

$

161.9

 

$

200.0

 

$

200.4

 





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(0.6

)

 

(0.6

)

 

(6.5

)

 

(6.5

)

 

(47.4

)

 

(47.4

)





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

152.8

 

$

153.6

 

$

152.8

 

$

155.4

 

$

152.6

 

$

153.0

 
























SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


Short-term debt’s

The carrying value approximates fair value. Fair value of the Company’s short-term debt approximates its fair value.

The following table sets forth the maturities of the Company’s debt obligations as of August 31, 2013, for the twelve-month period ending August 31,

2014 $29.2 
2015   
Total debt $29.2 

Loan Agreement

Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) are parties to a $425.0 credit facility with certain banks (as amended, the “Loan Agreement”), which allows the Company to borrow, repay or prepay and reborrow at any time prior to the December 5, 2017 maturity date. Under the Loan Agreement, interest on amounts borrowed thereunder 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). The interest pricing under the Loan Agreement approximates its carrying value due to its variable interest rate and consistent credit rating. Fair values of the Notes were estimated based on market quotes, where available, or dealer quotes.

The following table sets forth the maturities of the Company’s debt obligations as of August 31, 2012, for the twelve-month periods ending August 31,

 

 

 

 

 

2013

 

$

0.6

 

2014

 

 

152.8

 






Total debt

 

$

153.4

 






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 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 $325.0 Revolving Loan 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.

Interest on the 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). The interest pricing under the Revolving Loan is dependent upon the Borrower’s election of 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, in each case, an applicable spread ranging from 0.18% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

- or -

·A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

As of August 31, 2013, the indicated spread on Base Rate Advances was 0.18% and the indicated spread on Eurodollar Rate Advances was 1.18%, both based on the Company’s prevailing consolidated debt to total capital ratio.

                    - Or -

A Eurodollar Rate equal toThe Loan Agreement also provides for the London interbank offered rate (LIBOR) plus an applicable spreadpayment of a facility fee ranging from 1.18%0.20% to 1.60%, as determined by0.40% per annum based upon the Company’s prevailingconsolidated debt to total capital ratio.At August 31, 2013, the facility fee rate was 0.20%.

As of August 31, 2012, the indicated spread on Base Rate Advances was 0.18% and the indicated spread on Eurodollar Rate Advances was 1.18%, both based on the Company’s prevailing consolidated debt to total capital ratio. There were no Revolving Loan Advances outstanding on August 31, 2012.

The Loan Agreement also provides for the payment of a facility fee ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt to total capital ratio. At August 31, 2012, the facility fee rate was 0.20%.

At August 31, 2012, the Company had open standby letters of credit totaling $6.6, including $1.4 under the Loan Agreement.

The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at August 31, 2012,

There were outstanding borrowings totaling $15.0 under the Loan Agreement as of August 31, 2013.

The Company had open standby letters of credit totaling $6.6, including $1.4 under the Loan Agreementas of August 31, 2013.

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 August 31, 2013, the Company was in compliance with these covenants.



14

 


SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



Lines of Credit

As of August 31, 2012, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0. There were no outstanding borrowings under these credit lines at August 31, 2012, May 31, 2012 and August 31, 2011. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of August 31, 2012, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $33.8, underwritten by banks primarily in the United States, Canada, Australia and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. Borrowings and weighted average interest rates for these lines of credit are presented in the table above.

5% Notes due 2013

In April 2003, Scholastic Corporation issued $175.0 of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption.

As noted above under “Loan Agreement,” the Company amended the terms of the Revolving Loan to extend the maturity date from June 1, 2012 to June 1, 2014. The Company has the ability to use a portion of this credit facility to fully redeem the 5% Notes due 2013 and intends to draw on this credit facility for this purpose. Accordingly, the balance of the 5% Notes is excluded from current liabilities and classified as long-term debt on the Company’s condensed consolidated balance sheet at August 31, 2012 and May 31, 2012.

5. Commitments and Contingencies

Various claims and lawsuits arising in the normal course of business are pending against the Company. The Company accrues a liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation loss contingencies are expensed in the period in which they are incurred. The Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.

Grolier Limited is an indirect subsidiary of Scholastic Corporation, located in the United Kingdom, which ceased operations in fiscal 2008 and the operations of which are included in discontinued operations. The Company is currently in the process of settling a Grolier Limited pension plan in effect at the time it ceased operations and is evaluating the potential pension liabilities under the plan relating to the status of the plan as a defined contribution or a defined benefit plan in the context of the conversion of the plan from a defined benefit to a defined contribution plan in 1986. The Company is not in a position to estimate a range of the reasonably possible liability at this time.



 


Lines of Credit

 

As of August 31, 2013, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $13.9. As of August 31, 2013, borrowings under these credit lines totaled $5.9. There were no outstanding borrowings under these credit lines at May 31, 2013 and August 31, 2012. 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 August 31, 2013, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $30.0, 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. Outstanding borrowings under these lines of credit totaled $8.3, $2.0 and $0.6 at August 31, 2013, May 31, 2013 and August 31, 2012, respectively.

5. Commitments and Contingencies

Various claims and lawsuits arising in the normal course of business are pending against the Company. The Company accrues a liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs associated with litigation loss contingencies are expensed in the period in which they are incurred. The Company does not expect, in the case of those various claims and lawsuits arising in the normal course of business where a loss is considered probable or reasonably possible, that the reasonably possible losses from such claims and lawsuits (either individually or in the aggregate) would have a material adverse effect on the Company’s consolidated financial position or results of operations.

Grolier Limited is an indirect subsidiary of Scholastic Corporation, located in the United Kingdom, which ceased operations in fiscal 2008 and the operations of which are included in discontinued operations. The Company is currently in the process of settling a Grolier Limited pension plan in effect at the time it ceased operations and is evaluating the potential pension liabilities under the plan relating to the status of the plan as a defined contribution or a defined benefit plan in the context of the conversion of the plan from a defined benefit to a defined contribution plan in 1986. Based on the information currently available to it, the Company does not expect to incur any additional material liability in resolving this issue and settling the plan.

15

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


6. Earnings (Loss) Per Share

6. Earnings (Loss) Per Share

The following table summarizes the reconciliation of the numerators and denominators for the basic and diluted earnings (loss) per share computation for the three-month periods ended August 31, 2013 and 2012, respectively:

  Three months ended 
  August 31, 2013  August 31, 2012 
       
Earnings (loss) from continuing operations attributable to Class A and Common Shares $(30.1) $(31.7)
Earnings (loss) from discontinued operations attributable to Class A and Common Shares, net of tax  0.2   (0.4)
Net income (loss) attributable to Class A and Common Shares $(29.9) $(32.1)
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)  31.8   31.5 
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)  *   * 
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions)  *   * 
         
Earnings (loss) per share of Class A Stock and Common Stock:        
Basic earnings (loss) per share:        
Earnings (loss) from continuing operations $(0.94) $(1.01)
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.01)
Net income (loss) $(0.94) $(1.02)
Diluted earnings (loss) per share:        
Earnings (loss) from continuing operations $(0.94) $(1.01)
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.01)
Net income (loss) $(0.94) $(1.02)

* In each of the three month periods ended August 31, 2013 and 2012, and 2011, respectively:

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 







 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations attributable to Class A and Common Shares

 

$

(31.9

)

$

(25.0

)

 

 

 

 

 

 

 

 

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

 

 

(0.1

)

 

(2.0

)









 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A and Common Shares

 

$

(32.0

)

$

(27.0

)

 

 

 

 

 

 

 

 

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

 

 

31.5

 

 

31.0

 

 

 

 

 

 

 

 

 

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

 

 

*

 

 

*

 

 

 

 

 

 

 

 

 

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

 

 

*

 

 

*

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(1.02

)

$

(0.81

)

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.06

)

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1.02

)

$

(0.87

)

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(1.02

)

$

(0.81

)

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.06

)

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1.02

)

$

(0.87

)









* In the three months ended August 31, 2012 and 2011, the Company experienced a loss from continuing operations and therefore did not report any dilutive share impact.



16

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


In periods of Net 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”) which are 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.

Loss from continuing operations exclude losses of less than $0.1 for the three months ended August 31, 2012 and 2011, respectively, for 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 2.8 million and 4.5 million for the three months ended August 31, 2012 and 2011, respectively. Options outstanding pursuant to compensation plans were 5.1 million and 6.0 million as of August 31, 2012 and 2011, respectively.

