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 February 28,November 30, 2013

Commission File No. 000-19860


 

SCHOLASTIC CORPORATION

SCHOLASTIC CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware

13-3385513

Delaware

13-3385513

(State or other jurisdiction of


incorporation or organization)

(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 February 28,November 29, 2013



Common Stock, $.01 par value

30,239,455

30,152,753

Class A Stock, $.01 par value

1,656,200



1

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED November 30, 2013

INDEX

 

SCHOLASTIC CORPORATION

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2013

INDEX



Page


Part I - Financial Information

Page

Item 1.

Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)

3

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

4

Condensed Consolidated Balance Sheets (Unaudited)

5

Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

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

26

 24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

34

Item 4.

Controls and Procedures

40

35

Part II – Other Information

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

36

Item 6.

Exhibits

Exhibits

42

37

Signatures

43

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
November 30,
  Six months ended
November 30,
 
  2013  2012  2013  2012 
Revenues $623.2  $613.5  $899.5  $906.9 
                 
Operating costs and expenses:                
Cost of goods sold (exclusive of depreciation and amortization)  264.8   262.0   402.7   412.8 
Selling, general and administrative expenses (exclusive of depreciation and amortization)  234.4   232.8   402.8   406.3 
Depreciation and amortization  15.9   16.7   31.8   32.8 
Asset impairments  13.4   -   13.4   - 
Total operating costs and expenses  528.5   511.5   850.7   851.9 
Operating income (loss)  94.7   102.0   48.8   55.0 
                 
Interest expense, net  (2.1)  (3.7)  (4.0)  (7.4)
Earnings (loss) from continuing operations before income taxes  92.6   98.3   44.8   47.6 
                 
Provision (benefit) for income taxes  34.3   35.7   16.6   16.7 
                 
Earnings (loss) from continuing operations  58.3   62.6   28.2   30.9 
Earnings (loss) from discontinued operations, net of tax  0.0   (0.8)  0.2   (1.2)
Net income (loss) $58.3  $61.8  $28.4  $29.7 
                 
Basic and diluted earnings (loss) per Share of Class A and Common Stock                
Basic:                
Earnings (loss) from continuing operations $1.82  $1.95  $0.88  $0.97 
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.02) $0.01  $(0.04)
Net income (loss) $1.82  $1.93  $0.89  $0.93 
Diluted:                
Earnings (loss) from continuing operations $1.80  $1.91  $0.87  $0.95 
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.02) $0.01  $(0.04)
Net income (loss) $1.80  $1.89  $0.88  $0.91 
                 
Dividends declared per class A and common share $0.150  $0.125  $0.275  $0.250 

Item 1. Financial Statements


SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollar amounts in millions, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

 

 

 

 

 

 

February 28, 2013

 

February 29, 2012

 

February 28, 2013

 

February 29, 2012

 











Revenues

 

$

380.5

 

$

467.0

 

$

1,290.3

 

$

1,470.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

 

 

191.1

 

 

219.6

 

 

605.6

 

 

665.7

 

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

 

 

200.6

 

 

242.5

 

 

609.7

 

 

656.1

 

Depreciation and amortization

 

 

16.5

 

 

16.0

 

 

49.3

 

 

46.6

 

Loss on leases and asset impairments

 

 

 

 

0.8

 

 

 

 

7.0

 















Total operating costs and expenses

 

 

408.2

 

 

478.9

 

 

1,264.6

 

 

1,375.4

 















Operating income (loss)

 

 

(27.7

)

 

(11.9

)

 

25.7

 

 

94.9

 

Other income (expense)

 

 

0.0

 

 

0.0

 

 

0.0

 

 

0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

4.1

 

 

3.9

 

 

11.5

 

 

11.7

 















Earnings (loss) from continuing operations before income taxes

 

 

(31.8

)

 

(15.8

)

 

14.2

 

 

83.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

(11.7

)

 

(5.9

)

 

4.4

 

 

34.9

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

 

(20.1

)

 

(9.9

)

 

9.8

 

 

48.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

 

(0.0

)

 

(0.4

)

 

(0.2

)

 

(2.9

)















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(20.1

)

$

(10.3

)

$

9.6

 

$

45.4

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(0.63

)

$

(0.32

)

$

0.31

 

$

1.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.01

)

$

(0.01

)

$

(0.09

)

Net income (loss)

 

$

(0.63

)

$

(0.33

)

$

0.30

 

$

1.45

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(0.63

)

$

(0.32

)

$

0.30

 

$

1.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.01

)

$

(0.01

)

$

(0.09

)

Net income (loss)

 

$

(0.63

)

$

(0.33

)

$

0.29

 

$

1.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per Class A and Common Share

 

$

0.125

 

$

0.125

 

$

0.375

 

$

0.325

 















See accompanying notes




SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(Dollar amounts in millions)


3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

February 28,

2013

 

February 29,

2012

 

February 28,

2013

 

February 29,

2012

 











Net income (loss)

 

$

(20.1

)

$

(10.3

)

$

9.6

 

$

45.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(5.2

)

 

3.7

 

 

1.9

 

 

(2.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and post-retirement adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service credit

 

 

(0.1

)

 

(0.2

)

 

(0.3

)

 

(0.5

)

Amortization of unrecognized gains and losses included in net periodic cost

 

 

0.8

 

 

1.1

 

 

3.9

 

 

4.2

 















Total other comprehensive income (loss)

 

$

(4.5

)

$

4.6

 

$

5.5

 

$

1.5

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 















Comprehensive income (loss)

 

$

(24.6

)

$

(5.7

)

$

15.1

 

$

46.9

 















SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(Dollar amounts in millions)

  Three months ended
November 30,
  Six months ended
November 30,
 
  2013  2012  2013  2012 
Net income (loss) $58.3  $61.8  $28.4  $29.7 
                 
Other comprehensive income (loss), net:                
Foreign currency translation adjustments  3.0   2.5   (2.6)  7.6 
                 
Pension and post-retirement adjustments:                
Amortization of prior service cost (credit)  (0.0)  (0.1)  (0.1)  (0.2)
Amortization of unrecognized gain (loss) included in net periodic cost  0.5   1.4   1.4   2.6 
Total other comprehensive income (loss) $3.5  $3.8  $(1.3) $10.0 
                 
Comprehensive income (loss) $61.8  $65.6  $27.1  $39.7 

See accompanying notes




SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollar amounts in millions, except per share data)


4

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 












Cash and cash equivalents

 

$

196.7

 

$

194.9

 

$

111.8

 

Accounts receivable, net

 

 

196.4

 

 

314.1

 

 

271.5

 

Inventories, net

 

 

352.5

 

 

295.3

 

 

397.2

 

Deferred income taxes

 

 

71.4

 

 

71.4

 

 

56.5

 

Prepaid expenses and other current assets

 

 

76.6

 

 

47.2

 

 

75.4

 

Current assets of discontinued operations

 

 

7.0

 

 

7.0

 

 

9.3

 












 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

900.6

 

 

929.9

 

 

921.7

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

323.6

 

 

327.2

 

 

326.2

 

Prepublication costs

 

 

139.7

 

 

125.8

 

 

119.8

 

Royalty advances, net

 

 

36.8

 

 

34.8

 

 

36.7

 

Production costs

 

 

2.0

 

 

1.6

 

 

7.4

 

Goodwill

 

 

158.0

 

 

157.7

 

 

162.9

 

Other intangibles

 

 

15.0

 

 

16.7

 

 

16.6

 

Noncurrent deferred income taxes

 

 

42.5

 

 

42.3

 

 

20.2

 

Other assets and deferred charges

 

 

35.3

 

 

34.3

 

 

34.7

 












Total assets

 

$

1,653.5

 

$

1,670.3

 

$

1,646.2

 












 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Lines of credit, short-term debt and current portion

 

 

 

 

 

 

 

 

 

 

of long-term debt

 

$

1.8

 

$

6.5

 

$

12.6

 

Capital lease obligations

 

 

0.4

 

 

1.0

 

 

1.1

 

Accounts payable

 

 

157.9

 

 

119.6

 

 

160.1

 

Accrued royalties

 

 

66.3

 

 

92.7

 

 

84.4

 

Deferred revenue

 

 

81.4

 

 

47.1

 

 

78.5

 

Other accrued expenses

 

 

175.4

 

 

233.5

 

 

209.1

 

Current liabilities of discontinued operations

 

 

1.6

 

 

2.1

 

 

1.2

 












 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

484.8

 

 

502.5

 

 

547.0

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

153.0

 

 

152.8

 

 

152.7

 

Capital lease obligations

 

 

57.2

 

 

56.4

 

 

56.1

 

Other noncurrent liabilities

 

 

112.7

 

 

128.3

 

 

105.1

 












 

 

 

 

 

 

 

 

 

 

 

Total noncurrent liabilities

 

 

322.9

 

 

337.5

 

 

313.9

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

582.0

 

 

583.0

 

 

585.0

 

Accumulated other comprehensive income (loss)

 

 

(68.7

)

 

(74.2

)

 

(52.4

)

Retained earnings

 

 

721.4

 

 

723.9

 

 

670.9

 

Treasury stock at cost

 

 

(389.3

)

 

(402.8

)

 

(418.6

)












Total stockholders’ equity

 

 

845.8

 

 

830.3

 

 

785.3

 












Total liabilities and stockholders’ equity

 

$

1,653.5

 

$

1,670.3

 

$

1,646.2

 












SCHOLASTIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollar amounts in millions, except per share data)

  November 30, 2013  May 31, 2013  November 30, 2012 
ASSETS            
Current Assets:            
Cash and cash equivalents $117.2  $87.4  $257.3 
Accounts receivable, net  286.4   214.9   272.9 
Inventories, net  342.3   278.1   356.4 
Deferred income taxes  79.2   79.2   71.5 
Prepaid expenses and other current assets  50.6   61.2   50.6 
Current assets of discontinued operations  0.4   0.4   8.3 
             
Total current assets  876.1   721.2   1,017.0 
             
Property, plant and equipment, net  294.2   311.6   326.0 
Prepublication costs  148.4   147.3   133.8 
Royalty advances, net  40.0   37.0   37.6 
Production costs  4.0   1.7   2.1 
Goodwill  144.5   157.9   157.8 
Other intangibles  13.4   14.6   15.6 
Noncurrent deferred income taxes  14.7   14.9   42.6 
Other assets and deferred charges  44.6   34.8   36.5 
Total assets $1,579.9  $1,441.0  $1,769.0 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current Liabilities:            
Lines of credit, short-term debt and current portion of long-term debt $9.6  $2.0  $0.7 
Capital lease obligations  0.0   0.2   0.7 
Accounts payable  196.0   156.2   208.1 
Accrued royalties  41.8   34.4   52.7 
Deferred revenue  111.6   48.1   105.2 
Other accrued expenses  184.0   179.5   195.1 
Current liabilities of discontinued operations  1.2   1.3   2.0 
             
Total current liabilities  544.2   421.7   564.5 
             
Noncurrent Liabilities:            
Long-term debt  -   -   152.9 
Capital lease obligations  58.0   57.5   56.9 
Other noncurrent liabilities  94.3   97.4   118.0 
             
Total noncurrent liabilities  152.3   154.9   327.8 
             
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  581.6   582.9   585.8 
Accumulated other comprehensive income (loss)  (66.7)  (65.4)  (64.2)
Retained earnings  758.9   738.9   745.5 
Treasury stock at cost  (390.8)  (392.4)  (390.8)
Total stockholders’ equity  883.4   864.4   876.7 
Total liabilities and stockholders’ equity $1,579.9  $1,441.0  $1,769.0 

See accompanying notes




SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)


5

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

February 28, 2013

 

February 29, 2012

 







Cash flows - operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

9.6

 

$

45.4

 

Earnings (loss) from discontinued operations, net of tax

 

 

(0.2

)

 

(2.9

)









 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

 

9.8

 

 

48.3

 

 

 

 

 

 

 

 

 

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

 

 

3.9

 

 

7.8

 

Provision for losses on inventory

 

 

16.7

 

 

18.0

 

Provision for losses on royalty advances

 

 

3.9

 

 

4.3

 

Amortization of prepublication and production costs

 

 

36.5

 

 

36.4

 

Depreciation and amortization

 

 

50.4

 

 

46.6

 

Loss on leases

 

 

 

 

6.2

 

Non-cash writeoff related to impairment

 

 

 

 

0.8

 

Stock-based compensation

 

 

5.2

 

 

10.0

 

Deferred income taxes

 

 

0.1

 

 

0.1

 

Equity investment income

 

 

(1.5

)

 

(1.9

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

118.6

 

 

(57.6

)

Inventories

 

 

(71.7

)

 

(107.2

)

Other current assets

 

 

(27.1

)

 

(18.2

)

Deferred promotion costs

 

 

(2.1

)

 

(1.7

)

Royalty advances

 

 

(5.9

)

 

(5.8

)

Accounts payable

 

 

36.8

 

 

38.3

 

Other accrued expenses

 

 

(58.2

)

 

38.2

 

Accrued royalties

 

 

(26.9

)

 

49.1

 

Deferred revenue

 

 

34.2

 

 

25.4

 

Pension and post-retirement liability

 

 

(11.5

)

 

(6.0

)

Other, net

 

 

(3.3

)

 

3.0

 









Total adjustments

 

 

98.1

 

 

85.8

 









 

 

 

 

 

 

 

 

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

 

 

107.9

 

 

134.1

 

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

 

 

(0.7

)

 

(1.3

)









 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

107.2

 

 

132.8

 

 

 

 

 

 

 

 

 

Cash flows - investing activities:

 

 

 

 

 

 

 

Prepublication and production expenditures

 

 

(51.3

)

 

(39.7

)

Additions to property, plant and equipment

 

 

(43.5

)

 

(33.0

)

Acquisition-related payments (net of cash received of $0.0 and $2.5, respectively)

 

 

(0.1

)

 

(5.3

)









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

 

 

(94.9

)

 

(78.0

)









 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(94.9

)

 

(78.0

)









SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)

  Six months ended 
  November 30, 2013  November 30, 2012 
Cash flows - operating activities:        
Net income (loss) $28.4  $29.7 
Earnings (loss) from discontinued operations, net of tax  0.2   (1.2)
         
Earnings (loss) from continuing operations  28.2   30.9 
         
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  3.9   4.5 
Provision for losses on inventory  10.1   11.3 
Provision for losses on royalty advances  2.0   2.6 
Amortization of prepublication and production costs  27.9   23.8 
Depreciation and amortization  32.6   33.8 
Asset impairments  13.4   - 
Stock-based compensation  6.7   4.2 
Non cash net (gain) loss on equity investments  (1.8)  (1.5)
Changes in assets and liabilities:        
Accounts receivable  (77.1)  41.8 
Inventories  (76.2)  (68.0)
Other current assets  13.0   (1.3)
Deferred promotion costs  (2.5)  (2.4)
Royalty advances  (4.8)  (5.1)
Accounts payable  40.1   86.0 
Other accrued expenses  2.1   (39.4)
Accrued royalties  7.4   (40.9)
Deferred revenue  63.6   57.8 
Pension and post-retirement liability  (6.6)  (8.2)
Other noncurrent liability  (2.1)  (2.6)
Other, net  1.5   0.7 
Total adjustments  53.2   97.1 
         
