The total amount of unrecognized tax benefits as of May 31, 2008 was $39.8 of which $6.7 represented accruals for interest and penalties. Approximately $11.5 of this amount would, if recognized, impact income tax expense and have an impact on the effective income tax rate. Accrued interest and penalties totaled $6.7 at May 31, 2008.Total net deferred tax assets of $146.0 at May 31, 2008 and $51.6 at May 31, 2007 include $20.9 and $6.4 in Other accrued expenses at May 31, 2008 and 2007, respectively, and $(7.4) and $19.6 in Other noncurrent liabilities at May 31, 2008 and 2007, respectively.
At May 31, 2008, the Company had a charitable deduction carryforward of $9.3, which expires in various amounts during the fiscal years ending 2009 through 2010, and federal and state operating loss carryforwards of $2.8 and $15.0, respectively, which expire annually in varying amounts if not utilized. The Company also had foreign operating loss carryforwards of $52.1 at May 31, 2008, which either expire at various dates or do not expire.
For the years ended May 31, 2008 and 2007, the valuation allowance increased by $1.5 and $2.3, respectively.
The Company does not anticipate to repatriate amounts permanently invested in foreign wholly-owned subsidiaries.
10. CAPITAL STOCK AND STOCK-BASED AWARDS
Scholastic Corporation has authorized capital stock of: 4,000,000 shares of Class A Stock; 70,000,000 shares of Common Stock; and 2,000,000 shares of Preferred Stock.
In fiscal 2007, the Board adopted, and the holders of the Class A Stock (the “Class A Stockholders”) approved, an amendment to the Corporation’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Class A Stock by 1,500,000, from 2,500,000 shares to 4,000,000 shares.
Class A Stock and Common Stock
The only voting rights vested in the holders of Common Stock, except as required by law, are the election of such number of directors as shall equal at least one-fifth of the members of the Board. The Class A Stockholders are entitled to elect all other directors and to vote on all other matters. The Class A Stockholders and the holders of Common Stock are entitled to one vote per share on matters on which they are entitled to vote. The Class A Stockholders have the right, at their option, to convert shares of Class A Stock into shares of Common Stock on a share-for-share basis.
With the exception of voting rights and conversion rights, and as to the rights of holders of Preferred Stock if issued, the Class A Stock and the Common Stock are equal in rank and are entitled to dividends and distributions, when and if declared by the Board.
At May 31, 2008, there were 1,656,200 shares of Class A Stock and 36,444,518 shares of Common Stock outstanding. At May 31, 2008, there were 1,499,000 shares of Class A Stock authorized for issuance under the Company’s stock-based compensation plans. At May 31, 2008, Scholastic Corporation had reserved for issuance 6,556,226 shares of Common Stock, which includes both shares of Common Stock that were reserved for issuance under the Company’s stock-based compensation plans and the 2,905,200 shares of Common Stock that were reserved for the potential issuance of Common Stock upon conversion of the outstanding shares of Class A Stock and the shares of Class A Stock that were reserved for issuance under the Company’s stock-based compensation plans.
Preferred Stock
The Preferred Stock may be issued in one or more series, with the rights of each series, including voting rights, to be determined by the Board before each issuance. To date, no shares of Preferred Stock have been issued.
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Stock-based awards
At May 31, 2008, the Company maintained two stockholder-approved employee stock-based compensation plans with regard to the Common Stock: the Scholastic Corporation 1995 Stock Option Plan (the “1995 Plan”), under which no further awards can be made; and the Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”). The 2001 Plan provides for the issuance of: incentive stock options, which qualify for favorable treatment under the Internal Revenue Code; options that are not so qualified, called non-qualified stock options; restricted stock; and other stock-based awards.
Stock Options– At May 31, 2008, non-qualified stock options to purchase 1,394,442 shares and 2,517,846 shares of Common Stock were outstanding under the 1995 Plan and 2001 Plan, respectively. During fiscal 2008, the Company awarded 625,500 options under the 2001 plan at a weighted average exercise price of $34.40. On July 18, 2007 and September 19, 2007, the Board and the Class A stockholders, respectively, approved an amendment to the 2001 Plan to increase the number of shares of Common Stock available for grant under that Plan by 2,000,000 shares. At May 31, 2008, 1,842,539 shares of Common Stock were available for additional awards under the 2001 Plan.
The Company also maintains the 1997 Outside Directors’ Stock Option Plan (the “1997 Directors’ Plan”), a stockholder-approved stock option plan for outside directors under which no further awards may be made. The 1997 Directors’ Plan, as amended, provided for the automatic grant to each non-employee director on the date of each annual stockholders’ meeting of non-qualified stock options to purchase 6,000 shares of Common Stock.
At May 31, 2008, options to purchase 336,000 shares of Common Stock were outstanding under the 1997 Directors’ Plan.
In September 2007, the Corporation adopted the Scholastic Corporation 2007 Outside Directors’ Stock Option Plan (the “2007 Directors’ Plan”). The 2007 Directors’ Plan provides for the automatic grant to each non-employee director on the date of each annual stockholders’ meeting of non-qualified stock options to purchase 3,000 shares of Common Stock at a purchase price per share equal to the fair market value of a share of Common Stock on the date of grant and 1,200 restricted stock units. In September 2007, 24,000 options at an exercise price of $36.21 per share and 9,600 restricted stock units were granted under the 2007 Directors’ Plan. As of May 31, 2008, 24,000 options and 9,600 restricted stock units were outstanding under the 2007 Directors’ Plan and 466,400 shares remained available for additional awards under the 2007 Directors’ Plan.
The Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) provides for the grant to Richard Robinson, the Chief Executive Officer of the Corporation as of the effective date of the Class A Plan, of options to purchase Class A Stock (the Class A Options”). In fiscal 2007, the Board adopted, and the Class A Stockholders approved, an amendment to the Class A Plan that increased the total number of shares of Class A Stock authorized for issuance under the Class A Plan by 749,000, from 750,000 shares to 1,499,000 shares. In fiscal 2008, the Company awarded 250,000 Class A Options to Mr. Robinson at an exercise price of $36.21 per share. At May 31, 2008, there were 1,249,000 Class A Options outstanding, and 250,000 shares of Class A Stock were available for additional awards, under the Class A Plan.