As of August 31, 2012, $31.4 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Twelve months ended

 

Three months ended

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 









Gross beginning balance

 

$

178.5

 

$

175.0

 

$

175.0

 

Accumulated impairment

 

 

(20.8

)

 

(20.8

)

 

(20.8

)












 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

157.7

 

$

154.2

 

$

154.2

 

Additions due to acquisition

 

 

 

 

2.7

 

 

 

Impairment charge

 

 

 

 

 

 

 

Foreign currency translation

 

 

0.0

 

 

0.0

 

 

0.0

 

Other

 

 

 

 

0.8

 

 

 












Gross ending balance

 

$

178.5

 

$

178.5

 

$

175.0

 

Accumulated impairment

 

 

(20.8

)

 

(20.8

)

 

(20.8

)












Ending balance

 

$

157.7

 

$

157.7

 

$

154.2

 












On February 8, 2012, the Company acquired the business and certain assets of Weekly Reader, a publisher of weekly educational classroom magazines designed for children in grades Pre-K–12, for $2.0 in cash and $4.8 in assumed liabilities, which have been fulfilled by the Company. The Company utilized internally-developed discounted cash flow forecasts and market comparisons of royalty rates to determine the fair value of the assets acquired and the amount to be allocated to goodwill. As a result, the Company recognized $1.4 of goodwill and $5.4 of intangible assets. The results of operations of this business subsequent to the acquisition date are included in theClassroom and Supplemental Materials Publishingsegment, and certain assets will benefit theChildren’s Book Publishing and Distribution segment.



 


The following table sets forth Options outstanding pursuant to stock-based compensation plans as of the dates indicated:

 

  August 31, 2013  August 31, 2012 
Options outstanding pursuant to stock-based compensation plans (in millions)  4.0   5.1 

In periods of Net 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”) which are 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 lower of the Two-class method or the Treasury Stock method. Since, under the Two-class method, losses are not allocated to the participating securities, in periods of loss the Two-class method is not applicable.

As of August 31, 2013, $19.0 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 12, “Treasury Stock,” for amore 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 Company assesses goodwill annually or more frequently if impairment indicators are such that the goodwill is more likely than not impaired. The Company continues to monitor impairment indicators in light of reduced earnings, changes in market conditions, near and long-term demand for the Company’s products and other relevant factors. 

The Company did not have any impairment indicators in the fiscal quarter ended August 31, 2013, but continues to closely monitor its book clubs reporting unit, as this reporting unit’s fair value is largely dependent upon the success of the Storia ereading app, which was launched in fiscal 2012. Should Storia not achieve its projected revenue, and the Company is unable to adjust its strategy to effectively compensate, there is a potential for an impairment of goodwill in this reporting unit in future periods.

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

  Three months ended
August 31, 2013
  Twelve months ended
May 31, 2013
  Three months ended
August 31, 2012
 
             
Gross beginning balance $178.7  $178.5  $178.5 
Accumulated impairment  (20.8)  (20.8)  (20.8)
             
Beginning balance $157.9  $157.7  $157.7 
Foreign currency translation  0.0   0.0   0.0 
Other     0.2    
Gross ending balance $178.7  $178.7  $178.5 
Accumulated impairment  (20.8)  (20.8)  (20.8)
Ending balance $157.9  $157.9  $157.7 
17

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning materials for English-Language Learners, for $2.8, net of cash acquired. 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 Learners Publishing business. As a result of this transaction, the Company recorded $1.3 of goodwill. The results of operations of this business subsequent to the acquisition date are included in theInternationalsegment.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Twelve months ended

 

Three months ended

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

Beginning balance - customer lists

 

$

4.3

 

$

0.7

 

$

0.7

 

Additions due to acquisition

 

 

0.1

 

 

3.8

 

 

 

Amortization expense

 

 

(0.2

)

 

(0.2

)

 

0.0

 

Foreign currency translation

 

 

0.0

 

 

0.0

 

 

0.0

 












Customer lists, net of accumulated amortization of $1.5, $1.3 and $1.1, respectively

 

$

4.2

 

$

4.3

 

$

0.7

 












 

 

 

 

 

 

 

 

 

 

 

Beginning balance - other

 

$

10.4

 

$

17.3

 

$

17.3

 

Additions due to acquisition

 

 

 

 

 

 

 

Impairment charge

 

 

 

 

(5.4

)

 

 

Amortization expense

 

 

(0.3

)

 

(1.4

)

 

(0.4

)

Other

 

 

0.1

 

 

(0.1

)

 

 












Other intangibles, net of accumulated amortization of $10.8, $10.5 and $4.5, respectively

 

$

10.2

 

$

10.4

 

$

16.9

 












 

 

 

 

 

 

 

 

 

 

 












Total other intangibles subject to amortization

 

$

14.4

 

$

14.7

 

$

17.6

 












Amortization expense for Total other intangibles was $0.5 and $0.4 for the three months ended August 31, 2012 and 2011, respectively. Intangible assets with definite lives consist principally of customer lists, covenants not to compete and publishing and trademark rights. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is 9 years.

In fiscal 2012, due to declining revenues associated with certain publishing and trademark rights in theChildren’s Book Publishing and Distribution segment, the Company determined that the intangible assets associated with these rights were not fully recoverable and recognized an impairment in amortization expense of $4.9 based upon the difference between the carrying value and the fair value of the assets, and reduced the expected useful life of these assets. The Company employed Level 3 fair value measurement techniques to determine the fair value of these assets, including the relief from royalty method.



 


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

 

  Three months ended
August 31, 2013
  Twelve months ended
May 31, 2013
  Three months ended
August 31, 2012
 
             
             
Beginning balance - customer lists $3.4  $4.3  $4.3 
Additions     0.1   0.1 
Amortization expense  (0.2)  (1.0)  (0.2)
Foreign currency translation  0.0   0.0   0.0 
             
Customer lists, net of accumulated amortization of $2.5, $2.3 and $1.5, respectively $3.2  $3.4  $4.2 
             
Beginning balance - other intangibles $9.2  $10.4  $10.4 
Additions     0.2    
Amortization expense  (0.4)  (1.5)  (0.3)
Foreign currency translation  0.0       
Other     0.1   0.1 
Other intangibles, net of accumulated amortization of $12.4, $12.0 and $10.8, respectively $8.8  $9.2  $10.2 
Total other intangibles subject to amortization $12.0  $12.6  $14.4 
Trademarks and other $2.0  $2.0  $2.0 
Total other intangibles not subject to amortization $2.0  $2.0  $2.0 
Total other intangibles $14.0  $14.6  $16.4 

Amortization expense for Total other intangibles was $0.6 and $0.5 for the three months ended August 31, 2013 and 2012, respectively.Intangible assets with definite lives consist principally of customer lists, covenants not to competeand trademark rights. Intangible assets with definite lives are amortized over their estimated useful lives. The weighted-average remaining useful lives of all amortizable intangible assets is 9 years.

18

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 









Net carrying value by major class:

 

 

 

 

 

 

 

 

 

 

Trademarks and other

 

$

2.0

 

$

2.0

 

$

1.8

 












Total

 

$

2.0

 

$

2.0

 

$

1.8

 












8. Investments

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $21.2, $20.6 and $21.2 at August 31, 2012, May 31, 2012 and August 31, 2011, respectively.

The Company owns a non-controlling interest in a book distribution business located in the UK, which is accounted for as a cost-basis investment.

The Company’s 26.2% non-controlling interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting.

Income from equity investments totaled $0.5 for the three months ended August 31, 2012 and $0.4 for the three months ended August 31, 2011.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2012

 

May 31, 2012

 

August 31, 2011

 









Cost method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

5.5

 

$

5.2

 

$

5.7

 












Total cost method investments

 

$

5.5

 

$

5.2

 

$

5.7

 












 

 

 

 

 

 

 

 

 

 

 

Equity method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

15.7

 

$

15.4

 

$

14.2

 

U.S. - based

 

 

 

 

 

 

1.3

 












Total equity method investments

 

$

15.7

 

$

15.4

 

$

15.5

 












 

 

 

 

 

 

 

 

 

 

 












Total

 

$

21.2

 

$

20.6

 

$

21.2

 














 


8.Investments

 

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets were investments of $21.9, $19.6 and $21.2 at August 31, 2013, May 31, 2013 and August 31, 2012, respectively.

In the fiscal quarter ended August 31, 2013, the Company acquired a 20% interest in a software development business for $1.0 in cash, which is accounted for using the equity method of accounting. The Company owns a 15% non-controlling interest in a book distribution business located in the UK, which is accounted for as a cost-basis investment. The Company’s 26.2% non-controlling interest in a children’s book publishing business located in the UK is accounted for using the equity method of accounting. Income from equity investments totaled $0.7 and $0.5 for the three months ended August 31, 2013 and 2012, respectively.

