2012/2013 AnnuAl Repo Rt
THE READING BILL OF RIGHTS
Today we live in a world full of digital information. Yet reading has never been more important, for we
know that for young people the ability to read is the door opener to the 21st century: to hold a job,
to understand their world, and to know themselves. That is why we are asking you to join our Global
Literacy Call to Action: We call this campaign: “Read Every Day. Lead a Better Life.” We are asking
parents, teachers, school and business leaders, and the general public to support their children’s
right to read for a better life in the digital world of the 21st century.
Here is what we believe about reading in the second decade of the 21st century.
We call this The Reading Bill of Rights:
WE BELIEVE that literacy – the ability to read, write and understand – is the birthright of every child in
the world as well as the pathway to succeed in school and to realize a complete life. Young people need
to read nonfiction for information to understand their world, and literature for imagination to understand
themselves.
WE BELIEVE that the massive amounts of digital information and images now transmitted daily make it
even more important for a young person to know how to analyze, interpret and understand information,
to separate fact from opinion, and to have deep respect for logical thinking.
WE BELIEVE that literature and drama, whether on printed pages, screens, on stage or film, help
young people experience the great stories of emotion and action, leading to a deeper understanding of
what it means to be truly human. Without this literacy heritage, life lacks meaning, coherence and soul.
WE BELIEVE every child has a right to a “textual lineage” – a reading and writing autobiography which
shows that who you are is in part developed through the stories and information you’ve experienced.
This textual lineage will enable all young people to have a reading and writing identity which helps them
understand who they are and how they can make their lives better. In short, “You Are What You Read.”
WE BELIEVE every child should have access to books, magazines, newspapers, computers, e-readers,
and text on phones. Whatever way you read, you will need to figure out what the facts are or what the
story tells you. No matter how and where you get access to ideas, you will need the skills of reading to
understand yourself and your world.
WE BELIEVE that reading widely and reading fluently will give children the reading stamina to deal
with more challenging texts they will meet in college, at work and in everyday life. Every child needs
literacy confidence – the ability to read, write and speak about what they know, what they feel, and
who they are. This will come from Reading Every Day. As you read more you will find it easier to read
and to learn.
WE BELIEVE that every child has the right to a great teacher who will help them learn to read and love
to read. Children need teachers who provide intentional, focused instruction to give young people the
skills to read and interpret information or understand great stories they will encounter throughout life.
WE BELIEVE that in the 21st century, “literacy care,” including the right to read, is as essential to the
developing child as the right to health care. The ability to read is necessary not only to succeed but to
survive—for without the ability to understand information, young people cannot compete economically
and may therefore be consigned to a life without purpose.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 1
Fellow Shareholders:
In fiscal 2013, Scholastic reached the high end of our revised guidance despite a challenging prior year
comparison due to the extraordinary sales of The Hunger Games trilogy in fiscal 2012. Even though the series
remained on The New York Timesbestseller list, sales declined significantly from prior year, resulting in an
overall decline in company revenue and profits. At the same time, our education segments showed strength in
the second half of the fiscal year driven by strong sales of customized print and technology-based programs
and professional development for schools implementing the new, more rigorous Common Core State Standards.
A few highlights from fiscal 2013:
• We launched Storia®, our award-winning children’s ereading app, and earned enthusiastic praise from
teachers, who embraced the app for classroom use, while parents also bought ebooks through Storia
for their children’s home reading.
• We kicked off the largest-ever launch of new Educational Technology product in the history of the
Company and we expect to see wide acceptance for these five new programs for grades K-12
throughout next year and beyond.
• We have been responding to RFPs for various school districts with customized packages designed to
help teachers implement the Common Core State Standards, and districts are highly receptive to
Scholastic’s solutions.
• Finally, we continue to grow the global market for children’s reading. In fiscal 2013, Scholastic UK
was named Children’s Publisher of the Year; Scholastic India grew more than 20% for the third year in
a row; and we continue to bring the benefits of reading to more kids in more places – this year, for
example, delivering 3.5 million books in My Afghan Library, published by Scholastic in cooperation
with the U.S. Department of State, to 43 locations throughout Afghanistan.
This is a time of great change in both the book business and in education, and Scholastic is well-positioned
to capitalize on the opportunities these changes present. We know that our significant role in the reading and
learning lives of children both at school and at home continues to be more important than ever. With the
Common Core State Standards moving into classrooms in the coming school year, we expect to drive revenue and
profit growth by delivering books to families that help link children’s independent reading to Common Core, and
to boost our education revenues by providing teachers and administrators with customized curriculum packages
and professional development solutions to support their needs as they implement the new standards.
In the education segments, in addition to our ability to customize solutions to meet districts’ specific
needs with our extensive list of print and digital programs, we expect to see increased revenue and growth
from the launch of five new education technology programs all built for the Common Core. These include:
• MATH 180™, a revolutionary math intervention program for students in grades 6 and up;
• iRead™, a digital foundational reading program for grades K-2;
• SYSTEM 44® Next Generation, a fully upgraded version of our reading intervention program for
students who need instruction in phonics before they are ready for READ 180;
• READ 180® for iPad, which we believe is the most comprehensive education program offered to date on
iPad; and
• Common Core Code X™, a middle school English Language Arts program chosen as an approved
curriculum by New York City Department of Education, which is selling briskly to other school
districts looking for the more complex texts required by the Common Core State Standards.
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 2
We are already seeing that many school districts, which have embraced READ 180for more than a decade,
are highly receptive to our innovative new programs. The new products, along with our library of children’s
ebooks available on Storia for use in school and at home, our print and digital classroom magazines, our fiction
and non-fiction classroom books programs, and our teaching resources and professional development
programs, comprise a comprehensive solution which helps all students prepare for college and career.
Increasingly, schools are asking us to work with them to provide customized programs linked to the goals of
the school system, which will package a range of content and services to train teachers, provide relevant books
and digital materials, carry out assessment and ensure effective implementation so that districts can help
teachers and students reach the higher levels of performance required by the Common Core State Standards.
This makes us an integral part of the school’s basic operations in teaching and learning.
Common Core and the changing landscape in the book market are also creating significant opportunities
in our children’s book businesses. According to a recent industry research report, Scholastic Book Fairs and
Book Clubs are increasingly important for families as a trusted source of recommendations for age-appropriate,
quality books. These channels are helping teachers, schools and families find books that help students link
their independent reading to the new standards, which require children to read more and at a higher level.
To maximize our opportunities in the children’s book market, Book Clubs are now organized with a specific
club for each grade level, enabling our club offerings to be fully aligned to Common Core. In addition, we are
aligning our Book Club and Book Fairs sales and marketing to promote greater use of both our services and
create more touchpoints with our customers. We believe these strategies, combined with our ability to provide a
strong offering of favorite children’s ebooks for use in school and at home through Storia, will continue to make
our trusted channels the go-to source for parents and teachers for the best children’s books at the best prices.
With continued growth in our International division, we will be introducing several products this year,
including in India and Pakistan where we are launching Prime, a new mathematics program based on the
best math education practices of top performing nations. We will also be launching a new global Scholastic
Reading Inventory and a suite of assessment products through the new Scholastic Learning Zone platform,
designed to deliver our digital product to an international audience.
Whether we reach young people in school, at home, online, or on mobile devices, through print and
digital books and materials, through our industry-leading educational technology programs and services, or
our proprietary children’s ebook platform, Storia, we are confident that Scholastic will remain the brand that
teachers and schools rely on, parents trust and children love for many years to come. As schools implement
the Common Core State Standards and parents seek to support their children’s reading at home to meet the
new standards, Scholastic will continue to be their trusted partner.
Thank you for your ongoing support of our Company.
Richard Robinson
Chairman, President and Chief Executive Officer
July 30, 2013
01_73994_Scholastic_AR 7/31/13 11:41 AM Page FC1
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2013 | Commission File No. 000-19860
Scholastic Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
557 Broadway, New York, New York
(Address of principal executive offices)
13-3385513
(IRS Employer Identification No.)
10012
(Zip Code)
Registrant’s telephone number, including area code: (212) 343-6100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes (cid:1) No □
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes □ No (cid:1)
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. Yes (cid:1) No □
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
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:1) No □
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
(cid:1) Large accelerated filer □ Accelerated filer □ Non-accelerated filer □ Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes □ No (cid:1)
The aggregate market value of the Common Stock, par value $0.01, held by non-affiliates as of November 30,
2012, was approximately $740,510,478. As of such date, non-affiliates held no shares of the Class A Stock, $0.01 par
value. There is no active market for the Class A Stock.
The number of shares outstanding of each class of the Registrant’s voting stock as of June 28, 2013 was as
follows: 30,116,979 shares of Common Stock and 1,656,200 shares of Class A Stock.
Part III incorporates certain information by reference from the Registrant’s definitive proxy statement for the
Annual Meeting of Stockholders to be held September 18, 2013.
Documents Incorporated By Reference
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page IFC1
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Table of Contents
Part I
PAGE
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Part II
Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . .37
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . .38
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . .40
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Consolidated Statements of Changes in Stockholders’ Equity and
Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . .80
Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Part III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . .84
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Certain Relationships and Related Transactions, and Director Independence . .84
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Part IV
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Schedule II: Valuation and Qualifying Accounts and Reserves . . . . . . . . . . .S-2
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 1
Part I
Item 1 | Business
Overview
decision-maker assesses operating performance and
allocates resources.
Scholastic Corporation (the “Corporation” and together
The following table sets forth revenues by operating
with its subsidiaries, “Scholastic” or the “Company”) is
segment for the three fiscal years ended May 31:
a global children’s publishing, education and media
company. Since its founding in 1920, Scholastic has
emphasized quality products and a dedication to
reading and learning. The Company is the world’s
largest publisher and distributor of children’s books
and a leading provider of educational technology
products and related services and children’s media.
Scholastic creates quality books and ebooks, print and
technology-based learning materials and programs,
(Amounts in millions)
2013
2012
2011
Children’s Book Publishing
and Distribution
$846.9
$1,111.3
Educational Technology and Services
227.7
254.7
Classroom and Supplemental
Materials Publishing
Media, Licensing and Advertising
International
Total
218.0
58.7
441.1
208.2
75.3
489.6
$1,792.4
$2,139.1
$1,877.6
$922.0
230.8
197.2
82.7
444.9
magazines, multi-media and other products that help
Additional financial information relating to the
children learn both at school and at home. The
Company’s operating segments is included in Note 4 of
Company is a leading operator of school-based book
Notes to Consolidated Financial Statements in Item 8,
clubs and book fairs in the United States. It distributes
“Consolidated Financial Statements and
its products and services through these proprietary
Supplementary Data,” which is included herein.
channels, as well as directly to schools and libraries,
through retail stores and through the internet. The
Company’s website, scholastic.com, is a leading site for
teachers, classrooms and parents and an award-
winning destination for children. Scholastic has
operations in the United States, Canada, the United
Kingdom, Australia, New Zealand, Ireland, India,
China, Singapore and other parts of Asia, and,
through its export business, sells products in
approximately 140 countries.
C H I L D R E N ’ S B O O K P U B L I S H I N G A N D
D I S T R I B U T I O N
(47.2% of fiscal 2013 revenues)
General
The Company’s Children’s Book Publishing and
Distributionsegment includes the publication and
distribution of children’s books in the United States
through school-based book clubs, book fairs,
ecommerce and the trade channel.
The Company currently employs approximately 7,500
people in the United States and approximately 2,100
people outside the United States.
Operating Segments – Continuing
Operations
The Company is the world’s largest publisher and
distributor of children’s books and is a leading
operator of school-based book clubs and school-based
book fairs in the United States. The Company is also a
leading publisher of children’s print and ebooks
The Company categorizes its businesses into five
distributed through the trade channel. Scholastic
reportable segments: Children’s Book Publishing and
offers a broad range of children’s books, many of
Distribution; Educational Technology and Services;
which have received awards for excellence in children’s
Classroom and Supplemental Materials Publishing;
literature, including the Caldecott and Newbery
Media, Licensing and Advertising(which collectively
Medals. The Company also markets books to teachers,
represent the Company’s domestic operations); and
parents and children through Storia®, an interactive
International.This classification reflects the nature of
and educational ereading app and ebookstore,
products, services and distribution consistent with the
launched during fiscal 2012 through the book club
method by which the Company’s chief operating
and book fair channels. Storia gives access to a
1
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 2
growing selection of ebooks for kids and also allows
reductions from list prices. The teacher aggregates the
teachers and parents to track the reader’s progress
students’ orders and forwards them to the Company.
through each book, while making reading easier with
The Company estimates that approximately 62% of all
the Storia dictionary, which defines and pronounces
elementary school teachers in the United States who
any word the reader highlights. Selected titles offered
received promotional materials in fiscal 2013
through the ebookstore include enriched ebooks,
participated in the Company’s school-based book clubs.
which also provide word games, story interactions and
In fiscal 2013, approximately 90% of total book club
animation.
The Company obtains titles for sale through its
distribution channels from three principal sources.
The first source for titles is the Company’s publication
of books created under exclusive agreements with
authors, illustrators, book packagers or other media
companies. Scholastic generally controls the exclusive
rights to sell these titles through all channels of
distribution in the United States and, to a lesser extent,
internationally. Scholastic’s second source of titles is
obtaining licenses to publish books exclusively in
specified channels of distribution, including reprints
of books originally published by other publishers for
which the Company acquires rights to sell in the
school market. The third source of titles is the
Company’s purchase of finished books from other
publishers.
School-Based Book Clubs
Scholastic founded its first school-based book club in
1948. The Company’s school-based book clubs consist
of Honeybee®, serving toddlers to age 4; Firefly®,
serving pre-kindergarten (“pre-K”) and kindergarten
(“K”) students; SeeSaw®, serving students grades K to
1; Lucky®, serving students grades 2 to 3; Arrow®,
serving students grades 4 to 6; TAB®, serving students
grades 7 and up; and Club LeoTM, which provides
Spanish language offers to students in pre-K to grade
6. In addition to its regular offers, the Company
creates special theme-based and seasonal offers
targeted to different grade levels during the year.
The Company mails promotional materials containing
order forms to teachers in the vast majority of the
pre-K to grade 8 schools in the United States. Teachers
who wish to participate in a school-based book club
distribute the promotional materials to their students,
who may choose from selections at substantial
orders were placed via the internet through COOL
(Clubs Ordering On-Line), a new version of the
Company’s online ordering platform originally rolled
out to all customers in the fall of 2010, which allows
parents, as well as teachers, to order online, with
improved ecommerce functionality. The orders are
shipped to the classroom for distribution to the
students. Sponsors who participate in the book clubs
receive bonus points and other promotional incentives,
which may be redeemed from the Company for
additional books and other resource materials and
items for their classrooms or the school.