Generally, options granted under the various plans may not be exercised for a minimum of one year after the date of grant and expire approximately ten years after the date of grant.
As a result of its adoption of SFAS No. 123R, effective as of June 1, 2006, the Company incurred compensation expense of $3.2 in the aggregate, with regard to unvested stock options, for the year ended May 31, 2007, which is significantly lower than the amount
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that would have been recorded in that period if the Acceleration had not been implemented. The total aggregate intrinsic value of stock options exercised during the year ended May 31, 2008 and 2007 was $10.1 and $8.7, respectively. The intrinsic value of these stock options is deductible by the Company for tax purposes. The total compensation cost for share-based payment arrangements recognized in income for fiscal 2008 and 2007 was $7.0 and $3.6, respectively. The total recognized tax benefit related thereto for fiscal 2008 and 2007 was $4.1 and $3.2, respectively.
As of May 31, 2008, the total pre-tax compensation cost not yet recognized by the Company with regard to outstanding unvested stock options was $15.3. The weighted average period over which this compensation cost is expected to be recognized is 3.1 years.
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The following table sets forth the stock option activity for the Class A Stock and Common Stock plans for the fiscal year ended May 31, 2008: |
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| | Options | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term
(In years) | | Aggregate
Intrinsic
Value | |
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Outstanding at May 31, 2007 | | | 6,259,407 | | $ | 31.21 | | | | | | | |
Granted | | | 899,500 | | | 34.95 | | | | | | | |
Exercised | | | (1,357,174 | ) | | 26.73 | | | | | | | |
Cancelled | | | (279,445 | ) | | 37.89 | | | | | | | |
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Outstanding at May 31, 2008 | | | 5,522,288 | | $ | 32.58 | | | 5.7 | | $ | 7.4 | |
Vested and expected to vest at May 31, 2008 | | | 5,454,807 | | | 32.56 | | | 5.5 | | | 7.3 | |
Exercisable at May 31, 2008 | | | 4,640,788 | | | 32.29 | | | 4.6 | | | 6.8 | |
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Restricted Stock Units– In addition to stock options, the Company has issued restricted stock units to certain officers and key executives under the 2001 Plan (“Stock Units”). During fiscal 2008 and 2007, the Company granted 147,940 and 92,825 Stock Units, respectively, with a weighted average grant date price of $35.71 and $30.35 per share, respectively. Unless otherwise deferred, the Stock Units automatically convert to shares of Common Stock on a one-for-one basis as the award vests, which is typically over a four-year period beginning thirteen months from the grant date and thereafter annually on the anniversary of the grant date. There were 51,457 shares of Common Stock issued upon conversion of Stock Units during fiscal 2008. The Company measures the value of Stock Units at fair value based on the number of Stock Units granted at the price of the underlying Common Stock on the date of grant. The Company amortizes the fair value of outstanding stock units as stock-based compensation expense over the vesting term on a straight-line basis. In fiscal 2008 and 2007, the Company amortized $2.4 and $0.9, respectively, in connection with the outstanding Stock Units, recorded as a component of Selling, general and administrative expenses.
Management Stock Purchase Plan
The Company maintains a Management Stock Purchase Plan (“MSPP”), which allows certain members of senior management to defer up to 100% of their annual cash bonus payment in the form of restricted stock units (“RSUs”). The RSUs are purchased by the employee at a 25% discount from the lowest closing price of the Common Stock on NASDAQ during the fiscal quarter in which such bonuses are payable and are converted into shares of Common Stock on a one-for-one basis at the end of the applicable deferral period. During fiscal 2008, 2007 and 2006, the Company allocated 0 RSUs, 6,860 RSUs and 35,211 RSUs, respectively, to participants under the MSPP at a weighted average price of $0.00, $30.35 and $26.64 per RSU, respectively, resulting in an expense of $0.1, $0.1 and $0.3, respectively. At May 31, 2008, there were 250,258 shares of Common Stock authorized for issuance under the MSPP. There were 17,310 shares of Common Stock issued upon conversion of RSUs during fiscal 2008. The Company measures the value of RSUs at fair value based on the number of RSUs granted and the price of the underlying Common Stock at the date of grant, giving effect to the 25% discount. The Company amortizes the fair value of RSUs as stock-based compensation expense over the vesting term on a straight-line basis.
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The following table sets forth Stock Unit and RSU activity for the year ended May 31, 2008: |
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| | Stock
Units | | Weighted
Average
Grant-Date
Fair Value | |
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Nonvested as of May 31, 2007 | | | 236,581 | | $ | 21.37 | |
Granted | | | 147,840 | | | 35.71 | |
Vested | | | (51,457 | ) | | 25.52 | |
Forfeited | | | (28,135 | ) | | 33.65 | |
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Nonvested as of May 31, 2008 | | | 308,993 | | $ | 27.86 | |
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Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the “ESPP”), which is offered to eligible United States employees. The ESPP previously permitted participating employees to purchase Common Stock, with after-tax payroll deductions, on a quarterly basis at a 15% discount from the lower of the closing price of the Common Stock on NASDAQ on the first or last business day of each fiscal quarter. Effective June 1, 2006, the Company amended the ESPP to provide that the 15% discount will be based solely on the closing price of the Common Stock on NASDAQ on the last business day of the fiscal quarter. Upon adoption of SFAS No. 123R, the Company began recognizing the fair value of the Common Stock issued under the ESPP as stock-based compensation expense in the quarter in which the employees participated in the plan. During fiscal 2008, 2007 and 2006, the Company issued 71,680 shares, 86,288 shares and 77,134 shares of Common Stock under the ESPP at a weighted average price of $28.87, $27.47and $28.08 per share, respectively. At May 31, 2008, there were 116,218 shares of Common Stock remaining authorized for issuance under the ESPP.