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

  August 31, 2013  May 31, 2013  August 31, 2012 
Cost method investments:            
UK - based $4.7  $5.0  $5.5 
Total cost method investments $4.7  $5.0  $5.5 
             
Equity method investments:            
UK - based $16.2  $14.6  $15.7 
Other  1.0       
Total equity method investments $17.2  $14.6  $15.7 
Total $21.9  $19.6  $21.2 
19

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


9. Employee Benefit Plans

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plans
Three months ended

 

Post-Retirement Benefits
Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 

August 31, 2012

 

August 31, 2011

 











Components of net periodic benefit (credit) cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

0.0

 

$

0.0

 

Interest cost

 

 

1.7

 

 

2.1

 

 

0.4

 

 

0.5

 

Expected return on assets

 

 

(2.6

)

 

(2.7

)

 

 

 

 

Net amortization of prior service credit

 

 

 

 

 

 

(0.1

)

 

(0.2

)

Amortization of loss

 

 

0.5

 

 

0.3

 

 

0.9

 

 

1.0

 















Net periodic benefit (credit) cost

 

$

(0.4

)

$

(0.3

)

$

1.2

 

$

1.3

 















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 three months ended August 31, 2012, the Company contributed $1.9 to the U.S. Pension Plan and $0.5 to the UK Pension Plan.

The Company expects, based on actuarial calculations, to contribute cash of approximately $10.6 to the Pension Plans for the fiscal year ending May 31, 2013.

10. Stock-Based Compensation

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

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 







Stock option expense

 

$

1.0

 

$

1.5

 

Restricted stock unit expense

 

 

0.9

 

 

0.7

 

Management stock purchase plan

 

 

0.0

 

 

0.0

 

Employee stock purchase plan

 

 

0.1

 

 

0.0

 









 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

2.0

 

$

2.2

 











 


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”) and the defined benefit pension plan of Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom (the “UK Pension Plan” and, together with the U.S. Pension Plan, the “Pension Plans”). Also included are the post-retirement benefits, consisting of certain healthcare and life insurance benefits, provided by the Company to its eligible retired United States-based employees (the “Post-Retirement Benefits”). The Pension Plans and Post-Retirement Benefits include participants associated with both continuing operations and discontinued operations.

  Pension Plans
Three months ended
  Post-Retirement Benefits
Three months ended
 
  August 31, 2013  August 31, 2012  August 31, 2013  August 31, 2012 
Components of net periodic benefit (credit) cost:                
Service cost $  $  $0.0  $0.0 
Interest cost  1.8   1.7   0.3   0.4 
Expected return on assets  (3.1)  (2.6)      
Net amortization of prior service credit        (0.0)  (0.1)
Amortization of loss  0.4   0.5   0.6   0.9 
Net periodic benefit (credit) cost $(0.9) $(0.4) $0.9  $1.2 

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 three months ended August 31, 2013, the Company contributed $1.7 to the U.S. Pension Plan and $0.3 to the UK Pension Plan.

The Company expects, based on actuarial calculations, to contribute cash of approximately $8.3 to the Pension Plans for the fiscal year ending May 31, 2014.

10. Stock-Based Compensation

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

  Three months ended
  August 31, 2013  August 31, 2012 
Stock option expense $0.2  $1.0 
Restricted stock unit expense  0.8   0.9 
Management stock purchase plan  0.0   0.0 
Employee stock purchase plan  0.1   0.1 
         
Total stock-based compensation expense $1.1  $2.0 

During each of the three month periods ended August 31, 2013 and 2012, shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.

20

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


11. Severance and Exit Costs

Severance expense incurred by the Company was $1.3 during the three months ended August 31, 2012, $14.9 during the twelve months ended May 31, 2012 and $3.3 during the three months ended August 31, 2011. Accrued severance of $1.1, $2.7 and $2.4 as of August 31, 2012, May 31, 2012 and August 31, 2011, respectively, is included in “Other accrued expenses” on the Company’s condensed consolidated balance sheets. The table below provides information regarding the severance expense reported in the Company’s condensed consolidated statements of operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
August 31, 2012

 

Twelve months
ended May 31, 2012

 

Three months ended
August 31, 2011

 









 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2.7

 

$

1.9

 

$

1.9

 

Accruals

 

 

1.3

 

 

14.9

 

 

3.3

 

Payments

 

 

(2.9

)

 

(14.1

)

 

(2.8

)












Ending balance

 

$

1.1

 

$

2.7

 

$

2.4

 












12. Treasury Stock

The Board of Directors has authorized the Company to repurchase Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. The table below represents the remaining Board authorization:

 

 

 

 

 

Board Authorization

 

Amount

 






 

 

 

 

 

September 2010

 

$

44.0

 

Less repurchases made from November 2011 through August 2012

 

 

(12.6

)






 

 

 

 

 

Remaining Board authorization at August 31, 2012

 

$

31.4

 






The Company’s repurchase program may be suspended at any time without prior notice. No repurchases of Common Stock were made during the first fiscal quarter of 2013.



 


11. Accrued Severance

 

The table below provides information regarding Accrued severance, which is included in “Other accrued expenses” in the Company’s condensed consolidated balance sheets.

  Three months ended
August 31, 2013
  Twelve months
ended May 31, 2013
  Three months ended
August 31, 2012
 
             
Beginning balance $3.3  $2.7  $2.7 
Accruals  2.3   13.4   1.3 
Payments  (3.6)  (12.8)  (2.9)
Ending balance $2.0  $3.3  $1.1 

In the first quarter of fiscal 2014, the Company continued to implement cost savings initiatives, resulting in severance expense of $2.0. Severance expenses are reported in “Selling, general and administrative expenses.”

12. Treasury Stock

The Board of Directors has authorized the Company to repurchase Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. The table below represents the remaining Board authorization:

Board Authorization Amount 
    
September 2010 $44.0 
Less repurchases made under this authorization  (25.0)
     
Remaining Board authorization at August 31, 2013 $19.0 

The Company’s repurchase program may be suspended at any time without prior notice. There were $0.6 repurchases of Common Stock made during the first fiscal quarter of 2014.

21

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


13. Fair Value Measurements

13. Fair Value Measurements

The Company determines the appropriate level in the fair value hierarchy for each fair value measurement of assets and liabilities carried at fair value on a recurring basis in the Company’s financial statements. The fair value hierarchy prioritizes the inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and best use, into three levels as follows:

 

 ·Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
 ·Level 2 Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities such as
oQuoted prices for similar assets or liabilities in active markets
oQuoted prices for identical or similar assets or liabilities in inactive markets
oInputs other than quoted prices that are observable for the asset or liability
oInputs that are derived principally from or corroborated by observable market data by correlation or other means
 ·Level 3 Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.

 

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

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


o

Quoted prices for similar assets or liabilities in active markets

o

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

o

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

o

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

Level 3Unobservable inputs in which there is little or no market data available, which are significant to the fair value measurement and require the Company to develop its own assumptions.

The Company’s financial assets and liabilities measured at fair value consisted of cash and cash equivalents, debt and foreign currency forward contracts. Cash and cash equivalents are comprised of bank deposits and short-term investments, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure. The Company employs Level 2 fair value measurements for the disclosure of the fair value of its 5% Notes and its various lines of credit. See Note 4, “Debt,” for a more complete description of fair value measurements employed. The fair values of foreign currency forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are based on quotations from financial institutions, a Level 2 fair value measure. See Note 15, “Derivatives and Hedging,” for a more complete description of fair value measurements employed.

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

 

·Long-lived assets
·Investments
·Assets acquired in a business combination
·Goodwill and indefinite-lived intangible assets
·Long-lived assets held for sale

 

Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities.

 

14. Income Taxes and Other Taxes

 

Income Taxes

Long-lived assets

 

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

 

Investments

Assets acquired in a business combination

Goodwill and indefinite-lived intangible assets

Long-lived assets heldThe Company’s annual effective tax rate for sale

14. Income Taxes and Other Taxes

Income Taxes

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

The Company’s annual effective tax rate for the fiscal year ending May 31, 2013 is currently expected to be approximately 39.8%the fiscal year ending May 31, 2014 is currently expected to be approximately 40%.



22

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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

Non-income Taxes

The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where a liability associated with these examinations and assessments is probable and can be reliably estimated, the Company has made accruals for these matters which are reflected in the Company’s condensed consolidated financial statements.

15. Derivatives and Hedging

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign currency fluctuations associated with the forecasted purchase of inventory and the foreign exchange risk associated with certain receivables denominated in foreign currencies. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, and it recognizes the unrealized gain or loss in other current assets or liabilities. Unrealized gains of less than $0.1 and $0.1 were recognized at August 31, 2012 and 2011, respectively.

16. Subsequent Events

On September 19, 2012, the Company announced that the Board of Directors declared a cash dividend of $0.125 per Class A and Common share in respect of the second quarter of fiscal 2013. The dividend is payable on December 17, 2012 to shareholders of record on October 31, 2012.