Net cash provided by (used in) operating activities of continuing operations  81.4   128.0 
Net cash provided by (used in) operating activities of discontinued operations  0.1   (0.6)
         
Net cash provided by (used in) operating activities  81.5   127.4 
         
Cash flows - investing activities:        
Prepublication and production expenditures  (31.8)  (32.6)
Additions to property, plant and equipment  (14.1)  (29.2)
Acquisition related payments  (1.0)  (0.1)
Proceeds from the sale of asset  1.3   - 
Net cash provided by (used in) investing activities of continuing operations  (45.6)  (61.9)
Net cash used in investing activities of discontinued operations  -   (1.2)
         
Net cash provided by (used in) investing activities  (45.6)  (63.1)

See accompanying notes




SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)


6

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

February 28, 2013

 

February 29, 2012

 









Cash flows - financing activities:

 

 

 

 

 

 

 

Repayment of term loan

 

 

 

 

(50.2

)

Borrowings under lines of credit

 

 

21.3

 

 

78.8

 

Repayment of lines of credit

 

 

(25.9

)

 

(65.0

)

Repayment of capital lease obligations

 

 

(0.8

)

 

(0.5

)

Reacquisition of common stock

 

 

(5.8

)

 

(5.6

)

Proceeds pursuant to stock-based compensation plans

 

 

12.0

 

 

3.5

 

Payment of dividends

 

 

(11.9

)

 

(9.3

)

Other

 

 

(0.4

)

 

0.7

 









 

 

 

 

 

 

 

 

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

 

 

(11.5

)

 

(47.6

)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(11.5

)

 

(47.6

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1.0

 

 

(0.7

)









 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

1.8

 

 

6.5

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

194.9

 

 

105.3

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

196.7

 

$

111.8

 









SCHOLASTIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in millions)

  Six months ended 
  November 30, 2013  November 30, 2012 
Cash flows - financing activities:        
Borrowings under credit agreement and revolving loan  50.0   - 
Repayment of credit agreement and revolving loan  (50.0)  - 
Borrowings under lines of credit  133.0   18.8 
Repayment of lines of credit  (125.5)  (24.4)
Repayment of capital lease obligations  (0.2)  (0.5)
Reacquisition of common stock  (6.2)  (0.1)
Proceeds pursuant to stock-based compensation plans  1.4   11.3 
Payment of dividends  (8.2)  (7.9)
Other  0.1   (0.6)
         
Net cash provided by (used in) financing activities of continuing operations  (5.6)  (3.4)
         
Effect of exchange rate changes on cash and cash equivalents  (0.5)  1.5 
         
Net increase (decrease) in cash and cash equivalents  29.8   62.4 
         
Cash and cash equivalents at beginning of period  87.4   194.9 
         
Cash and cash equivalents at end of period $117.2  $257.3 

See accompanying notes




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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, comprehensive income, results of operations, comprehensive income (loss) 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 (the2013(the “Annual Report”).

The Company’s fiscal year is not a calendar year. Accordingly, references in this document to fiscal 20122013 relate to the twelve-month period ended May 31, 2012.2013.

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.Reclassifications

Reclassifications

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

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 $0.7 and $3.6 for the three and nine months ended February 28, 2013, respectively, and $0.9 and $3.7 for the three and nine months ended February 29, 2012, 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 20102012 and fiscal 2012, and presently holds for sale one facility.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

Seasonality

The Company’sChildren’s Book Publishing and Distribution school-based book clubs, school-basedfair and book fairsclub 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 book club and book fairchannel 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 ongoingon-going basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations,




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

8

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Restricted Cash

The condensed consolidated balance sheets include restricted cash of $1.6,$1.1, $1.0 and $1.6$1.8 at February 28,November 30, 2013, May 31, 20122013 and February 29,November 30, 2012, respectively, which is reported in “Other current assets.”

New Accounting Pronouncements

In FebruaryJuly 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 amounts reclassified outthe applicable jurisdiction to settle any additional income taxes that would result from the disallowance of accumulated other comprehensive income. Thisa tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the 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 requirement about presenting information about amounts reclassified outdisclosures are required as a result of accumulated other comprehensive income and their corresponding effect on net income will present, in one place, information about significant amounts reclassified and, in some cases, cross-references to related footnote disclosures.this update. The disclosure amendments in this update are effective prospectively for reporting periods beginning after December 15, 2012 and early adoption2013 for all unrecognized tax benefits that exist at the effective date. This new guidance is permitted.not yet effective for the fiscal period covered by this quarterly report. The Company is evaluating the impact ofthat this update will have on its consolidated financial position, results of operations and related disclosures, and will adopt this guidance in the fourth quarter of fiscal 2013.cash flows.

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. The Company is evaluating the impact of this update on its consolidated financial position and results of operations.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


2. 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

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

0.0

 

$

0.0

 

$

0.0

 

$

0.1

 

Non-cash impairment

 

 

 

 

 

 

 

 

(0.9

)

Earnings (loss) before income taxes

 

 

0.1

 

 

(0.6

)

 

(0.3

)

 

(4.0

)

Income tax benefit (expense)

 

 

(0.1

)

 

0.2

 

 

0.1

 

 

1.1

 















Earnings (loss) from discontinued operations, net of tax

 

$

0.0

 

$

(0.4

)

$

(0.2

)

$

(2.9

)















  Three months ended November 30,  Six months ended November 30, 
  2013  2012  2013  2012 
             
Revenues $0.1  $2.7  $0.1  $2.9 
Earnings (loss) before income taxes  0.0   (1.3)  0.3   (1.9)
Income tax benefit (provision)  (0.0)  0.5   (0.1)  0.7 
Earnings (loss) from discontinued operations, net of tax $0.0  $(0.8) $0.2  $(1.2)
9

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









Property and plant

 

$  

7.0

 

$  

7.0

 

$  

9.3

 












 

 

 

 

 

 

 

 

 

 

 

Current assets of discontinued operations

 

$  

7.0

 

$  

7.0

 

$  

9.3

 












 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

 

1.6

 

 

2.1

 

 

1.2

 












 

 

 

 

 

 

 

 

 

 

 

Current liabilities of discontinued operations

 

$  

1.6

 

$  

2.1

 

$  

1.2

 














  November 30, 2013  May 31, 2013  November 30, 2012 
Accounts receivable, net $0.0  $0.0  $0.0 
Other assets  0.4   0.4   8.3 
             
Current assets of discontinued operations $0.4  $0.4  $8.3 
             
Accrued expenses and other current liabilities  1.2   1.3   2.0 
             
Current liabilities of discontinued operations $1.2  $1.3  $2.0 


SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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, media and otherinteractive products in the United States through school-basedits book clubs and book fairs ecommercein 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 twothree operating segments.




10

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

  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
November 30, 2013
                        
Revenues $352.1  $60.9  $59.1  $15.5  $-  $487.6  $135.6  $623.2 
                                 
Bad debt expense  1.0   0.0   0.6   0.1   -   1.7   0.8   2.5 
                                 
Depreciation and amortization(3)  3.7   0.2   0.3   0.0   10.5   14.7   1.2   15.9 
                                 
Amortization(4)  4.1   7.4   2.2   0.5   -   14.2   0.4   14.6 
                                 
Asset impairments(5)  13.4   -   -   -   -   13.4   -   13.4 
                                 
Segment operating income (loss)  68.9   6.9   10.7   (0.4)  (13.6)  72.5   22.2   94.7 
                                 
Expenditures for long-lived assets including royalty advances  10.5   7.3   2.6   2.5   2.8   25.7   2.7   28.4 
                                 
Three months ended
November 30, 2012
                                
Revenues $347.4  $52.2  $53.2  $17.0  $-  $469.8  $143.7  $613.5 
                                 
Bad debt expense  1.8   (0.2)  1.4   -   -   3.0   1.0   4.0 
                                 
Depreciation and amortization(3)  4.3   0.3   0.3   0.1   10.4   15.4   1.3   16.7 
                                 
Amortization(4)  3.8   5.2   1.9   0.8   -   11.7   0.3   12.0 
                                 
Segment operating income (loss)  69.4   5.3   7.4   2.0   (6.8)  77.3   24.7   102.0 
                                 
Expenditures for long-lived assets including royalty advances  12.1   9.2   2.4   0.8   10.8   35.3   2.7   38.0 
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)
  Educational
Technology
and
 Services(1)
  Classroom and
Supplemental
Materials
Publishing(1)
  Media,
Licensing
and
Advertising(1)
  Overhead(1) (2)  Total
Domestic
  International(1)  Total 
                         
Six months ended
November 30, 2013
                                
Revenues $406.7  $155.7  $96.9  $25.9  $-  $685.2  $214.3  $899.5 
                                 
Bad debt expense  1.4   0.4   0.6   0.1   -   2.5   1.4   3.9 
                                 
Depreciation and amortization(3)  7.7   0.5   0.6   0.1   20.5   29.4   2.4   31.8 
                                 
Amortization(4)  8.1   13.4   4.5   1.0   -   27.0   0.9   27.9 
                                 
Asset impairments(5)  13.4   -   -   -   -   13.4   -   13.4 
                                 
Segment operating income (loss)  7.4   43.1   9.1   (2.3)  (30.0)  27.3   21.5   48.8 
                                 
Segment assets at 11/30/13  489.6   180.3   152.8   27.1   456.4   1,306.2   273.3   1,579.5 
                                 
Goodwill at 11/30/13  40.9   22.7   65.4   5.4   -   134.4   10.1   144.5 
                                 
Expenditures for long-lived assets including royalty advances  21.9   15.8   4.6   3.6   8.0   53.9   5.2   59.1 
                                 
Long-lived assets at 11/30/13  149.6   118.2   90.3   14.1   228.7   600.9   67.3   668.2 
                                 
Six months ended
November 30, 2012
                                
Revenues $418.3  $132.2  $91.1  $31.4  $-  $673.0  $233.9  $906.9 
                                 
Bad debt expense  1.6   0.1   1.2   -   -   2.9   1.6   4.5 
                                 
Depreciation and amortization(3)  8.1   0.6   0.7   0.2   20.7   30.3   2.5   32.8 
                                 
Amortization(4)  7.3   10.7   3.6   1.3   -   22.9   0.9   23.8 
                                 
Segment operating income (loss)  14.5   30.1   4.8   2.2   (24.1)  27.5   27.5   55.0 
                                 
Segment assets at 11/30/12  565.3   170.9   170.2   31.0   513.0   1,450.4   310.3   1,760.7 
                                 
Goodwill at 11/30/12  54.3   22.7   65.4   5.4   -   147.8   10.0   157.8 
                                 
Expenditures for long-lived assets including royalty advances  27.2   17.4   4.2   1.9   18.3   69.0   5.1   74.1 
                                 
Long-lived assets at 11/30/12  171.4   106.9   90.0   12.0   244.3   624.6   71.2   695.8 

 


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)

 

Classroom and
Supplemental
Materials
Publishing(1)

 

Media,
Licensing
and
Advertising(1)(2)

 

Overhead(1)(3)

 

Total
Domestic

 

International(1)

 

Total

 



















Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

189.4

 

$

41.8

 

$

43.2

 

$

11.7

 

$

 

$

286.1

 

$

94.4

 

$

380.5

 

Bad debt expense

 

 

(1.6

)

 

0.5

 

 

 

 

 

 

 

 

(1.1

)

 

0.5

 

 

(0.6

)

Depreciation and amortization(4)

 

 

4.0

 

 

0.3

 

 

0.3

 

 

0.1

 

 

10.3

 

 

15.0

 

 

1.5

 

 

16.5

 

Amortization(5)

 

 

3.7

 

 

5.5

 

 

2.1

 

 

1.0

 

 

 

 

12.3

 

 

0.4

 

 

12.7

 

Loss on leases and asset impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income (loss)

 

 

(10.1

)

 

(3.5

)

 

(0.2

)

 

(2.3

)

 

(13.6

)

 

(29.7

)

 

2.0

 

 

(27.7

)

Expenditures for long-lived assets including royalty advances

 

 

11.9

 

 

10.6

 

 

2.7

 

 

1.7

 

 

7.6

 

 

34.5

 

 

3.5

 

 

38.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

268.8

 

$

40.0

 

$

38.2

 

$

14.4

 

$

 

$

361.4

 

$

105.6

 

$

467.0

 

Bad debt expense

 

 

1.6

 

 

0.3

 

 

0.4

 

 

 

 

 

 

2.3

 

 

0.8

 

 

3.1

 

Depreciation and amortization(4)

 

 

4.4

 

 

0.2

 

 

0.3

 

 

 

 

9.1

 

 

14.0

 

 

2.0

 

 

16.0

 

Amortization(5)

 

 

2.8

 

 

5.3

 

 

1.8

 

 

1.5

 

 

 

 

11.4

 

 

0.6

 

 

12.0

 

Loss on leases and asset impairments

 

 

0.5

 

 

 

 

 

 

 

 

 

 

0.5

 

 

0.3

 

 

0.8

 

Segment operating income (loss)

 

 

12.2

 

 

(5.9

)

 

(3.4

)

 

(1.2

)

 

(17.9

)

 

(16.2

)

 

4.3

 

 

(11.9

)

Expenditures for long-lived assets including royalty advances

 

 

11.7

 

 

6.7

 

 

4.9

 

 

1.3

 

 

9.4

 

 

34.0

 

 

5.1

 

 

39.1

 






























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)

 

Classroom and
Supplemental
Materials
Publishing(1)

 

Media,
Licensing
and
Advertising(1)(2)

 

Overhead(1)(3)

 

Total
Domestic

 

International(1)

 

Total

 



















Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

610.6

 

$

174.0

 

$

134.3

 

$

43.1

 

$

 

$

962.0

 

$

328.3

 

$

1,290.3

 

Bad debt expense

 

 

 

 

0.6

 

 

1.2

 

 

 

 

 

 

1.8

 

 

2.1

 

 

3.9

 

Depreciation and amortization(4)

 

 

12.1

 

 

0.9

 

 

1.0

 

 

0.3

 

 

31.0

 

 

45.3

 

 

4.0

 

 

49.3

 

Amortization(5)

 

 

11.0

 

 

16.2

 

 

5.7

 

 

2.3

 

 

 

 

35.2

 

 

1.3

 

 

36.5

 

Loss on leases and asset impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income (loss)

 

 

3.6

 

 

26.6

 

 

4.6

 

 

(0.9

)

 

(37.7

)

 

(3.8

)

 

29.5

 

 

25.7

 

Segment assets at 2/28/2013

 

 

549.0

 

 

177.1

 

 

159.9

 

 

27.2

 

 

434.4

 

 

1,347.6

 