11. TREASURY STOCK
On June 1, 2007, the Corporation entered into an agreement with a financial institution to repurchase $200.0 of its outstanding Common Stock under an Accelerated Share Repurchase Agreement (the “ASR”). The entire $200.0 repurchase was executed under a “collared” transaction whereby a price range for the shares was established. Under the ASR, the Corporation initially received 5.1 million shares on June 28, 2007 (the “Initial Execution Date”), representing the minimum number of shares to be received based on a calculation using the “cap” or high-end of the price range collar. On October 29, 2007 (the “Settlement Date” ), the Corporation received an additional 0.7 million shares at no additional cost, bringing the total number of shares repurchased under the ASR to 5.8 million shares, which is reflected in the Treasury Stock component of Stockholders’ Equity. The total number of shares received under the ASR was determined based on the adjusted volume weighted average price of the Common Stock, as defined in the ASR, during the four month period from the Initial Execution Date through the Settlement Date, which was $34.64 per share.
On December 20, 2007, the Corporation announced that its Board of Directors had authorized a program to repurchase up to $20.0 of Common Stock, from time to time as conditions allow, on the open market or through negotiated private transactions. During the five months ended May 31, 2008, the Corporation purchased approximately 0.7 shares on the open market for approximately $20.0 at an average cost of $30.09 per share. On May 28, 2008, the Corporation announced that its Board of Directors had authorized a new program to repurchase up to an additional $20.0 of Common Stock as conditions allow, on the open market or through negotiated private transactions. (See Part II, Item 5, “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”)
12. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has a cash balance retirement plan (the “Pension Plan”), which covers the majority of United States employees who meet certain eligibility requirements. The Company funds all of the contributions for the Pension Plan. Benefits generally are based on the Company’s contributions and interest credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. It is the Company’s policy to fund the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended.
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Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom, has a defined benefit pension plan (the “U.K. Pension Plan”) that covers its employees who meet various eligibility requirements. Benefits are based on years of service and on a percentage of compensation near retirement. The U.K. Pension Plan is funded by contributions from Scholastic Ltd. and its employees.
Effective as of June 1, 2007, the U.K. Pension Plan was amended so that no further benefits will accrue to eligible employees under the existing defined benefit scheme. Affected employees were offered the choice to join either an existing Group Personal Pension Plan (the “GPPP”) or a newly established defined contribution scheme. Based upon the employee’s selection, Scholastic Ltd. will (1) make a contribution to the GPPP that will vary based upon the contribution made by an eligible participant, or (2) make a fixed contribution to the newly established defined contribution scheme, provided the employee makes the minimum required contribution.
Grolier Ltd., an indirect subsidiary of Scholastic Corporation located in Canada, provides a defined benefit pension plan (the “Grolier Canada Pension Plan”) that covers its employees who meet certain eligibility requirements. All full-time employees are eligible to participate in the plan after two years of employment. Grolier Ltd.’s contributions to the fund have been suspended due to an actuarial surplus. Employees are not required to contribute to the fund.
The Company’s pension plans have a measurement date of May 31, 2008.
Post-Retirement Benefits
The Company provides post-retirement benefits to retired United States-based employees (the “Post-Retirement Benefits”) consisting of certain healthcare and life insurance benefits. A majority of these employees may become eligible for these benefits after completing certain minimum age and service requirements. At May 31, 2008, the unrecognized prior service cost remaining was $6.7.
The Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) as well as a Federal subsidy of 28% to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D. In response to the Medicare Act, the FASB issued Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” to provide additional disclosure and guidance in implementing the federal subsidy provided by the Medicare Act. Based on this guidance, the Company has determined that the Post-Retirement Benefits provided to the retiree population are in aggregate the actuarial equivalent of the benefits under Medicare. As a result, in fiscal 2008, 2007 and 2006, the Company recognized a reduction of its accumulated post-retirement benefit obligation of $10.5, $10.2 and $9.2, respectively, due to the federal subsidy under the Medicare Act.
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The following table sets forth the weighted average actuarial assumptions utilized to determine the benefit obligations for the Pension Plan, the U.K. Pension Plan and the Grolier Canada Pension Plan (collectively the “Pension Plans”), including the Post-Retirement Benefits, at May 31: |
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| | Pension Plans | | Post-Retirement
Benefits | |
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| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
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Weighted average assumptions used to determine benefit obligations: | | | | | | | | | | | | |
Discount rate | | 6.5% | | | 5.8% | | | 6.6% | | | 6.0% | |
Rate of compensation increase | | 3.6% | | | 3.6% | | | — | | | | |
Weighted average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | |
Discount rate | | 5.8% | | | 5.9% | | | 6.0% | | | 6.1% | |
Expected long-term return on plan assets | | 8.5% | | | 8.6% | | | — | | | — | |
Rate of compensation increase | | 3.6% | | | 3.6% | | | — | | | — | |
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To develop the expected long-term rate of return on assets assumption for the Pension Plans, the Company, with the assistance of its actuaries, considers historical returns and future expectations. Over the 15-20 year periods ended May 31, 2008, the returns on the portfolio, assuming it was invested at the current target asset allocation in the prior periods, would have been a compounded annual average of 9%-11%. Considering this information and the potential for lower future returns due to a generally lower interest rate environment, the Company selected an assumed weighted average long-term rate of return of 8.5% for all of the Pension Plans. The following table sets forth the change in benefit obligation for the Pension Plans and Post-Retirement Benefits at May 31:
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| | | Pension Plans | | Post-Retirement
Benefits | |
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| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
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Change in benefit obligation: | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 172.9 | | $ | 162.0 | | $ | 33.1 | | $ | 31.1 | |
Service cost | | | 8.1 | | | 8.1 | | | 0.2 | | | 0.2 | |
Interest cost | | | 10.2 | | | 9.3 | | | 1.9 | | | 1.9 | |
Plan participants’ contributions | | | 0.1 | | | 0.4 | | | 0.3 | | | 0.2 | |
Plan amendments | | | 1.4 | | | — | | | — | | | — | |
Actuarial (gains) losses | | | (10.1 | ) | | 5.9 | | | (1.9 | ) | | 2.1 | |
Foreign currency exchange rate changes | | | 2.1 | | | (0.2 | ) | | — | | | — | |
Benefits paid | | | (11.1 | ) | | (12.6 | ) | | (2.0 | ) | | (2.4 | ) |
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Benefit obligation at end of year | | $ | 173.6 | | $ | 172.9 | | $ | 31.6 | | $ | 33.1 | |
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The following table sets forth the change in plan assets for the Pension Plans and Post-Retirement Benefits at May 31: |
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| | Pension Plans | | Post-Retirement
Benefits | |
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| | 2008 | | 2007 | | 2008 | | 2007 | |
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Change in plan assets: | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 140.7 | | $ | 124.7 | | $ | — | | $ | — | |
Actual return on plan assets | | | (0.4 | ) | | 19.1 | | | — | | | — | |
Employer contributions | | | 13.4 | | | 10.5 | | | 1.7 | | | 2.2 | |
Benefits paid, including expenses | | | (11.8 | ) | | (13.7 | ) | | (2.0 | ) | | (2.4 | ) |
Acquisitions / divestitures | | | — | | | — | | | — | | | — | |
Plan participants’ contributions | | | 0.1 | | | 0.3 | | | 0.3 | | | 0.2 | |
Retiree Medicare drug subsidy | | | — | | | — | | | — | | | — | |
Cumulative translation adjustments | | | 2.0 | | | (0.2 | ) | | — | | | — | |
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Fair value of plan assets at end of year | | $ | 144.0 | | $ | 140.7 | | $ | — | | $ | — | |
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The following table sets forth the funded status of the Pension Plans and Post-Retirement Benefits and the related amounts recognized on the Company’s Consolidated Balance Sheet at May 31:
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Amounts recognized in the Consolidated
Balance Sheet | | Pension Plans | | Post-Retirement
Benefits | |
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| | 2008 | | 2007 | | 2008 | | 2007 | |
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Current assets | | $ | 0.6 | | $ | 0.4 | | $ | — | | $ | — | |
Current liabilities | | | — | | | (3.3 | ) | | (3.3 | ) | | (2.9 | ) |
Non-current liabilities | | | (30.3 | ) | | (32.6 | ) | | (28.3 | ) | | (30.2 | ) |
Prepaid benefit cost | | | — | | | — | | | — | | | | |
Intangible assets | | | — | | | — | | | — | | | | |
Accumulated other comprehensive loss | | | — | | | — | | | — | | | | |
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Net amounts recognized | | $ | (29.7 | ) | $ | (35.5 | ) | $ | (31.2 | ) | $ | (30.2 | ) |
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The following amounts were recognized in Accumulated other comprehensive loss for the Pension Plans and Post- Retirement Benefits in the Company’s Consolidated Balance Sheet at May 31:
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| | Pension
Plans | | Post-
Retirement
Benefits | | Total | | Pension
Plans | | Post-
Retirement
Benefits | | Total | |
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Net actuarial loss | | $ | (39.0 | ) | $ | (16.5 | ) | $ | (55.5 | ) | $ | (38.8 | ) | $ | (19.8 | ) | $ | (58.1 | ) |
Net prior service credit/(cost) | | | (0.4 | ) | | 6.7 | | | 6.3 | | | 1.1 | | | 7.5 | | | 8.6 | |
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Net amount recognized
in accumulated other
comprehensive loss | | $ | (39.4 | ) | $ | (9.8 | ) | $ | (49.2 | ) | $ | (37.2 | ) | $ | (12.3 | ) | $ | (49.5 | ) |
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The estimated net loss and prior service credit for the Pension Plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the Company’s fiscal year ending May 31, 2009 are $2.3 and $(0.1), respectively. The estimated net loss and prior service credit cost for the Post-Retirement Benefits that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the fiscal year ending May 31, 2009 are $1.2 and $(0.9), respectively.
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The accumulated benefit obligation for the Pension Plans was $165.8 and $164.3 at May 31, 2008 and 2007, respectively. The following table sets forth information with respect to the Pension Plans with accumulated benefit obligations in excess of plan assets for the fiscal years ended May 31:
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| | 2008 | | 2007 | |
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Projected benefit obligations | | $ | 165.9 | | $ | 165.1 | |
Accumulated benefit obligations | | | 158.4 | | | 157.0 | |
Fair value of plan assets | | | 135.6 | | | 132.5 | |
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The following table sets forth the net periodic cost for the Pension Plans and Post-Retirement Benefits for the fiscal years ended May 31:
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| | Pension Plans | | Post-Retirement Benefits | |
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| | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
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Components of net periodic benefit cost: | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 8.2 | | $ | 8.1 | | $ | 8.0 | | $ | 0.2 | | $ | 0.2 | | $ | 0.2 | |
Interest cost | | | 10.2 | | | 9.3 | | | 8.3 | | | 1.9 | | | 1.9 | | | 1.8 | |
Expected return on assets | | | (11.9 | ) | | (9.6 | ) | | (8.8 | ) | | — | | | — | | | — | |
Net amortization and deferrals | | | (0.1 | ) | | (0.2 | ) | | 0.2 | | | (0.9 | ) | | (0.8 | ) | | 1.0 | |
Recognized net actuarial loss | | | 2.0 | | | 2.8 | | | 3.7 | | | 1.4 | | | 1.5 | | | — | |
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Net periodic benefit cost | | $ | 8.4 | | $ | 10.4 | | $ | 11.4 | | $ | 2.6 | | $ | 2.8 | | $ | 3.0 | |
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Plan Assets
The Company’s investment policy with regard to the assets in the Pension Plans is to actively manage, within acceptable risk parameters, certain asset classes where the potential exists to outperform the broader market.