 


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

 

Non-income Taxes

The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where a sales tax liability with respect to a particular jurisdiction is probable and can be reliably estimated, the Company has made accruals for these matters which are reflected in the Company’s condensed consolidated financial statements.

15. Derivatives and Hedging

The Company enters into foreign currency derivative contracts to economically hedge the exposure to foreign currency fluctuations associated with the forecasted purchase of inventory and the foreign exchange risk associated with certain receivables denominated in foreign currencies. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company marks-to-market these instruments and records the changes in the fair value of these items in current earnings, and it recognizes the unrealized gain or loss in other current assets or liabilities. Unrealized gains of $0.4 and less than $0.1 were recognized at August 31, 2013 and 2012, respectively.

16. Other Accrued Expenses

Other accrued expenses consist of the following as of the dates indicated:

  August 31, 2013  May 31, 2013  August 31, 2012 
Accrued payroll, payroll taxes and benefits $40.3  $45.8  $44.1 
Accrued bonus and commissions  20.7   22.0   25.6 
Accrued other taxes  24.4   29.3   37.2 
Accrued advertising and promotions  33.1   38.2   34.1 
Accrued income taxes  4.4   5.5   6.8 
Accrued insurance  8.9   8.7   8.6 
Other accrued expenses  28.2   30.0   31.7 
Total accrued expenses $160.0  $179.5  $188.1 

17. Subsequent Events

On September 18, 2013, the Company announced that the Board of Directors declared a cash dividend of $0.15 per Class A and Common share in respect of the second quarter of fiscal 2014. The dividend is payable on December 16, 2013 to stockholders of record on October 31, 2013.

23

SCHOLASTIC CORPORATION

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


Overview and Outlook

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

Revenues for the quarter ended August 31, 2012 decreased by $24.4 million, or 7.7%, to $293.6 million, compared to $318.0 million in the prior fiscal year quarter. Lower educational technology product sales in theEducational Technology and Services segment and lower revenues in theClassroom and Supplemental Materials Publishing segment resulted from slower spending by school districts in the fiscal 2013 first quarter, due to uncertainties about the federal budget and the upcoming Common Core State Standards, as well as from difficult prior year comparisons, due to new product launches affecting the first quarter of the prior year, as well as significant, federally funded contracts with Reading is Fundamental in the prior year. Trade revenues also decreased in theChildren’s Book Publishing and Distribution segment primarily as a result of lower sales of the Harry Potter titles compared to the prior year first quarter in which the final Harry Potter movie was released. Although sales of The Hunger Games in the U.S. held level relative to the prior fiscal year quarter, they have substantially decreased, as anticipated, from their peak sales during the fourth quarter of fiscal 2012. Continued sales growth of The Hunger Games abroad and in audio formats, however, contributed to higher profits in theInternational andMedia, Licensing and Advertising segments.

For the quarter ended August 31, 2012, the net loss was $32.1 million, compared to a net loss of $27.1 million in the prior fiscal year quarter, due to the foregoing factors.

During the quarter, the Company prepared for its broad launch of Storia™, its children’s ereading app and ebook system, in tandem with this year’s school openings, and it continues to invest in new education products and is on schedule to introduce MATH 180™ and System 44 Next Generation®, among others, in fiscal 2014. The Company continues to anticipate total revenues of approximately $1.9 billion to $2.0 billion and earnings per diluted share from continuing operations in the range of $2.20 to $2.40, before the impact of any one-time items associated with cost reduction programs or non-cash, non-operating items.

Results of Continuing Operations and Discontinued Operations

Revenues for the quarter ended August 31, 2012 decreased by $24.4 million, or 7.7%, to $293.6 million, compared to $318.0 million in the prior fiscal year quarter. This was due to lower revenues in theEducational Technology and Services, Classroom and Supplemental Materials PublishingandChildren’s Book Publishing and Distribution segments of $16.6 million, $7.8 million and $6.4 million, respectively, partially offset by higher revenues in theMedia, Licensing and Advertising andInternational segments of $3.9 million and $2.5 million, respectively.

Cost of goods sold as a percentage of revenue for the quarter ended August 31, 2012 increased slightly to 51.5%, compared to 50.4% in the prior fiscal year quarter, primarily due to the effect of prepublication and production amortization on lower revenues in the current fiscal quarter, as well as unfavorable product mix related to fewer sales of higher margin educational technology products in the current fiscal quarter.

Components of Cost of goods sold for the three months ended August 31, 2012 and 2011 are as follows:

 

 

 

 

 

 

 

 









 

 

Three months ended

 

 

 

August 31, 2012

 

August 31, 2011

 







Product, service and production costs

 

$

72.6

 

$

79.5

 

Royalty costs

 

 

23.2

 

 

22.9

 

Prepublication and production amortization

 

 

11.7

 

 

11.8

 

Postage, freight, shipping, fulfillment and

 

 

 

 

 

 

 

all other costs

 

 

43.6

 

 

46.2

 









Total

 

$

151.1

 

$

160.4

 









Selling, general and administrative expenses decreased to $173.9 million in the quarter, compared to $175.7 million in the prior fiscal year quarter, due to lower bad debt expenses, primarily in the Company’sClassroom and Supplemental Materials Publishing segment, as well as lower employee-related expenses.



 


Overview and Outlook

 

Revenue for the quarter ended August 31, 2013 was $276.3 million, compared to $293.4 million in the prior fiscal period. The Company reported a loss per share from continuing operations of $0.94 in the current quarter, versus a loss per share from continuing operations of $1.01 in the prior year period.

Current quarter results were largely driven by strong sales of the Company’s new educational technology programs and guided reading programs. Successful product launches inEducational Technology and Services drove segment revenue and operating profit growth of 19% and 46%, respectively. While these results were offset by the lower sales of the Hunger Games trilogy in theChildren’s Book Publishing and Distribution,International andMedia, Licensing and Advertising segments in the first fiscal quarter compared to the prior fiscal period, the first quarter sales of the Hunger Games were within expectations. The Company typically records a loss in its fiscal first quarter, when most U.S. schools are not in session and its school book club and school book fairs school channels generate minimal revenue.

Recent successful product launches, includingSystem 44®Next Generation,MATH 180TM,iReadTM,Common Core Code XTM, andREAD 180for iPad®, demonstrate the Company’s ability to deepen engagement and grow the Company’s market reach among grade levels and subject areas. The Company’s suite of print and digital programs serves to help students reach higher goals and achieve college and career readiness under the new Common Core State Standards, and demand for the Company’s professional development and school improvement services also continues to grow from school districts that are in widely varying stages of implementing these standards. The Company expects this ongoing implementation process to result in a prolonged purchasing period for its instructional programs and services this school year.

Sales of the Hunger Games trilogy during the quarter ended August 31, 2013 were within Company expectations, and the Company anticipates additional interest in the trilogy in anticipation of the Catching Fire film release. Book fair bookings are as expected and, in preparation for the new school year, the Company has redesigned its book club flyers to feature grade-specific titles for children from pre-K to eighth grade. The Company expects these school channels will continue to help families find the right books at the right level for their children, which is increasingly important for students under the Common Core standards.

The Company continues to anticipate total revenues of approximately $1.8 billion and earnings per diluted share from continuing operations in the range of $1.40 to $1.80, before the impact of one-time items associated with cost reduction programs, or non-cash, non-operating items.

24

SCHOLASTIC CORPORATION

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

Results of Operations – Consolidated

Revenues for the quarter ended August 31, 2013 decreased by $17.1 million to $276.3 million, compared to $293.4 million in the prior fiscal period. The reduction was driven by expected lower revenues from the Hunger Games trilogy of $26.2 million in theChildren’s Book Publishing and Distributionsegment, theInternationalsegment and theMedia, Licensing and Advertising segment. Partially offsetting these declines were strong results from new product offerings in the Company’sEducational Technology and Services segment.MATH 180™,iRead™ andCommon Core Code X™,all of which are new product offerings successfully launched for the current school year, resulted in increased revenues of $15.1 million. LowerInternational segment revenues also resulted from a strengthening of the dollar in the current fiscal period compared to the prior fiscal period and the absence of low margin software sales totaling $7.4 million.

Cost of goods sold as a percentage of revenue for the quarter ended August 31, 2013 decreased to 49.9%, compared to 51.4% in the prior fiscal period. Of Company revenues for the quarter, 34.3% were from theEducational Technology and Services segment, compared to 27.3% in the prior fiscal period.The Educational Technology and Services segment experienced significantly higher gross margins than theChildren’s Book Publishing and Distribution segment. The Children’s Book Publishing and Distribution segment revenues decreased to 19.8% of total Company revenues in the quarter, compared to 24.2% in the prior fiscal period. This shift in the composition of revenues resulted in the overall improved gross margins.