School-Based Book Fairs
The Company began offering school-based book fairs
in 1981 under the name Scholastic Book Fairs. Today,
the Company is the leading distributor of school-based
book fairs in the United States with operations in all
50 states. Book fairs give children access to hundreds
of popular, quality books and educational materials,
increase student reading and help book fair organizers
raise funds for the purchase of school library and
classroom books, supplies and equipment. Book fairs
are generally weeklong events where children and
families peruse and purchase their favorite books
together. The Company delivers its book fairs from its
warehouses to schools principally by a fleet of
Company-owned vehicles. Sales and customer service
representatives, working from the Company’s regional
offices, distribution facilities, and national distribution
facility in Missouri, along with local area field
representatives, provide support to book fair
organizers. Book fairs are conducted by school
personnel, volunteers and parent-teacher
organizations, from which the schools may receive
either books, supplies and equipment or a portion of
the proceeds from every book fair they host. The
Company is currently focused on increasing the
2
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 3
number of second and third fairs conducted by its
E D U C A T I O N A L T E C H N O L O G Y A N D S E R V I C E S
school customers during the school year and
increasing attendance at each book fair event.
Approximately 90% of the schools that conducted a
Scholastic Book Fair in fiscal 2012 hosted a fair in
fiscal 2013.
Trade
(12.7% of fiscal 2013 revenues)
General
Scholastic Education, which encompasses the
Company’s core curriculum publishing operations,
develops and distributes technology-based
instructional materials directly to schools in the
Scholastic is a leading publisher of children’s books
United States, primarily purchased through school
sold through bookstores, internet retailers and mass
and district budgets, often with the help of federal and
merchandisers in the United States. The Company
state funding, as well as local funding. These
maintains approximately 6,100 titles for trade
operations include reading and math improvement
distribution. Scholastic’s original publications include
programs and other educational technology products,
Harry Potter®, The Hunger Games, The 39 Clues®, The
as well as consulting and professional development
Magic School Bus®, I SpyTM, Captain Underpants®,
services.
Goosebumps® and Clifford The Big Red Dog®, and
licensed properties such as Star Wars®, Lego® and
Geronimo Stilton®. In addition, the Company’s Klutz®
imprint is a publisher and creator of “books plus”
products for children, including titles such as Clay
Scholastic Education’s efforts are focused on
partnering with school districts to raise student
achievement by providing solutions that combine
technology, content and services in the areas of
Charms, Star Wars Thumb Doodlesand Beaded Bands.
reading and math. Significant technology-based
The Company’s trade organization focuses on
reading improvement programs that Scholastic offers
include: READ 180®, a reading intervention program
publishing, marketing and selling print and ebook
for students in grades 4 to 12 reading at least two
properties to bookstores, internet retailers, mass
years below grade level, READ 180® Next Generation,
merchandisers, specialty sales outlets and other book
a substantially revised version of the original product;
retailers, and also supplies the Company’s proprietary
System 44®, a foundational reading intervention
school channels. The Company maintains a talented
program for students in grades 4 to 12 who have not
and experienced creative staff that constantly seeks to
yet mastered the 44 sounds and 26 letters of the
attract, develop and retain the best children’s authors
English language; and Scholastic Reading Inventory,
and illustrators. The Company believes that its trade
which is a research-based, computer-adaptive
publishing staff, combined with the Company’s
reputation and distribution channels, provides a
significant competitive advantage, evidenced by
numerous bestsellers over the past decade. Print
assessment for grades K to 12 that allows educators to
assess a student’s reading comprehension. Other
major programs include FASTT Math®, a technology-
based program to improve math fact fluency developed
bestsellers in the Trade division during fiscal 2013
with the creator of READ 180, and Do The Math®, a
included the Hunger Gamestrilogy by Suzanne
Collins, which was also an ebook bestseller, The 39
Clues® series and the Harry Potterseries, as well as
mathematics intervention program created by Marilyn
Burns, a nationally known math educator and the
founder of Math Solutions. The segment has made
other titles, such as Dramaby Raina Telgemeier, The
significant investments in new Educational
Raven Boysby Maggie Stiefvater, and Captain
Underpants and the Revolting Revenge of the
Radioactive Robo-Boxersby Dav Pilkey.
Technology products which it plans to launch in fiscal
2014, including System 44® Next Generation, MATH
180TM, iReadTM, Common Core Code XTM and Read 180
for iPad®. These new products will assist educators as
they implement the Common Core State Standards and
incorporate more technology and mobile solutions in
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 4
the classroom. The Company considers its educational
the United States. The Company’s products also
technology products and related services to be a
include non-fiction books published in the United
growth driver and continues to focus on investment in
States under the imprints Children’s Press® and
its technology and services businesses.
Franklin Watts®.
C L A S S R O O M A N D S U P P L E M E N T A L M A T E R I A L S
P U B L I S H I N G
(12.2% of fiscal 2013 revenues)
General
Classroom and Supplemental Materials Publishing
includes the publication and distribution to schools
and libraries of children’s books, classroom magazines,
supplemental classroom materials, custom curriculum
and teaching guides and print and on-line reference
and non-fiction products for grades pre-K to 12 in the
United States.
Scholastic Classroom and Community Group
The Company is the leading provider of classroom
libraries and paperback collections, including
classroom books and guided reading products, to
schools and school districts for classroom libraries and
other uses, as well as to literacy organizations.
Scholastic helps schools compile classroom collections
of high quality, award-winning books for every grade
level, reading level and multicultural background,
Scholastic is a leading publisher of classroom
magazines. Teachers in grades pre-K to 12 use the
Company’s 30 classroom magazines, including
Scholastic News®, Junior Scholastic® and Weekly
Reader®, to supplement formal learning programs by
bringing subjects of current interest into the
classroom, including literature, math, science, current
events, social studies and foreign languages. Each
magazine has its own website with online digital
resources that supplement the print materials.
Scholastic’s classroom magazine circulation in the
United States in fiscal 2013 was approximately 11.2
million, with approximately 70% of the circulation in
grades pre-K to six. The majority of magazines
purchased are paid for with school or district funds,
with parents and teachers paying for the balance.
Circulation revenue accounted for substantially all of
the classroom magazine revenues in fiscal 2013.
M E D I A , L I C E N S I N G A N D A D V E R T I S I N G
(3.3% of fiscal 2013 revenues)
including the Phyllis C. Hunterand the Leveled Math
General
Readersseries. In 2013, partially in response to
Common Core State Standards, this business began
developing customized curriculum products and
related teaching guides for classroom customers.
The teaching resources business publishes and sells
The Company’s Media, Licensing and Advertising
segment includes the production and/or distribution of
digital media, consumer promotions and
merchandising and advertising revenue, including
sponsorship programs.
professional books and supplemental materials
Production and Distribution
designed for and generally purchased by teachers,
Through Scholastic Media, the Company creates and
both directly from the Company and through teacher
produces programming and digital content for all
stores and booksellers, including the Company’s on-
platforms, including television, DVDs, audio, movies,
line Teacher store, which provides professional books
interactive games, apps (applications) and websites.
and other educational materials to schools and
Scholastic Media builds consumer awareness and
teachers.
value for the Company’s franchises by creating family-
Scholastic Library Publishing and Classroom
Magazines
Scholastic is a leading publisher of quality children’s
reference and non-fiction products and subscriptions
to databases sold primarily to schools and libraries in
focused media that form the foundation for the
Company’s global branding campaigns. The media
group generates revenue by exploiting these assets
throughout the Scholastic distribution channels,
globally across multiple media platforms and by
developing and executing cross platform brand-
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 5
marketing campaigns that support the Company’s key
organizations, government agencies, associations and
franchises. Scholastic Media consists of Scholastic
some corporations to develop literacy, education and
Entertainment Inc. (SEI), Scholastic Audio, Soup2Nuts
pro-social campaigns which are aligned to the
Inc. (S2N), Weston Woods Studios, Inc. and Scholastic
Company’s corporate mission of supporting children’s
Interactive L.L.C.
reading and learning in classrooms and at home, as
well as the Company’s consumer magazines business.
SEI has built a television library consisting of over 500
half-hour productions, including: Clifford The Big Red
I N T E R N A T I O N A L
Dog®, Clifford’s Puppy DaysTM, WordGirl®, Maya &
(24.6% of fiscal 2013 revenues)
MiguelTM, The Magic School Bus®, Turbo Dogs, I Spy,
Goosebumps®, Animorphs®, Dear America®, Horrible
General
Histories®, Sammy’s StoryshopTM, Stellaluna, The Very
Hungry Caterpillarand The Baby-sitters Club®. These
series have been sold in the United States and
throughout the world and have garnered over 130
major awards including Emmys, Peabodys and an
Academy award.
S2N, an award-winning animation and audio
production studio, has produced television
programming, including the animated series Time
Warp Trioand O’Grady, and, with SEI, has produced
104 half-hour episodes of the Emmy award-winning
animated series Word Girl. Weston Woods Studios, Inc.
creates audiovisual adaptations of classic children’s
picture books, such as Where the Wild Things Are,
Chrysanthemumand Make Way for Ducklings,which
were initially produced for the school and library
market and are now distributed through the retail
market. Scholastic audio produces young adult and
children’s audio recordings for the school, library and
retail markets.
The Internationalsegment includes 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.
Scholastic has operations in Canada, the United
Kingdom, Australia, New Zealand, Ireland, India,
China, Singapore and other parts of Asia. Scholastic’s
operations in Canada, the United Kingdom and
Australia generally mirror its United States business
model. The Company’s international operations have
original trade and educational publishing programs;
distribute children’s books, software and other
materials through school-based book clubs, school-
based book fairs and trade channels; produce and
distribute magazines; and offer on-line services. Many
of the Company’s international operations also have
their own export and foreign rights licensing
programs and are book publishing licensees for major
media properties. Original books published by most of
these operations have received awards for excellence in
Scholastic Interactive creates original and licensed
children’s literature. In Asia, the Company also
consumer software, including handheld and console
publishes and distributes reference products and
products and mobile apps, for grades pre-K to 8. Its
provides services under the Grolier name, and it also
products are distributed through the Company’s
operates tutorial centers that provide English
school-based book clubs and book fairs, as well as to
language training to students.
the library/teacher market and the retail market. The
Company’s titles for Leapster and LeapPad include the
series I Spy, Brain Play®, Clifford®, Goosebumps®, The
Magic School Bus®, The 39 Clues® series, Scholastic
Animal Genius® and Math Missions®.
Other
Canada
Scholastic Canada, founded in 1957, is a leading
publisher and distributor of English and French
language children’s books. Scholastic Canada also is
the largest school-based book club and school-based
book fair operator in Canada and is one of the leading
Also included in this segment is Scholastic National
suppliers of original or licensed children’s books to the
Partnerships, which partners with non-profit
Canadian trade market. Since 1965, Scholastic Canada
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 6
has also produced quality Canadian-authored books
operates a chain of English language tutorial centers
and educational materials, including an early reading
in China in cooperation with local partners.
program sold to schools for grades K to 6.
Foreign Rights and Export
United Kingdom
The Company licenses the rights to selected Scholastic
Scholastic UK, founded in 1964, is the largest school-
titles in over 45 languages to other publishing
based book club and school-based book fair operator
companies around the world. The Company’s export
and a leading children’s publisher in the United
business sells educational materials, software and
Kingdom. Scholastic UK also publishes supplemental
children’s books to schools, libraries, bookstores and
educational materials, including professional books for
other book distributors in approximately 140
teachers, and is one of the leading suppliers of original
countries that are not otherwise directly serviced by
or licensed children’s books to the United Kingdom
Scholastic subsidiaries. The Company partners with
trade market.
Australia
Scholastic Australia, founded in 1968, is the largest
governments and non-governmental agencies to create
and distribute books to public schools in developing
countries.
school-based book club and book fair operation in
Discontinued Operations
Australia, reaching approximately 90% of the
The Company closed or sold several operations during
country’s primary schools. Scholastic Australia also
fiscal 2009, 2010, 2012 and 2013. During the first
publishes quality children’s books supplying the
quarter of fiscal 2012, the Company ceased operations
Australian trade market.
in its direct-to-home catalog business specializing in
New Zealand
Scholastic New Zealand, founded in 1962, is the
largest children’s book publisher and the leading book
distributor to schools in New Zealand. Through its
school-based book clubs and book fairs, Scholastic New
Zealand reaches approximately 90% of the country’s
primary schools. In addition, Scholastic New Zealand
publishes quality children’s books supplying the New
Zealand trade market.
Asia
The Company’s Asian operations include initiatives for
educational programs based out of Singapore, as well
as the wholly-owned Grolier direct sales business,
which sells English language reference materials and
early childhood learning materials through a network
of independent sales representatives in India,
Indonesia, Malaysia, the Philippines, Singapore and
Thailand. In addition, the Company operates school-
based book clubs and book fairs throughout Asia;
publishes original titles in English and Hindi
languages in India, including specialized curriculum
books for local schools; conducts reading improvement
programs inside local schools in the Philippines; and
toys. In the fourth quarter of fiscal 2013, the Company
sold a facility that was previously classified as held for
sale. Also in the fourth quarter of fiscal 2013, the
Company discontinued a computer club business,
which was included in the Children’s Book Publishing
and Distributionsegment, and discontinued a
subscription-based business which was previously
reported in the Media, Licensing and Advertising
segment. All of these businesses are classified as
discontinued operations in the Company’s financial
statements.
P R O D U C T I O N A N D D I S T R I B U T I O N
The Company’s books, magazines, software and
interactive products and other materials are
manufactured by the Company with the assistance of
third parties under contracts entered into through
arms-length negotiations or competitive bidding. As
appropriate, the Company enters into multi-year
agreements that guarantee specified volume in
exchange for favorable pricing terms. Paper is
purchased directly from paper mills and other third-
party sources. The Company does not anticipate any
difficulty in continuing to satisfy its manufacturing
and paper requirements.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 7
In the United States, the Company mainly processes
• Royalty advances. Royalty advances are
and fulfills orders for school-based book clubs, trade,
incurred in all of the Company’s reportable
curriculum publishing, reference and non-fiction
segments, but are most prevalent in the
products and export orders from its primary
Children’s Book Publishing and Distribution
warehouse and distribution facility in Jefferson City,
segment and enable the Company to obtain
Missouri. Magazine orders are processed at the
contractual commitments from authors to
Jefferson City facility and are shipped directly from
produce Content. The Company regularly
printers. Orders for ebooks are fulfilled through a
provides authors with advances against expected
third party.
In connection with its trade business, the Company
sometimes will ship product directly from printers to
customers. School-based book fair orders are fulfilled
through a network of warehouses across the country.
The Company’s international school-based book clubs,
school-based book fair, trade and educational
operations use distribution systems similar to those
employed in the U.S.
C O N T E N T A C Q U I S I T I O N
Access to intellectual property or content (“Content”)
for the Company’s product offerings is critical to the
success of the Company’s operations. The Company
incurs significant costs for the acquisition and
development of Content for its product offerings.