The following table sets forth the total weighted average asset allocations for the Pension Plans by asset category at May 31:
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| | 2008 | | 2007 | |
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Small cap equities | | | 11.5 | % | | 13.1 | % |
International equities | | | 13.0 | | | 14.7 | |
Index fund equities | | | 40.9 | | | 42.3 | |
Bonds and fixed interest products | | | 30.6 | | | 29.0 | |
Real estate | | | 1.0 | | | 0.9 | |
Other | | | 3.0 | | | — | |
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| | | 100.0 | % | | 100.0 | % |
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The following table sets forth the weighted average target asset allocations for the Pension Plans included in the Company’s investment policy:
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| | Pension
Plan | | U.K.
Pension
Plan | | Grolier
Canada
Pension
Plan | |
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Equity | | | 65.0 | % | | 68.0 | % | | 35.0 | % |
Debt and cash equivalents | | | 35.0 | | | 25.0 | | | 65.0 | |
Real estate | | | — | | | 7.0 | | | — | |
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| | | 100.0 | % | | 100.0 | % | | 100.0 | % |
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72
Contributions
In fiscal 2009, the Company expects to contribute $18.2 to the Pension Plan.
Estimated future benefit payments
The following table sets forth the expected future benefit payments under the Pension Plans and the Post-Retirement Benefits by fiscal year:
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| | | | | Post-Retirement | |
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| | | Pension
Benefits | | | Benefit
Payments | | | Medicare
Subsidy
Receipts | |
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2009 | | $ | 10.7 | | $ | 3.3 | | $ | 0.5 | |
2010 | | | 10.5 | | | 3.4 | | | 0.6 | |
2011 | | | 11.0 | | | 3.5 | | | 0.6 | |
2012 | | | 10.5 | | | 3.6 | | | 0.6 | |
2013 | | | 10.7 | | | 3.7 | | | 0.6 | |
2014-2018 | | | 55.5 | | | 18.5 | | | 3.3 | |
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Assumed health care cost trend rates at May 31:
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| | 2008 | | 2007 | |
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Health care cost trend rate assumed for the next fiscal year | | | 7.0 | % | | 8.0 | % |
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | | | 5.0 | % | | 5.0 | % |
Year that the rate reaches the ultimate trend rate | | | 2013 | | | 2013 | |
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Assumed health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
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| | | 2008 | | | 2007 | |
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Total service and interest cost | | $ | 0.2 | | $ | 0.2 | |
Post-retirement benefit obligation | | | 2.6 | | | 2.6 | |
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Defined contribution plans
The Company also provides defined contribution plans for certain eligible employees. In the United States, the Company sponsors a 401(k) retirement plan and has contributed $6.9, $6.3 and $6.8 for fiscal 2008, 2007 and 2006, respectively. For its internationally based employees, the contributions under these plans totaled $5.0, $7.0 and $6.1 for fiscal 2008, 2007 and 2006, respectively.
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the fiscal years ended May 31:
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| | (Amounts in millions, except per share data) | |
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| | | 2008 | | | 2007 | | | 2006 | |
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Earnings from continuing operations | | $ | 110.6 | | $ | 75.1 | | $ | 72.4 | |
Loss from discontinued operations, net of tax | | | (127.8 | ) | | (14.2 | ) | | (3.8 | ) |
Net (loss) income | | | (17.2 | ) | | 60.9 | | | 68.6 | |
Weighted average Shares of Class A Stock and Common Stock outstanding for basic earnings per share | | | 38.7 | | | 42.5 | | | 41.6 | |
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Dilutive effect of Common Stock issued pursuant to stock-based benefit plans | | | 0.5 | | | 0.5 | | | 0.6 | |
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Adjusted weighted average Shares of Class A Stock and Common Stock outstanding for diluted earnings per share | | | 39.2 | | | 43.0 | | | 42.2 | |
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See Note 11 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplemental Data”.
14. ACCRUED EXPENSES
Accrued expenses consist of the following at May 31:
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| | | 2008 | | | 2007 | |
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Accrued payroll, payroll taxes and benefits | | $ | 64.6 | | $ | 56.1 | |
Accrued commissions | | | 12.4 | | | 14.0 | |
Accrued income and other non-payroll taxes | | | 28.1 | | | 19.0 | |
Accrued advertising and promotions | | | 16.2 | | | 13.2 | |
Other accrued expenses | | | 52.3 | | | 35.7 | |
Total Accrued expenses | | $ | 173.6 | | $ | 138.0 | |
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15. OTHER INCOME
Other income, net for fiscal 2008 was $2.6 consisting of income of $1.4 related to a currency gain on settlement of a loan and $2.1 related to a note repurchase, partially offset by $0.9, representing expense associated with the early termination of one of the Company’s subleases. In fiscal 2007, the Company recorded $3.0 in Other income, representing a gain from the sale of an equity investment in a French publishing company.
73
16. OTHER FINANCIAL DATA
Deferred promotion costs were $5.9 and $5.7 at May 31, 2008 and 2007, respectively. Promotion costs expensed were $15.8 for each of the fiscal years ended May 31, 2008 and 2007, and $14.4 for the fiscal year ended May 31, 2006.
Other advertising expenses were $147.3, $137.5 and $164.9 for the fiscal years ended May 31, 2008, 2007 and 2006, respectively.
Prepublication costs were $110.6 and $100.7 at May 31, 2008 and 2007, respectively. The Company amortized $42.3, $48.1 and $47.5 of prepublication costs for the fiscal years ended May 31, 2008, 2007 and 2006, respectively.
Other accrued expenses include a reserve for unredeemed credits issued in conjunction with the Company’s school-based book club and book fair operations of $11.7 and $12.3 at May 31, 2008 and 2007, respectively.
The components of Accumulated other comprehensive loss at May 31, 2008 and 2007 include $0.4 and $2.4, respectively, of foreign currency translation and $34.2 ($21.2 net of tax) and $32.1 ($17.4 net of tax), respectively, of pension obligation in accordance with SFAS 158.