Components of Cost of goods sold (exclusive of depreciation) for the three months ended August 31, 2013 and 2012 are as follows:

  Three months ended 
  August 31, 2013  August 31, 2012 
  $  % of Revenue  $  % of Revenue 
Product, service and production costs $66.6   24.1% $72.5   24.7%
Royalty costs  17.4   6.3%  23.2   7.9%
Prepublication and production amortization  13.1   4.7%  11.6   4.0%
Postage, freight, shipping, fulfillment and other  40.8   14.8%  43.5   14.8%
Total $137.9   49.9% $150.8   51.4%

Selling, general and administrative expenses (exclusive of depreciation and amortization) in the quarter ended August 31, 2013 decreased by $5.1 million to $168.4 million, compared to $173.5 million in the prior fiscal period. The Company experienced lower salaries and benefits of $3.7 million compared to the prior fiscal period as a result of prior cost savings initiatives. The Company recognized $2.0 million of severance costs related to cost saving initiatives implemented in the current fiscal quarter.

For the quarter ended August 31, 2013, net interest expense decreased to $1.9 million, compared to $3.7 million in the prior fiscal period, reflecting the April 2013 maturation of the Company’s 5% Notes.

The Company’s effective tax rate for the current fiscal quarter was 37.0%, compared to 37.5% in the prior fiscal period. The Company expects an effective tax rate of approximately 40% for fiscal 2014.

Earnings from discontinued operations, net of tax, for the quarter ended August 31, 2013 was $0.2 million, compared to a loss of $0.4 million in the prior fiscal period. The Company did not discontinue any operations in the current fiscal period.

25

SCHOLASTIC CORPORATION

Item 2. MD&A


Net interest expense decreased slightly to $3.7 million in the quarter ended August 31, 2012, compared to $3.9 million in the prior fiscal year quarter, related to lower debt levels.

The loss from discontinued operations, net of tax, was $0.1 million, or less than $0.01 per share, for the quarter ended August 31, 2012, compared to $2.0 million, or $0.06 per share, in the prior fiscal year quarter. The decrease in such loss reflects asset impairments recognized in the Company’s toy catalog business which was discontinued in the quarter ended August 31, 2011.

Results of Continuing Operations

Children’s Book Publishing and Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

August 31,
2012

 

August 31,
2011

 

$
change

 

%
change

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

71.1

 

$

77.5

 

$

(6.4

)

 

-8.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(55.2

)

 

(50.2

)

 

(5.0

)

 

*

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

*

 

 

 

 

 

 

 


 

Results of Continuing Operations

 

Children’s Book Publishing and Distribution

 

  Three months ended       
($ amounts in millions) August 31, 2013  August 31, 2012  $ change  % change 
             
Revenues $54.6  $70.9  $(16.3)  -23.0%
                 
Cost of goods sold (exclusive of depreciation)  36.6   41.9   (5.3)  -12.6%
                 
Other operating expenses *  75.5   80.1   (4.6)  -5.7%
                 
Depreciation and amortization  4.0   3.8   0.2   5.3%
Operating income (loss) $(61.5) $(54.9) $(6.6)    
                 
Operating margin              

 

*

Not meaningful

*Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.

Revenues in theChildren’s Book Publishing and Distribution segment for the quarter ended August 31, 2012 decreased by $6.4 million, or 8.3%, to $71.1 million, compared to $77.5 million in the prior fiscal year quarter. This decrease was primarily related to lower revenue in the Company’s trade business, reflecting lower sales of Harry Potter titles relative to the prior fiscal year quarter when the final Harry Potter movie was released, partially offset by strong sales of other new titles. Sales of The Hunger Games trilogy were level with the prior fiscal year quarter, but have decreased substantially, as anticipated, from the fourth quarter of fiscal 2012, when sales of the series in the U.S. reached their peak. School book clubs and book fairs have minimal activity in the Company’s first fiscal quarter, as most schools are not in session.

Segment operating loss for the quarter ended August 31, 2012 was $55.2 million, compared to a loss of $50.2 million in the prior fiscal year quarter, principally due to the Company’s continued investment in its digital initiatives.

Educational Technology and Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

August 31,
2012

 

August 31,
2011

 

$
change

 

%
change

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

80.0

 

$

96.6

 

$

(16.6

)

 

-17.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

24.8

 

 

38.8

 

 

(14.0

)

 

-36.1

%











 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

31.0

%

 

40.2

%

 

 

 

 

 

 

Revenues in theEducational Technology and Servicessegment for the quarter ended August 31, 2012 decreased by $16.6 million, to $80.0 million, compared to $96.6 million in the prior fiscal year quarter, reflecting lower spending by school districts in the first quarter of fiscal 2013, as well as strong sales of new products in the prior fiscal year quarter.

Segment operating income for the quarter ended August 31, 2012 decreased by $14.0 million to $24.8 million, compared to $38.8 million in the prior fiscal year quarter, reflecting the decline in higher-margin curriculum product sales in the quarter, partially offset by increased sales of consulting services and assessment programs.



 


Revenues for the quarter ended August 31, 2013 decreased by $16.3 million to $54.6 million, compared to $70.9 million in the prior fiscal period. Lower revenues in the Company’s trade channel reflected decreased sales of the Hunger Games trilogy of $15.8 million compared to the prior fiscal period. The decrease in Hunger Games revenues includes $11.5 million of high margin digital products. Trade revenues from other titles increased in the quarter due to strong demand for Harry Potter titles and front list titles such asStar Wars: Jedi Academy by Jeffrey Brown, The Adventures of Captain Underpants: Color Editionby Dav Pilkey, andGeronimo Stilton and the Kingdom of Fantasy #5: The Volcano of Fire. Revenues from book fairs and book clubs, the segment’s school channels, decreased by $1.0 million due primarily to the timing of school openings. School channel revenues are not significant in the first quarter of the year, as schools are not in session.

 

Cost of goods sold for the quarter ended August 31, 2013 was $36.6 million, or 67.0% of revenues, compared to $41.9 million, or 59.1% of revenues, in the prior fiscal period. The absolute decrease in cost of goods sold of $5.3 million is due to the lower level of Hunger Games sales in the current period compared to the first quarter of fiscal 2013. Cost of goods sold as a percentage of revenue increased due to the aforementioned decrease in Hunger Games digital titles, which carry higher gross margins than physical product.

Other operating expenses declined to $75.5 million for the quarter ended August 31, 2013, compared to $80.1 million in the prior fiscal period, due to $1.7 million of lower promotional expenses and decreased administrative expenses.

Segment operating loss for the quarter ended August 31, 2013 increased by $6.6 million to $61.5 million, compared to $54.9 million in the prior fiscal period. The prior fiscal period benefited from the success of the Hunger Games trilogy. The segment generally experiences losses in the first quarter as the school channels are incurring expenses in preparation for the upcoming school year, but do not yet have significant revenues.

26

SCHOLASTIC CORPORATION

Item 2. MD&A


Classroom and Supplemental Materials Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

August 31,
2012

 

August 31,
2011

 

$
change

 

%
change

 











 

 

 

 

 

 

 

 

 

 

Revenues

 

$

37.9

 

$

45.7

 

$

(7.8

)

 

-17.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(2.6

)

 

2.1

 

 

(4.7

)

 

*

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

4.6

%

 

 

 

 

 

 


 

Educational Technology and Services

 

  Three months ended       
($ amounts in millions) August 31, 2013  August 31, 2012  $ change  % change 
             
Revenues $94.8  $80.0  $14.8   18.5%
                 
Cost of goods sold (exclusive of depreciation)  28.1   25.7   2.4   9.3%
                 
Other operating expenses *  30.2   29.2   1.0   3.4%
                 
Depreciation and amortization  0.3   0.3      0.0%
Operating income (loss) $36.2  $24.8  $11.4     
                 
Operating margin  38.2%  31.0%        

 

*Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.

 

*

Not meaningful

Revenues in theClassroom and Supplemental Materials Publishingsegment for the quarter ended August 31, 2012 decreased by $7.8 million, or 17.1%, to $37.9 million, compared to $45.7 million in the prior fiscal year quarter, when results benefitted significantly from non-recurring contracts with Reading Is Fundamental, prior to the expiration of federal funds for the program, as well as new product launches.Revenues for the quarter ended August 31, 2013 increased by $14.8 million to $94.8 million, compared to $80.0 million in the prior fiscal period. The increase was driven by strong customer demand for newly launched products suchas MATH 180,iRead andCommon Core Code X. Collectively these new products accounted for $15.1 million of increased revenues in the current period. Revenues from the Company’s curriculum technology reading platforms increased $1.8 million, as increased revenues from sales ofSystem 44®Next Generation were partially offset by revenue declines for Read 180. The current year’s success ofSystem 44®Next Generation, which was released late in fiscal 2013, continues the Company’s leading position as a provider of interventive reading technology solutions. Revenues from other products and services declined modestly.