These costs are often deferred and recognized as the
Company generates revenues derived from the benefits
of these costs. These costs include the following:
• Prepublication costs. Prepublication costs are
incurred in all of the Company’s reportable
segments. Prepublication costs include costs
incurred to create and develop the art, prepress,
editorial, digital conversion and other content
required for the creation of the master copy of a
book or other media. While prepublication costs
in the Children’s Book Publishing and
Distributionsegment are relatively modest
amounts for each individual title, there are a
large number of separate titles published
annually. Prepublication costs in the Educational
Technology and Servicessegment are often in
excess of $1 million for an individual program,
as the development of Content for complex
intervention and educational programs requires
significant resources and investment.
future royalty payments, often before the books
are written. Upon publication and sale of the
books or other media, the authors generally will
not receive further royalty payments until the
contractual royalties earned from sales of such
books or other media exceed such advances. The
Company values its position in the market as the
largest publisher and distributor of children's
books in obtaining Content, and the Company’s
experienced editorial staff aggressively acquires
content from new and established authors.
• Production costs. Production costs are incurred
in the Media, Licensing and Advertising
segment. Production costs include the costs to
create films, television programming, home
videos and other entertainment Content. These
costs include the costs of talent, artists,
production crews and editors, as well as other
costs incurred in connection with the production
of this Content. Advertising and promotional
costs are not included in production costs.
S E A S O N A L I T Y
The Company’s school-based book clubs, school-based
book fairs and most of its magazines operate on a
school-year basis; therefore, the Company’s business is
highly seasonal. As a result, the Company’s revenues
in the first and third quarters of the fiscal year
generally are lower than its revenues in the other two
fiscal quarters. Typically, school-based book club and
book fair revenues are greatest in the second and
fourth quarters of the fiscal year, while revenues from
the sale of instructional materials and educational
technology products and services are highest in the
first and fourth quarters. The Company generally
experiences a loss from operations in the first and
third quarters of each fiscal year. Trade sales can vary
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 8
throughout the year due to varying release dates of
various areas related to education. Competition may
published titles.
C O M P E T I T I O N
The markets for children’s books and entertainment
materials and educational technology products and
other educational materials are highly competitive.
Competition is based on the quality and range of
materials made available, price, promotion and
customer service, as well as the nature of the
distribution channels. Competitors include numerous
increase to the extent that other entities enter the
market and to the extent that current competitors or
new competitors develop and introduce new materials
that compete directly with the products distributed by
the Company or develop or expand competitive sales
channels. The Company believes that its position as
both a publisher and distributor are unique to certain
of the markets in which it competes, principally in the
context of its children’s book business.
other book, ebook, textbook, library, reference material
C O P Y R I G H T A N D T R A D E M A R K S
and supplementary text publishers, distributors and
As an international publisher and distributor of books,
other resellers (including over the internet) of
software and other media products, Scholastic
children’s books and other educational materials,
aggressively utilizes the intellectual property
national publishers of classroom and professional
protections of the United States and other countries in
magazines with substantial circulation, numerous
order to maintain its exclusive rights to identify and
producers of television and film programming (many
distribute many of its products. Accordingly,
of which are substantially larger than the Company),
SCHOLASTIC is a trademark registered in the United
television and cable networks, publishers of computer
States and in a number of countries where the
software and interactive products, and distributors of
Company conducts business. The Corporation’s
products and services on the internet. In the United
principal operating subsidiary in the United States,
States, competitors also include regional and local
Scholastic Inc., and the Corporation’s international
school-based book fair operators, other fundraising
subsidiaries have registered and/or have pending
activities in schools, and bookstores. In its educational
applications to register in relevant territories
technology business, additional competitive factors
trademarks for important services and programs. All
include the demonstrated effectiveness of the products
of the Company’s publications, including books,
being offered, as well as available funding sources to
magazines and software and interactive products, are
school districts, and, although the Company believes
subject to copyright protection both in the United
no other organization or company offers as
States and internationally. The Company also obtains
comprehensive an offering as its suite of reading and
domain name protection for its internet domains. The
math intervention products and services, the Company
Company seeks to obtain the broadest possible
faces competition from textbook publishers,
intellectual property rights for its products, and
distributors of other technology-based programs
because inadequate legal and technological protections
addressing the subject areas of the Company’s
for intellectual property and proprietary rights could
offerings, such as reading, phonics and mathematics,
adversely affect operating results, the Company
and, with respect to its consulting services, not-for-
vigorously defends those rights against infringement.
profit organizations providing consulting covering
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 9
Executive Officers
The following individuals have been determined by the Board of Directors to be the executive officers of the
Company. Each such individual serves in his or her position with Scholastic until such person’s successor has been
elected or appointed and qualified or until such person’s earlier resignation or removal.
Name
Richard Robinson
Age
76
Employed by
Registrant Since
1962
Position(s) for Past Five Years
Chairman of the Board (since 1982), President (since
1974) and Chief Executive Officer (since 1975).
Maureen O’Connell
51
2007
Executive Vice President, Chief Administrative Officer
and Chief Financial Officer (since 2007).
Margery W. Mayer
61
1990
Judith A. Newman
55
1993
Andrew S. Hedden
72
2008
Executive Vice President (since 1990), President,
Scholastic Education (since 2002) and Executive Vice
President, Learning Ventures (1998-2002).
Executive Vice President and President, Book Clubs and
eCommerce (since 2011), Book Clubs (since 2005) and
Scholastic At Home (2005-2006); Senior Vice President
and President, Book Clubs and Scholastic At Home
(2004-2005); and Senior Vice President, Book Clubs
(1997-2004).
Member of the Board of Directors (since 1991) and
Executive Vice President, General Counsel and Secretary
(since 2008); prior to joining the Company, partner at
the law firm of Baker & McKenzie LLP (2005-2008) and
the law firm of Coudert Brothers LLP (1975-2005).
Alan Boyko
59
1988
President, Scholastic Book Fairs, Inc. (since 2005).
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 10
Available Information
The Corporation’s annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and any amendments to those reports are
accessible at the Investor Relations portion of its
website (scholastic.com) and are available, without
charge, as soon as reasonably practicable after such
reports are electronically filed or furnished to the
Securities and Exchange Commission (“SEC”). The
Company also posts the dates of its upcoming
scheduled financial press releases, telephonic investor
calls and investor presentations on the “Events and
Presentations” portion of its website at least five days
prior to the event. The Company’s investor calls are
open to the public and remain available through the
Company’s website for at least 45 days thereafter.
The public may also read and copy materials that the
Company files with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, DC
20549. The public may obtain information, as well as
copies of the Company’s filings, from the Office of
Investor Education and Advocacy by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet
site, at www.sec.gov, that contains reports, proxy and
information statements and other information
regarding issuers that file electronically with the SEC.
Item 1A | Risk Factors
Set forth below and elsewhere in this Annual Report
on Form 10-K and in other documents that the
Corporation files with the SEC are risks that should be
considered in evaluating the Corporation’s common
stock, as well as risks and uncertainties that could
cause the actual future results of the Company to
differ from those expressed or implied in the forward-
looking statements contained in this Report and in
other public statements the Company makes.
Additionally, because of the following risks and
uncertainties, as well as other variables affecting the
Company’s operating results, the Company’s past
financial performance should not be considered an
indicator of future performance.
If we cannot anticipate trends and develop
new products or adapt to new technologies
responding to changing customer preferences,
this could adversely affect our revenues
or profitability.
The Company operates in highly competitive markets
that are subject to rapid change, including, in
particular, changes in customer preferences and
changes and advances in relevant technologies. There
are substantial uncertainties associated with the
Company’s efforts to develop successful educational,
trade publishing, entertainment and software and
interactive products and services for its customers, as
well as to adapt its print and other materials to new
digital technologies, including the internet, ebook
reader devices, tablets and school-based technologies.
The Company makes significant investments in new
products and services that may not be profitable, or
whose profitability may be significantly lower than the
Company has experienced historically. In particular, in
the context of the Company’s current focus on key
digital opportunities, including ebooks for children,
the market is developing and the Company may be
unsuccessful in establishing itself as a significant
factor in any market which does develop. Many
aspects of an ebook market which could develop for
children, such as the nature of the relevant software
and hardware, the size of the market, relevant
methods of delivery, including affordable devices, and
relevant content, as well as pricing models, are
developing and will, most likely, be subject to change
on a recurrent basis until a pattern develops and the
potential market for children becomes more defined.
There can be no assurance that the Company will be
successful in implementing its ebook strategy,
including the continuing development of its Storia
ereading app and ebookstore for children, which could
adversely affect the Company’s revenues and growth
opportunities. The Company has relied on outside
providers to assist in the development of ebook reader
technologies. The failure of these providers to continue
to deliver services to the Company as expected would
have a negative effect on the Company’s endeavors in
these new markets. In addition, the Company faces
technological risks associated with software product
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 11
development and service delivery in its educational
particular, the Company’s educational technology and
technology and ecommerce businesses, as well as its
services and educational publishing businesses may be
internal business support systems, which could involve
adversely affected by budgetary restraints and other
service failures, delays or internal system failures that
changes in state educational funding as a result of
result in damages, lost business or failures to be able to
new legislation or regulatory actions, both at the
fully exploit business opportunities.
federal and state level, as well as changes in the
Our financial results would suffer if we fail to
successfully meet market needs in school-based
book clubs and book fairs, two of our core
businesses.
procurement process, to which the Company may be
unable to adapt successfully. In addition, there are
many competing demands for educational funds, and
there can be no guarantee that the Company will
The Company’s school-based book clubs and book fairs
otherwise be successful in continuing to obtain sales of
are core businesses, which produce a substantial part
its products from any available funding.
of the Company’s revenues. The Company is subject to
the risk that it will not successfully develop and
execute new promotional strategies for its school-based
book clubs or book fairs in response to future
customer trends, including any trends relating to a
demand for ebooks on the part of customers, or
technological changes or that it will not otherwise
meet market needs in these businesses in a timely or
cost-effective fashion and successfully maintain
teacher or school sponsorship and ordering levels,
which would have an adverse effect on the Company’s
financial results.
If we fail to maintain the continuance of strong
relationships with our authors, illustrators and
other creative talent, as well as to develop
relationships with new creative talent, our
business could be adversely affected.
The Company’s business, in particular the trade
publishing and media portions of the business, is
highly dependent on maintaining strong relationships
with the authors, illustrators and other creative talent
who produce the products and services that are sold to
its customers. Any overall weakening of these
relationships, or the failure to develop successful new
relationships, could have an adverse impact on the
Company’s business and financial performance.
If we fail to adapt to new purchasing patterns or
requirements, our business and financial results
could be adversely affected.
The competitive pressures we face in our
businesses could adversely affect our financial
performance and growth prospects.
The Company is subject to significant competition,
including from other educational and trade publishers
and media, entertainment and internet companies, as
well as retail and internet distributors, many of which
are substantially larger than the Company and have
much greater resources. To the extent the Company
cannot meet these challenges from existing or new
competitors, including in the educational publishing
business, and develop new product offerings to meet
customer preferences or needs, the Company’s
revenues and profitability could be adversely affected.
The reputation of the Company is one of its most
important assets, and any adverse publicity or
adverse events, such as a significant data privacy
breach, could cause significant reputational
damage and financial loss.
The businesses of the Company focus on learning and
education, and its key relationships are with
educators, teachers, parents and children. In
particular, the Company believes that, in selecting its
products, teachers, educators and parents rely on the
Company’s reputation for quality educational products
appropriate for children. Also, in certain of its
businesses the Company holds significant volumes of
personal data, including that of customers, and, in its
educational technology business, students. Adverse
The Company’s business is affected significantly by
publicity, whether or not valid, could reduce demand
changes in customer purchasing patterns or trends in,
for the Company’s products or adversely affect its
as well as the underlying strength of, the educational,
relationship with teachers or educators, impacting
trade, entertainment and software markets. In
participation in book clubs or book fairs or decisions to
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 12
purchase educational technology or other products or
significant increase in such costs, or in its shipping or
services of the Company’s educational technology
fuel costs, beyond those currently anticipated, which
business. Further, a failure to adequately protect
would generally be beyond the control of the Company,
personal data, including that of customers or students,
or if the Company’s strategies to try to manage these
or other data security failure could lead to penalties,
costs, including additional cost savings initiatives, are
significant remediation costs and reputational
ineffective, the Company’s results of operations could
damage, including loss of future business.
be adversely affected.
If we are unsuccessful in implementing our
corporate strategy we may not be able to
maintain our historical growth.
The Company’s future growth depends upon a number
of factors, including the ability of the Company to
successfully implement its strategies for the respective
business units in a timely manner, the introduction
and acceptance of new products and services,
including the success of its digital strategy and its
The inability to obtain and publish best-selling
new titles such as Harry Potter and the Hunger
Games trilogy could cause our future results to
decline in comparison to historical results.
The Company invests in authors and illustrators for
its Trade publication business, and has a history of
publishing hit titles such as Harry Potter and the
Hunger Games trilogy. The inability to publish best-
selling new titles in future years could negatively
ability to implement new product introductions in its
impact the Company.
educational technology business, its ability to expand
in the global markets that it serves, its ability to meet
demand for content meeting Common Core State
The loss of or failure to obtain rights to
intellectual property material to our businesses
would adversely affect our financial results.
standards and its continuing success in implementing
The Company’s products generally comprise
on-going cost containment and reduction programs.
intellectual property delivered through a variety of
Difficulties, delays or failures experienced in
media. The ability to achieve anticipated results
connection with any of these factors could materially
depends in part on the Company’s ability to defend its
affect the future growth of the Company.
intellectual property against infringement, as well as
Increases in certain operating costs and
expenses, which are beyond our control and can
significantly affect our profitability, could
adversely affect our operating performance.
the breadth of rights obtained. The Company’s
operating results could be adversely affected by
inadequate legal and technological protections for its
intellectual property and proprietary rights in some
The Company’s major expense categories include
jurisdictions, markets and media, as well as by the
employee compensation and printing, paper and
costs of dealing with claims alleging infringement
distribution (such as postage, shipping and fuel) costs.
involving business method patents in the ecommerce
The Company offers its employees competitive salaries
and internet area, and the Company’s revenues could
and benefit packages in order to attract and retain the
be constrained by limitations on the rights that the
quality of employees required to grow and expand its
Company is able to secure to exploit its intellectual
businesses. Compensation costs are influenced by
property in different media and distribution channels.
general economic factors, including those affecting
costs of health insurance, post-retirement benefits and
any trends specific to the employee skill sets that the
Company requires.
Paper prices fluctuate based on worldwide demand and
supply for paper, in general, as well as for the specific
types of paper used by the Company. If there is a
significant disruption in the supply of paper or a
Because we sell our products and services in
foreign countries, changes in currency exchange
rates, as well as other risks and uncertainties,
could adversely affect our operations and
financial results.
The Company has various operating subsidiaries
domiciled in foreign countries. In addition, the
Company sells products and services to customers
located in foreign countries where it does not have
12
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 13
operating subsidiaries, and a significant portion of the
approval, such as a merger, sale of substantially all
Company’s revenues are generated from outside of the
assets or similar transaction.
United States. The Company’s business processes,
including distribution, sales, sourcing of content,
marketing and advertising are, accordingly, subject to
multiple national, regional and local laws, regulations
and policies. The Company could be adversely affected
by laws, regulations and policies, as well as by
Note
The risk factors listed above should not be construed
as exhaustive or as any admission regarding the
adequacy of disclosures made by the Company prior to
and including the date hereof.
fluctuations in currency exchange rates and by political,
Forward-Looking Statements:
financial or economic instability in foreign countries.