 

298.9

 

 

1,646.5

 

Goodwill at 2/28/2013

 

 

54.3

 

 

22.7

 

 

65.4

 

 

5.4

 

 

 

 

147.8

 

 

10.2

 

 

158.0

 

Expenditures for long-lived assets including royalty advances

 

 

39.1

 

 

28.0

 

 

6.9

 

 

4.8

 

 

25.9

 

 

104.7

 

 

8.6

 

 

113.3

 

Long-lived assets at 2/28/2013

 

 

170.2

 

 

111.8

 

 

90.2

 

 

13.6

 

 

241.5

 

 

627.3

 

 

68.4

 

 

695.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



























Revenues

 

$

739.3

 

$

202.0

 

$

142.6

 

$

49.0

 

$

 

$

1,132.9

 

$

337.4

 

$

1,470.3

 

Bad debt expense

 

 

3.2

 

 

1.0

 

 

1.3

 

 

 

 

 

 

5.5

 

 

2.3

 

 

7.8

 

Depreciation and amortization(4)

 

 

11.9

 

 

0.9

 

 

0.8

 

 

0.4

 

 

27.7

 

 

41.7

 

 

4.9

 

 

46.6

 

Amortization(5)

 

 

9.0

 

 

15.6

 

 

4.9

 

 

5.1

 

 

 

 

34.6

 

 

1.8

 

 

36.4

 

Loss on leases and asset impairments

 

 

0.5

 

 

 

 

 

 

 

 

6.2

 

 

6.7

 

 

0.3

 

 

7.0

 

Segment operating income (loss)

 

 

70.7

 

 

47.5

 

 

9.0

 

 

(3.3

)

 

(59.8

)

 

64.1

 

 

30.8

 

 

94.9

 

Segment assets at 2/29/2012

 

 

597.1

 

 

156.6

 

 

153.3

 

 

38.2

 

 

397.4

 

 

1,342.6

 

 

294.3

 

 

1,636.9

 

Goodwill at 2/29/2012

 

 

54.3

 

 

22.7

 

 

70.5

 

 

5.4

 

 

 

 

152.9

 

 

10.0

 

 

162.9

 

Expenditures for long-lived assets including royalty advances

 

 

32.8

 

 

18.0

 

 

9.3

 

 

5.3

 

 

22.0

 

 

87.4

 

 

9.0

 

 

96.4

 

Long-lived assets at 2/29/2012

 

 

173.7

 

 

98.5

 

 

88.3

 

 

19.7

 

 

242.8

 

 

623.0

 

 

67.6

 

 

690.6

 






























SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)



(1)

(1)

As discussed under “Discontinued Operations” in Note 1, “Basis of Presentation,” the Company closed or sold several operations during fiscal 2009, fiscal 20102012 and fiscal 2012,and presently holds for sale one facility.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)

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)

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.

(4)

(3)

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

(5)

(4)

Includes amortization of prepublication and production costs.

(5)Includes an impairment of goodwill (See Note 7, “Goodwill and Other Intangibles”).
12

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

4. Debt

The following table summarizes debt as of the dates indicated:





















 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 















 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









 

Lines of Credit

 

$

1.8

 

$

1.8

 

$

6.5

 

$

6.5

 

$

12.6

 

$

12.6

 

Loan Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

5% Notes due 2013, net of discount

 

 

153.0

 

 

153.0

 

 

152.8

 

 

155.4

 

 

152.7

 

 

158.5

 





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt

 

$

154.8

 

$

154.8

 

$

159.3

 

$

161.9

 

$

165.3

 

$

171.1

 





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(1.8

)

 

(1.8

)

 

(6.5

)

 

(6.5

)

 

(12.6

)

 

(12.6

)





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

153.0

 

$

153.0

 

$

152.8

 

$

155.4

 

$

152.7

 

$

158.5

 





















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of Credit weighted average interest rate

 

 

8.9

%

 

 

 

 

5.3

%

 

 

 

 

4.7

%

 

 

 
























  Carrying
Value
  Fair Value  Carrying
Value
  Fair Value  Carrying
Value
  Fair Value 
  November 30, 2013  May 31, 2013  November 30, 2012 
                   
Unsecured lines of credit (weighted average interest rates of 5.1%, 9.0% and 4.7%, respectively) $9.6  $9.6  $2.0  $2.0  $0.7  $0.7 
5% Notes due 2013, net of discount  -   -   -   -   152.9   155.1 
                         
Total debt $9.6  $9.6  $2.0  $2.0  $153.6  $155.8 
                         
Less lines of credit, short-term debt and current portion of long-term debt  (9.6)  (9.6)  (2.0)  (2.0)  (0.7)  (0.7)
                         
Total long-term debt $-  $-  $-  $-  $152.9  $155.1 

 

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The carrying value of the Company’s short-term debt approximates its fair value. 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 February 28,November 30, 2013, for the twelve-month period ending February 28,November 30,

 

 

 

 

 

2014

 

$

1.8

 

2015

 

$

 

2016

 

$

 

2017

 

$

 

2018

 

$

153.0

 






Total debt

 

$

154.8

 






2014 $9.6 
2015  - 
Total debt $9.6 

Loan Agreement

On June 1, 2007,

Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) entered intoare parties to a $525.0$425.0 credit facility with certain banks (the(as amended, 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”), with the ability to increase the aggregate Revolving Loan commitments of the lenders by up to an additional $150.0. The Loan Agreement was amended on August 16, 2010, on October 25, 2011 and most recently on December 5, 2012. The amendment on December 5, 2012 served to, among other things, (i) increase the Revolving Loan from $325.0 to $425.0 (with the continued ability to increase the aggregate Revolving Loan commitments of the lenders by up to an additional $150.0), (ii) extend the maturity of the $425.0 Revolving Loan to December 5, 2017 from June 1, 2014, (iii) amend a covenant in the Loan Agreement to permit certain sales, transfers and dispositions of assets by either Borrower or any subsidiary to any other Borrower or subsidiary and (iv) amend a covenant in the Loan Agreement to permit transactions between or among the Company and its wholly-owned subsidiaries not involving any other affiliates. Additionally, this amendment added certain lenders to the Loan Agreement and other lenders exited the Loan Agreement with no further obligation. The Loan Agreement also provides for the payment of a facility fee as described below.

The Revolving Loanwhich allows the Company to borrow, repay or prepay and reborrow at any time prior to the statedDecember 5, 2017 maturity date, anddate. Under the proceeds may be used for general corporate purposes, including financing for acquisitions and share repurchases.

InterestLoan Agreement, interest on the Revolving Loanamounts 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 Revolving Loan Agreement 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 -

 

·

                         - 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.

13

At February 28,

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

As of November 30, 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.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 prevailingconsolidated debt to total capital ratio.At February 28,November 30, 2013, the facility fee rate was 0.20%.

There were no outstanding borrowings under the Revolving Loan Agreement as of February 28,November 30, 2013.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


As of February 28, 2013, the

The Company had open standby letters of credit totaling $6.6, including $1.4 under the Loan Agreement.

Agreement, as of November 30, 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 February 28,November 30, 2013, the Company was in compliance with these covenants.

Lines of Credit

As of February 28,November 30, 2013, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled $20.0.$19.8. There were no outstanding borrowings under these credit lines at February 28,November 30, 2013, May 31, 20122013 and February 29,November 30, 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 364365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of February 28,November 30, 2013, the Company had various local currency credit lines, with maximum available borrowings in amounts equivalent to $27.1,$39.3, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. Borrowings and weighted average interest rates forOutstanding borrowings under these lines of credit are presented in the table above. The increased weighted average interest rate of 8.9% as of February 28,totaled $9.6, $2.0 and $0.7 at November 30, 2013, was higher due to local borrowing interest rates in Asia.

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 to December 5, 2017. The Company has the ability to use a portion of this credit facility to fully redeem the 5% Notes due April 15,May 31, 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 sheets at February 28, 2013 and May 31, 2012.November 30, 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.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


14

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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 dates indicated:three and six-month periods ended November 30, 2013 and 2012, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 











 

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

 

$

(20.1

)

$

(10.3

)

$

9.6

 

$

45.4

 

 

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

 

 

(20.1

)

 

(9.9

)

 

9.8

 

 

48.3

 

 

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

 

 

(0.0

)

 

(0.4

)

 

(0.2

)

 

(2.9

)

 

Earnings attributable to participating securities

 

 

 

 

 

 

0.1

 

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

32.0

 

 

31.1

 

 

31.8

 

 

31.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

*

 

 

*

 

 

0.6

 

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

32.0

 

 

31.1

 

 

32.4

 

 

31.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive shares outstanding pursuant to stock-based compensation plans (in millions)

 

 

2.4

 

 

3.7

 

 

2.0

 

 

4.3

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(0.63

)

$

(0.32

)

$

0.31

 

$

1.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.01

)

$

(0.01

)

$

(0.09

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(0.63

)

$

(0.33

)

$

0.30

 

$

1.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(0.63

)

$

(0.32

)

$

0.30

 

$

1.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of tax

 

$

(0.00

)

$

(0.01

)

$

(0.01

)

$

(0.09

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(0.63

)

$

(0.33

)

$

0.29

 

$

1.43

 
















  Three months ended November 30,  Six months ended November 30, 
  2013  2012  2013  2012 
             
Earnings (loss) from continuing operations attributable to Class A and Common Shares $58.2  $62.4  $28.1  $30.8 
Earnings (loss) from discontinued operations attributable to Class A and Common Shares, net of tax  0.0   (0.8)  0.2   (1.2)
Net income (loss) attributable to Class A and Common Shares $58.2  $61.6  $28.3  $29.6 
             
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings (loss) per share (in millions)  31.9   31.9   31.8   31.7 
Dilutive effect of Class A Stock and Common Stock potentially issuable pursuant to stock-based compensation plans (in millions)  0.4   0.8   0.6   0.7 
Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings (loss) per share (in millions)  32.3   32.7   32.4   32.4 
                 
Earnings (loss) per share of Class A Stock and Common Stock:                
Basic earnings (loss) per share:                
Earnings (loss) from continuing operations $1.82  $1.95  $0.88  $0.97 
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.02) $0.01  $(0.04)
Net income (loss) $1.82  $1.93  $0.89  $0.93 
Diluted earnings (loss) per share:                
Earnings (loss) from continuing operations $1.80  $1.91  $0.87  $0.95 
Earnings (loss) from discontinued operations, net of tax $0.00  $(0.02) $0.01  $(0.04)
Net income (loss) $1.80  $1.89  $0.88  $0.91 

Earnings from continuing operations exclude earnings of $0.1 and $0.1 for the three and six months ended November 30, 2013, respectively, and $0.2 and $0.1 for the three and six months ended November 30, 2012, respectively, for earnings attributable to participating Restricted Stock Units (“RSUs”).

15

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

 

*

In the three months ended February 28, 2013 and February 29, 2012, the Company experienced a loss from continuing operations and therefore did not report any dilutive share impact.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

 

February 29, 2012

 









Options outstanding pursuant to stock-based compensation plans (in millions)

 

 

4.2

 

 

5.5

 









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

  November 30,
2013
  November 30,
2012
 
Options outstanding pursuant to stock-based compensation plans (in millions)  4.7   4.3 

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.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 1.3 million as of November 30, 2013.

A portion of the Company’s restricted stock units (“RSUs”)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 February 28,November 30, 2013, $25.6$13.4 remains available for future purchases of common shares under the current repurchase authorization of the Board of Directors. See Note 12, “Treasury Stock,” for amore complete description of the Company’s share buy-back program.

7. Goodwill and Other Intangibles

Goodwill

The Company assesses 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 as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









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

 

 

7.8

 

Foreign currency translation

 

 

0.1

 

 

0.0

 

 

0.0

 

Other

 

 

0.2

 

 

0.8

 

 

0.9

 












Gross ending balance

 

$

178.8

 

$

178.5

 

$

183.7

 

Accumulated impairment

 

 

(20.8

)

 

(20.8

)

 

(20.8

)












Ending balance

 

$

158.0

 

$

157.7

 

$

162.9

 













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 Level 3 fair value measurement inputs including 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.




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 $3.0, 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 $1.5 of goodwill. The results of operations of this business subsequent to the acquisition date are included in theInternationalsegment.

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. Goodwill

In the current quarter, the Company recognized an impairment of $64.0 is attributed to a$13.4 of goodwill associated with the book clubs reporting unit (Classroomin theChildren’s Book Publishing and Community Group) withinDistributionsegment. In theClassroom and Supplemental Materials Publishing segment. During the third second quarter of fiscal 2013,year 2014, expected revenues for the Company determined thatreporting unit declined, resulting in an impairment indicator. Revenues in the first fiscal quarter are not significiant for this reporting unit had impairment indicators.as schools are not in session. As of November 30, 2013, the fair value of the reporting unit was approximately $13.0 less than the carrying value of $66.9. The Company performed aused forecasted cash flows, which were adjusted from those used in the latest annual valuation of thisto reflect the revised outlook for the reporting unit, and determined thatto a lesser extent, observable revenue multiples for comparable companies, in determining its fair value. Management revised its outlook for the fair value exceedsreporting unit as revenues did not meet expectations during the carrying value by greater than 20% as of January 31, 2013. The Company employed Level 3 valuation measures, including expected discounted cash flow analysisperiod, and market comparisons. Cash flow forecasts and other assumptionsfuture revenue expectations were developedrevised consistent with the internal planning and budgeting processes of the reporting unit.current period decline. A discount rate of 16% was15.5% and a perpetual growth rate of 3.0% were employed for the discounted cash flow analysis and a factormultiples of 4.50.4 times EBITDA was used to compare to similar public companies.historical revenues were employed for market comparisons. The discount rate and EBITDA multiples utilized reflect risks specific to the reporting unit is dependent upon internally developed intangible assets including forecast risktrade names and product diversity risk. Using a discount ratecustomer lists which have no carrying value, but have substantial fair value. Upon finalization of 18% combined with a multiplestep two of 3.8 times EBITDA would not resultthe goodwill impairment process, inclusion of these intangible assets is expected to render 100% of the goodwill impaired.