Segment operating loss was $2.6 million compared to operating income of $2.1 million in the prior fiscal quarter. The $4.7 million decline in results was primarily due to the lower revenues noted above.

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

August 31,
2012

 

August 31,
2011

 

$
change

 

%
change

 











 

 

 

 

 

 

 

 

 

 

Revenues

 

$

90.2

 

$

87.7

 

$

2.5

 

 

2.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

2.8

 

 

(0.1

)

 

2.9

 

 

*

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

3.1

%

 

*

 

 

 

 

 

 

 


 

Cost of goods sold increased to $28.1 million, or 29.6% of revenues, in the quarter ended August 31, 2013, compared to $25.7 million, or 32.1% of revenues in the prior period. The modest decrease in Cost of goods sold as a percentage of revenue was primarily due to lower relative royalty and other content costs for newly released products.

 

Other operating expenses for the quarter ended August 31, 2013 increased by $1.0 million to $30.2 million, compared to $29.2 million in the prior fiscal period. The increase was due to higher commission expense of $1.6 million associated with the increased revenues.

 

Segment operating income for the quarter ended August 31, 2013 increased by $11.4 million to $36.2 million, compared to $24.8 million in the prior fiscal period. The segment benefited from the anticipated strong demand for the new products referred to above. These new products:

 

*

Not meaningful

·broaden the Company’s curriculum offering and market presence, notably in mathematics;

Revenues in the Internationalsegment for the quarter ended August 31, 2012 increased by $2.5 million, or 2.9%, to $90.2 million, compared to $87.7 million in the prior fiscal year quarter, due to favorable results in the Company’s UK and Canada operations, partly reflecting continued strong sales of The Hunger Games series, partially offset by lower sales in Asia and the negative impact of foreign currency exchange rates of $4.4 million.

Segment operating income for the quarter ended August 31, 2012 was $2.8 million, compared to an operating loss of $0.1 million in the prior fiscal year quarter, primarily due to the higher revenues noted above, partially offset by the negative impact of foreign currency exchange rates.



·assist educators in the implementation of Common Core State Standards; and
·enable more technology solutions to be incorporated in the classroom.

27

SCHOLASTIC CORPORATION

Item 2. MD&A


Media, Licensing and Advertising

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

August 31,
2012

 

August 31,
2011

 

$
change

 

%
change

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

14.4

 

$

10.5

 

$

3.9

 

 

37.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(0.0

)

 

(4.6

)

 

4.6

 

 

*

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

*

 

 

 

 

 

 

 


 

Classroom and Supplemental Materials Publishing

 

  Three months ended       
($ amounts in millions) August 31, 2013  August 31, 2012  $ change  % change 
             
Revenues $37.8  $37.9  $(0.1)  -0.3%
                 
Cost of goods sold (exclusive of depreciation)  15.7   16.6   (0.9)  -5.4%
                 
Other operating expenses *  23.4   23.5   (0.1)  -0.4%
                 
Depreciation and amortization  0.3   0.4   (0.1)  -25.0%
Operating income (loss) $(1.6) $(2.6) $1.0     
                 
Operating margin              

 

*Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.

 

*Revenues for the quarter ended August 31, 2013 of $37.8 million were flat compared to prior period revenues of $37.9 million. The current period experienced higher revenues of $2.1 million for classroom books driven by demand for the Company’s customized digital and print institutional packages. Offsetting this was decreased revenues from classroom magazines related to the absence of election year materials of $1.0 million and lower sales of branded library products of $1.0 million.

Not meaningful

Revenues in the Media, Licensing and Advertising segment for the quarter ended August 31, 2012 increased by $3.9 million, or 37.1%, to $14.4 million, compared to $10.5 million in the prior fiscal year quarter. The increase in revenues was primarily due to strong audio format sales of The Hunger Games.

Segment operating loss for the quarter ended August 31, 2012 was less than $0.1 million, compared to a loss of $4.6 million in the prior fiscal year quarter, primarily related to the increased revenue referred to above.

Overhead

Corporate overhead for the quarter ended August 31, 2012 decreased by $1.9 million to $17.3 million, compared to $19.2 million in the prior fiscal year quarter, primarily related to the timing of spending on the Company’s digital initiatives.



 


Cost of goods sold for the quarter ended August 31, 2013 was $15.7 million, or 41.5% of revenue, compared to $16.6 million, or 43.8% of revenue, in the prior fiscal period. Reduced postage expense accounted for most of the decline.

 

Other operating expenses for the quarter ended August 31, 2013 were $23.4 million, and were flat to the prior period.

Segment operating loss for the quarter ended August 31, 2013 improved modestly to $1.6 million, compared to an operating loss of $2.6 million in the prior fiscal period. The classroom magazines business continues to experience improved circulation as customers seek supplemental content to meet Common Core State Standards.Additionally, the segment is receiving positive feedback from customers for recently launched customized digital and print instructional packages, broadening the offering to classrooms.

28

SCHOLASTIC CORPORATION

Item 2. MD&A

International

  Three months ended       
($ amounts in millions) August 31, 2013  August 31, 2012  $ change  % change 
             
Revenues $78.7  $90.2  $(11.5)  -12.7%
                 
Cost of goods sold (exclusive of depreciation)  38.4   46.1   (7.7)  -16.7%
                 
Other operating expenses *  39.8   40.1   (0.3)  -0.7%
                 
Depreciation and amortization  1.2   1.2      0.0%
Operating income (loss) $(0.7) $2.8  $(3.5)    
                 
Operating margin     3.1%        

*Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.

Revenues for the quarter ended August 31, 2013 decreased by $11.5 million to $78.7 million, compared to $90.2 million in the prior fiscal period. This decrease was due to lower Hunger Games revenues of $6.1 million across the segment; decreased low-margin revenues of $3.1 million from an Australian software business; and a negative foreign exchange impact of $4.3 million as the dollar strengthened against foreign currencies. Offsetting these declines were improved revenues from Asian markets of $1.7 million spread across the region.

Cost of goods sold for the quarter ended August 31, 2013 was $38.4 million, or 48.8% of sales, compared to $46.1 million, or 51.1% of sales, in the prior fiscal period. The decrease as a percentage of revenue was due to the planned decline in low-margin revenues from the Australian software business.

Other operating expenses for the current quarter included $0.6 million of severance expense related to cost savings initiatives in the Company’s Asia operations.

Segment operating results for the quarter ended August 31, 2013 decreased by $3.5 million to a loss of $0.7 million, compared to income of $2.8 million in the prior fiscal period.The decrease is primarily due to the decrease in Hunger Games sales in the UK and Canada. The decrease in sales from the Australian software business did not significantly impact earnings, as these sales were low margin sales. The Company continues to invest in English language educational businesses, centered in Singapore, which it views as a future growth driver.

29

Seasonality

SCHOLASTIC CORPORATION

Item 2. MD&A

Media, Licensing and Advertising

  Three months ended       
($ amounts in millions) August 31, 2013  August 31, 2012  $ change  % change 
             
Revenues $10.4  $14.4  $(4.0)  -27.8%
                 
Cost of goods sold (exclusive of depreciation)  4.5   5.2   (0.7)  -13.5%
                 
Other operating expenses *  7.7   8.9   (1.2)  -13.5%
                 
Depreciation and amortization  0.1   0.1      0.0%
Operating income (loss) $(1.9) $0.2  $(2.1)    
                 
Operating margin     1.4%        

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
*Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.

Revenues for the quarter ended August 31, 2013 decreased by $4.0 million to $10.4 million, compared to $14.4 million in the prior fiscal period. This decrease was related to decreased sales of the Hunger Games trilogy audio books of $4.3 million. Revenues for Company programming were flat, as a recent Netflix contract, which includes Goosebumps and Magic School Bus titles, largely offset lower prior period revenues of older Company programming.

Cost of goods sold was $4.5 million, or 43.3% of revenue, for the quarter ended August 31, 2013, compared to $5.2 million, or 36.1% of revenue, for the prior fiscal period. The absolute decline in Cost of goods sold is due to the reduced royalty expenses of $0.9 million associated with the sale of the Hunger Games audio titles.

Other operating expenses were $7.7 million for the quarter ended August 31, 2013, compared to $8.9 millionfor the prior fiscal period. The improvement was driven by lower administrative and technology costs.

Segment operating loss for the quarter ended August 31, 2013 was $1.9 million, compared to operating income of $0.2 million in the prior fiscal period. The decline was due entirely to the decrease in sales of the Hunger Games audio books. The segment continues to decrease its reliance on low-margin console products and is focusing its efforts on repurposing content for digital platforms, both internally and by partnering with distributors such as Netflix.