This Annual Report on Form 10-K contains forward-
Certain of our activities are subject to weather
risks, which could disrupt our operations or
otherwise adversely affect our financial
performance.
looking statements. Additional written and oral
forward-looking statements may be made by the
Company from time to time in SEC filings and
otherwise. The Company cautions readers that results
The Company conducts certain of its businesses and
or expectations expressed by forward-looking
maintains warehouse and office facilities in locations
statements, including, without limitation, those
that are at risk of being negatively affected by severe
relating to the Company’s future business prospects,
weather events, such as hurricanes, tornados, floods
plans, ecommerce and digital initiatives, new product
or snowstorms. This could impact the Company’s
introductions, strategies, Common Core State
school-based book clubs, school-based book fairs and
Standards, goals, revenues, improved efficiencies,
education businesses, in particular as a result of
general costs, manufacturing costs, medical costs,
school closures caused by such events. Accordingly,
merit pay, operating margins, working capital,
the Company could be adversely affected by any future
liquidity, capital needs, interest costs, cash flows and
significant weather event.
Control of the Company resides in our Chairman
of the Board, President and Chief Executive
Officer and other members of his family through
their ownership of Class A Stock, and the holders
of the Common Stock generally have no voting
rights with respect to transactions requiring
stockholder approval.
The voting power of the Corporation’s capital stock is
vested exclusively in the holders of Class A Stock,
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 this 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
except for the right of the holders of Common Stock to
otherwise.
elect one-fifth of the Board of Directors and except as
otherwise provided by law or as may be established in
favor of any series of preferred stock that may be
Item 1B | Unresolved Staff Comments
issued. Richard Robinson, the Chairman of the Board,
None
President and Chief Executive Officer, and other
members of the Robinson family beneficially own all of
the outstanding shares of Class A Stock and are able to
Item 2 | Properties
elect up to four-fifths of the Corporation’s Board of
The Company maintains its principal offices in the
Directors and, without the approval of the
metropolitan New York area, where it owns or leases
Corporation’s other stockholders, to effect or block
approximately 0.6 million square feet of space. The
other actions or transactions requiring stockholder
Company also owns or leases approximately 1.5
million square feet of office and warehouse space for
13
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 14
its primary warehouse and distribution facility located
the Company’s consolidated financial position or
in the Jefferson City, Missouri area. In addition, the
results of operations.
Company owns or leases approximately 2.9 million
square feet of office and warehouse space in over 70
facilities in the United States, principally for Scholastic
Item 4 | Mine Safety Disclosures
book fairs.
Not Applicable.
Additionally, the Company owns or leases
approximately 1.5 million square feet of office and
warehouse space in over 100 facilities in Canada, the
United Kingdom, Australia, New Zealand, Asia and
elsewhere around the world for its international
businesses.
The Company considers its properties adequate for its
current needs. With respect to the Company’s leased
properties, no difficulties are anticipated in
negotiating renewals as leases expire or in finding
other satisfactory space, if current premises become
unavailable. For further information concerning the
Company’s obligations under its leases, see Notes 1
and 6 of Notes to Consolidated Financial Statements in
Item 8, “Consolidated Financial Statements and
Supplementary Data.”
Item 3 | Legal Proceedings
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 these claims and lawsuits where a loss is
considered probable or reasonably possible, after
taking into account any amounts currently accrued,
that the reasonably possible losses from such claims
and lawsuits would have a material adverse effect on
14
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 15
Part II
Item 5 | Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information: Scholastic Corporation’s common stock, par value $0.01 per share, is traded on the NASDAQ
Global Select Market under the symbol SCHL. Scholastic Corporation’s Class A Stock, par value $0.01 per share (the
“Class A Stock”), is convertible, at any time, into Common Stock on a share-for-share basis. There is no public
trading market for the Class A Stock. Set forth below are the quarterly high and low closing sales prices for the
Common Stock as reported by NASDAQ for the periods indicated:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
For fiscal years ended May 31,
2012
High
$31.99
34.55
31.56
32.09
Low
$26.04
25.03
27.81
25.62
High
$30.20
30.00
32.00
40.18
Low
$23.32
24.20
24.76
26.80
Holders: The number of holders of Class A Stock and Common Stock as of July 24, 2013 were 3 and approximately
10,000, respectively.
Dividends: During the first and second quarters of fiscal 2012, the Company paid a regular quarterly dividend in
the amount of $0.10 per Class A and Common share, which dividend was increased to $0.125 per Class A and
Common share for the third and fourth quarters of fiscal 2012. Accordingly, the total dividend paid for fiscal 2012
was $0.45 per share. During fiscal 2013, the Company paid a regular quarterly dividend in the amount of $0.125
per Class A and Common share, amounting to a total dividend paid in fiscal 2013 of $0.50 per share. On July 17,
2013, the Board of Directors declared a cash dividend of $0.125 per Class A and Common share in respect of the
first quarter of fiscal 2014. This dividend is payable on September 16, 2013 to shareholders of record on August 30,
2013. All dividends have been in compliance with the Company’s debt covenants.
Share purchases: During fiscal 2013, the Company repurchased 432,330 Common shares on the open market at
an average price paid per share of $27.34, for a total of approximately $11.8 million, pursuant to a share buy-back
program authorized by the Board of Directors. During fiscal 2012, the Company repurchased 475,672 Common
shares on the open market at an average price paid per share of $27.48, for a total cost of approximately $13.1
million, pursuant to a share buy-back program authorized by the Board of Directors.
The following table provides information with respect to purchases of shares of Common Stock by the Corporation
during the quarter ended May 31, 2013:
Period
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced plans
or programs
Approximate dollar
value (in millions)
that may yet be
purchased under the
plans or programs
March 1, 2013 through March 31, 2013
April 1, 2013 through April 30, 2013
May 1, 2013 through May 31, 2013
Total
61,251
168,447
—
229,698
$26.24
$26.05
$ —
$26.10
61,251
168,447
—
229,698
$24.0
$19.6
$19.6
$19.6
As of May 31, 2013, approximately $19.6 million remained available for future purchases of Common shares under
the current repurchase authorization of the Board of Directors.
15
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 16
Stock Price Performance Graph
The graph below matches the Corporation’s cumulative 5-year total shareholder return on Common Stock with the
cumulative total returns of the NASDAQ Composite index and a customized peer group of two companies that
includes Pearson PLC and John Wiley & Sons Inc.
In the prior year, the customized peer group also included The McGraw-Hill Companies, which is no longer
included in such peer group due to the reorganization of the McGraw-Hill Companies and subsequent sale of its
education and educational publishing businesses in March 2013, resulting in such businesses no longer being part
of a publicly traded company. The McGraw-Hill Companies had been included in the peer group primarily on the
basis of its education and educational publishing businesses. The graph tracks the performance of a $100
investment in the Corporation’s Common Stock, in the peer group and in the index (with the reinvestment of all
dividends) from June 1, 2008 to May 31, 2013.
Comparison of 5 Year Cumulative Total Return*
Among Scholastic Corporation, The NASDAQ Composite Index
and a Peer Group
n
s
u
n
s
u
n
s
u
n
s
u
n
s
u
$180
$160
$140
$120
$100
s
n
u
$80
$60
$40
$20
$0
5/08
5/09
5/10
5/11
5/12
5/13
u
Scholastic Corporation
s
NASDAQ Composite Index
n
Peer Group
*$100 invested on 5/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending May 31.
Scholastic Corporation
NASDAQ Composite Index
Peer Group
2008
$ 100.00
100.00
100.00
2009
$ 62.74
70.34
80.88
2010
$ 84.64
89.47
107.36
2011
$ 89.32
112.39
151.22
Fiscal year ended May 31,
2013
2012
$ 102.41
$ 89.76
118.20
112.08
154.35
145.17
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
16
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 17
Item 6 | Selected Financial Data
Statement of Operations Data:
Total revenues
Cost of goods sold (exclusive of depreciation and
amortization)
Selling, general and administrative expenses
(exclusive of depreciation and amortization)(1)
Depreciation and amortization(2)
Severance(3)
Loss on leases and asset impairments(4)
Operating income
Other income (expense)
Interest expense, net
Loss on investments(5)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
Share Information:
Earnings (loss) from continuing operations:
Basic
Diluted
Earnings (loss) from discontinued operations:
Basic
Diluted
Net income (loss):
Basic
Diluted
(Amounts in millions, except per share data)
2013
2012
2011
For fiscal years ended May 31,
2009
2010
$ 1,792.4
$ 2,139.1
$ 1,877.6
$ 1,882.0
$ 1,812.8
829.6
815.0
66.5
13.4
0.0
67.9
0.0
14.5
—
35.8
(4.7)
31.1
1.12
1.10
(0.15)
(0.15)
0.97
0.95
31.8
32.4
0.50
$
$
$
$
$
$
$
984.6
878.5
68.8
14.9
7.0
185.3
(0.1)
15.5
—
108.1
(5.7)
102.4
3.45
3.39
(0.18)
(0.18)
3.27
3.21
31.2
31.7
0.45
$
$
$
$
$
$
$
869.0
834.7
60.1
6.7
3.4
103.7
(0.4)
15.6
(3.6)
45.3
(5.9)
39.4
1.36
1.34
(0.18)
(0.18)
1.18
1.16
33.1
33.6
0.35
$
$
$
$
$
$
$
843.1
798.7
59.5
9.2
40.1
131.4
0.9
16.2
(1.5)
60.5
(4.4)
56.1
1.66
1.64
(0.12)
(0.12)
1.54
1.52
36.5
36.8
0.30
$
$
$
$
$
$
$
859.5
778.1
61.2
26.5
26.3
61.2
0.7
23.0
(13.5)
7.3
(21.6)
(14.3)
$
$
$
$
0.20
0.20
(0.58)
(0.58)
$ (0.38)
$ (0.38)
37.2
37.4
0.30
$
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
Dividends declared per common share
Balance Sheet Data:
Working Capital
Cash and cash equivalents
Total assets
Long-term debt (excluding capital leases)
Total debt
Long-term capital lease obligations
Total capital lease obligations
Total stockholders’ equity
(1)
$ 404.9
$ 299.5
143.6
87.4
1,608.8
1,441.0
250.0
—
303.7
2.0
54.5
57.5
57.9
57.7
785.0
864.4
In fiscal 2013, the Company recorded a pretax charge of $4.0 related to asset impairments. In fiscal 2012, the Company recorded a pretax charge of $1.3 for an impairment
of a U.S.- based equity method investment. In fiscal 2011, the Company recorded a pretax charge of $3.0 associated with restructuring in the UK. In fiscal 2010, the
Company recorded a pretax charge of $4.7 associated with restructuring in the UK. In fiscal 2009, the Company recorded a pretax charge of $1.4 related to asset
impairments.
$ 335.4
105.3
1,487.0
159.9
203.4
55.0
55.5
740.0
$ 493.6
244.1
1,600.4
202.5
252.8
55.0
55.9
830.4
$ 427.5
194.9
1,670.3
152.8
159.3
56.4
57.4
830.3
(2)
(3)
(4)
In fiscal 2012, the Company recorded a pretax charge of $4.9 for the impairment of intangible assets relating to certain publishing properties.
In fiscal 2013, the Company recorded pretax severance expense of $9.6 as part of a cost savings initiative. In fiscal 2012, the Company recorded pretax severance expense
of $9.3 for a voluntary retirement program. In fiscal 2009, the Company recorded pretax expense of $18.1 for employee-related expense related to the Company’s
voluntary retirement program and a workforce reduction program.
In fiscal 2012, the Company recorded a pretax impairment loss of $6.2 related to certain subleases in lower Manhattan. In fiscal 2011, the Company recorded a pretax
impairment charge of $3.4 related to assets in the library publishing and classroom magazines business. In fiscal 2010, the Company recorded a pretax asset impairment
charge of $36.3 attributable to intangible assets and prepublication costs associated with the library business and a pretax charge of $3.8 associated with a customer list.
In fiscal 2009, the Company recorded a pretax goodwill impairment charge of $17.0 attributable to the Company’s UK operations.
(5)
In fiscal 2011, the Company recorded a pretax loss of $3.6 related to a UK-based cost method investment. In fiscal 2010, the Company recorded a pretax loss of $1.5
related to a U.S.-based cost method investment. In fiscal 2009, the Company recorded a pretax loss on investments of $13.5 related to investments in the UK.
17
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 18
Item 7 | Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
General
The Company’s significant role in the reading and
learning lives of children, both at school and at home,
continues to be a core strength of the Company. The
Company expects growth in fiscal 2014 to be driven by
The Company categorizes its businesses into five
further opportunities to deliver books to families that
reportable segments: Children’s Book Publishing and
help link children’s independent reading to Common
Distribution; Educational Technology and Services;
Core State Standards, and to provide teachers and
Classroom and Supplemental Materials Publishing;
administrators with customized curriculum packages
Media, Licensing and Advertising(which collectively
and professional development solutions that now cover
represent the Company’s domestic operations); and
grades pre-K to 12. Key to this growth is the
International. This classification reflects the nature of
introduction of five major new education technology
products, services and distribution consistent with the
products including System 44® Next Generation,
method by which the Company’s chief operating
MATH 180TM, iReadTM, Common Core Code XTM and
decision-maker assesses operating performance and
Read 180for iPad®, coupled with strong and growing
allocates resources.
The following discussion and analysis of the
Company’s financial position and results of operations
should be read in conjunction with the Company’s
Consolidated Financial Statements and the related
Notes included in Item 8, “Consolidated Financial
Statements and Supplementary Data.”
Overview and Outlook
In fiscal 2013, revenue was $1,792.4 million,
compared to $2,139.1 million a year ago, largely
driven by lower U.S. and international sales of The
Hunger Games trilogy, partially offset by stronger
sales from the Company’s education businesses in the
second half of the year. For the fiscal year, earnings
per diluted share from continuing operations were
$1.10 versus $3.39 in fiscal 2012.
The Company is operating at a time of significant
change in the book business and in education and is
well-positioned to capitalize on the opportunities
presented by evolving needs in the classroom and
buying behavior in children’s books. With fewer retail
outlets for children’s books, parents are increasingly
relying on the Company’s book fair and book clubs
channels to find age-appropriate, quality books.
Additionally, educators are looking to the Company for
custom print and digital curriculum packages and for
technology-based programs, particularly for tablets,
that support instructional needs as they implement the
more rigorous Common Core State Standards.
demand for the Company’s customized solutions
packages provided through the Classroom and
Supplemental Materials Publishingsegment. These
packages, tailored for the K-8 English Language Arts
block, include Guided Reading, Traits Writing,
Classroom Magazines and other product and
professional development offerings to meet the specific
needs of school districts.