The following table summarizes the activity in an impairment based uponGoodwill for the valuation methodology employed.periods indicated:

  Six months ended
November 30, 2013
  Twelve months ended
May 31, 2013
  Six months ended
November 30, 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 
Impairment charge  (13.4)  -   - 
Foreign currency translation  0.0   0.0   0.1 
Other  -   0.2   - 
Gross ending balance $178.7  $178.7  $178.6 
Accumulated impairment  (34.2)  (20.8)  (20.8)
Ending balance $144.5  $157.9  $157.8 
16

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The following table summarizes the activity in Total other intangibles subject to amortization as offor the datesperiods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









Beginning balance - customer lists

 

$

4.3

 

$

0.7

 

$

0.7

 

Additions due to acquisition

 

 

0.1

 

 

3.8

 

 

 

Amortization expense

 

 

(0.7

)

 

(0.2

)

 

(0.2

)

Foreign currency translation

 

 

0.0

 

 

0.0

 

 

0.0

 












Customer lists, net of accumulated amortization

 

$

3.7

 

$

4.3

 

$

0.5

 












 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization - customer lists

 

$

2.0

 

$

1.3

 

$

1.3

 












 

 

 

 

 

 

 

 

 

 

 

Beginning balance - other intangibles

 

$

10.4

 

$

17.3

 

$

17.3

 

Impairment charge

 

 

 

 

(5.4

)

 

(0.5

)

Amortization expense

 

 

(1.2

)

 

(1.4

)

 

(1.1

)

Other

 

 

0.1

 

 

(0.1

)

 

 












Other intangibles, net of accumulated amortization

 

$

9.3

 

$

10.4

 

$

15.7

 












 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization - other intangibles

 

$

11.7

 

$

10.5

 

$

5.3

 












 












Total other intangibles subject to amortization

 

$

13.0

 

$

14.7

 

$

16.2

 















SCHOLASTIC CORPORATION

  Six months ended
November 30, 2013
  Twelve months ended
May 31, 2013
  Six months ended
November 30, 2012
 
          
             
Beginning balance - customer lists $3.4  $4.3  $4.3 
Additions  -   0.1   0.1 
Amortization expense  (0.5)  (1.0)  (0.5)
Foreign currency translation  0.0   0.0   0.0 
             
Customer lists, net of accumulated amortization of $2.7, $2.3 and $1.8, respectively $2.9  $3.4  $3.9 
             
Beginning balance - other intangibles $9.2  $10.4  $10.4 
Additions  -   0.2   - 
Amortization expense  (0.7)  (1.5)  (0.8)
Foreign currency translation  0.0   -   - 
Other  -   0.1   0.1 
Other intangibles, net of accumulated amortization of $12.7, $12.0 and $11.3, respectively $8.5  $9.2  $9.7 
Total other intangibles subject to amortization $11.4  $12.6  $13.6 
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 $13.4  $14.6  $15.6 

Amortization expense for Total other intangibles was $1.2 and $1.3 for the six months ended November 30, 2013 and 2012, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


Intangible assets with definite lives consist principally of customer lists, covenants not to compete and publishing and trademark rights.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 seven7 years.

17

The following table summarizes Total other intangibles amortization expense for the periods indicated:

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 









Total other intangibles amortization expense

 

$

1.9

 

$

1.3

 









In fiscal 2012, due to declining revenues associated with certain publishing and trademark rightsSCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in theChildren’s Book Publishing and Distributionmillions, except per share data) 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 Other intangibles not subject to amortization as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









Net carrying value by major class:

 

 

 

 

 

 

 

 

 

 

Trademarks and other

 

$

2.0

 

$

2.0

 

$

0.4

 












Total

 

$

2.0

 

$

2.0

 

$

0.4

 












8.Investments

The following table summarizes the Company’s investments included

Included in “Other assets and deferred charges” on the Company’s condensed consolidated balance sheets aswere investments of $23.7, $19.6 and $22.9 at November 30, 2013, May 31, 2013 and November 30, 2012, respectively.

In the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









Cost method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

5.4

 

$

5.2

 

$

5.7

 












Total cost method investments

 

$

5.4

 

$

5.2

 

$

5.7

 












 

 

 

 

 

 

 

 

 

 

 

Equity method investments:

 

 

 

 

 

 

 

 

 

 

UK - based

 

$

15.2

 

$

15.4

 

$

14.0

 

U.S. - based

 

 

 

 

 

 

1.3

 












Total equity method investments

 

$

15.2

 

$

15.4

 

$

15.3

 












 

 

 

 

 

 

 

 

 

 

 












Total

 

$

20.6

 

$

20.6

 

$

21.0

 












first quarter of fiscal 2014, 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 of 15.0% 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. InIncome from equity investments totaled $1.8 and $1.5 for the fourth quartersix months ended November 30, 2013 and 2012, respectively. The prior fiscal year results include a $1.3 settlement received in the prior fiscal period in respect of fiscal 2012,a former equity-method investment for product delivered to the Company determined that its equity investmentinvestee in a children’s television programming entity was other-than-temporarily impaired and it recognized an impairment loss of $1.3 in Selling, general and administrative expenses.prior years.



 


SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


The following table summarizes the Company’s Income from equity method investments for as of the periods indicated:dates indicated:

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 









 

 

 

 

 

 

 

 

Total equity investment income

 

$

1.5

 

$

1.9

 










  November 30, 2013  May 31, 2013  November 30, 2012 
Cost method investments:         
UK - based $4.8  $5.0  $5.6 
Total cost method investments $4.8  $5.0  $5.6 
             
Equity method investments:            
UK - based $17.9  $14.6  $17.3 
Other  1.0   -   - 
Total equity method investments $18.9  $14.6  $17.3 
Total $23.7  $19.6  $22.9 
18

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

9.Employee Benefit Plans

The following tables settable 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-RetirementPost-Retirement Benefits”). The Pension Plans and Post-Retirement Benefitsinclude participants associated with both continuing operations and discontinued operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plans
Three months ended

 

Post-Retirement Benefits
Three months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 











Components of net periodic benefit (credit) cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

0.0

 

$

0.0

 

Interest cost

 

 

1.7

 

 

2.1

 

 

0.3

 

 

0.4

 

Expected return on assets

 

 

(2.6

)

 

(2.7

)

 

 

 

 

Net amortization of prior service credit

 

 

 

 

 

 

(0.1

)

 

(0.2

)

Amortization of (gain) loss

 

 

0.5

 

 

0.3

 

 

0.3

 

 

0.9

 















Net periodic benefit (credit) cost

 

$

(0.4

)

$

(0.3

)

$

0.5

 

$

1.1

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plans
Nine months ended

 

Post-Retirement Benefits
Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 











Components of net periodic benefit (credit) cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

0.0

 

$

0.0

 

Interest cost

 

 

5.2

 

 

6.3

 

 

1.1

 

 

1.4

 

Expected return on assets

 

 

(7.9

)

 

(8.1

)

 

 

 

 

Net amortization of prior service credit

 

 

 

 

 

 

(0.3

)

 

(0.5

)

Amortization of (gain) loss

 

 

1.6

 

 

1.0

 

 

2.2

 

 

2.9

 















Net periodic benefit (credit) cost

 

$

(1.1

)

$

(0.8

)

$

3.0

 

$

3.8

 
















  Pension Plans
Three months ended November 30,
  Post-Retirement Benefits
Three months ended November 30,
 
  2013  2012  2013  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  (3.2)  (2.6)  -   - 
Net amortization of prior service credit  -   -   (0.0)  (0.1)
Amortization of loss  0.5   0.5   0.6   0.9 
Net periodic benefit (credit) cost $(0.9) $(0.4) $0.9  $1.2 

  Pension Plans
Six months ended November 30,
  Post-Retirement Benefits
Six months ended November 30,
 
  2013  2012  2013  2012 
Components of net periodic benefit (credit) cost:            
Service cost $-  $-  $0.0  $0.0 
Interest cost  3.6   3.5   0.7   0.8 
Expected return on assets  (6.3)  (5.3)  -   - 
Net amortization of prior service credit  -   -   (0.1)  (0.2)
Amortization of (gain) loss  0.9   1.1   1.2   1.9 
Net periodic benefit (credit) cost $(1.8) $(0.7) $1.8  $2.5 

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 ninesix months ended February 28,November 30, 2013, the Company contributed $6.6$3.3 to the U.S. Pension Plan and $0.7$0.6 to the UK Pension Plan.

The Company expects, based on actuarial calculations, to contribute cash of approximately $8.8$7.5 to the Pension Plans for the fiscal year ending May 31, 2013.2014.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 











Stock option expense

 

$

0.4

 

$

1.2

 

$

2.0

 

$

6.0

 

Restricted stock unit expense

 

 

0.6

 

 

1.0

 

 

2.4

 

 

3.6

 

Management stock purchase plan

 

 

0.0

 

 

0.0

 

 

0.6

 

 

0.2

 

Employee stock purchase plan

 

 

0.0

 

 

0.0

 

 

0.2

 

 

0.2

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

1.0

 

$

2.2

 

$

5.2

 

$

10.0

 















  Three months ended November 30,  Six months ended November 30, 
  2013  2012  2013  2012 
             
Stock option expense $4.4  $0.6  $4.6  $1.6 
Restricted stock unit expense  1.2   0.8   1.9   1.8 
Management stock purchase plan  0.0   0.6   0.1   0.6 
Employee stock purchase plan  0.0   0.1   0.1   0.2 
             
Total stock-based compensation expense $5.6  $2.1  $6.7  $4.2 

During each of the three and nine-monthsix month periods ended February 28,November 30, 2013 and February 29, 2012, shares of Common Stock issued by the Corporation pursuant to its stock-based compensation plans were not material.

19

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

11. Accrued Severance

The table below provides information forregarding Accrued severance, which is included in Other“Other accrued expenses as ofexpenses” in the dates indicated:Company’s condensed consolidated balance sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









 

Beginning balance

 

$

2.7

 

$

1.9

 

$

1.9

 

Accruals

 

 

5.3

 

 

14.9

 

 

12.2

 

Payments

 

 

(5.5

)

 

(14.1

)

 

(12.9

)












Ending balance

 

$

2.5

 

$

2.7

 

$

1.2

 












  Six months ended
November 30, 2013
  Twelve months
ended May 31, 2013
  Six months ended
November 30, 2012
 
          
Beginning balance $3.3  $2.7  $2.7 
Accruals  7.8   13.4   2.1 
Payments  (6.1)  (12.8)  (2.9)
Ending balance $5.0  $3.3  $1.9 

The Company implementedhas continued to implement cost savingsavings initiatives, resulting in the current fiscal quarter, recognizingseverance expense of $3.0. The Company expects to incur additional expenses related to these initiatives inof $7.5 during the fourth quarter of the current fiscal year. The Company implemented certain cost reduction initiatives during fiscal 2012, and incurred severance expense of $9.3 related to these initiatives.six-month period ended November 30, 2013. Severance expenses are reported in “Selling, general and administrative expenses.”




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


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. During the nine months ended February 28, 2013, the Company repurchased approximately 0.2 million shares on the open market for approximately $5.8 at an average cost of $28.75 per share. The table below represents the remaining Board authorization:

 

 

 

 

 

Board Authorization

 

Amount

 





 

 

 

 

 

September 2010

 

$

44.0

 

 

 

 

 

 

Repurchases made from November 2011 through February 2013

 

 

(18.4

)






 

 

 

 

 

Remaining Board authorization as of February 28, 2013

 

$

25.6

 






Board Authorization Amount 
     
September 2010 $44.0 
     
Less repurchases made under this authorization  (30.6)
     
Remaining Board authorization at November 30, 2013 $13.4 

The Company’s repurchase program may be suspended at any time without prior notice. There were $5.6 and $6.2 repurchases of Common Stock made during the three and six month periods ended November 30, 2013, respectively.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 (Dollar amounts in millions, except per share data)


20

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

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

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

 

o

Quoted prices for similar assets or liabilities in active markets

o

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

o

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

o

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

Level 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 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

Long-lived assets

Investments

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.

See Note 7, “Goodwill and Other Intangibles,” for a more complete description of the fair valuemeasurements employed.

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, 2014 is currently expected to be approximately 40%.




SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)


21

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

The Corporation,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 CorporationCompany 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, 20072009, 2010 and 20082011 and by New York City for fiscal years ended May 31, 2005, 20062008, 2009 and 2007.2010. 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.

The Company’s annual effective tax rate for the fiscal year ending May 31, 2013 is currently expected to be approximately 38%, which reflects a partial reversal of valuation allowances for jurisdictions where the Company will be able to utilize net operating loss carryforwards generated in prior fiscal periods to offset current fiscal year taxable income.

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 associated with these examinations and assessmentsrespect 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. The Company made payments of $15.3 for settlement of sales tax audits with two jurisdictions in the current fiscal year.

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. An unrealized loss of less than $0.1 and unrealizedUnrealized gains of $0.4$0.1 were recognized at February 28,November 30, 2013 and February 29,November 30, 2012, respectively.

16. Other Accrued Expenses

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

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2013

 

May 31, 2012

 

February 29, 2012

 









 

 

 

 

 

 

 

 









Accrued payroll, payroll taxes and benefits

 

$

46.3

 

$

48.1

 

$

46.1

 

Accrued bonus and commissions

 

 

16.5

 

 

57.3

 

 

37.7

 

Accrued other taxes

 

 

26.0

 

 

42.8

 

 

39.1

 

Accrued advertising and promotions

 

 

39.0

 

 

36.1

 

 

38.1

 

Accrued income taxes

 

 

6.0

 

 

10.2

 

 

6.4

 

Accrued insurance

 

 

8.8

 

 

8.4

 

 

8.5

 

Other accrued expenses

 

 

32.8

 

 

30.6

 

 

33.2

 












Total accrued expenses

 

$

175.4

 

$

233.5

 

$

209.1

 












  November 30, 2013 May 31, 2013 November 30, 2012
             
Accrued payroll, payroll taxes and benefits $44.8  $45.8  $45.7 
Accrued bonus and commissions  21.4   22.0   16.5 
Accrued other taxes  28.4   29.3   36.6 
Accrued advertising and promotions  39.6   38.2   41.1 
Accrued income taxes  11.4   5.5   11.3 
Accrued insurance  7.8   8.7   8.7 
Other accrued expenses  30.6   30.0   35.2 
Total accrued expenses $184.0  $179.5  $195.1 

17. Subsequent Events

On March 20,December 13, 2013, the Company delivered an acceptance of offer (“Acceptance Letter”) to purchase its headquarters space (both land and building) at 555 Broadway, New York, NY (the “Property”) from its landlord, ISE 555 Broadway, LLC (the “Landlord”).

Under the terms of the Amended and Restated Lease effective as of August 1, 1999 between the Landlord and the Company (the “Lease”), the Landlord was obligated to offer to sell the Property to the Company prior to marketing the Property for sale to a third party. Pursuant to Section 2.03 of the Lease, the Landlord made the required written offer pursuant to a notice dated October 16, 2013 (“Landlord’s Offer Notice”).

22

SCHOLASTIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

(Dollar amounts in millions, except per share data)

Under the terms of the Lease and the Landlord’s Offer Notice, by accepting the Landlord’s offer the Company is obligated to purchase the Property for $255 in cash with no financing contingency, pursuant to a definitive contract of sale which must be executed within thirty (30) days of the receipt of the Company’s Acceptance Letter and which must be consistent with contracts for the sale of like property in the Borough of Manhattan. The Company will be required to deposit into escrow, with the Landlord’s counsel, $50 upon execution of the definitive contract of sale as required by the Landlord’s Offer Notice. The transaction is to be completed by February 3, 2014, subject to the right of the Company to demand one thirty (30) day extension upon the payment of an additional $5 into the escrow. The Company will use existing cash and availability under the Loan Agreement to finance this purchase.