30

SCHOLASTIC CORPORATION

Item 2. MD&A

Overhead

Unallocated overhead expense for the quarter ended August 31, 2013 decreased $0.9 million to $16.4 million, from $17.3 million in the prior fiscal period, primarily due to lower employee-related expenses of $2.9 million, partially offset by $1.4 million of severance related to cost savings initiatives.

Seasonality

The Company’sChildren’s Book Publishing and Distribution school-based channels 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, these school-based channel 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 and services are highest in the first and fourth quarters. The Company generally experiences a loss from operations in the first and third quarters of each fiscal year. Trade sales can vary through the year due to varying release dates of published titles.



31

SCHOLASTIC CORPORATION

Item 2. MD&A


Liquidity and Capital Resources

The Company’s cash and cash equivalents totaled $193.1 million at August 31, 2012, compared to $194.9 million at May 31, 2012 and $33.7 million at August 31, 2011.

Cash provided by operating activities was $34.2 million for the quarter ended August 31, 2012, compared to cash used in operating activities of $49.3 million in the prior fiscal year period, representing an increase in cash provided by operating activities of $83.5 million.

Primary drivers of the improvement include:

 

Liquidity and Capital Resources

 

The Company’s cash and cash equivalents totaled $15.8 million at August 31, 2013, $87.4 million at May 31, 2013 and $193.1 million at August 31, 2012.

 

$104.3 million increaseCash used in net collections primarily attributable to fourth quarter 2012 sales performance in the Company’sChildren’s Book Publishing and Distribution (primarily The Hunger Games) andEducational Technology and Servicessegments.

$47.8operating activities was $70.8 million cash improvement related to favorable accounts payable management, lower inventory purchases and timing of payments.

Partially offset by:

Lower earnings for the quarter ended August 31, 2013, compared to cash provided by operating activities of $34.2 million for the prior fiscal period, representing a decrease in cash provided by operating activities of $105.0 million. In the fourth quarter of fiscal 2012, the Company experienced strong sales of the Hunger Games trilogy titles, and subsequently collected significant cash from these customers in the first quarter of fiscal 2013. Partially offsetting these collections were higher payouts for incentive compensation of $28.7 million in the first quarter of fiscal 2013. Net income and purchasing activity were consistent with the prior fiscal period. The Company’s book fairs and book clubs utilize the first quarter of the fiscal year to build inventory for the upcoming school year, and such inventory balances increased by over $100 million in both periods presented.

Cash used in investing activities was $24.0 million for the quarter ended August 31, 2013, compared to $30.3 million in the prior fiscal period. The difference is attributable to higher spending on technology assets of $3.3 million and higher spending on book fairs fleet vehicles of $2.8 million in the prior fiscal period. In the current quarter, the Company invested $1.0 million for a 20% interest in a software development entity.

Cash provided by financing activities was $24.0 million for the quarter ended August 31, 2013, compared to cash used in financing activities of $6.7 million for the prior fiscal period. Current year net short-term borrowings totaled $27.1 million compared to net repayments of $5.8 million in the prior fiscal period. Proceeds pursuant to employee stock plans declined $1.5 million, in part due to a decrease in the amount of stock options held by employees.

Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative cash flows in the June through October time period. As a result of the Company’s business cycle, borrowings have historically increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in May. In recent years, the Company had fixed debt in the form of the 5% Notes, which, while providing liquidity, resulted in high cash balances throughout the year. As the 5% Notes matured in fiscal 2013, the Company will experience lower average debt and lower average cash balances in fiscal 2014.

The Company’s operating philosophy is to use cash provided by operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses, as well as higher employee-incentive payouts.engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. In the first quarter of fiscal 2014, the Company purchased $0.4 million of Company shares on the open market.

Cash used in investing activities was $30.3 million for the three months ended August 31, 2012, compared to $18.7 million in the prior year fiscal quarter, representing an increase of $11.6 million. This increase is related primarily to higher spending on property, plant and equipment. The Company continues to invest in its ongoing digital initiatives.

Cash used in financing activities was $6.7 million for the three months ended August 31, 2012, compared to $4.0 million for the prior fiscal year period, primarily reflecting lower borrowings under lines of credit, as well as increased dividends, offset partially by an increase in proceeds pursuant to stock based compensation plans.

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

The Company’s operating philosophy is to use cash provided from operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. The Company believes that funds generated by its operations and funds available under its current credit facilities, after the anticipated use of the credit facility to satisfy its repayment obligations in respect of the 5% Notes due in fiscal 2013, will be sufficient to finance its short-and long-term capital requirements.



 

The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, dividends, currently authorized common share repurchases, debt service, planned capital expenditures and other investments. As of August 31, 2013, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $15.8 million, cash from operations, and funding available under the Revolving Loan totaling approximately $410.0 million, net of current borrowings of $15.0 million. Additionally, the Company has short-term credit facilities of $35.6 million, net of current borrowings of $14.2 million. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million). Accordingly, the Company believes these sources of liquidity are sufficient to finance its ongoing operating needs, as well as its financing and investing activities.

32

SCHOLASTIC CORPORATION

Item 2. MD&A


The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund on-going operations, including pension contributions, dividends, currently authorized common share repurchases, debt service, planned capital expenditures and other investments. As of August 31, 2012, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $193.1 million, cash from operations and borrowings available under the Revolving Loan (as described under “Financing” below) totaling $325.0 million, less the amount anticipated to be utilized to satisfy the outstanding 5% Notes. The Company may at any time, but in any event not more than once in any calendar year, request that the aggregate availability of credit under the Revolving Loan be increased by an amount of $10.0 million or an integral multiple of $10.0 million (but not to exceed $150.0 million). Accordingly, the Company believes these sources of liquidity are sufficient to finance its on-going operating needs, as well as its financing and investing activities.

The Company’s credit rating from Standard & Poor’s Rating Services is “BB-” and its credit rating from Moody’s Investors Service is “Ba1.” Both Moody’s Investors Service and Standard and Poor’s Rating Services have rated the outlook for the Company as “Stable.” The Company is currently compliant with its debt covenants and expects to remain compliant for the foreseeable future. The Company’s interest rates for the Loan Agreement are associated with certain leverage ratios, and, accordingly, a change in the Company’s credit rating does not result in an increase in interest costs under the Company’s Loan Agreement.

The Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2012, to extend the maturity date to June 1, 2014. The Company intends to draw on this credit facility to satisfy its repayment obligations in respect of the 5% Notes due April 2013.

Financing

Loan Agreement

On June 1, 2007, Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered into a $525.0 million credit facility with certain banks (the “Loan Agreement”), consisting of a $325.0 million revolving credit component (the “Revolving Loan”) and a $200.0 million amortizing term loan component (the “Term Loan”). The Loan Agreement was amended on August 16, 2010, and again on October 25, 2011. The October 25, 2011 amendment 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 $325.0 million Revolving Loan allows the Company to borrow, repay or prepay and reborrow at any time prior to the stated maturity date, and the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases. The Loan Agreement also provides for an increase in the aggregate Revolving Loan commitments of the lenders of up to an additional $150.0 million.

Interest on the 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). The interest pricing under the Revolving Loan is dependent upon the Borrower’s election of a rate that is either:

 

Financing

 

Loan Agreement

 

A Base Rate equalThere were outstanding borrowings totaling $15.0 million under the Loan Agreement as of August 31, 2013.For a more complete description of the Company’s Loan Agreement seeNote 4 of Notes to Condensed Consolidated Financial Statements-Unaudited in Item 1, “Financial Statements.”

New Accounting Pronouncements

Reference is made to Note 1 of Notes to condensed consolidated financial statements in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the higherfiling 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 determinedCompany’s Annual Report.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements.Additional written and oral forward-looking statements may be made by the Company’s prevailing consolidated debtCompany from time to total capital ratio.

                    - or -

A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.

As of August 31, 2012, the indicated spread on Base Rate Advances was 0.18% and the indicated spread on Eurodollar Rate Advances was 1.18%, both based on the Company’s prevailing consolidated debt to total capital ratio.

The Loan Agreement also provides for the payment of a facility fee ranging from 0.20% to 0.40% per annum based upon the Company’s prevailing consolidated debt to total capital ratio. At August 31, 2012, the facility fee rate was 0.20%.

There were no outstanding borrowings under the Revolving Loan as of August 31, 2012.




time inSCHOLASTIC CORPORATION

Item 2. MD&A


As of August 31, 2012, standby letters of credit outstanding under the Loan Agreement totaled $1.4 million. The Loan Agreement contains certain covenants, including interest coverage and leverage ratio tests and certain limitations on the amount of dividends and other distributions, and at August 31, 2012, the Company was in compliance with these covenants.