In the children’s book businesses, the Company is
aligning resources to serve customers in a unified way
and introducing grade-specific marketing in the
school book clubs. Children’s book revenue is expected
to decrease slightly compared to fiscal 2013 due to
anticipated lower year over year sales of The Hunger
Games trilogy, expected to be partially offset by
increased revenue per fair in school book fairs and
new titles released through the trade channel. Book
club revenue is expected to be flat. As planned, fiscal
2014 investments in Storia, the Company’s ereading
platform and delivery system, will decrease. Platform
development for Storia is substantially complete and
future investments will focus on content delivery and
enhancements, including features designed to make
the application more useful in the classroom. The
Company plans to continue to implement programs to
enhance operating efficiency and to align its cost base
with its revenue growth expectations.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 19
Critical Accounting Policies and
Estimates
General:
The Company’s discussion and analysis of its financial
condition and results of operations is based upon its
Consolidated Financial Statements, which have been
prepared in accordance with accounting principles
generally accepted in the United States. The
preparation of these financial statements involves the
use of estimates and assumptions by management,
which affects the amounts reported in the Consolidated
Financial Statements and accompanying notes. The
Company bases its estimates on historical experience,
School-Based Book Fairs – Revenues associated with
school-based book fairs are related to sales of product.
Book fairs are typically run by schools and/or parent
teacher organizations over a five business-day period.
The amount of revenue recognized for each fair
represents the net amount of cash collected at the fair.
Revenue is fully recognized at the completion of the
fair. At the end of reporting periods, the Company
defers estimated revenue for those fairs that have not
been completed as of the period end, based on the
number of fair days occurring after period end on a
straight-line calculation of the full fair’s estimated
revenue.
current business factors, future expectations and
Trade – Revenue from the sale of children’s books for
various other assumptions believed to be reasonable
distribution in the retail channel is recognized when
under the circumstances, all of which are necessary in
risks and benefits transfer to the customer, or when
order to form a basis for determining the carrying
the product is on sale and available to the public. For
values of assets and liabilities. Actual results may differ
newly published titles, the Company, on occasion,
from those estimates and assumptions. On an on-going
contractually agrees with its customers when the
basis, the Company evaluates the adequacy of its
reserves and the estimates used in calculations,
publication may be first offered for sale to the public,
or an agreed upon “Strict Laydown Date.” For such
including, but not limited to: collectability of accounts
titles, the risks and benefits of the publication are not
receivable; sales returns; amortization periods; stock-
deemed to be transferred to the customer until such
based compensation expense; pension and other post-
time that the publication can contractually be sold to
retirement obligations; tax rates; recoverability of
the public, and the Company defers revenue on sales of
inventories, deferred income taxes and tax reserves,
such titles until such time as the customer is permitted
fixed assets, prepublication costs, royalty advances and
to sell the product to the public. Revenue for ebooks,
customer reward programs; and the fair value of
goodwill and other intangibles. For a complete
which is the net amount received from the retailer, is
generally recognized upon electronic delivery to the
description of the Company’s significant accounting
customer by the retailer.
policies, see Note 1 of Notes to Consolidated Financial
Statements in Item 8, “Consolidated Financial
Statements and Supplementary Data,” of this Report.
The following policies and account descriptions include
all those identified by the Company as critical to its
business operations and the understanding of its
results of operations:
Revenue Recognition:
The Company’s revenue recognition policies for its
principal businesses are as follows:
School-Based Book Clubs – Revenue from school-
based book clubs is recognized upon shipment of the
products. For ebooks, revenue is recognized upon
electronic delivery to the customer.
A reserve for estimated returns is established at the
time of sale and recorded as a reduction to revenue.
Actual returns are charged to the reserve as received.
The calculation of the reserve for estimated returns is
based on historical return rates, sales patterns, type of
product and expectations. Actual returns could differ
from the Company’s estimate. In order to develop the
estimate of returns that will be received subsequent to
May 31, 2013, management considers patterns of sales
and returns in the months preceding May 31, 2013, as
well as actual returns received subsequent to year end,
available sell-through information and other return
rate information that management believes is relevant.
A one percentage point change in the estimated
19
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 20
reserve for returns rate would have resulted in an
Magazines – Revenue is deferred and recognized
increase or decrease in operating income for the year
ratably over the subscription period, as the magazines
ended May 31, 2013 of approximately $0.7 million. A
are delivered.
reserve for estimated bad debts is established based on
the aggregate aging of accounts receivable and
specific reserves on a customer-by-customer basis,
where applicable.
Magazine Advertising – Revenue is recognized when
the magazine is for sale and available to the
subscribers.
Educational Technology and Services – For
shipments to schools, revenue is recognized when
risks and benefits transfer to the customer. Shipments
to depositories are on consignment and revenue is
recognized based on actual shipments from the
Scholastic In-School Marketing – Revenue is
recognized when the Company has satisfied its
obligations under the program and the customer has
acknowledged acceptance of the product or service.
Certain revenues may be deferred pending future
depositories to the schools. For certain software-based
deliverables.
products, the Company offers new customers
installation, maintenance and training with these
products and, in such cases, revenue is deferred and
recognized as services are delivered or over the life of
the contract. Revenues from contracts with multiple
deliverables are recognized as each deliverable is
earned, based on the relative selling price of each
deliverable, provided the deliverable has value to
customers on a standalone basis, the customer has full
use of the deliverable and there is no further obligation
from the Company. If there is a right of return,
revenue is recognized if delivery of the undelivered
items or services is probable and substantially in
control of the Company.
Classroom and Supplemental Materials
Publishing – Revenue from the sale of classroom and
supplemental materials is recognized upon shipment
of the products.
Film Production and Licensing – Revenue from the
sale of film rights, principally for the home video and
domestic and foreign television markets, is recognized
when the film has been delivered and is available for
showing or exploitation. Licensing revenue is recorded
in accordance with royalty agreements at the time the
licensed materials are available to the licensee and
collections are reasonably assured.
Accounts receivable:
Accounts receivable are recorded net of allowances for
doubtful accounts and reserves for returns. In the
normal course of business, the Company extends credit
to customers that satisfy predefined credit criteria.
Reserves for returns are based on historical return
rates, sales patterns and an assessment of product on
hand with the customer when estimable. Allowances
for doubtful accounts are established through the
evaluation of accounts receivable aging, prior collection
experience and creditworthiness of the Company’s
customers to estimate the ultimate collectability of
these receivables. At the time the Company determines
that a receivable balance, or any portion thereof, is
deemed to be permanently uncollectible, the balance is
then written off. A one percentage point change in the
estimated bad debt reserve rates, which are applied to
the accounts receivable aging, would have resulted in
an increase or decrease in operating income for the
year ended May 31, 2013 of approximately $2.6
million.
Inventories:
Inventories, consisting principally of books, are stated
at the lower of cost, using the first-in, first-out
method, or market. The Company records a reserve for
excess and obsolete inventory based upon a calculation
using the historical usage rates and sales patterns of
its products, and specifically identified obsolete
inventory. The impact of a one percentage point
change in the obsolescence reserve rate would have
20
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 21
resulted in an increase or decrease in operating
comparisons to similar companies. The Company
income for the year ended May 31, 2013 of
reviews its definition of reporting units annually or
approximately $3.6 million.
more frequently if conditions indicate that the
Royalty advances:
Royalty advances are initially capitalized and
subsequently expensed as related revenues are earned
or when the Company determines future recovery
through earndowns is not probable. The Company has
a long history of providing authors with royalty
advances, and it tracks each advance earned with
respect to the sale of the related publication.
Historically, the longer the unearned portion of the
advance remains outstanding, the less likely it is that
the Company will recover the advance through the sale
of the publication, as the related royalties earned are
applied first against the remaining unearned portion
of the advance. The Company applies this historical
experience to its existing outstanding royalty
advances to estimate the likelihood of recovery.
Additionally, the Company’s editorial staff regularly
reviews its portfolio of royalty advances to determine if
individual royalty advances are not recoverable
through earndowns for discrete reasons, such as the
death of an author prior to completion of a title or
titles, a Company decision to not publish a title, poor
market demand or other relevant factors that could
impact recoverability.
Goodwill and intangible assets:
reporting units may change. The Company evaluates
its operating segments to determine if there are
components one level below the operating segment
level. A component is present if discrete financial
information is available and segment management
regularly reviews the operating results of the
business. If an operating segment only contains a
single component, that component is determined to be
a reporting unit for goodwill impairment testing
purposes. If an operating segment contains multiple
components, the Company evaluates the economic
characteristics of these components. Any components
within an operating segment that share similar
economic characteristics are aggregated and deemed
to be a reporting unit for goodwill impairment testing
purposes. Components within the same operating
segment that do not share similar economic
characteristics are deemed to be individual reporting
units for goodwill impairment testing purposes. The
Company has identified twelve separate reporting
units for goodwill impairment testing purposes. The
determination of the fair value of the Company’s
reporting units involves a number of assumptions,
including the estimates of future cash flows, discount
rates and market-based multiples, among others, each
of which is subject to change. Accordingly, it is
Goodwill and other intangible assets with indefinite
possible that changes in assumptions and the
lives are not amortized and are reviewed for
impairment annually or more frequently if
impairment indicators arise.
performance of certain reporting units could lead to
impairments in future periods, which may be material.
The reporting unit associated with the Company’s book
With regard to goodwill, the Company compares the
clubs operations was the only reporting unit valued
estimated fair value of its identified reporting units to
using a quantitative analysis as of May 31, 2013, as
the carrying value of the net assets. The Company first
changes in market conditions and declining revenues
performs a qualitative assessment to determine
in the period were indicative of a potential for goodwill
whether it is more likely than not that the fair value of
impairment. The fair value of the unit declined from
its identified reporting units are less than their
the prior year from $65.0 million to $59.5 million, but
carrying values. If it is more likely than not that the
remained higher than the carrying value of $48.8
fair value of a reporting unit is less than its carrying
million. This reporting unit has $13.4 million of
amount the Company performs the two-step test. For
associated goodwill. The Company used forecasted cash
each of the reporting units, the estimated fair value is
flows, and to a lesser extent, observable revenue
determined utilizing the expected present value of the
multiples for comparable companies, consistent with
projected future cash flows of the units, in addition to
determining its fair value. A discount rate of 15% and a
21
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 22
perpetual growth rate of 3% were employed for the
Other noncurrent liabilities:
discounted cash flow analysis and revenue multiples
All of the rate assumptions discussed below impact
used were between 0.4 times historical revenues and
the Company’s calculations of its pension and post-
0.5 times future revenues. The value of the reporting
retirement obligations. The rates applied by the
unit is largely dependent on the success of the Storia
Company are based on the portfolios’ past average
ereading app which was launched in fiscal 2012.
rates of return, discount rates and actuarial
Should Storia not achieve its projected revenue, and the
information. Any change in market performance,
Company is unable to adjust its strategy to effectively
interest rate performance, assumed health care costs
compensate, there is a potential for an impairment of
trend rate or compensation rates could result in
goodwill in this reporting unit in future periods.
significant changes in the Company’s pension and
With regard to other intangibles with indefinite lives,
post-retirement obligations.
the Company determines the fair value by asset, which
Pension obligations – The Company’s pension
is then compared to its carrying value. The Company
calculations are based on three primary actuarial
first performs a qualitative assessment to determine
assumptions: the discount rate, the long-term expected
whether it is more likely than not that the fair value of
rate of return on plan assets and the anticipated rate
its identified reporting unit is less than its carrying
of compensation increases. The discount rate is used in
value. If it is more likely than not that the fair value of
the measurement of the projected, accumulated and
a reporting unit is less than its carrying amount the
vested benefit obligations and interest cost components
Company performs a quantitative test. The estimated
of net periodic pension costs. The long-term expected
fair value is determined utilizing the expected present
return on plan assets is used to calculate the expected
value of the projected future cash flows of the asset.
earnings from the investment or reinvestment of plan
Intangible assets with definite lives consist principally
of customer lists, covenants not to compete, and
certain other intellectual property assets and are
amortized over their expected useful lives. Customer
lists are amortized on a straight-line basis over a five-
year period, while covenants not to compete are
amortized on a straight-line basis over their
contractual term. Other intellectual property assets are
amortized over their remaining useful lives, which
range from five to twenty years.
Unredeemed Incentive Credits:
The Company employs incentive programs to
assets. The anticipated rate of compensation increase
is used to estimate the increase in compensation for
participants of the plan from their current age to their
assumed retirement age. The estimated compensation
amounts are used to determine the benefit obligations
and the service cost. A one percentage point change in
the discount rate would have resulted in an increase
or decrease in operating income for the year ended
May 31, 2013 of approximately $1.0 million and $0.8
million, respectively. A one percentage point change in
the expected long-term return on plan assets would
have resulted in an increase or decrease in operating
income for the year ended May 31, 2013 of
encourage sponsor participation in its book clubs and
approximately $1.4 million. Pension benefits in the
book fairs. These programs allow the sponsors to
accumulate credits which can then be redeemed for
Company products or other items offered by the
Company. The Company recognizes a liability at the
cash balance plan for employees located in the United
States are based on formulas in which the employees’
balances are credited monthly with interest based on
the average rate for one-year United States Treasury
estimated cost of providing these credits at the time of
Bills plus 1%. Contribution credits are based on
the recognition of revenue for the underlying
purchases of Company product that resulted in the
employees’ years of service and compensation levels
during their employment periods for the periods prior
granting of the credits. As the credits are redeemed,
to June 1, 2009.
such liability is reduced.
22
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 23
Other post-retirement benefits – The Company
Treasury rate in effect on the date of grant with a term
provides post-retirement benefits, consisting of
equal to the expected life. The expected term is
healthcare and life insurance benefits, to eligible
determined based on historical employee exercise and
retired United States-based employees. The post-
post-vesting termination behavior. The expected
retirement medical plan benefits are funded on a pay-
dividend yield is based on actual dividends paid or to
as-you-go basis, with the employee paying a portion of
be paid by the Company. The volatility is estimated
the premium and the Company paying the remainder
based on historical volatility corresponding to the
of the medical cost. The existing benefit obligation is
expected life.
based on the discount rate and the assumed health
care cost trend rate. The discount rate is used in the
measurement of the projected and accumulated benefit
obligations and the service and interest cost
components of net periodic post-retirement benefit
cost. A one percentage point change in the discount
rate would have resulted in an increase or decrease in
operating income for the year ended May 31, 2013 of
approximately $0.6 million. The assumed health care
cost trend rate is used in the measurement of the long-
term expected increase in medical claims. A one
percentage point change in the health care cost trend
rate would have resulted in an increase or decrease in
operating income for the year ended May 31, 2013 of
approximately $0.2 million and $0.1 million,
respectively. A one percentage point change in the
health care cost trend rate would have resulted in an
increase or decrease in the post-retirement benefit
obligation as of May 31, 2013 of approximately $4.0
million and $3.4 million, respectively.
Stock-based compensation – The Company measures
the cost of services received in exchange for an award
of equity instruments based on the grant-date fair
value of the award. The Company recognizes the cost
on a straight-line basis over an award’s requisite
service period, which is generally the vesting period,
based on the award’s fair value at the date of grant.
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing
model. The determination of the assumptions used in
the Black-Scholes model requires management to
make significant judgments and estimates. The use of
different assumptions and estimates in the option
pricing model could have a material impact on the
estimated fair value of option grants and the related
expense. The risk-free interest rate is based on a U.S.
Income Taxes – The Company uses the asset and
liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are
determined based on differences between financial
reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be
in effect when the differences are expected to enter
into the determination of taxable income.