17. SUBSEQUENT EVENT
On July 23, 2008, the Company announced that the Board had declared a quarterly dividend of $0.075 per share to be paid on September 15, 2008 to shareholders of record of the Corporation’s Common Stock and Class A Stock on August 4, 2008.
74
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|
Report of Independent Registered Public Accounting Firm |
THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF SCHOLASTIC CORPORATION
We have audited the accompanying consolidated balance sheets of Scholastic Corporation and subsidiaries as of May 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss) and cash flows for each of the three years in the period ended May 31, 2008. Our audits also included the financial statement schedule included in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scholastic Corporation and subsidiaries at May 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statements schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, effective July 1, 2006, Scholastic Corporation adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments,” using the modified-prospective transition method; effective May 31, 2007, the Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postirement Plans,” an amendment of FASB Statement No. 87, 88, 106 and 132(R); and effective June 1, 2007, the Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109.
As described in Note 2 to the consolidated financial statements, Scholastic Corporation has restated their financial statements for the years ended May 31, 2007, and 2006 to correct their accounting for goodwill.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Scholastic Corporation’s internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 30, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
July 30, 2008
75
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Report of Independent Registered Public Accounting Firm |
THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF SCHOLASTIC CORPORATION
We have audited Scholastic Corporation’s internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Scholastic Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Scholastic Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Scholastic Corporation and subsidiaries as of May 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2008 and our report dated July 30, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
July 30, 2008
76
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SupplementaryFinancial Information |
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Summary of Quarterly Results of Operations |
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(Unaudited, amounts in millions except per share data) |
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| | First
Quarter | | Second
Quarter | | Third
Quarter
Restated | (1) | Fourth
Quarter | | Fiscal
Year
Ended
May 31, | |
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2008 | | | | | | | | | | | | | | | | |
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Revenues | | $ | 531.3 | | $ | 690.5 | | $ | 447.7 | | $ | 536.1 | | $ | 2,205.6 | |
Cost of goods sold | | | 298.8 | | | 292.3 | | | 218.8 | | | 243.8 | | | 1,053.7 | |
Earnings from continuing operations | | | 4.7 | | | 80.5 | | | (3.5 | ) | | 28.9 | | | 110.6 | |
Loss from discontinued operations | | | (7.5 | ) | | (4.9 | ) | | (84.4 | ) | | (31.0 | ) | | (127.8 | ) |
Net income (loss) | | | (2.8 | ) | | 75.6 | | | (87.9 | ) | | (2.1 | ) | | (17.2 | ) |
Earnings (loss) per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 0.12 | | $ | 2.09 | | $ | (0.09 | ) | $ | 0.76 | | $ | 2.86 | |
Loss from discontinued operations | | $ | (0.19 | ) | $ | (0.13 | ) | $ | (2.20 | ) | $ | (0.81 | ) | $ | (3.30 | ) |
Net income (loss) | | $ | (0.07 | ) | $ | 1.96 | | $ | (2.29 | ) | $ | (0.05 | ) | $ | (0.44 | ) |
Diluted: | | | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | 0.12 | | $ | 2.06 | | $ | (0.09 | ) | $ | 0.75 | | $ | 2.82 | |
Loss from discontinued operations | | $ | (0.19 | ) | $ | (0.13 | ) | $ | (2.20 | ) | $ | (0.80 | ) | $ | (3.26 | ) |
Net income (loss) | | $ | (0.07 | ) | $ | 1.93 | | $ | (2.29 | ) | $ | (0.05 | ) | $ | (0.44 | ) |
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2007 | | | | | | | | | | | | | | | | |
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Revenues | | $ | 281.2 | | $ | 669.2 | | $ | 424.7 | | $ | 546.8 | | $ | 1,921.9 | |
Cost of goods sold | | | 147.7 | | | 295.8 | | | 212.2 | | | 237.7 | | | 893.4 | |
Earnings from continuing operations | | | (40.1 | ) | | 74.8 | | | (5.1 | ) | | 45.5 | | | 75.1 | |
Loss from discontinued operations, net of tax | | | (6.8 | ) | | 0.3 | | | (2.6 | ) | | (5.1 | ) | | (14.2 | ) |
Net income (loss) | | | (46.9 | ) | | 75.1 | | | (7.7 | ) | | 40.4 | | | 60.9 | |
Earnings (loss) per share of Class A and Common Stock: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | (0.95 | ) | $ | 1.77 | | $ | (0.12 | ) | $ | 1.06 | | $ | 1.77 | |
Loss from discontinued operations | | $ | (0.17 | ) | $ | 0.01 | | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.34 | ) |
Net income (loss) | | $ | (1.12 | ) | $ | 1.78 | | $ | (0.18 | ) | $ | 0.94 | | $ | 1.43 | |
Diluted: | | | | | | | | | | | | | | | | |
Earnings from continuing operations | | $ | (0.95 | ) | $ | 1.75 | | $ | (0.12 | ) | $ | 1.05 | | $ | 1.75 | |
Loss from discontinued operations | | $ | (0.17 | ) | $ | 0.00 | | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.33 | ) |
Net income (loss) | | $ | (1.12 | ) | $ | 1.75 | | $ | (0.18 | ) | $ | 0.93 | | $ | 1.42 | |
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(1) | See Note 2 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplemental Data”. |
77
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Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A | Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Corporation, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of May 31, 2008, have concluded that the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in its reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to members of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Corporation’s Chief Executive Officer and Chief Financial Officer, after conducting an evaluation, together with other members of Scholastic management, of the effectiveness of the Corporation’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission , concluded that the Corporation’s internal control over financial reporting was effective as of May 31, 2008.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of May 31, 2008, which is included herein. There was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended May 31, 2008 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Item 9A (T) | Control and Procedures
Not Applicable
Item 9B | Other Information
None.