Lines of Credit

The Company has unsecured money market bid rate credit lines totaling $20.0 million. There were no outstanding borrowings under these credit lines at August 31, 2012, May 31, 2012 and August 31, 2011. All loans made under these credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of August 31, 2012, the Company also had various local currency credit lines, with maximum available borrowings in amounts equivalent to $33.8 million, underwritten by banks primarily in the United States, Canada, Australia and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these international facilities equivalent to $0.6 million at August 31, 2012 at a weighted average interest rate of 4.9%; $6.5 million at May 31, 2012 at a weighted average interest rate of 5.3%; and $7.9 million at August 31, 2011 at a weighted average interest rate of 4.0%.

5% Notes due 2013

In April 2003, Scholastic Corporation issued $175.0 million of 5% Notes (the “5% Notes”). The 5% Notes are senior unsecured obligations that mature on April 15, 2013. Interest on the 5% Notes is payable semi-annually on April 15 and October 15 of each year through maturity. The Company may at any time redeem all or a portion of the 5% Notes at a redemption price (plus accrued interest to the date of the redemption) equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption. The Company did not make any additional repurchases of the 5% Notes during the three-month period ended August 31, 2012.

The Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2012, to extend the maturity date to June 1, 2014. The Company has the ability to use a portion of this credit facility to fully redeem the 5% Notes due April 2013 and intends to draw on this credit facility for this purpose. Accordingly, the balance of the Notes is excluded from current liabilities and classified as Long-term debt on the Company’s condensed consolidated balance sheet at August 31, 2012 and May 31, 2012.

At August 31, 2012, the Company had open standby letters of credit totaling $6.6 million issued under certain credit lines, including the $1.4 million under the Loan Agreement discussed above. These letters of credit are scheduled to expire within one year; however, the Company expects that substantially all of these letters of credit will be renewed, at similar terms, prior to expiration.

The Company’s total debt obligations were $153.4 million at August 31, 2012, $159.3 million at May 31, 2012 and $200.0 million at August 31, 2011. The lower level of debt at August 31, 2012 and May 31, 2012 was primarily due to the payment of the Term Loan.

For a more complete description of the Company’s debt obligations, see Note 4 of Notes to condensed consolidated financial statements – unaudited in Item 1, “Financial Statements.”




SCHOLASTIC CORPORATION

Item 2. MD&A


New Accounting Pronouncements

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




SCHOLASTIC CORPORATION

Item 2. MD&A


Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission (“SEC”) filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, plans, ecommerce and digital initiatives, such as Storia, new product introductions, strategies, Common Core State Standards, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, pension estimates, merit pay, operating margins, working capital, liquidity, capital needs, financing intentions, interest costs, cash flows and income, are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and other risks and factors identified from time to time in the Company’s filings with the SEC.

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



33

SCHOLASTIC CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk


The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. Additionally, the Company sells products from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts. As of August 31, 2012, the use of short-term forward exchange contracts was not significant. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates, which are managed through the mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments, including swap agreements, have been used to manage interest rate exposures. Less than 1% of the Company’s debt at August 31, 2012 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately 4% at May 31, 2012 and approximately 25% at August 31, 2011. The decrease in variable-rate debt as of August 31, 2012 and May 31, 2012 compared to August 31, 2011 was primarily due to repayments made on the Term Loan. The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.

Additional information relating to the Company’s outstanding financial instruments is included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following table sets forth information about the Company’s debt instruments as of August 31, 2012 (see Note 4 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements”):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Fiscal Year Maturity

 





 

 

2013(1)

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

Fair
Value @
8/31/12

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of Credit

 

$

0.6

 

$

 

$

 

$

 

$

 

$

 

$

0.6

 

$

0.6

 

Average interest rate

 

 

4.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt including current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt

 

$

 

$

 

$

153.0

 

$

 

$

 

$

 

$

153.0

 

$

153.6

 

Average interest rate

 

 

 

 

 

 

5.0

%

 

 

 

 

 

 

 

 

 

 

 

 




























 

The Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. The Company sells products from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts which were not significant as of August 31, 2013. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

 

(1)

Fiscal 2013 includesAdditional information relating to the remaining nine monthsCompany’s outstanding financial instruments is included in Note 4 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements”

The following table sets forth information about the current fiscal year, ending May 31, 2013.Company’s debt instruments as of August 31:

($ amounts in millions) Fiscal Year Maturity
  2014(1) 2015 2016 2017 2018 Thereafter Total Fair
Value @
8/31/13
 
                          
Debt Obligations                         
Lines of Credit $14.2 $ $ $ $ $ $14.2 $14.2 
Average interest rate  3.6%                
                          
Short-term debt                         
Fixed-rate debt $15.0 $ $ $ $ $ $15.0 $15.0 
Average interest rate  1.4%                

(1)Fiscal 2014 includes the remaining nine months of the current fiscal year, ending May 31, 2014.


34

 


SCHOLASTIC CORPORATION

Item 4. Controls and Procedures

 


The Chief Executive Officer and the Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of August 31, 2012, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended August 31, 2012

The Chief Executive Officer and the Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of August 31, 2013, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended August 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.



35

 


PART II – OTHER INFORMATION

 

SCHOLASTIC CORPORATION

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

The following table provides information with respect to repurchases of shares of Common Stock by the Corporation during the three months ended August 31, 2013:

Issuer Purchases of Equity Securities
 
(Dollars in millions, except per share amounts)
Period Total number of
shares purchased
  Average
price paid
per share
  Total number of shares
purchased as part of publicly
announced plans or
programs
 Maximum number of shares (or
approximate dollar value) that may yet be
purchased under the plans or programs
(i)
June 1, 2013 through June 30, 2013    $     $19.6 
July 1, 2013 through July 31, 2013    $     $19.6 
August 1, 2013 through August 31, 2013  21,034  $29.60   21,034  $19.0 
                 
Total  21,034  $29.60   21,034  $19.0 

(i) Represents the remaining amount under the $20 million Common share repurchase program announced on December 16, 2009 and the further $200 million Board authorization for Common share repurchases announced in connection with the modified Dutch auction tender offer commenced by the Company on September 28, 2010 and completed in November 2010. Approximately $156 million was used for repurchases in such tender offer, leaving, after subsequent additional open market repurchases of $24.4 million, $19.6 million at June 1, 2013 for further repurchases, from time to time as conditions allow, on the open market or through negotiated private transactions, under the current Board authorization.

36

SCHOLASTIC CORPORATION

Item 6. Exhibits


Exhibits:

 

 

31.1

Exhibits:
31.1Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Document
101.DEFXBRL Taxonomy Extension Definitions Document
101.LABXBRL Taxonomy Extension Labels Document
101.PRE

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

31.2

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

32

Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Document

101.DEF

XBRL Taxonomy Extension Definitions Document

101.LAB

XBRL Taxonomy Extension Labels Document

101.PRE

XBRL Taxonomy Extension Presentation Document



37

 


SCHOLASTIC CORPORATION

SIGNATURES

 

SCHOLASTIC CORPORATION

SIGNATURES

 


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

 

SCHOLASTIC CORPORATION
(Registrant)
Date: September 27, 2013By:/s/ Richard Robinson
Richard Robinson
Chairman of the Board,
President and Chief
Executive Officer
Date: September 27, 2013By:/s/ Maureen O’Connell
Maureen O’Connell
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer

SCHOLASTIC CORPORATION

(Registrant)

Date: September 28, 2012

By:

/s/ Richard Robinson


Richard Robinson

Chairman of the Board,

President and Chief

Executive Officer

Date: September 28, 2012

By:

/s/ Maureen O’Connell


Maureen O’Connell

Executive Vice President,

Chief Administrative Officer

and Chief Financial Officer

(Principal Financial Officer)



38

 


SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED AUGUST 31, 20122013

Exhibits Index

 



 

Exhibit Number  Description of Document  
31.1Certification of the Chief Executive Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of the Chief Financial Officer of Scholastic Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document *
101.SCHXBRL Taxonomy Extension Schema Document *
101.CALXBRL Taxonomy Extension Calculation Document *
101.DEFXBRL Taxonomy Extension Definitions Document *
101.LABXBRL Taxonomy Extension Labels Document *
101.PREXBRL Taxonomy Extension Presentation Document *

 

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

39

Exhibit Number

Description of Document



31.1

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

31.2

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

32

Certifications of the Chief Executive Officer and Chief Financial Officer of Scholastic Corporation furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document *

101.SCH

XBRL Taxonomy Extension Schema Document *

101.CAL

XBRL Taxonomy Extension Calculation Document *

101.DEF

XBRL Taxonomy Extension Definitions Document *

101.LAB

XBRL Taxonomy Extension Labels Document *

101.PRE

XBRL Taxonomy Extension Presentation Document *

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

38