On December 18, 2013, the Company announced that the Board of Directors declared a cash dividend of $0.125$0.15 per Class A and Common share in respect of the fourththird quarter of fiscal 2013.2014. The dividend is payable on JuneMarch 17, 20132014 to stockholders of record on April 30, 2013.January 31, 2014.




SCHOLASTIC CORPORATION

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


23

SCHOLASTIC CORPORATION

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

Overview and Outlook

Revenue forin the quarter ended February 28,November 30, 2013 was $380.5$623.2 million, compared to $467.0$613.5 million in the quarter ended November 30, 2012. The Company reported second quarter earnings per diluted share from continuing operations of $1.80, versus $1.91 in the prior year period. Results for the second quarter of the current fiscal year quarter. include a goodwill impairment charge of $13.4 million related to legacy acquisitions made in theChildren’s Book Publishing and Distribution segment over 10 years ago and $5.5 million of one-time expenses related tocost reduction and restructuring programs.

Second quarter results were largely driven by profit improvement in children’s books; continued robust performance of the Company’s new educational technology programs, which were successfully launched over the summer; favorable results in classroom book collections and guided reading initiatives; and growing circulation of the Company’s classroom magazines. These results were partially offset by the performance of theInternational segment, where the impact of double-digit revenue growth in Asia was more than offset by fluctuations in foreign currency exchange rates.

The third quarter revenue decline primarily reflected significantly lowerCompany continues to be a critical source of books to support children’s independent reading in school and at home. In the trade channel,The Hunger Games: Catching Fire film release in November 2013 sparked sales of The Hunger Games trilogy versusbooks and ebooks following its release, and the Company’s expectations and versus the prior year, when the Company benefited from extraordinarily strong book revenues in advance of the March 2012 film release. Book club sales also declinednew multi-platform series, SPIRIT ANIMALSTM, did well in the second quarter, compared to the prior year period. The Company reported a consolidated loss per share of $0.63 versus $0.33as did franchise titles such as Harry Potter. Collaborative marketing efforts in the prior fiscal year quarter. The declinechildren’s book clubs and fairs channels are providing books to parents and children in net income was largely the result of lower revenues, especially from lower Hunger Games sales, as well as the Company’s planned increase in investments in digital initiatives, partially offset by cost-cutting measures implemented during the quarter. The third quarter is a seasonally lower revenue quarter for Scholastic and typically generates a net loss.more streamlined, profitable manner.

During the thirdsecond quarter, strong demand for the Company’s new educational programs and classroom book collections, magazines and other materials, combining both print and digital, drove revenue and operating income growth in theEducational Technology and Services andClassroom and Supplemental Materials Publishing segments. The Company also combined the operations of these two segments during the quarter, which enhances the Company’s ability to support schools and districts with total solutions as new technologies and new standards are being implemented. As a result, the new combined sales force is able to offer a significantly expanded suite of programs and services in support of the Company’s partnerships with schools in helping to raise reading and math achievement to enable children to reach the new Common Core standards.

For fiscal 2014, the Company implemented cost savings measurescontinues to help offset the continued pressures on operating income and expects to implement additional cost savings measures in the fourth quarteranticipate total revenues of the current fiscal year. As previously announced, for fiscal 2013 the Company now expects total revenue of approximately $1.75 billion to $1.8 billion and earnings per diluted share from continuing operations in the range of $1.10$1.40 to $1.30,$1.80, before the impact of one-time items associated with cost reduction programs, andor non-cash, non-operating items.

24

SCHOLASTIC CORPORATION

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

Results of Operations – Consolidated

Revenues for the quarter ended February 28,November 30, 2013 decreasedincreased by $86.5$9.7 million or 18.5%, to $380.5$623.2 million, compared to $467.0$613.5 million in the prior fiscal year quarter. ThisThe improvement was due todriven by continued strong results from new educational technology programs of $5.1 million, continued demand for the Company’s digital and customized print institutional packages contributing $3.6 million, higher book fair revenues of $6.1 million, and increased sales of Hunger Games trilogy titles of $3.4 million. Partially offsetting these improvements were lower revenues in theChildren’s Book Publishing and Distribution segment, theInternational segment andrevenues resulting from theMedia, Licensing and Advertising segment adverse impact of $79.4 million, $11.2foreign exchange of $7.5 million and $2.7the absence of low margin software sales in Australia of $3.0 million respectively, offset in part by increased revenues in theClassroom current fiscal year quarter and Supplemental MaterialsPublishing segment and theEducational Technology and Services segmentlower book clubs revenues of $5.0 million and $1.8 million, respectively. $2.7 million.

Revenues for the nine monthssix month period ended February 28,November 30, 2013 decreased by $180.0$7.4 million or 12.2%, to $1,290.3$899.5 million, compared to $1,470.3$906.9 million in the prior fiscal year fiscal period, due toperiod. The reduction was driven by lower revenues infrom the Hunger Games trilogy of $23.0 million across theChildren’s Book Publishing and Distributionsegment, theEducational Technology and Services segment, theInternational segment, theClassroom and Supplemental Materials Publishingsegment and theMedia, Licensing and Advertising segment. LowerInternationalsegment revenues also resulted from the adverse impact of $128.7foreign exchange of $11.9 million $28.0 million, $9.1 million, $8.3in the six month period ended November 30, 2013 and the absence of low margin software sales totaling $6.0 million. 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 $20.2 million.Classroom and Supplemental Materials Publishing segment revenues were also higher by $5.8 million and $5.9 million, respectively.theChildren’s Book Publishing and Distribution segment includes increased Book Fairs revenue of $6.3 million.

Cost of goods sold (exclusive of depreciation and amortization) as a percentage of revenue for the quarter ended February 28,November 30, 2013 increased to 50.2%were flat at approximately 43%, compared to 47.0%the prior fiscal year quarter. Cost of goods sold as a percentage of revenue for the six months ended November 30, 2013 decreased to 44.8%, compared to 45.5% in the prior fiscal year quarter. The percentage increaseperiod. For the six month period ended November 30, 2013, 17.3% of the Company’s revenues were from theEducational Technology and Services segment, compared to 14.6% in the quarter was related toprior fiscal year period.The Educational Technology and Services segment experiences significantly higher costs for free books and related fulfillment costs in the book clubs distribution channel and an unfavorable product mix, partially offset by favorable royalty costs as a percentage of revenue driven by a decline in digital revenue from the sale of ebooks, primarily sold to third-party retailers ingross margins than theChildren’s Book Publishing and Distribution segment, which carries a higher royalty cost as a percentage of revenue. Cost of goods sold (exclusive of depreciation and amortization) as a percentage of revenue for the nine months ended February 28, 2013 increased slightly to 46.9%, compared to 45.3% International segments. This shift in the prior fiscal year period.composition of revenues resulted in the overall improved gross margins.

Components of Cost of goods sold (exclusive of depreciation and amortization) for the three and ninesix months ended February 28,November 30, 2013 and February 29, 2012 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

February 28,
2013

 

February 29,
2012

 

February 28,
2013

 

February 29,
2012

 















Product, service and production costs

 

$

99.5

 

$

114.4

 

$

326.8

 

$

362.1

 

Royalty costs

 

 

21.7

 

 

39.0

 

 

73.1

 

 

96.1

 

Prepublication and production amortization

 

 

12.9

 

 

12.8

 

 

36.8

 

 

37.2

 

Postage, freight, shipping, fulfillment and all other costs

 

 

57.0

 

 

53.4

 

 

168.9

 

 

170.3

 















Total

 

$

191.1

 

$

219.6

 

$

605.6

 

$

665.7

 

















  Three months ended November 30, Six months ended November 30,
  2013 2012 2013 2012
  $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue
Product, service and production costs $151.8   24.4% $153.5   25.0% $218.3   24.3% $226.0   24.9%
Royalty costs  27.9   4.5%  28.1   4.6%  45.3   5.0%  51.3   5.7%
Prepublication and production amortization  14.9   2.4%  12.2   2.0%  28.0   3.1%  23.9   2.6%
Postage, freight, shipping, fulfillment and other  70.2   11.3%  68.2   11.1%  111.1   12.4%  111.6   12.3%
Total $264.8   42.5% $262.0   42.7% $402.7   44.8% $412.8   45.5%

 


SCHOLASTIC CORPORATION

Item 2. MD&A


Selling, general and administrative expenses (exclusive of depreciation and amortization) decreased by $41.9 million to $200.6 million in the quarter, compared to $242.5 million in the prior fiscal year quarter. Selling, general and administrative expenses (exclusive of depreciation and amortization) for the nine months ended February 28, 2013 decreased by $46.4 million to $609.7 million, compared to $656.1 million in the prior fiscal year period. The decreases in both periods were primarily related to lower sales tax expenses in theChildren’s Book Publishing and Distributionsegment, as well as overall lower employee-related expenses.

Selling, general and administrative expenses (exclusive of depreciation and amortization) forin the three and nine monthsquarter ended February 28,November 30, 2013 includes $3.0increased by $1.6 million to $234.4 million, compared to $232.8 million in the prior fiscal year quarter. The Company recognized $5.5 million of severance expensescosts related to cost saving initiatives implemented in the Company’sfiscal quarter ended November 30, 2013. The Company experienced lower salaries and benefits of $2.2 million compared to the prior fiscal year quarter as a result of prior cost savings initiatives.

Selling, general and administrative expenses (exclusive of depreciation and amortization) forin the three and nine monthssix month period ended February 29, 2012 includes severance expenses, relatedNovember 30, 2013 decreased by $3.5 million to the Company’s voluntary retirement program, of $2.5$402.8 million, and $9.3compared to $406.3 million respectively.

Inin the prior fiscal year period. The Company experienced lower salaries and benefits of $5.6 million compared to the prior fiscal period as a result of prior cost savings initiatives. The Company recognized $7.5 million of severance costs related to cost saving initiatives implemented in the six month period ended November 30, 2013.

25

SCHOLASTIC CORPORATION

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

In the fiscal quarter ended November 30, 2013, the Company recognized a loss on leases$13.4 million impairment of $6.2goodwill attributable to legacy acquisitions in theChildren’s Book Publishing and Distributionsegment.

For the quarter ended November 30, 2013, net interest expense decreased to $2.1 million, for certain leased propertiescompared to $3.7 million in lower Manhattan. The fair valuethe prior fiscal year quarter. For the six months ended November 30, 2013, net interest expense decreased to $4.0 million, compared to $7.4 million in the prior fiscal year period. Both periodic reductions reflect the April 2013 repayment of the Company’s 5% Notes.

The Company’s effective tax rate for the current fiscal quarter was 37.0%, compared to 36.3% in the prior fiscal year quarter. The Company’s effective tax rate for the six month period ended November 30, 2013 was 37.1%, compared to 35.1% in the prior fiscal year period. The Company expects an effective tax rate of approximately 40% for fiscal 2014.

Earnings from discontinued operations, net rents to be received under sublease arrangements isof tax, for the quarter ended November 30, 2013 was less than the Company’s lease commitments for these properties over the remaining term$0.1 million, compared to a loss of the leases and, accordingly, the Company recognized this loss$0.8 million in the nineprior fiscal year quarter. Earnings from discontinued operations, net of tax, for the six months ended February 29, 2012.November 30, 2013 was $0.2 million, compared to a loss of $1.2 million in the prior fiscal year period. The Company did not discontinue any operations in the current fiscal year.

Net interest expense

Results of Continuing Operations

Children’s Book Publishing and Distribution

  Three months ended     Six months ended    
  November 30,     November 30,    
($ amounts in millions) 2013 2012 $ change % change 2013 2012 $ change % change
                 
Revenues $352.1  $347.4  $4.7   1.4% $406.7  $418.3  $(11.6)  -2.8%
Cost of goods sold (exclusive of depreciation and amortization)  132.8   132.0   0.8   0.6%  169.4   173.9   (4.5)  -2.6%
Other operating expenses *  133.3   141.7   (8.4)  -5.9%  208.8   221.8   (13.0)  -5.9%
Depreciation and amortization  3.7   4.3   (0.6)  -14.0%  7.7   8.1   (0.4)  -4.9%
Asset impairments  13.4      13.4   n/a   13.4      13.4   n/a 
Operating income (loss) $68.9  $69.4  $(0.5)     $7.4  $14.5  $(7.1)    
                                 
Operating margin  19.6%  20.0%          1.8%  3.5%        

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

Revenues for the three monthsquarter ended February 28,November 30, 2013 increased by $0.2$4.7 million to $4.1$352.1 million, compared to $3.9$347.4 million in the prior fiscal year quarter. The Company’s book fair revenues increased $6.1 million due to higher revenue per fair. The Company continues to direct greater book fair resources and support to schools that generate higher book fair revenues. As a result of this focus, revenue per fair has increased 5.8% in the current quarter compared to the prior fiscal year quarter, more than offsetting a 4.4% decline in the number of fairs in the same period. Revenues in the trade channel increased $1.3 million driven by demand for Hunger Games trilogy titles associated with the release ofThe Hunger Games: Catching Fire movie in November 2013. The Company recently agreed to an internet distribution agreement for Apple’s iBooks platform. Book clubs revenues declined $2.7 million compared to the prior fiscal quarter due to lower revenue per sponsor.

For the six months ended November 30, 2013, segment revenues decreased $11.6 million to $406.7 million, compared to $418.3 million in the prior fiscal year period. Lower revenues in the Company’s trade channel reflected decreased sales of the Hunger Games trilogy of $12.6 million compared to the prior fiscal period, as Hunger Game revenues were lower than the prior fiscal period in the first quarter. The decrease in Hunger Games revenues includes $13.0 million of high margin digital products. Trade revenues from other titles increased modestly in the six month period due to demand for Harry Potter titles and front list titles such asStar Wars: Jedi

26

SCHOLASTIC CORPORATION

Item 2. MD&A

Academy by Jeffrey Brown, Spirit Animals #1: Wild Bornby Brandon Mull, Tui Sutherland’s Wings of Fire #4: The Dark Secret andThe Raven Cycle #2: The Dream Thieves by Maggie Stiefvater. These improvements in the trade channel were offset by slightly lower backlist sales compared to the prior fiscal year period. Book fairs and book clubs revenues for the six months were consistent with the quarterly results, since revenues from fairs and clubs are not significant in the first quarter of the fiscal year, as schools are not in session.

Cost of goods sold remained consistent with prior fiscal year periods. Cost of goods sold for the quarter ended November 30, 2013 was $132.8 million, or 38% of revenues, compared to $132.0 million, or 38% of revenues, in the prior fiscal year quarter. Cost of goods sold for the six months ended November 30, 2013 was $169.4 million, or 42% of revenues, compared to $173.9 million, or 42% of revenues, in the prior fiscal period.