78
Item 10 | Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 19, 2008 to be filed with the SEC pursuant to Regulation 14A under the Exchange Act. Certain information regarding the Corporation’s Executive Officers is set forth in Part I - Item 1 - Business.
Item 11 | Executive Compensation
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 19, 2008 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 19, 2008 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 13 | Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 19, 2008 to be filed pursuant to Regulation 14A under the Exchange Act.
Item 14 | Principal Accounting Fees and Services
Incorporated herein by reference from the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held September 19, 2008 to be filed pursuant to Regulation 14A under the Exchange Act.
79
Item 15 | Exhibits, Financial Statement Schedules
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(a)(1) | Financial Statements: |
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| The following consolidated financial statements are included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data”: |
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| Consolidated Statements of Operations for the years ended May 31, 2008, 2007 and 2006 |
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| Consolidated Balance Sheets at May 31, 2008 and 2007 |
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| Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended May 31, 2008, 2007 and 2006 |
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| Consolidated Statements of Cash Flows for the years ended May 31, 2008, 2007 and 2006 |
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| Notes to Consolidated Financial Statements |
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(a)(2) | Supplementary Financial Information - Summary of Quarterly Results of Operations Financial Statement Schedule: |
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and (c) | |
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| The following consolidated financial statement schedule is included with this report: Schedule II-Valuation and Qualifying Accounts and Reserves. |
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| All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto. |
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(a)(3) and (b) |
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| Exhibits: |
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3.1 | Amended and Restated Certificate of Incorporation of the Corporation, as amended to date (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 5, 2006, SEC File No. 000-19860) (the August 31, 2006 10-Q”). |
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3.2 | Bylaws of the Corporation, amended and restated as of December 12, 2007 (incorporated by reference to the Corporation’s Current Report on Form 8-K as filed with the SEC on December 14, 2007, SEC File No. 000-19860). |
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4.1 | Credit Agreement, dated as of June 1, 2007, among the Corporation and Scholastic Inc., as borrowers, the Initial Lenders named therein, JP Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc. and Bank of America Securities LLC., as joint lead arrangers and joint bookrunners, Bank of America, N. A. and Wachovia Bank, N. A., as syndication agents, and SunTrust Bank and The Royal Bank of Scotland, plc, as Documentation Agents (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on July 30, 2007, SEC File No. 000-19860) (the “2007 10-K). |
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4.2* | Indenture dated April 4, 2003 for 5% Notes due 2013 issued by the Corporation. |
80
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10.1** | Scholastic Corporation 1995 Stock Option Plan, effective as of September 21, 1995 (incorporated by reference to the Corporation’s Registration Statement on Form S-8, (Registration No. 33-98186), as filed with the SEC on October 16, 1995), together with Amendment No. 1, effective September 16, 1998 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 15, 1998, SEC File No. 000-19860), Amendment No. 2, effective as of July 18, 2001 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 24, 2001, SEC File No. 000-19860), Amendment No. 3, effective as of May 25, 2006 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 9, 2006 (the “2006 10-K”)), Amendment No. 4, dated as of March 21, 2007 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on March 30, 2007 (the “February 28, 2007 10-Q”)) and Amendment No. 5, dated as of May 20, 2008. |
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10.2** | Scholastic Corporation Management Stock Purchase Plan, amended and restated effective as of January 1, 2005 (incorporated by reference to the 2006 10-K). |
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10.3** | Scholastic Corporation 1997 Outside Directors’ Stock Option Plan, amended and restated as of May 25, 1999 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 23, 1999, SEC File No. 000-19860 (the “1999 10-K”)), together with Amendment No. 1 dated September 20, 2001 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 14, 2002, SEC File No. 000-19860), Amendment No. 2, effective as of September 23, 2003 (incorporated by reference to Appendix B to the Corporation’s definitive Proxy Statement as filed with the SEC on August 19, 2003), and Amendment No. 3, effective as of May 25, 2006 (incorporated by reference to the 2006 10-K). |
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10.4** | Scholastic Corporation Director’s Deferred Compensation Plan, amended and restated effective January 1, 2005 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on April 7, 2006 (the “February 28, 2006 10-Q”)). |
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10.5** | Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (the “2007 Directors’ Plan”) (incorporated by reference to the Corporation’s Registration Statement on Form S-8, Registration No. 333- 148600, as filed with the SEC on January 10, 2008). |
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10.6** | Form of Stock Option Agreement under the 2007 Directors’ Plan (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 9, 2008, SEC File No. 000-19860 (the “November 30, 2007 10-Q”)). |
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10.7** | Form of Restricted Stock Unit Agreement under the 2007 Directors’ Plan (incorporated by reference to the November 30, 2007 10-Q). |
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10.8** | Scholastic Corporation Executive Performance Incentive Plan, effective as of June 1, 1999 (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on October 15, 1999, SEC File No. 000-19860). |
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10.9** | Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”) (incorporated by reference to Appendix A of the Corporation’s definitive Proxy Statement as filed with the SEC on August 24, 2001, SEC File No. 000-19860), together with Amendment No. 1, effective as of May 25, 2006 (incorporated by reference to the 2006 10-K), Amendment No. 2, dated as of March 20, 2007 (incorporated by reference to the February 28, 2007 10-Q), Amendment No. 3, dated as of July 17, 2007 (incorporated by reference to Appendix A of the Corporation’s definitive proxy statement as filed with the SEC on August 14, 2007, SEC File No. 000-19860) and Amendment No. 4, dated as of May 20, 2008. |
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10.10** | Form of Stock Unit Agreement under the 2001 Plan (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 9, 2007 (the “November 30, 2006 10-Q”)). |
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10.11** | Amended and Restated Guidelines for Stock Units granted under the 2001 Plan (incorporated by reference to the August 31, 2006 10-Q). |