The Company believes that its taxable earnings,
during the periods when the temporary differences
giving rise to deferred tax assets become deductible or
when tax benefit carryforwards may be utilized,
should be sufficient to realize the related future income
tax benefits. For those jurisdictions where the
expiration date of the tax benefit carryforwards or the
projected taxable earnings indicate that realization is
not likely, the Company establishes a valuation
allowance.
In assessing the need for a valuation allowance, the
Company estimates future taxable earnings, with
consideration for the feasibility of on-going tax
planning strategies and the realizability of tax benefit
carryforwards, to determine which deferred tax assets
are more likely than not to be realized in the future.
Valuation allowances related to deferred tax assets can
be impacted by changes to tax laws, changes to
statutory tax rates and future taxable earnings. In the
event that actual results differ from these estimates in
future periods, the Company may need to adjust the
valuation allowance.
The Company recognizes a liability for uncertain tax
positions that the Company has taken or expects to file
in an income tax return. An uncertain tax position is
recognized only if it is “more likely than not” that the
23
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 24
position is sustainable based on its technical merit. A
recognized tax benefit of a qualifying position is the
largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement with a taxing
authority having full knowledge of all relevant
information.
The Company assesses foreign investment levels
periodically to determine if all or a portion of the
Company’s investments in foreign subsidiaries are
indefinitely invested. If foreign investments are not
expected to be indefinitely invested, the Company
provides for income taxes on the portion that is not
indefinitely invested.
Non-income Taxes – The Company is subject to tax
examinations for sales-based taxes. A number of these
examinations are ongoing and, in certain cases, have
resulted in assessments from taxing authorities.
Where a liability associated with these examinations
and assessments is probable and can be reliably
estimated, the Company has made accruals for these
matters which are reflected in the Company’s
Consolidated Financial Statements. Future
developments relating to the foregoing could result in
adjustments being made to these accruals.
24
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 25
Results of Operations
2013
$
Revenues:
Children’s Book Publishing and Distribution $ 846.9
Educational Technology and Services
227.7
Classroom and Supplemental Materials
Publishing
Media, Licensing and Advertising
International
218.0
58.7
441.1
(Amounts in millions, except per share data)
2012
For fiscal years ended May 31,
2011
%(1)
47.2
12.7
12.2
3.3
24.6
$
$1,111.3
254.7
208.2
75.3
489.6
%(1)
52.0
11.9
9.7
3.5
22.9
$
$ 922.0
230.8
197.2
82.7
444.9
%(1)
49.1
12.3
10.5
4.4
23.7
Total revenues
1,792.4
100.0
2,139.1
100.0
1,877.6
100.0
Cost of goods sold (exclusive of depreciation
and amortization)
829.6
46.3
984.6
46.0
869.0
Selling, general and administrative expenses
(exclusive of depreciation and amortization)(2)
Depreciation and amortization(3)
Severance(4)
Loss on leases and asset impairments(5)
Operating income
Other income (expense)
Interest income
Interest expense
Loss on investments(6)
Earnings (loss) from continuing operations
before income taxes
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net income (loss)
Earnings (loss) per share:
Basic:
815.0
66.5
13.4
0.0
67.9
0.0
1.2
(15.7)
—
53.4
35.8
(4.7)
$ 31.1
Earnings (loss) from continuing operations $ 1.12
Earnings (loss) from discontinued
operations
Net income (loss)
Diluted:
$ (0.15)
$ 0.97
Earnings (loss) from continuing operations $ 1.10
Earnings (loss) from discontinued
operations
Net income (loss)
(1) Represents percentage of total revenues.
$ (0.15)
$ 0.95
45.5
3.7
0.7
0.0
3.8
0.0
0.1
(0.9)
—
3.0
2.0
(0.3)
1.7
878.5
68.8
14.9
7.0
185.3
(0.1)
1.0
(16.5)
—
169.7
108.1
(5.7)
$ 102.4
$ 3.45
$ (0.18)
$ 3.27
$ 3.39
$ (0.18)
$ 3.21
41.1
3.2
0.7
0.3
8.7
0.0
0.1
(0.8)
—
8.0
5.1
(0.3)
4.8
834.7
60.1
6.7
3.4
103.7
(0.4)
1.5
(17.1)
(3.6)
84.1
45.3
(5.9)
$ 39.4
$ 1.36
$ (0.18)
$ 1.18
$ 1.34
$ (0.18)
$ 1.16
46.3
44.5
3.2
0.4
0.2
5.5
0.0
0.1
(0.9)
(0.2)
4.5
2.4
(0.3)
2.1
(2)
(3)
(4)
(5)
In fiscal 2013, the Company recorded a pretax charge of $4.0 related to asset impairments. In fiscal 2012, the Company recorded a pretax charge of $1.3 for an impairment
of a U.S.-based equity investment. In fiscal 2011, the Company recorded a pretax charge of $3.0 associated with restructuring in the UK.
In fiscal 2012, the Company recorded a pretax charge of $4.9 for the impairment of intangible assets relating to certain publishing properties.
In fiscal 2013, the Company recorded pretax severance expense of $9.6 as part of a cost savings initiative. In fiscal 2012, the Company recorded pretax severance expense
of $9.3 for a voluntary retirement program.
In fiscal 2012, the Company recorded a pretax impairment loss of $6.2 related to certain subleases in lower Manhattan. In fiscal 2011, the Company recorded a pretax
impairment charge of $3.4 related to assets in the library publishing and classroom magazines business.
(6)
In fiscal 2011, the Company recorded a pretax loss of $3.6 related to a UK-based cost-method investment.
25
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 26
Results of Operations – Consolidated
Cost of goods sold (exclusive of depreciation and
Revenues for fiscal 2013 decreased by $346.7 million,
or 16.2%, to $1,792.4 million, compared to $2,139.1
million in fiscal 2012 due to lower revenues in the
Children’s Book Publishing and Distributionsegment,
the Educational Technology and Servicessegment, the
Internationalsegment and the Media, Licensing and
Advertisingsegment of $264.4 million, $27.0 million,
$48.5 million and $16.6 million, respectively, while
revenues increased $9.8 million in the Classroom and
Supplemental Materials Publishingsegment.
amortization) as a percentage of revenue for fiscal
2012 remained relatively consistent at 46.0%,
compared to 46.3% in fiscal 2011. The increase in
fiscal 2012 of $115.6 million to $984.6 million,
compared to $869.0 million in fiscal 2011, was
primarily related to the increase in revenues. In
addition, in response to changing trends in the
children’s book market the Company changed its
estimate for inventory obsolescence and recorded an
increase in the reserve of $17.9 million. Product,
service and production costs as well as royalty costs
Revenues for fiscal 2012 increased by $261.5 million
increased in fiscal 2012, primarily related to the
to $2,139.1 million, compared to $1,877.6 million in
higher revenues discussed above. Included in product,
fiscal 2011. This increase was primarily related to
service and production costs is the $17.9 million of
increased revenues in the Children’s Book Publishing
additional inventory obsolescence costs, as referenced
and Distributionsegment of $189.3 million, driven by
above. Prepublication and production amortization for
higher sales in the Company’s trade and school book
fiscal 2012 increased by $4.5 million, primarily related
fairs businesses; higher revenues in the International
to an impairment recorded by the Company for one of
segment of $44.7 million; higher revenues in the
its production properties. Postage, freight, shipping,
Educational Technology and Servicessegment of
fulfillment and all other costs increased slightly from
$23.9 million relating to higher sales of educational
fiscal 2011 to fiscal 2012; however, these costs
technology products and related services; and higher
decreased as a percentage of revenue by 1.4%, from
revenues in the Classroom and Supplemental Materials
12.4% in fiscal 2011 to 11.0% in fiscal 2012.
Publishingsegment of $11.0 million. The increase was
partially offset by lower revenues in the Media,
Licensing and Advertisingsegment of $7.4 million.
Cost of goods sold (exclusive of depreciation and
amortization) as a percentage of revenue for fiscal
2013 remained relatively consistent at 46.3%,
compared to 46.0% in the prior fiscal year. While cost
of goods sold as a percentage of revenue remained
consistent for the total Company, the Children’s Book
Publishing and Distributionsegment experienced
higher relative costs for free books and related
fulfillment costs in the book clubs distribution channel
and lower volumes in the Trade business, but these
Components of Cost of goods sold (exclusive of
depreciation and amortization) for fiscal years 2013,
2012 and 2011 are as follows:
($ amounts in millions)
2013
2012
2011
$ 456.0
$ 536.2
$ 492.1
90.7
51.7
157.4
56.1
93.3
51.6
Product, service and
production costs
Royalty costs
Prepublication and
production amortization
Postage, freight, shipping,
fulfillment and all other costs
231.2
234.9
232.0
Total cost of goods sold
(exclusive of depreciation
and amortization)
$ 829.6
$ 984.6
$ 869.0
were largely offset by improvements in the book fairs
Selling, general and administrative expenses
business. In educational segments, higher service
(exclusive of depreciation and amortization) in fiscal
revenues in the Educational Technology and Services
2013 decreased by $63.5 million to $815.0 million,
segment, which carry a higher relative cost, were
compared to $878.5 million in the prior fiscal year.
offset by improved margins in the Classroom and
The decrease was driven by lower sales tax accrual in
Supplemental Materials Publishingsegment due to
two jurisdictions in the Children’s Book Publishing
increased circulation of classroom magazines.
and Distributionsegment resulting from sales tax
assessments of $19.7 million recorded in fiscal 2012,
26
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 27
and the absence of employee bonuses and lower stock
The Company’s provision for income taxes with respect
compensation expense in fiscal 2013.
to continuing operations resulted in an effective tax
Selling, general and administrative expenses for fiscal
2012 increased $43.8 million to $878.5 million,
compared to $834.7 million in fiscal 2011. The
increase was driven by higher employee-related costs
associated with higher revenues and increased sales
tax expenses, which included accruals of $19.7 million
based on sales tax assessments in two jurisdictions, as
rate of 33.0%, 36.3% and 46.1% for fiscal 2013, 2012
and 2011, respectively. The decrease in the effective tax
rate for fiscal 2013 and 2012 was primarily due to the
reversal of valuation allowances based on higher
profitability in the UK and uncertain tax positions.
These valuation allowances were established in fiscal
2011 and prior years.
well as higher continued digital initiative spending.
Earnings from continuing operations for fiscal 2013
Severance expense of $13.4 million in fiscal 2013
includes $9.6 million related to cost reduction
initiatives as the Company continues to focus on
efficiency initiatives. Severance expense was $14.9
million in fiscal 2012, compared to $6.7 million in
fiscal 2011, related to the Company’s cost reduction
programs, which included $9.3 million recorded in
fiscal 2012 relating to a voluntary retirement
program.
During fiscal 2012, the Company entered into sublease
arrangements for certain leased properties in
Manhattan. The fair value of the net rents to be
received was less than the Company’s lease
commitments for these properties over the remaining
term of the leases. Accordingly, the Company
recognized a loss on these subleases of $6.2 million.
The Company has substantially exited these leases as
of May 31, 2013. In fiscal 2011, the Company
determined the carrying value of its Scholastic Library
Publishing and Classroom Magazines business within
the Classroom and Supplemental Materials Publishing
segment exceeded the fair value of this reporting unit
and recorded an impairment charge of $3.4 million.
For fiscal 2013, net interest expense decreased to
$14.5 million, compared to $15.5 million in fiscal
2012, reflecting lower interest rates and borrowings.
Net interest expense for fiscal 2012 was relatively flat
to the fiscal 2011 net interest expense of $15.6 million.
In fiscal 2011, the Company recognized a $3.6 million
loss on a UK-based cost method investment.
decreased by $72.3 million to $35.8 million, compared
to $108.1 million in fiscal 2012. Earnings from
continuing operations increased by $62.8 million to
$108.1 million in fiscal 2012, compared to $45.3
million in fiscal 2011. The basic and diluted earnings
from continuing operations per share of Class A Stock
and Common Stock were $1.12 and $1.10, respectively,
in fiscal 2013, $3.45 and $3.39, respectively, in fiscal
2012 and $1.36 and $1.34, respectively, in fiscal 2011.
Loss from discontinued operations, net of tax, for
fiscal 2013 was $4.7 million, compared to $5.7 million
for fiscal 2012. The loss in the current fiscal year was
principally comprised of closure costs and asset
impairments totaling $4.0 million. The loss in fiscal
2012 includes an impairment of the Company’s
Maumelle facility of $2.2 million, which was sold in
fiscal 2013, and operational losses from the Company’s
discontinued Back to Basics business of $2.1 million.
In addition, in fiscal 2012 the Company recognized a
liability for the present value of future lease payments
due on multiple leases in a discontinued UK business
as the Company believes there is no opportunity for
subleasing.
The resulting net income for fiscal 2013 was $31.1
million, or $0.97 and $0.95 per basic and diluted
share, respectively, compared to net income of $102.4
million, or $3.27 and $3.21 per basic and diluted
share, respectively, in fiscal 2012. Net income in fiscal
2011 was $39.4 million, or $1.18 and $1.16 per basic
and diluted share, respectively.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 28
Results of Operations – Segments
C H I L D R E N ’ S B O O K P U B L I S H I N G A N D D I S T R I B U T I O N
2013 compared to 2012
2012 compared to 2011
($ amounts in millions)
2012
2011
$ change
% change
$ change
% change
$1,111.3
$922.0
$(264.4)
–23.8%
$189.3
Revenues
Cost of goods sold (exclusive of
depreciation and amortization)
Other operating expenses*
Depreciation and amortization
2013
$846.9
359.4
446.5
16.5
Operating income (loss)
Operating margin
$ 24.5
$ 152.2
2.9%
13.7%
466.7
471.8
20.6
396.0
433.1
15.6
$ 77.3
8.4%
(107.3)
(25.3)
(4.1)
$(127.7)
–23.0%
–5.4%
–19.9%
–83.9%
70.7
38.7
5.0
$ 74.9
20.5%
17.9%
8.9%
32.1%
96.9%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.
Revenues for fiscal 2013 decreased by $264.4 million
42.4% of revenues, compared to $466.7 million, or
to $846.9 million, compared to $1,111.3 million in
42.0% of revenues, in fiscal 2012. The absolute
fiscal 2012. Lower net revenues in the Company’s
decrease in cost of goods sold of $107.3 million is due
trade channel of $213.0 million reflected decreased
predominantly to the lower level of Hunger Games
sales of the Hunger Games trilogy compared to the
sales in fiscal 2013. Cost of goods sold as a percentage
trilogy’s strong results in fiscal 2012. Revenues from
of revenue remained flat for this segment, with higher
the Company’s book clubs channel declined $57.5
relative costs for free books and related fulfillment
million, related to lower revenue per event and
costs of $3.2 million in the book clubs distribution
decreased sponsorship. These decreases were partially
channel and lower volumes in the trade channel being
offset by an increase in the Company’s book fair
offset by improved margins primarily from the book
channel of $6.1 million over the prior fiscal year
fairs channel, as well as book clubs, driven by lower
driven by modest increases in the number of fairs and
inventory obsolescence in fiscal 2013.
revenue per fair.