Other operating expenses declined to $133.3 million for the quarter ended November 30, 2013, compared to $141.7 million in the prior fiscal year quarter, due to $5.4 million of lower promotional expenses, as loan fee amortization was accelerated by $0.2the segment provided fewer print promotional materials to book club sponsors. Other operating expenses declined to $208.8 million relatedfor the six months ended November 30, 2013 compared to $221.8 million for the prior fiscal year period. Promotional spending for the six month period declined $6.4 million and the segment realized lower employee and information technology costs as a changeresult of prior and current year cost savings initiatives.

In the current fiscal year quarter, $13.4 million of goodwill attributable to legacy acquisitions in the mix of lenders in connection withChildren’s Book Publishing and Distributionsegment was determined to be impaired.

Segment operating income for the amendment ofquarter ended November 30, 2013 decreased by $0.5 million to $68.9 million, which includes the Loan Agreement described under “Financing” below. For the nine months ended February 28, 2013, net interest expense decreased to $11.5$13.4 million goodwill impairment, compared to $11.7$69.4 million in the prior fiscal year period.

The lossquarter. Higher revenues in book fairs and trade channels combined with a focus on cost savings in the book clubs channel resulted in operating income improvements from discontinued operations, netall of tax, was less than $0.1 million, or less than $0.01 per share,the segment’s channels. Segment operating income for the quartersix months ended February 28,November 30, 2013 was $7.4 million, which includes the $13.4 million goodwill impairment, compared to $0.4$14.5 million or $0.01 per share, in the prior fiscal year quarter. Loss from discontinued operations for the nine months ended February 28, 2013 was $0.2 million, or $0.01 per share, compared to $2.9 million, or $0.09 per share, for the prior fiscal year period. The decrease in such loss reflects costs and asset impairments recognizedfocus on cost savings in the Company’s toy catalog business whichcurrent period was discontinued inmore than enough to offset the quarter ended August 31, 2011.

Resultsprior fiscal period success of Continuing Operations

Children’s Book Publishing and Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 



















 

Revenues

 

$

189.4

 

$

268.8

 

$

(79.4

)

 

-29.5

%

$

610.6

 

$

739.3

 

$

(128.7

)

 

-17.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

 

 

86.1

 

 

109.8

 

 

(23.7

)

 

-21.6

%

 

261.5

 

 

304.1

 

 

(42.6

)

 

-14.0

%

Other operating expenses **

 

 

109.4

 

 

142.4

 

 

(33.0

)

 

-23.2

%

 

333.4

 

 

352.6

 

 

(19.2

)

 

-5.4

%

Depreciation and amortization

 

 

4.0

 

 

4.4

 

 

(0.4

)

 

-9.1

%

 

12.1

 

 

11.9

 

 

0.2

 

 

1.7

%



























Operating income (loss)

 

$

(10.1

)

$

12.2

 

$

(22.3

)

 

*

 

$

3.6

 

$

70.7

 

$

(67.1

)

 

-94.9

%



























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

4.5

%

 

 

 

 

 

 

 

0.6

%

 

9.6

%

 

 

 

 

 

 

          *           Not meaningfulthe Hunger Games trilogy.

 **

Educational Technology and Services

  Three months ended     Six months ended    
  November 30,     November 30,    
($ amounts in millions) 2013 2012 $ change % change 2013 2012 $ change % change
                 
Revenues $60.9  $52.2  $8.7   16.7% $155.7  $132.2  $23.5   17.8%
Cost of goods sold (exclusive of depreciation and amortization)  24.7   21.1   3.6   17.1%  52.8   46.8   6.0   12.8%
Other operating expenses *  29.1   25.5   3.6   14.1%  59.3   54.7   4.6   8.4%
Depreciation and amortization  0.2   0.3   (0.1)  -33.3%  0.5   0.6   (0.1)  -16.7%
Operating income (loss) $6.9  $5.3  $1.6      $43.1  $30.1  $13.0     
                                 
Operating margin  11.3%  10.2%          27.7%  22.8%        

* 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 February 28,November 30, 2013 decreasedincreased by $79.4$8.7 million or 29.5%, to $189.4$60.9 million, compared to $268.8$52.2 million in the prior fiscal year quarter. RevenueThe 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 $5.1 million of increased revenues in the book clubs business declined by $15.2 million, reflecting lower revenue per order. Revenue forfiscal quarter ended November 30, 2013. Revenues from the Company’s trade business decreased by $66.1curriculum technology reading platforms increased $3.1 million, in the quarter, primarily related to the prior year quarter’s strongas increased revenues from sales of The Hunger Games trilogy,System 44®Next Generation were partially offset by revenue declines for Read 180®. The success ofSystem 44®Next Generation, which was released late in fiscal 2013, continues the Company’s leading position as a net reductionprovider of interventive reading technology solutions. Revenues from other products and services increased modestly in the returns reserve due to favorable returns experience of $7.3 million, primarily related to the Hunger Games titles.fiscal quarter ended November 30, 2013. Revenues for this segment are traditionally lower in the Company’s book fair business increased by $1.9 million, reflecting a higher fair count, partially offset by lower revenues per fair. second fiscal quarter than they are in the first fiscal quarter.

27

SCHOLASTIC CORPORATION

Item 2. MD&A

Revenues for the ninesix months ended February 28,November 30, 2013 decreasedincreased by $128.7$23.5 million or 17.4%, to $610.6$155.7 million,




SCHOLASTIC CORPORATION

Item 2. MD&A


compared to $739.3$132.2 million in the prior fiscal year period. The decrease was related to declines innewly launched products mentioned above accounted for $20.2 million of the increased revenues.Revenues from the Company’s book clubs business of $43.5curriculum technology reading platforms increased $5.0 million related to lower revenue per order,for the six months ended November 30, 2013, as well as school closings after Superstorm Sandy, and lowerincreased revenues in the Company’s trade business of $90.1 million, reflecting lowerfrom sales of The Hunger Games trilogy compared to the trilogy’s strong results in the comparable prior year period. These decreasesSystem 44®Next Generation were partially offset by an increase in the Company’s book fair business of $4.9 million over the prior fiscal year period.revenue declines for Read 180®.

Cost of goods sold (exclusiveincreased to $24.7 million, or 41% of depreciation and amortization)revenues, in the current fiscal quarter was $86.1ended November 30, 2013, compared to $21.1 million, or 45.5%40% of revenues, in the prior fiscal quarter. Higher amortization of prepublication costs for newly launched products offset lower variable per unit costs of goods sold in the quarter ended November 30, 2013. Cost of goods sold increased to $52.8 million, or 34% of revenues, for the six months ended November 30, 2013, compared to $109.8$46.8 million, or 40.8%35% of revenues, in the prior fiscal period.

Other operating expenses for the quarter ended November 30, 2013 increased by $3.6 million to $29.1 million, compared to $25.5 million in the prior fiscal year quarter. The increase in Cost of goods sold (exclusive of depreciationwas due to higher outside services, conventions, commission expense and amortization) as a percentage of revenue was driven by higher costs for free books of $2.7general expenses associated with the increased revenues. For the six months ended November 30, 2013, other operating expenses increased $4.6 million and related fulfillment costs in the book clubs distribution channel. In addition, the Company recognized costs, in the amount of $0.9 million, relatedcompared to Storia® which was launched in the prior fiscal year. These increases were partially offset by favorable royalty costs as a percentage of revenue driven by the decline in digital revenue from the sale of ebooks, sold primarilyperiod, also due to third- party retailers, which carries a higher royalty cost as a percentage of revenue. Cost of goods sold (exclusive of depreciationconventions, commission expense and amortization)general expenses.

Segment operating income for the nine monthsquarter ended February 28,November 30, 2013 was $261.5increased by $1.6 million or 42.8% of revenues, compared to $304.1 million, or 41.1% of revenues, in the prior fiscal year period.

Other operating expenses decreased by $33.0 million, or 23.2%, to $109.4 million for the three months ended February 28, 2013, compared to $142.4 million for the prior fiscal year quarter. The decrease is primarily related toFor the prior year additional sales tax expense of $19.7 million relating to sales tax assessments in two jurisdictions in the Company’s book clubs business, as well as the higher prior year quarter’s employee related expenses for incentive compensation. Other operating expenses decreased by $19.2 million, or 5.4%, to $333.4 million for the ninesix months ended February 28,November 30, 2013, compared to $352.6 million for the prior fiscal year period, related to the prior year’s sales tax expenses, as well as incentive compensation in the prior year.

Segment operating loss for the quarter ended February 28, 2013 was $10.1 million, representing a decline of $22.3 million, compared to operating income of $12.2was $13.0 million in the prior fiscal year quarter. Segment operating income for the nine months ended February 28, 2013 decreased by $67.1 million, or 94.9%, to $3.6 million, compared to $70.7 million inhigher than the prior fiscal year period. The decreases in both periods were principally relatedsegment continues to benefit from the lower revenues, partially offset bystrong demand for the lower operating expenses.new products referred to above. These new products:



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

assist educators in the implementation of Common Core State Standards; and

SCHOLASTIC CORPORATION

Item 2. MD&A


enable more technology solutions to be incorporated in the classroom.

This segment continues to collaborate with theEducational TechnologyClassroom and ServicesSupplemental Materials Publishing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 



















 

Revenues

 

$

41.8

 

$

40.0

 

$

1.8

 

 

4.5

%

$

174.0

 

$

202.0

 

$

(28.0

)

 

-13.9

%

Cost of goods sold (exclusive of depreciation and amortization)

 

 

18.9

 

 

19.3

 

 

(0.4

)

 

-2.1

%

 

65.7

 

 

69.7

 

 

(4.0

)

 

-5.7

%

Other operating expenses **

 

 

26.1

 

 

26.4

 

 

(0.3

)

 

-1.1

%

 

80.8

 

 

83.9

 

 

(3.1

)

 

-3.7

%

Depreciation and amortization

 

 

0.3

 

 

0.2

 

 

0.1

 

 

50.0

%

 

0.9

 

 

0.9

 

 

 

 

0.0

%



























Operating income (loss)

 

$

(3.5

)

$

(5.9

)

$

2.4

 

 

40.7

%

$

26.6

 

$

47.5

 

$

(20.9

)

 

-44.0

%



























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

*

 

 

 

 

 

 

 

 

15.3

%

 

23.5

%

 

 

 

 

 

 

          *           Not meaningful group to better leverage sales, marketing and distribution of the Company’s complete suite of product offerings to educational institutions.

 **

Classroom and Supplemental Materials Publishing

  Three months ended     Six months ended    
  November 30,     November 30,    
($ amounts in millions) 2013 2012 $ change % change 2013 2012 $ change % change
                 
Revenues $59.1  $53.2  $5.9   11.1% $96.9  $91.1  $5.8   6.4%
Cost of goods sold (exclusive of depreciation and amortization)  20.3   17.9   2.4   13.4%  36.0   34.5   1.5   4.3%
Other operating expenses *  27.8   27.6   0.2   0.7%  51.2   51.1   0.1   0.2%
Depreciation and amortization  0.3   0.3   -   0.0%  0.6   0.7   (0.1)  -14.3%
Operating income (loss) $10.7  $7.4  $3.3      $9.1  $4.8  $4.3     
                                 
Operating margin  18.1%  13.9%          9.4%  5.3%        

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

Revenues in theEducational Technology and Servicessegment for the quarter ended February 28,November 30, 2013 increased by $1.8$5.9 million or 4.5%, to $41.8$59.1 million, compared to $40.0 million in the prior year fiscal quarter, which was attributable to increased revenues of $1.7 million in the Math Solutions business. Revenues for the nine months ended February 28, 2013 decreased by $28.0 million, or 13.9%, to $174.0 million, compared to $202.0$53.2 million in the prior fiscal year quarter. The current period primarily related to decreasedexperienced higher revenues of $3.5 million for classroom books, driven by continued demand for the Company’s digital and customized print institutional packages. Revenues from sales of curriculum educational technology products of $33.0classroom magazines increased $2.3 million due to lower spending by school districts, as well as a significant sale of adoption product in Texasmodestly higher circulation volumes. Revenues for the six months ended November 30, 2013 increased $5.8 million to $96.9 million, compared to $91.1 million in the prior fiscal year period. In addition,This increase partially resulted from the prior year periods benefitedaforementioned demand for digital and customized print packages. The Company has recently enhanced its online store for teachers, resulting in improved ecommerce activity from higher revenues related tothis market, increasing revenue by $3.7 million through the launch of READ 180® Next Generation. The decreaseonline store for the nine month periodsix months ended February 28, 2013 was partially offset by higher revenues of $5.0 million in the other businesses in this segment, specifically services provided by the Math Solutions business and the consulting business associated with training for Common Core State Standards, as the Company meets the increased demand for such services.November 30, 2013.

Cost of Goods Sold (exclusive of depreciation and amortization)goods sold for the quarter ended February 28,November 30, 2013 decreased to $18.9was $20.3 million, or 45.2%34% of revenues,revenue, compared to $19.3$17.9 million, or 48.3%34% of revenues forrevenue, in the prior fiscal year fiscal quarter. The prior fiscal period includes accelerated prepublication costs of $0.8 million for one of the Company’sEducational Technology and Services products. Cost of Goods Sold (exclusive of depreciation and amortization) decreased to $65.7 million, or 37.8% of revenues, compared to $69.7 million, or 34.5% of revenues, for the nine months ended February 28, 2013. The increase in Cost of goods sold (exclusive of depreciation and amortization) as a percentagefor the six months ended November 30, 2013 was $36.0 million,

28

SCHOLASTIC CORPORATION

Item 2. MD&A

or 37% of revenue, was primarily duecompared to a shift$34.5 million, or 38% of revenue, in the prior fiscal year quarter. The absolute increase for both periods is attributable to the higher revenues from higher margin product sales to lower margin service revenues. The Company’s services revenues as a percentage of totalEducational Technologyin the fiscal quarter and Servicesrevenues were 55.2% and 35.0% for the three and nine monthssix month period ended February 28, 2013, respectively, and 51.3% and 27.2% for the three and nine months ended February 29, 2012, respectively.November 30, 2013.

Other operating expenses for the quarter ended February 28,November 30, 2013 remained relativelyand the six month period ended November 30, 2013 were flat compared to the prior fiscal period. Other operating expenses for the nine months ended February 28, 2013 decreased by $3.1 million, to $80.8 million, compared to $83.9 million for the prior fiscal year period. The decrease was related to lower commission expense of $2.7 million, resulting from the lower revenues, as well as lower promotion spending of $0.7 million.

Segment operating loss for the quarter ended February 28, 2013 decreased to a loss of $3.5 million, compared to a loss of $5.9 millionsame periods in the prior fiscal year period. This improvement was attributable to the increased revenue. year.

Segment operating income for the nine monthsquarter ended February 28,November 30, 2013 decreased by $20.9and the six month period ended November 30, 2013 improved $3.3 million or 44.0%,and $4.3 million, respectively. The classroom magazines business continues to $26.6 million, comparedexperience improved circulation as customers seek supplemental content to $47.5 million inmeet Common Core State Standards, and the priorCompany expects this trend to continue for the rest of the fiscal year period. The decrease was primarily relatedyear.Additionally, the segment is receiving positive feedback and increased demand from customers for recently launched customized digital and printinstitutional packages, broadening the offering to the lower revenues discussed above.classrooms.