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10.12** | Form of Option Agreement under the 2001 Plan (incorporated by reference to the November 30, 2006 10-Q). |
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10.13** | Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) (incorporated by reference to Appendix A to Scholastic Corporation’s definitive Proxy Statement as filed with the SEC on August 2, 2004), Amendment No. 1, effective as of May 25, 2006 (incorporated by reference to the 2006 10-K), Amendment No. 2, dated July 18, 2006 (incorporated by reference to Appendix C to the Corporation’s definitive Proxy Statement as filed with the SEC on August 1, 2006), and Amendment No. 3, dated as of March 20, 2007 (incorporated by reference to the February 28, 2007 10-Q). |
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10.14** | Form of Class A Option Agreement under the Class A Plan (incorporated by reference to the Corporation’s Annual Report on Form 10-K as filed with the SEC on August 8, 2005). |
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10.15** | Agreement between Lisa Holton and Scholastic Inc., dated October 5, 2007, with regard to certain severance agreements (incorporated by reference to the November 30, 2007 10-Q). |
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10.16** | Agreement between Mary A. Winston and Scholastic Inc., dated January 16, 2007, with regard to certain severance arrangements (incorporated by reference to the February 28, 2007 10-Q). |
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10.17** | Agreement between Maureen O’Connell and Scholastic Inc., dated February 12, 2007, regarding employment (incorporated by reference to the February 28, 2007 10-Q). |
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10.18 | Amended and Restated Lease, effective as of August 1, 1999, between ISE 555 Broadway, LLC, and Scholastic Inc., tenant, for the building known as 555 Broadway, NY, NY (incorporated by reference to the 1999 10-K). |
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10.19 | Amended and Restated Sublease, effective as of October 9, 1996, between Kalodop Corp. and Scholastic Inc., as subtenant, for the premises known as 557 Broadway, NY, NY (incorporated reference to the 1999 10-K). |
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21 | Subsidiaries of the Corporation. |
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23 | Consent of Ernst & Young LLP. |
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31.1 | Certification of the Chief Executive Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 | Certification of the Chief Financial Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 | Certifications of the Chief Executive Officer and the Chief Financial Officer of the Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* | Such long-term debt does not individually amount to more than 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such instrument is not filed herewith. The Corporation hereby agrees to furnish a copy of any such instrument to the SEC upon request. |
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** | The referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b) (10) (iii) of Regulation S-K. |
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Dated: July 30, 2008 | SCHOLASTIC CORPORATION |
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| By: /s/ Richard Robinson |
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| Richard Robinson, Chairman of the Board, |
| President and Chief Executive Officer |
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard Robinson his or her true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary and requisite to be done, as fully and to all the intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Richard Robinson | | Chairman of the Board, President and | | July 30, 2008 |
| | Chief Executive Officer and Director | | |
Richard Robinson | | (principal executive officer) | | |
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/s/ Maureen O’Connell | | Executive Vice President, Chief Administrative | | July 30, 2008 |
| | Officer and Chief Financial Officer | | |
Maureen O’Connell | | (principal financial officer) | | |
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/s/ Robert J. Jackson | | Senior Vice President, Chief Accounting Officer | | July 30, 2008 |
| | (principal accounting officer) | | |
Robert J. Jackson | | | | |
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/s/ James W. Barge | | Director | | July 30, 2008 |
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James W. Barge | | | | |
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/s/ Rebeca M. Barrera | | Director | | July 30, 2008 |
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Rebeca M. Barrera | | | | |
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/s/ Ramon C. Cortines | | Director | | July 30, 2008 |
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Ramon C. Cortines | | | | |
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/s/ John L. Davies | | Director | | July 30, 2008 |
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John L. Davies | | | | |
83
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Signature | | Title | | Date |
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/s/ Andrew S. Hedden | | Director | | July 30, 2008 |
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Andrew S. Hedden | | | | |
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/s/ Mae C. Jemison | | Director | | July 30, 2008 |
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Mae C. Jemison | | | | |
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/s/ Peter M. Mayer | | Director | | July 30, 2008 |
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Peter M. Mayer | | | | |
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/s/ John G. McDonald | | Director | | July 30, 2008 |
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John G. McDonald | | | | |
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/s/ Augustus K. Oliver | | Director | | July 30, 2008 |
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Augustus K. Oliver | | | | |
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/s/ Richard M. Spaulding | | Director | | July 30, 2008 |
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Richard M. Spaulding | | | | |
84
[This Page Intentionally Left Blank]
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED MAY 31, 2008
ITEM 15(c)
S-1
Schedule II
Valuation and Qualifying Accounts and Reserves
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| | | | | | | | | | | (Amounts in millions)
Years Ended May 31, | |
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| | Balance at
Beginning
of Year | | Expensed | | Write-Offs
and Other | | Balance at
End of Year | |
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2008 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 15.9 | | $ | 11.5 | | $ | 9.6 | | $ | 17.8 | |
Reserve for returns | | | 39.7 | | | 99.6 | | | 97.8 | (1) | | 41.5 | |
Reserve for obsolescence | | | 59.2 | | | 29.6 | | | 18.1 | | | 70.7 | |
Reserve for royalty advances | | | 58.4 | | | 6.8 | | | 1.2 | | | 64.0 | |
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2007 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 15.8 | | $ | 12.8 | | $ | 12.8 | | $ | 15.8 | |
Reserve for returns | | | 48.5 | | | 62.2 | | | 71.0 | (1) | | 39.7 | |
Reserve for obsolescence | | | 56.3 | | | 27.5 | | | 24.6 | | | 59.2 | |
Reserve for royalty advances | | | 54.7 | | | 3.7 | | | 0.0 | | | 58.4 | |
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2006 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | $ | 10.6 | | $ | 14.8 | | $ | 9.6 | | $ | 15.8 | |
Reserve for returns | | | 33.0 | | | 103.2 | | | 87.7 | (1) | | 48.5 | |
Reserve for obsolescence | | | 55.6 | | | 30.2 | | | 29.5 | | | 56.3 | |
Reserve for royalty advances | | | 52.1 | | | 3.1 | | | 0.5 | | | 54.7 | |
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(1) | Represents actual returns charged to the reserve. |
S-2