Cost of goods sold (exclusive of depreciation and
Revenues for fiscal 2012 increased by $189.3 million
amortization) for fiscal 2011 was $396.0 million, or
to $1,111.3 million, compared to $922.0 million in
43.0% of revenues. The absolute increase in cost of
fiscal 2011. Revenues from the Company’s trade
goods sold of $70.7 million from fiscal 2011 to fiscal
distribution channel increased by $206.3 million from
2012 is due to the increased level of Hunger Games
fiscal 2012 to fiscal 2011, driven by increased sales, in
sales and higher inventory obsolescence due to a
both print and ebook formats, of the Hunger Games
change in estimated obsolescence. Cost of goods sold
trilogy, as well as other titles. Revenues from school
as a percentage of revenue remained relatively flat for
book fairs increased by $17.7 million in fiscal 2012
this segment as increased inventory obsolescence in
from fiscal 2011, related to both an increase in revenue
fiscal 2012 was offset by higher volume related
per fair and an increase in the number of fairs held.
margins in the trade channel.
Additionally, warehouse sales in fiscal 2012 increased
as compared to fiscal 2011. Revenues from school book
clubs in fiscal 2012 decreased by $34.7 million
compared to fiscal 2011. During fiscal 2012, the
number of book club sponsors declined modestly from
fiscal 2011.
Other operating expenses decreased by $25.3 million to
$446.5 million in fiscal 2013, compared to $471.8
million in fiscal 2012. The decrease is primarily related
to the prior fiscal year’s additional sales tax expense of
$19.7 million relating to sales tax assessments in two
jurisdictions in the Company’s book clubs channel, as
Cost of goods sold (exclusive of depreciation and
well as the higher prior year employee-related expenses
amortization) for fiscal 2013 was $359.4 million, or
for incentive compensation, favorability in collections
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 29
in the Company’s trade channel customer accounts in
was lower compared to the prior year due to Hunger
the current fiscal year, and higher amortization
Games related revenues, but remained strong from
expense in the prior fiscal year for impairment of
titles such as The 39 Clues® series and the Harry
certain publishing and trademark rights of $4.9
Potter series, as well as other titles, such as Dramaby
million. These decreases were partially offset by higher
Raina Telgemeier, The Raven Boys by Maggie
promotional expense of $5.7 million in the book clubs
Stiefvater, and Captain Underpants and the Revolting
channel in the current fiscal year.
Revenge of the Radioactive Robo-Boxersby Dav Pilkey.
Other operating expenses increased by $38.7 million
to $471.8 million in fiscal 2012, compared to $433.1
million in fiscal 2011. Higher sales tax expense, driven
by the $19.7 million attributable to two jurisdictions,
The Company is actively reducing promotional costs in
book clubs channels by more precisely targeting its
marketing resources. This segment continues to invest
in its Storia ereading and ebook initiatives.
higher employee-related expenses for incentive
Segment operating income in fiscal 2012 increased by
compensation and higher digital spending was
$74.9 million to $152.2 million, compared to $77.3
partially offset by decreased promotional expense of
million in fiscal 2011, driven primarily by the higher
$18.5 million in the book clubs channel in fiscal 2012
revenues in the Company’s trade and school book fair
compared to fiscal 2011.
channels, as well as by decreased promotional
Segment operating income for fiscal 2013 decreased
by $127.7 million to $24.5 million, compared to $152.2
million in the prior fiscal year. The prior fiscal year
benefited from the success of the Hunger Games
trilogy, while fiscal 2013 experienced strong results
from the book fairs channel, offset by lower revenues
and higher promotional expenses in the book clubs
channel. Operating income from trade channel sales
E D U C A T I O N A L T E C H N O L O G Y A N D S E R V I C E S
expenses in the Company’s school book clubs channel.
These were partially offset by increased sales tax
expense and increased expenses related to the
Company’s continued investment in its digital
initiatives, as well as higher employee incentive costs
associated with higher revenue, increases in reserves
for obsolete inventory and the partial impairment of
one of the Company’s publishing properties.
Revenues
Cost of goods sold (exclusive of
depreciation and amortization)
Other operating expenses*
Depreciation and amortization
Operating income (loss)
Operating margin
2013
$227.7
88.7
108.3
1.2
$ 29.5
13.0%
2012
$254.7
90.5
113.7
1.3
$ 49.2
19.3%
2013 compared to 2012
2012 compared to 2011
2011
$ change
% change
$ change
% change
($ amounts in millions)
$230.8
$(27.0)
–10.6%
$23.9
80.4
111.1
1.3
$ 38.0
16.5%
(1.8)
(5.4)
(0.1)
$(19.7)
–2.0%
–4.7%
–7.7%
–40.0%
10.1
2.6
—
$11.2
10.4%
12.6%
2.3%
0.0%
29.5%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.
Revenues for the fiscal year ended May 31, 2013 decreased by $27.0 million, or 10.6%, to $227.7 million, compared
to $254.7 million in the prior fiscal year, primarily related to decreased sales of curriculum educational technology
products of $32.9 million, due to lower spending by school districts, as well as a significant sale of adoption product
in Texas in the prior fiscal year. In addition, the prior fiscal year benefited from higher revenues related to the
launch of READ 180® Next Generation. The decrease was partially offset by higher revenues of $7.8 million for
products and services provided by the Math Solutions business and by the consulting business associated with
training for the Common Core State Standards, as the Company meets the increased demand for such services.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 30
In fiscal 2012, segment revenues increased by $23.9 million to $254.7 million, compared to $230.8 million in fiscal
2011, driven by higher sales of educational technology products and related services, including Read 180 Next
Generationproducts and services, which was launched late in fiscal 2011.
Cost of goods sold (exclusive of depreciation and amortization) decreased to $88.7 million, or 39.0% of revenues, in
fiscal 2013, compared to $90.5 million, or 35.5% of revenues, for fiscal 2012. The increase in Cost of goods sold as a
percentage of revenue was primarily due to a shift in revenues from higher margin product sales to lower margin
service revenues. The Company’s service revenues as a percentage of total Educational Technology and Services
revenue was 37.8% for fiscal 2013, compared to 31.4% for fiscal 2012. Fiscal 2013 includes accelerated
prepublication costs of $2.0 million, while fiscal 2012 includes accelerated amortization of $0.8 million.
Cost of goods sold (exclusive of depreciation and amortization) increased $10.1 million to $90.5 million in fiscal
2012, compared to $80.4 million in fiscal 2011. Cost of goods sold as a percentage of sales of 34.8% in fiscal 2011
remained relatively consistent in 2012, as the Company’s cost structure did not vary.
Other operating expenses for fiscal 2013 decreased by $5.4 million to $108.3 million, compared to $113.7 million in
the prior fiscal year. The decrease was partially related to lower commission expense of $2.4 million, resulting from
the lower revenue, as well as higher incentive compensation costs in the prior fiscal year period.
Other operating expenses for fiscal 2012 increased by $2.6 million to $113.7 million, compared to $111.1 million in
fiscal 2011. The modest increase was related to incentive compensation costs.
Segment operating income for fiscal 2013 decreased by $19.7 million, or 40.0%, to $29.5 million, compared to $49.2
million in the prior fiscal year period. This segment benefited in the prior year from the launch of READ 180Next
Generation, and did not have similar product launches in fiscal 2013. The segment has made significant
investments and plans new product launches in fiscal 2014, including System 44® Next Generation, MATH 180TM,
iReadTM, Common Core Code XTM and Read 180for iPad®. These new products assist educators in the
implementation of Common Core State Standards and in incorporating more technology and mobile solutions in the
classroom.
In fiscal 2012, segment operating income increased by $11.2 million to $49.2 million, compared to $38.0 million in
the prior fiscal year, related to the higher revenues, partially offset by increased employee-related expenses and
incentive compensation in the segment.
C L A S S R O O M A N D S U P P L E M E N T A L M A T E R I A L S P U B L I S H I N G
Revenues
Cost of goods sold (exclusive of
depreciation and amortization)
Other operating expenses*
Depreciation and amortization
Operating income (loss)
Operating margin
2013
$218.0
83.9
103.1
1.4
$ 29.6
13.6%
2012
$208.2
86.2
102.7
1.0
$ 18.3
8.8%
2013 compared to 2012
2012 compared to 2011
2011
$ change
% change
$ change
% change
($ amounts in millions)
$197.2
79.8
102.5
1.3
$ 13.6
6.9%
$ 9.8
(2.3)
0.4
0.4
$11.3
4.7%
$11.0
5.6%
–2.7%
0.4%
40.0%
61.7%
6.4
0.2
(0.3)
$ 4.7
8.0%
0.2%
–23.1%
34.6%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 31
Revenues for fiscal 2013 increased by $9.8 million, or
Cost of goods sold (exclusive of depreciation and
4.7%, to $218.0 million, compared to $208.2 million in
amortization) as a percentage of revenue remained
the prior fiscal year. This increase was due to higher
consistent at approximately 41% in fiscal 2012 from
revenues from sales of classroom magazines of $16.8
fiscal 2011.
million. Circulation improved in the classroom
magazines business, as the Company experienced
increased demand for non-fiction content to meet the
requirements of the Common Core State Standards, as
well as strong interest for digital magazine content.
Partially offsetting this increase were decreased sales
of classroom libraries.
In fiscal 2012, segment revenues increased by $11.0
million to $208.2 million, compared to $197.2 million
in fiscal 2011, driven by higher revenues in the
Company’s classroom magazines business related to
the Company’s acquisition of Weekly Reader,which
was fully integrated for fiscal year 2013, and
improvements in all other segment channels.
Other operating expenses for fiscal 2013 were
relatively consistent at $103.1 million, compared to
$102.7 million in fiscal 2012 and $102.5 million in
fiscal 2011. Fiscal 2011 incurred an impairment
charge of $3.4 million and experienced lower
employee-related expenses than the two most recent
fiscal years.
Segment operating income for fiscal 2013 improved
significantly to $29.6 million, compared to $18.3
million in fiscal 2012. The above noted growth in the
classroom magazines business led the improvement.
The Company views this segment as a strategic
component of both its digital initiatives and meeting
Common Core State Standards. In the current year, the
Cost of goods sold (exclusive of depreciation and
Company began providing customized classroom
amortization) for the fiscal year ended May 31, 2013
curriculum and teaching guides, broadening the
was $83.9 million, or 38.5% of revenue, compared to
offering to classrooms.
$86.2 million, or 41.4% of revenue, in fiscal 2012. The
absolute decrease in Cost of goods sold was the result
of lower sales volume of classroom libraries. The
improvement as a percentage of sales is the result of
higher circulation in the classroom magazines
business, as much of the content cost in this business
is fixed and does not vary with increased circulation.
M E D I A , L I C E N S I N G A N D A D V E R T I S I N G
In fiscal 2012, segment operating income increased by
$4.7 million to $18.3 million, compared to $13.6
million in the prior fiscal year, related to the higher
revenues in the Company’s library publishing
business, as well as an impairment charge of $3.4
million in fiscal 2011.
Revenues
Cost of goods sold (exclusive of
depreciation and amortization)
Other operating expenses*
Depreciation and amortization
Operating income (loss)
Operating margin
2013
$58.7
22.0
31.5
0.5
$ 4.7
8.0%
2012
$75.3
40.6
39.1
0.5
$(4.9)
–6.5%
2011
$82.7
35.9
42.6
0.7
$ 3.5
4.2%
2013 compared to 2012
2012 compared to 2011
$ change
% change
$ change
% change
($ amounts in millions)
$(16.6)
(18.6)
(7.6)
—
$ 9.6
–22.0%
–45.8%
–19.4%
0.0%
**
$(7.4)
4.7
(3.5)
(0.2)
$(8.4)
–8.9%
13.1%
–8.2%
–28.6%
**
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.
** Not meaningful
Revenues for fiscal 2013 decreased by $16.6 million to $58.7 million, compared to $75.3 million in the prior fiscal
year. This decrease was primarily related to the absence of $9.9 million of revenues from sales of console games, as
the Company has reduced its focus on interactive products. Lower production revenues of $6.1 million, principally
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 32
of Word Girl®, and lower advertising and consumer
Other operating expenses for fiscal 2013 decreased by
magazine revenues of $1.3 million also contributed to
$7.6 million to $31.5 million, compared to $39.1
the decline. Partially offsetting these declines were
million in the prior fiscal year period. The decrease is
increased sales of audio books of $2.0 million.
related to settlement income received of $1.3 million,
In fiscal 2012, segment revenues declined by $7.4
million to $75.3 million, compared to $82.7 million in
fiscal 2011, driven by anticipated lower revenues in
as well as lower promotional, employee and other
operating expenses in the Company’s consumer
magazine business and Scholastic Entertainment, Inc.
the Company’s custom publishing and magazine
Segment operating income for fiscal 2013 was $4.7
advertising businesses of $10.5 million, partially offset
million, compared to a loss of $4.9 million in the prior
by increased revenues in the Company’s interactive
fiscal year. The absence of the above noted accelerated
business of $4.9 million.
amortization in the production business, the success of
Cost of goods sold (exclusive of depreciation and
amortization) was $22.0 million, or 37.5% of revenue,
for fiscal 2013, compared to $40.6 million, or 53.9% of
revenue, for the prior fiscal year. The improvement as
a percentage of revenue was driven by the reduced
focus on low-margin console game sales. Contributing
the audio books business and the return of the
consumer magazines business to a profitable position
were responsible for the improvements in fiscal 2013.
The Company continues to decrease its reliance on low-
margin console products and is focusing its efforts on
repurposing content for digital platforms.
to the improvement was the prior year acceleration of
In fiscal 2012, the segment had an operating loss of
amortization on certain owned properties. Cost of
$4.9 million, compared to operating income of $3.5
goods sold was $35.9 million in fiscal 2011, or 43.4%
million in fiscal 2011, yielding a reduction in
of revenue. The increase from fiscal 2011 to fiscal
profitability of $8.4 million, primarily related to the
2012 is attributable to the accelerated amortization for
lower revenues, as well as accelerated amortization of
certain owned properties of $4.0 million in fiscal 2012.
one of the Company’s production properties.
I N T E R N A T I O N A L
Revenues
Cost of goods sold (exclusive of
depreciation and amortization)
Other operating expenses*
Depreciation and amortization
Operating income (loss)
Operating margin
2013
$441.1
213.6
182.4
5.3
$ 39.8
9.0%
2012
$489.6
242.5
183.1
6.4
$ 57.6
11.8%
2013 compared to 2012
2012 compared to 2011
2011
$ change
% change
$ change
% change
($ amounts in millions)
$444.9
$(48.5)
–9.9%
$44.7
221.5
179.5
5.6
$ 38.3
8.6%
(28.9)
(0.7)
(1.1)
$(17.8)
–11.9%
–0.4%
–17.2%
–30.9%
21.0
3.6
0.8
$19.3
10.0%
9.5%
2.0%
14.3%
50.4%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and asset impairments where applicable.