SCHOLASTIC CORPORATION

Item 2. MD&A


ClassroomMedia, Licensing and Supplemental Materials PublishingAdvertising

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 



















 

Revenues

 

$

43.2

 

$

38.2

 

$

5.0

 

 

13.1

%

$

134.3

 

$

142.6

 

$

(8.3

)

 

-5.8

%

Cost of goods sold (exclusive of depreciation and amortization)

 

 

18.8

 

 

16.3

 

 

2.5

 

 

15.3

%

 

53.3

 

 

57.5

 

 

(4.2

)

 

-7.3

%

Other operating expenses **

 

 

24.3

 

 

25.0

 

 

(0.7

)

 

-2.8

%

 

75.4

 

 

75.3

 

 

0.1

 

 

0.1

%

Depreciation and amortization

 

 

0.3

 

 

0.3

 

 

0.0

 

 

0.0

%

 

1.0

 

 

0.8

 

 

0.2

 

 

25.0

%



























Operating income (loss)

 

$

(0.2

)

$

(3.4

)

$

3.2

 

 

*

 

$

4.6

 

$

9.0

 

$

(4.4

)

 

-48.9

%



























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

*

 

 

*

 

 

 

 

 

 

 

 

3.4

%

 

6.3

%

 

 

 

 

 

 

          *           Not meaningful

 **

  Three months ended     Six months ended    
  November 30,     November 30,    
($ amounts in millions) 2013 2012 $ change % change 2013 2012 $ change % change
                 
Revenues $15.5  $17.0  $(1.5)  -8.8% $25.9  $31.4  $(5.5)  -17.5%
Cost of goods sold (exclusive of depreciation and amortization)  6.8   7.9   (1.1)  -13.9%  11.3   13.1   (1.8)  -13.7%
Other operating expenses *  9.1   7.0   2.1   30.0%  16.8   15.9   0.9   5.7%
Depreciation and amortization  0.0   0.1   (0.1)  -100.0%  0.1   0.2   (0.1)  -50.0%
                                 
Operating income (loss) $(0.4) $2.0  $(2.4)     $(2.3) $2.2  $(4.5)    
                                 
Operating margin  -   11.8%          -   7.0%        

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

Revenues in theClassroom and Supplemental Materials Publishingsegment for the quarter ended February 28,November 30, 2013 increaseddecreased by $5.0$1.5 million or 13.1%, to $43.2$15.5 million, compared to $38.2$17.0 million in the prior fiscal year quarter, driven by higher classroom magazines revenue, most notablyquarter. This decrease was primarily the result of a $1.8 million decrease in sales ofLeapster products. Revenues for Company programming were down modestly in theScholastic News®andLet’s Find Out®magazines which contributed $3.3 million quarter ended November 30, 2013; however, during the quarter the Company entered into a contract to the overall increase. Strong sales of classroom magazinesprovide Netflix with internet distribution rights forClifford® programming. Magazines were driven by schools’ need for non-fiction content alignedup modestly due to Common Core State Standards.increased custom publishing revenues. Revenues for the ninesix months ended February 28,November 30, 2013 decreased by $8.3$5.5 million or 5.8%, to $134.3$25.9 million, compared to $142.6$31.4 million in the prior fiscal year quarter. This decrease was primarily related to decreased sales of the Hunger Games trilogy audio books of $4.0 million.

Cost of goods sold was $6.8 million, or 44% of revenue, for the quarter ended November 30, 2013, compared to $7.9 million, or 46% of revenue, for the prior fiscal year quarter. Lower current quarter programming amortization costs and lower volumes of low-marginLeapsterproduct are responsible for the decrease as a percentage of revenues. For the six month period ended November 30, 2013, cost of goods sold was $11.3 million, or 44% of revenues, compared to $13.1 million, or 42% of revenues, in the prior fiscal period. The increase as a percentage of revenue is attributable to higher volumes of Hunger Games audio books, which carry a relatively low cost of goods sold, in the prior fiscal year period.

Other operating expenses were $9.1 million for the quarter ended November 30, 2013, compared to $7.0 millionfor the prior fiscal year quarter. The prior year includes $1.3 million of settlement income. Other operating expenses were $16.8 million for the six months ended November 30, 2013, compared to $15.9 millionfor the prior fiscal year period.

Segment operating loss for the quarter ended November 30, 2013 was $0.4 million, compared to operating income of $2.0 million in the prior fiscal year quarter. The $1.3 million of settlement income in the prior year quarter combined with the decreased revenues drove the decline. For the six month period ended November 30, 2013, operating loss was $2.3 million, compared to operating income of $2.2 million in the prior fiscal year period. This decreaseThe decline was primarily relateddue to the lossaforementioned settlement income and the decrease

29

SCHOLASTIC CORPORATION

Item 2. MD&A

in sales of revenue from significant non-recurring contractsthe 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 Reading is Fundamental of $13.6 million which were in place in the prior fiscal year period, partially offset by the increased revenue in the Company’s classroom magazine business.distributors such as Netflix.

Cost of goods sold (exclusive of depreciation and amortization) was consistent with the prior period and for the quarter ended February 28, 2013 was $18.8 million, or 43.5% of revenue, compared to $16.3 million, or 42.7% of revenue, in the prior fiscal year period. Cost of goods sold (exclusive of depreciation and amortization) for the nine months ended February 28, 2013 was $53.3 million, or 39.7% of revenue, compared to $57.5 million, or 40.3% of revenue, in the prior fiscal year period.

Segment operating loss for the quarter ended February 28, 2013 decreased by $3.2 million to a loss of $0.2 million, compared to a loss of $3.4 million in the prior year fiscal quarter. This improvement was primarily related to the higher revenues noted above. Segment operating income for the nine months ended February 28, 2013 decreased by $4.4 million, or 48.9%, to $4.6 million, compared to $9.0 million in the prior fiscal year period. This decrease was principally related to the lower revenues noted above.International




SCHOLASTIC CORPORATION

Item 2. MD&A


International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 



















 

Revenues

 

$

94.4

 

$

105.6

 

$

(11.2

)

 

-10.6

%

$

328.3

 

$

337.4

 

$

(9.1

)

 

-2.7

%

Cost of goods sold (exclusive of depreciation and amortization)

 

 

47.5

 

 

53.8

 

 

(6.3

)

 

-11.7

%

 

161.4

 

 

168.7

 

 

(7.3

)

 

-4.3

%

Other operating expenses **

 

 

43.4

 

 

45.5

 

 

(2.1

)

 

-4.6

%

 

133.4

 

 

133.0

 

 

0.4

 

 

0.3

%

Depreciation and amortization

 

 

1.5

 

 

2.0

 

 

(0.5

)

 

-25.0

%

 

4.0

 

 

4.9

 

 

(0.9

)

 

-18.4

%



























Operating income (loss)

 

$

2.0

 

$

4.3

 

$

(2.3

)

 

-53.5

%

$

29.5

 

$

30.8

 

$

(1.3

)

 

-4.2

%



























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

2.1

%

 

4.1

%

 

 

 

 

 

 

 

9.0

%

 

9.1

%

 

 

 

 

 

 

 **

  Three months ended     Six months ended    
  November 30,     November 30,    
($ amounts in millions) 2013 2012 $ change % change 2013 2012 $ change % change
                 
Revenues $135.6  $143.7  $(8.1)  -5.6% $214.3  $233.9  $(19.6)  -8.4%
Cost of goods sold (exclusive of depreciation and amortization)  64.1   67.8   (3.7)  -5.5%  102.5   113.9   (11.4)  -10.0%
Other operating expenses *  48.1   49.9   (1.8)  -3.6%  87.9   90.0   (2.1)  -2.3%
Depreciation and amortization  1.2   1.3   (0.1)  -7.7%  2.4   2.5   (0.1)  -4.0%
Operating income (loss) $22.2  $24.7  $(2.5)     $21.5  $27.5  $(6.0)    
                                 
Operating margin  16.4%  17.2%          10.0%  11.8%        

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

Revenues in the Internationalsegment for the quarter ended February 28,November 30, 2013 decreased by $11.2$8.1 million to $94.4$135.6 million, compared to $105.6 million in the prior fiscal year quarter, principally due to lower revenues in Canada of $9.8 million, primarily in the trade and book clubs businesses, as well as lower revenues in Australia of $3.4 million, primarily in the new media and trade businesses. In both cases, the lower revenues in the trade business resulted from lower sales of the Hunger Games trilogy. These decreases were partially offset by increased revenues of $3.2 million in the Company’s Asian businesses. The favorable impact of foreign exchange rates was $0.4 million. Revenues for the nine months ended February 28, 2013 decreased by $9.1 million to $328.3 million, compared to $337.4 million in the prior fiscal year period. This decrease was primarily related to the same factors driving the quarter decrease, as well as the negative impact of foreign currency exchange rates of $2.2 million, all of which were partially offset by higher revenues in the Company’s export business of $3.1 million.

Cost of goods sold (exclusive of depreciation and amortization) as a percentage of revenue for the three and nine months ended February 28, 2013 and February 29, 2012 remained relatively flat.

Segment operating income for the quarter ended February 28, 2013 decreased by $2.3 million, or 53.5%, to $2.0 million, compared to $4.3 million in the prior fiscal year quarter. Excluding the $2.4 million favorable impact of foreign exchange rates, segment operating income decreased by $4.7 million for the quarter ended February 28, 2013, primarily due to the lower revenues noted above. Segment operating income for the nine months ended February 28, 2013 decreased by $1.3 million, or 4.2%, to $29.5 million, compared to $30.8 million in the prior fiscal year period. Excluding the $1.0 million favorable impact of foreign exchange rates, segment operating income decreased by $2.3 million for the nine months ended February 28, 2013, primarily due to the lower revenues noted above.




SCHOLASTIC CORPORATION

Item 2. MD&A


Media, Licensing and Advertising

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

($ amounts in millions)

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 

February 28,
2013

 

February 29,
2012

 

$ change

 

% change

 



















 

Revenues

 

$

11.7

 

$

14.4

 

$

(2.7

)

 

-18.8

%

$

43.1

 

$

49.0

 

$

(5.9

)

 

-12.0

%

Cost of goods sold (exclusive of depreciation and amortization)

 

 

5.3

 

 

6.2

 

 

(0.9

)

 

-14.5

%

 

18.5

 

 

23.0

 

 

(4.5

)

 

-19.6

%

Other operating expenses **

 

 

8.6

 

 

9.4

 

 

(0.8

)

 

-8.5

%

 

25.2

 

 

28.9

 

 

(3.7

)

 

-12.8

%

Depreciation and amortization

 

 

0.1

 

 

0.0

 

 

0.1

 

 

*

 

 

0.3

 

 

0.4

 

 

(0.1

)

 

-25.0

%



























Operating income (loss)

 

$

(2.3

)

$

(1.2

)

$

(1.1

)

 

*

 

$

(0.9

)

$

(3.3

)

$

2.4

 

 

72.7

%



























 

Operating margin

 

 

*

 

 

*

 

 

 

 

 

 

 

 

*

 

 

*

 

 

 

 

 

 

 

          *           Not meaningful

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

Revenues in the Media, Licensing and Advertising segment for the quarter ended February 28, 2013 decreased by $2.7 million, or 18.8%, to $11.7 million, compared to $14.4 million in the prior fiscal year quarter. The decrease in revenues was primarily due to lower production revenues, principallyWord Girl®. Revenues for the nine months ended February 28, 2013 decreased by $5.9 million, or 12.0%, to $43.1 million, compared to $49.0 million in the prior fiscal year period. This decrease was primarily related to lower production revenues of $3.5 million, as well as lower advertising and consumer magazine revenues of $3.3 million, partially offset by increased revenues in the Company’s interactive business, specifically from the increased sales of audio books.

Cost of goods sold (exclusive of depreciation and amortization) was $5.3 million, or 45.3% of revenue, for the quarter ended February 28, 2013, compared to $6.2 million, or 43.1% of revenue, for the prior fiscal year quarter. Cost of goods sold (exclusive of depreciation and amortization) was $18.5 million, or 42.9% of revenue, for the nine months ended February 28, 2013, compared to $23.0 million, or 46.9% of revenue, for the prior fiscal year period. The decrease for the nine months ended February 28, 2013 was primarily related to lower production costs.

Other operating expenses for the quarter ended February 28, 2013 decreased by $0.8 million to $8.6 million, from $9.4 million in the prior fiscal year quarter, primarily driven by lower employee related expenses of $0.7 million. Other operating expenses for the nine months ended February 28, 2013 decreased by $3.7 million to $25.2 million, compared to $28.9 million in the prior fiscal year period. The decrease is related to settlement income received of $1.3 million, as well as lower promotional, employee and other operating expenses in the Company’s consumer magazine business totaling $2.1 million.

Segment operating loss for the quarter ended February 28, 2013 increased by $1.1 million to a loss of $2.3 million, compared to a loss of $1.2$143.7 million in the prior fiscal year quarter. This decrease was primarily relateddue to the negative impact of foreign exchange of $7.5 million; lower sales to major market trade channels, including Canada, Australia and the UK, of $2.6 million; lower low-margin revenues noted above. Segment operating lossof $3.0 million from an Australian software business; and decreased exports from U.S. operations of $1.7 million. Partially offsetting these declines were improved revenues from Asian markets of $4.0 million spread across the region and higher sales to major market book fair channels of $2.4 million.

Revenues for the ninesix months ended February 28,November 30, 2013 was $0.9decreased by $19.6 million to $214.3 million, compared to a loss of $3.3 million in the prior fiscal year period. The improvement is related to the lower Cost of goods sold (exclusive of depreciation and amortization) as discussed above, as well as the lower operating expenses noted above, partially offset by the decline in revenue.

Overhead

Corporate overhead for the quarter ended February 28, 2013 decreased by $4.3 million to $13.6 million, compared to $17.9$233.9 million in the prior fiscal year quarter. Corporate overheadThis decrease was due to lower sales to major market trade channels of $9.0 million, driven by higher prior period sales of the Hunger Games trilogy; foreign exchange decreases of $11.9 million; a decrease of $6.0 million from an Australian software business; and lower exports from U.S. operations of $1.2 million. Partially offsetting these declines were improved revenues from Asian markets of $5.7 million.

Cost of goods sold for the ninequarter ended November 30, 2013 was $64.1 million, or 47% of sales, compared to $67.8 million, or 47% of sales, in the prior fiscal year quarter. Cost of goods sold for the six months ended February 28,November 30, 2013 was $102.5 million, or 48% of sales, compared to $113.9 million, or 49% of sales, in the prior fiscal year period.

Other operating expenses for the quarter ended November 30, 2013 decreased by $22.1$1.8 million to $37.7$48.1 million, compared to $59.8from $49.9 million in the prior fiscal year period.quarter. Lower selling, general and administrative costs of $2.9 million, combined with a gain of $1.0 million realized in Australia, were partially offset by increased costs paid by the U.S. operations on behalf of foreign subsidiaries of $1.4 million. For the six months ended November 30, 2013, other operating expenses declined $2.1 million. Lower employee and general expenses combined with the Australia gain were partially offset by increased charges from U.S. operations. The six month period ended November 30, 2013 includes $0.6 million of severance expense related to cost savings initiatives in the Company’s Asia operations.

Segment operating results for the quarter ended November 30, 2013 and the six month period ended November 30, 2013 decreased by $2.5 million and $6.0 million, respectively.These decreases reflect lower trade channel sales in major markets for both periods, largely due to the high level of Hunger Games trilogy sales in the prior fiscal periods. The decrease in both periods wassales from the Australian software business did not significantly impact earnings, as these sales were low margin sales. The Company continues to focus on English language educational businesses, based in Singapore, which it views as a future growth driver.

30

SCHOLASTIC CORPORATION

Item 2. MD&A

Overhead

Unallocated overhead expense for the quarter ended November 30, 2013 increased $6.8 million to $13.6 million, from $6.8 million in the prior fiscal period, primarily due to $5.5 million of severance related to lower employee-related expenses.cost savings initiatives.




Unallocated overhead expense for the six months ended November 30, 2013 increased $5.9 million to $30.0 million, from $24.1 million in the prior fiscal period, primarily due to $6.9 million of severance related to cost savings initiatives.

Seasonality

 

SCHOLASTIC CORPORATION

Item 2. MD&A


Seasonality

The Company’sChildren’s Book Publishing and Distribution school-based book clubs, school-basedfair and book fairsclub 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 book club and book fairchannel 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 throughoutthrough the year due to varying release dates of published titles.




SCHOLASTIC CORPORATION

Item 2. MD&A


31

SCHOLASTIC CORPORATION

Item 2. MD&A

Liquidity and Capital Resources

The Company’s cash and cash equivalents totaled $196.7$117.2 million at February 28,November 30, 2013, compared to $194.9$87.4 million at May 31, 20122013 and $111.8$257.3 million at February 29,November 30, 2012. Cash and cash equivalents held by the Company’s US operations totaled $101.6 million at November 30, 2013, $60.0 million at May 31, 2013 and $233.4 million at November 30, 2012.

Cash provided by operating activities was $107.2$81.5 million for the ninesix months ended February 28,November 30, 2013, compared to $132.8cash provided by operating activities of $127.4 million infor the prior fiscal year period, representing a decrease in cash provided by operating activities of $25.6$45.9 million.

Primary drivers In the fourth quarter of fiscal 2012, the Company experienced strong sales of the decrease include:

Lower net income of $35.8 million for the nine months ended February 28, 2013 compared to the nine months ended February 29, 2012. The prior year period’s net income included $6.2 million of charges for sublease losses and higher stock-based compensation expense of $4.8 million. Neither the sublease losses nor the stock-based compensation expense resulted in cash payouts for the prior fiscal period.

The change in accrued royalties which generated a cash use of $76.0 million in the current nine month fiscal period. Current year payouts exceed current year accruals due to the payment of royalties associated with prior year sales of The Hunger Games trilogy for which royalty payments were made by the Company in the current year. Typically the nine month period results in accruals in excess of payouts as payments are made in the second and fourth quarters of the fiscal year.

The change in accrued expenses which generated a cash use of $96.4 million was driven by first quarter employee incentive compensation payments related to the prior fiscal year’s results and higher tax accruals in the prior fiscal year.

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 royalty payments in the prior fiscal year period, also associated with the Hunger Games success, and higher payouts for incentive compensation of $28.7 million in the first quarter of fiscal 2013. Lower net income tax payments of $17.7 million also partially offset by:the decline.

Increase in net cash collections of $185.0 million in the current fiscal period largely attributable to the prior fiscal year’s sales performance in the Company’sChildren’s Book Publishing and Distributionsegment (primarily The Hunger Games trilogy), as well as higher cash received in theClassroom and Supplemental Materials Publishing segment, primarily related to classroom magazines.

Decreased net inventory balances of $35.5 million in the current fiscal period driven by lower purchases, as the Company continues to monitor working capital levels closely.

Cash used in investing activities was $94.9$45.6 million for the ninesix months ended February 28,November 30, 2013, compared to $78.0$63.1 million in the prior fiscal year period. The difference is attributable to higher spending on technology assets of $7.9 million and higher spending on book fairs fleet vehicles of $2.2 million in the prior fiscal year period. In the current fiscal year period, representing an increasethe Company invested $1.0 million for a 20% interest in a software development entity, and collected $1.3 million of $16.9 million. The Company continues to invest in its ongoing digital initiatives and upgraded its fleet of vehicles in the book fairs business as well as investing in product development in theEducational Technology and Services segment.proceeds from a sold asset.

Cash used in financing activities was $11.5$5.6 million for the ninesix months ended February 28,November 30, 2013, compared to $47.6cash used in financing activities of $3.4 million for the prior fiscal year period, primarily reflecting Term Loan paymentsperiod. Current fiscal year net short-term borrowings totaled $7.5 million compared to net repayments of $5.6 million in the prior fiscal year period under the Company’s Loan Agreement discussed below. Dividend payouts increased by $2.6 million, as the Company implemented a higher per share dividend rate. Partially offsetting these higher uses of cash were lower net borrowings under lines of credit of $18.4 million and an increase in proceedsperiod. Proceeds pursuant to stock-based compensationemployee stock plans of $8.5declined $9.9 million, in part due to a decrease in the current fiscal period.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.

The Company’s operating philosophy is to use cash provided fromby 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, acquire other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. In the current fiscal year period, the Company purchased $6.2 million of Company shares on the open market. The Company believes that funds generated by its operationsrecently agreed to purchase the land and funds available under its current credit facilities, afterbuilding comprising the anticipated useleased portion of the credit facilityCompany’s New York City corporate headquarters, located in SoHo, for $255.0 million. The Company will use existing cash and availability under the Revolving Loan to




SCHOLASTIC CORPORATION

Item 2. MD&A


satisfy its repayment obligations in respect finance this purchase. The agreement provides for the transaction to be completed by February 3, 2014, subject to the right of the 5% Notes due in fiscal 2013, will be sufficientCompany to finance its short-and long-term capital requirements.demand one 30 day extension.

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 February 28,November 30, 2013, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $196.7$117.2 million, cash from operations, and borrowingsfunding available under the Revolving Loan (as described under “Financing” below) totaling approximately $425.0 million. Additionally, the Company has short-term credit facilities of $49.5 million, less the amount anticipated to be utilized to satisfy the outstanding 5% Notes.net of current borrowings of $9.6 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

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.

Effective December 5, 2012, as discussed below, the Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2014, to extend the maturity date to December 5, 2017. The Company intends to draw on this credit facility to satisfy its repayment obligations in respect of the 5% Notes due April 2013.SCHOLASTIC CORPORATION

FinancingItem 2. MD&A

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”), with the ability to increase the aggregate Revolving Loan commitments of the lenders by up to an additional $150.0 million. The Loan Agreement was amended on August 16, 2010, on October 25, 2011 and most recently on December 5, 2012. The amendment on December 5, 2012 served to, among other things, (i) increase the Revolving Loan from $325.0 million to $425.0 million (with the continued ability to increase the aggregate Revolving Loan commitments of the lenders by up to an additional $150.0 million), (ii) extend the maturity of the $425.0 million Revolving Loan to December 5, 2017 from June 1, 2014, (iii) amend a covenant in the Loan Agreement to permit certain sales, transfers and dispositions of assets by either Borrower or any subsidiary to any other Borrower or subsidiary and (iv) amend a covenant in the Loan Agreement to permit transactions between or among the Company and its wholly-owned subsidiaries not involving any other affiliates. Additionally, this amendment added certain lenders to the Loan Agreement and other lenders exited the Loan Agreement with no further obligation.

The 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.

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 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.




SCHOLASTIC CORPORATION

Item 2. MD&A


At February 28, 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. 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 February 28, 2013, the facility fee rate was 0.20%. There were no outstanding borrowings under the Revolving Loan Agreement as of February 28,November 30, 2013.

As of February 28, 2013, 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 February 28, 2013, 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 February 28, 2013, May 31, 2012 and February 29, 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 364 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.

As of February 28, 2013, the Company also had various local currency credit lines, with maximum available borrowings in amounts equivalent to $27.1 million, underwritten by banks primarily in the United States, Canada and the United Kingdom. These credit lines are typically available for overdraft borrowings or loans up to 364 days and may be renewed, if requested by the Company, at the sole option of the lender. There were borrowings outstanding under these international facilities equivalent to $1.8 million at February 28, 2013 at a weighted average interest rate of 8.9%; $6.5 million at May 31, 2012 at a weighted average interest rate of 5.3%; and $12.6 million at February 29, 2012 at a weighted average interest rate of 4.7%. The increased weighted average interest rate as of February 28, 2013 was due to local borrowing interest rates in Asia.

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 repurchases of the 5% Notes during the nine-month period ended February 28, 2013.

As discussed above, the Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2014, to extend the maturity date to December 5, 2017. 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 5% Notes is excluded from current liabilities and classified as Long-term debt on the Company’s condensed consolidated balance sheets at February 28, 2013 and May 31, 2012.

At February 28, 2013, 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 $154.8 million at February 28, 2013, $159.3 million at May 31, 2012 and $165.3 million at February 29, 2012.

For a more complete description of the Company’s debt obligations,Loan Agreement seeNote 4 of Notes to condensed consolidated financial statements – unauditedCondensed 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 inSecurities 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

 


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, theThe 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. Ascontracts which were not significant as of February 28, 2013, the use of short-term forward exchange contracts was not significant.November 30, 2013. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

Market risks relating to the Company’s operations result primarily from changes in interest rates, which are managed through the mix of variable-rate versus fixed-rate borrowings. Additionally, financial instruments, including swap agreements, have been used to manage interest rate exposures. Approximately 1% of the Company’s debt at February 28, 2013 bore interest at a variable rate and was sensitive to changes in interest rates, compared to approximately 4% at May 31, 2012 and approximately 8% at February 29, 2012. 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 February 28, 2013 (see Note 4 of Notes to condensed consolidated financial statements - unaudited in Item 1, “Financial Statements”):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ amounts in millions)

 

Payments Due By Period

 





 

 

2013(1)

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

Fair
Value @
2/28/13

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of Credit

 

$

1.8

 

$

 

$

 

$

 

$

 

$

 

$

1.8

 

$

1.8

 

Average interest rate

 

 

8.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt including current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt

 

$

 

$

 

$

 

$

 

$

153.0

(2)

$

 

$

153.0

 

$

153.0

 

Average interest rate

 

 

 

 

 

 

 

 

 

 

various

(3)

 

 

 

 

 

 

 

 




























The following table sets forth information about the Company’s debt instruments as of November 30:

($ amounts in millions) Fiscal Year Maturity    
  2014 (1)  2015  2016  2017  2018  Thereafter  Total  Fair
Value @
11/30/13
 
                                 
Debt Obligations                                
Lines of Credit $9.6  $-  $-  $-  $-  $-  $9.6  $9.6 
Average interest rate  5.1%  -   -   -   -   -         
                                 
Short-term debt                                
Fixed-rate debt $-  $-  $-  $-  $-  $-  $-  $- 
Average interest rate  -   -   -   -   -   -         

(1)

(1)

Fiscal 20132014 includes the remaining threesix months of the current fiscal year ending May 31, 2013.

(2)

Effective December 5, 2012, the Company amended its existing revolving credit facility, which was scheduled to mature on June 1, 2014, to extend the maturity date to December 5, 2017. The Company intends to draw on this credit facility to satisfy its repayment obligations in respect of the 5% Notes due April 2013.

(3)

The average interest rate is variable and is anticipated to be that of the Company’s revolving credit facility as discussed under “Financing” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

2014.


34

SCHOLASTIC CORPORATION

Item 4. Controls and Procedures

 


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 February 28,November 30, 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 February 28,November 30, 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

 


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 February 28,November 30, 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)

 











December 1, 2012 through December 31, 2012

 

 

 

33,124

 

 

 

$

28.32

 

 

 

 

33,124

 

 

 

$

29.9

 

 

January 1, 2013 through January 31, 2013

 

 

 

112,404

 

 

 

$

29.07

 

 

 

 

112,404

 

 

 

$

26.7

 

 

February 1, 2013 through February 28, 2013

 

 

 

37,206

 

 

 

$

28.88

 

 

 

 

37,206

 

 

 

$

25.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

182,734

 

 

 

$

28.90

 

 

 

 

182,734

 

 

 

 

 

 























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)
September 1, 2013 through September 30, 2013  76,128  $28.98   76,128  $16.8 
October 1, 2013 through October 31, 2013  104,993  $28.27   104,993  $13.8 
November 1, 2013 through November 30, 2013  13,329  $28.29   13,329  $13.4 
                 
Total  194,450  $28.55   194,450  $13.4 

(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 $14.6$25.0 million, $30.9$19.0 million at DecemberSeptember 1, 20122013 for further repurchases, from time to time as conditions allow, on the open market or through negotiated private transactions, under the current Board authorizations.authorization.



36

 

SCHOLASTIC CORPORATION

Item 6. Exhibits

Exhibits:

*10.1Severance Agreement, dated September 26, 2013, between Scholastic Corporation and Maureen O’Connell.

*10.2
Scholastic Corporation 2013 Executive Performance Incentive Plan.

SCHOLASTIC CORPORATION

Item 6. Exhibits



31.1

Exhibits:

4.1

Amendment No. 3, dated as of December 5, 2012, to the Credit Agreement, dated as of June 1, 2007, among the Corporation and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC., as joint lead arrangers and joint bookrunners, Bank of America, N. A. and Wachovia Bank, N. A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc, as Documentation Agents.

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

*Referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K.


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: March 29, 2013

January 7, 2014

By:

By:

/s/ Richard Robinson


Richard Robinson

Richard Robinson
Chairman of the Board,

President and Chief

Executive Officer

Date: January 7, 2014

Date: March 29, 2013

By:

By:

/s/ Maureen O’Connell


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 NOVEMBER 30, 2013

Exhibits Index

 


SCHOLASTIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q, DATED FEBRUARY 28, 2013

Exhibits Index



Exhibit Number

Description of Document



*10.1

Severance Agreement, dated September 26, 2013, between Scholastic Corporation and Maureen O’Connell.

4.1

Amendment No. 3, dated as of December 5, 2012, to the Credit Agreement, dated as of June 1, 2007, among the Corporation and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC., as joint lead arrangers and joint bookrunners, Bank of America, N. A. and Wachovia Bank, N. A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc, as Documentation Agents.

*10.2

Scholastic Corporation 2013 Executive Performance Incentive Plan.

31.1

31.1Certification 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 *

**

*Referenced exhibit is a management contract or compensation plan or arrangement described in item 601 (b) (10) (iii) of Regulation S-K.

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

44


39