Revenues for fiscal 2013 decreased by $48.5 million to $441.1 million, compared to $489.6 million in the prior fiscal
year. This decrease was primarily related to lower revenues in Canada of $27.4 million, primarily in the trade and
book clubs channels, as well as lower revenues in Australia of $13.4 million, primarily in the new media and trade
businesses. In both cases, the lower revenues in the trade channel resulted from lower sales of the Hunger Games
trilogy, as well as the negative impact of foreign currency exchange rates of $3.9 million, all of which were partially
offset by higher revenues in the Company’s export business of $2.0 million and increases in the Company’s
businesses in Asia of $2.8 million, where the Company is focused on educational products.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 33
In fiscal 2012, segment revenues increased by $44.7
prior year. Fiscal 2011 unallocated overhead was $67.0
million to $489.6 million, compared to $444.9 million
million. The increase from fiscal 2011 to fiscal 2012
in fiscal 2011. The increase was primarily related to
was due to higher employee-related compensation
increased revenues in the Company’s UK, Canada and
expenses and the impairment loss related to certain
Australia operations, which benefitted from sales of
subleases in lower Manhattan.
the Hunger Gamestrilogy and other trade titles, as
well as a favorable impact of foreign currency
exchange rates, principally in Australia, of $9.2
million.
Cost of goods sold (exclusive of depreciation and
amortization) decreased to $213.6 million in fiscal
2013 from $242.5 million in fiscal 2012, but remained
relatively consistent at 48.4% as a percentage of
revenue, compared to 49.5% of revenue in fiscal 2012.
Cost of goods sold in fiscal 2011 equaled 49.8% of
revenue, higher than fiscal 2012 due to improved costs
in the Company’s UK operations in fiscal 2012.
Other operating expenses decreased slightly to $182.4
million in fiscal 2013 from $183.1 million in fiscal
2012. Other operating expenses for fiscal 2012
increased by $3.6 million, from $179.5 million in
fiscal 2011.
Segment operating income for fiscal 2013 decreased
by $17.8 million to $39.8 million, compared to $57.6
million in the prior fiscal year period. The decrease is
primarily due to unfavorable results in the Company’s
Australia and Canada operations of $5.4 million and
$5.6 million, respectively, and a $1.1 million decrease
in its operating income in Asia. Lower results in Asia
reflect the Company’s continuing investment in
English language educational businesses, which it
views as a future growth driver.
Liquidity and Capital Resources
The Company’s cash and cash equivalents totaled
$87.4 million at May 31, 2013, $194.9 million at May
31, 2012 and $105.3 million at May 31, 2011.
Fiscal 2013 compared to fiscal 2012
Cash provided by operating activities was $189.1
million for fiscal 2013, compared to $260.2 million for
fiscal 2012, representing a decrease in cash provided
by operating activities of $71.1 million. The key driver
of the decrease was the lower operating profitability of
$71.3 million, driven by the prior year’s strong
Hunger Games sales. Working capital balances shifted,
but the net impact from changes in the total working
capital was modest, as collections of receivables in
fiscal 2013 were offset by royalty payments and
higher payments of employee bonuses of $31.4 million
in fiscal 2013 related to fiscal 2012 performance.
Cash used in investing activities was $124.0 million
for fiscal 2013, compared to $121.3 million in the prior
fiscal year. The Company has continued to invest in its
ongoing digital and information technology initiatives
and upgraded its fleet of vehicles in the book fairs
business as well as invested in product development in
the Educational Technology and Servicessegment. In
fiscal 2013, the Company sold a vacant facility in
Maumelle, Arkansas, receiving $5.0 million in cash,
while in the prior year the Company made strategic
acquisitions totaling $9.5 million in cash
Segment operating income in fiscal 2012 increased by
expenditures.
$19.3 million to $57.6 million, compared to $38.3
million in fiscal 2011, driven primarily by the higher
revenues discussed above.
Overhead
Cash used in financing activities was $172.7 million
for fiscal 2013, compared to $47.4 million for the prior
fiscal year. In fiscal 2013, the Company’s 5% Notes due
April 2013 matured and were fully repaid for $153.0
Corporate overhead for fiscal 2013 decreased by $26.9
million. In fiscal 2012, the Company paid $50.2
million to $60.2 million, compared to $87.1 million in
million in scheduled payments on the 5% Notes.
the prior fiscal year. The decrease was primarily
related to lower employee-related expenses and
incentive compensation in fiscal 2013 compared to the
Dividend payouts increased by $2.7 million, as the
Company implemented a higher per share dividend
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 34
rate. Contributing to the higher use of cash were lower
during June, July and August, have generally peaked
net borrowings under lines of credit of $12.9 million
in September or October, and have been at their lowest
and a decrease in proceeds pursuant to stock-based
point in May.
compensation plans of $8.5 million in fiscal 2013
compared to the prior fiscal year.
Fiscal 2012 compared to fiscal 2011
Cash provided by operating activities was $260.2
million for fiscal 2012, an increase of $31.8 million,
compared to $228.4 million for fiscal 2011. This
increase was primarily driven by the increase in net
income from continuing operations, adding back the
effect of non-cash charges of $61.2 million. The
earnings, and related operating cash flows, were
The Company’s operating philosophy is to use cash
provided from operating activities to create value by
paying down debt, reinvesting in existing businesses
and, from time to time, making acquisitions that will
complement its portfolio of businesses, as well as
engaging in shareholder enhancement initiatives,
such as share repurchases or dividend declarations.
The Company believes that funds generated by its
operations and funds available under its current credit
facilities will be sufficient to finance its short-and long-
driven by sales of the Hunger Games and READ 180.
term capital requirements.
Most of the receivables from the Hunger Games sales
were realized in fiscal 2012, while related royalty
The Company has maintained, and expects to maintain
payments were made in fiscal 2013.
Cash used in investing activities for fiscal 2012
decreased by $19.8 million to $121.3 million,
compared to cash used in investing activities of $141.1
million for fiscal 2011. This decrease was primarily
due to the $24.3 million purchase, in fiscal 2011, of
the land on which the Company’s corporate
headquarters are located.
Cash used in financing activities in fiscal 2012
decreased by $183.1 million to $47.4 million,
compared to cash used in financing activities in fiscal
2011 of $230.5 million. The change was primarily due
to the completion of a large share repurchase
pursuant to a modified Dutch auction tender offer in
fiscal 2011. In addition, the Company had higher
proceeds related to stock-based compensation plans, as
well as lower debt pay downs, in fiscal 2012.
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
for the foreseeable future, sufficient liquidity to fund
ongoing operations, including pension contributions,
dividends, currently authorized common share
repurchases, debt service, planned capital
expenditures and other investments. As of May 31,
2013, the Company’s primary sources of liquidity
consisted of cash and cash equivalents of $87.4
million, cash from operations and funding available
under the Revolving Loan (as described under
“Financing” below) totaling $425.0 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.
Effective December 5, 2012, as discussed below under
the caption “Financing”, 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.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 35
The following table summarizes, as of May 31, 2013, the Company’s contractual cash obligations by future period
(see Notes 5, 6 and 12 of Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements
and Supplementary Data”):
Contractual Obligations
Minimum print quantities
Royalty advances
Lines of credit and short-term debt
Capital leases(1)
Pension and post-retirement plans(2)
Operating leases
Total
1 Year
or Less
$ 58.8
10.7
2.0
5.4
22.0
34.6
$133.5
(1)
Includes principal and interest.
(2) Excludes expected Medicare Part D subsidy receipts.
Financing
Loan Agreement
On June 1, 2007, Scholastic Corporation and
Scholastic Inc. (each, a “Borrower” and together, the
“Borrowers”) entered into a $525.0 million credit
facility with certain banks (the “Loan Agreement”),
consisting of a $325.0 million revolving credit
component (the “Revolving Loan”) and a $200.0
million amortizing term loan component (the “Term
Loan”). The Loan Agreement was amended on August
16, 2010, 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.
Payments Due By Period
Years
4-5
Years
2-3
$ 107.2
4.8
—
10.3
28.9
54.8
$206.0
$ 97.5
1.6
—
12.0
27.3
33.3
$171.7
After
Year 5
$ 100.7
—
—
179.1
64.3
41.8
$385.9
($ amounts in millions)
Total
$ 364.2
17.1
2.0
206.8
142.5
164.5
$897.1
The Revolving Loan allows the Company to borrow,
repay or prepay and reborrow at any time prior to the
maturity date, and the proceeds may be used for
general corporate purposes, including financing for
acquisitions and share repurchases. On April 15,
2013, the Company drew on the Revolving Loan to
fully repay the 5% Notes due April 2013.
Interest on the Revolving Loan is due and payable in
arrears on the last day of the interest period (defined
as the period commencing on the date of the advance
and ending on the last day of the period selected by the
Borrower at the time each advance is made). The
interest pricing under the Revolving Loan is
dependent upon the Borrower’s election of a rate that
is either:
• A Base Rate equal to the higher of (i) the prime
rate, (ii) the prevailing Federal Funds rate plus
0.500% or (iii) the Eurodollar Rate for a one
month interest period plus 1% plus, in each case,
an applicable spread ranging from 0.18% to
0.60%, as determined by the Company’s
prevailing consolidated debt to total capital ratio.
– or –
• A Eurodollar Rate equal to the London interbank
offered rate (LIBOR) plus an applicable spread
ranging from 1.18% to 1.60%, as determined by
the Company’s prevailing consolidated debt to
total capital ratio.
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01_73994_Scholastic_AR 7/31/13 11:41 AM Page 36
As of May 31, 2013, the indicated spread on Base Rate
borrowings equivalent to $6.5 million at May 31, 2012
Advances was 0.18% and the indicated spread on
at a weighted average interest rate of 5.3%.
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
May 31, 2013, the facility fee rate was 0.20%. There
were no outstanding borrowings under the Revolving
Loan as of May 31, 2013 and May 31, 2012.
As of May 31, 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 May 31,
2013, the Company was in compliance with these
covenants.
Lines of Credit
The Company has unsecured money market bid rate
credit lines, with available borrowings of $14.8
million. There were no outstanding borrowings under
these credit lines at May 31, 2013 and May 31, 2012.
All loans made under these credit lines are at the sole
discretion of the lender and at an interest rate and
term agreed to at the time each loan is made, but not to
exceed 365 days. These credit lines may be renewed, if
requested by the Company, at the sole option of the
lender.
As of May 31, 2013, the Company also had various
local currency credit lines, with maximum available
borrowings in amounts equivalent to $27.0 million,
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0
million of 5% Notes due April 2013 (the “5% Notes”).
The 5% Notes were senior unsecured obligations that
matured on April 15, 2013. Interest on the 5% Notes
was payable semi-annually on April 15 and October 15
of each year through maturity.
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 of
the Revolving Loan to December 5, 2017. On April 15,
2013, the Company drew on the Revolving Loan to
satisfy its obligations to fully repay the 5% Notes. As
of May 31, 2013, the Company had fully paid down the
Revolving Loan.
At May 31, 2013 and May 31, 2012, the Company had
open standby letters of credit totaling $6.6 million
issued under certain credit lines, including the $1.4
million under the Loan Agreement discussed above.
These letters of credit are scheduled to expire within
one year; however, the Company expects that
substantially all of these letters of credit will be
renewed, at similar terms, prior to expiration.
The Company’s total debt obligations were $2.0 million
at May 31, 2013 and $159.3 million at May 31, 2012.
For a more complete description of the Company’s debt
obligations, see Note 5 of Notes to Consolidated
Financial Statements in Item 8, “Consolidated
Financial Statements and Supplementary Data.”
underwritten by banks primarily in the United States,
Acquisitions
Canada and the United Kingdom. These credit lines
In the ordinary course of business, the Company
are typically available for overdraft borrowings or
explores domestic and international expansion
loans up to 364 days and may be renewed, if requested
opportunities, including potential niche and strategic
by the Company, at the sole option of the lender. There
acquisitions. As part of this process, the Company
were borrowings outstanding under these facilities
engages with interested parties in discussions
equivalent to $2.0 million at May 31, 2013 at a
concerning possible transactions. On January 3, 2012,
weighted average interest rate of 9.0%, compared to
the Company acquired Learners Publishing, a
Singapore-based publisher of supplemental learning
36
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 37
materials for English-Language Learners. The
subject to fluctuations from changes in foreign
Company has integrated this business into its
currency exchange rates. The Company sells product
Internationalsegment. On February 8, 2012, the
from its domestic operations to its foreign subsidiaries,
Company acquired the business and certain assets of
creating additional currency risk. The Company
Weekly Reader, a publisher of weekly educational
manages its exposures to this market risk through
classroom magazines designed for children in grades
internally established procedures and, when deemed
pre-K – 12. The Company has fully integrated this
appropriate, through the use of short-term forward
business in its Classroom and Supplemental Materials
exchange contracts, which were not significant as of
Publishingsegment (see Note 2 of Notes to
May 31, 2013. The Company does not enter into
Consolidated Financial Statements in Item 8,
derivative transactions or use other financial
“Consolidated Financial Statements and
instruments for trading or speculative purposes.
Supplementary Data”). The Company will continue to
evaluate such expansion opportunities and prospects.
Item 7A | 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
Additional information relating to the Company’s
outstanding financial instruments is included in
Item 7, “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 May 31, 2013 (see Note 5 of
Notes to Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”):
Debt Obligations
Lines of credit and short-term debt
Average interest rate
Fiscal Year Maturity
2014
2015
2016
2017 Thereafter Total
Fair Value
2013
($ amounts in millions)
$2.0
9.0%
$ —
—
$ —
—
$ —
—
$ —
—
$2.0
$2.0
37
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 38
Item 8 | Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations for the years ended May 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income (Loss) for the years ended
May 31, 2013, 2012 and 2011
Consolidated Balance Sheets at May 31, 2013 and 2012
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive
Income (Loss) for the years ended May 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended May 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Supplementary Financial Information - Summary of Quarterly Results of Operations
The following consolidated financial statement schedule for the years
ended May 31, 2013, 2012 and 2011 is filed with this annual report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves
Page(s)
39
40
41
43
45
47
80
82
S-2
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.
38
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 39
Consolidated Statements of Operations
Revenues
Operating costs and expenses:
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2013
$ 1,792.4
2012
$ 2,139.1
2011
$ 1,877.6
Cost of goods sold (exclusive of depreciation and amortization)
Selling, general and administrative expenses
Depreciation and amortization
Severance
Loss on leases and asset impairments
829.6
815.0
66.5
13.4
0.0
984.6
878.5
68.8
14.9
7.0
869.0
834.7
60.1
6.7
3.4
Total operating costs and expenses
1,724.5
1,953.8
1,773.9
Operating income
Other income (expense)
Interest income
Interest expense
Loss on investments
Earnings (loss) from continuing operations before income taxes
Provision for income taxes
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
67.9
0.0
1.2
(15.7)
—
53.4
17.6
35.8
(4.7)
185.3
(0.1)
1.0
(16.5)
—
169.7
61.6
108.1
(5.7)
103.7
(0.4)
1.5
(17.1)
(3.6)
84.1
38.8
45.3
(5.9)
Net income (loss)
$ 31.1
$ 102.4
$ 39.4
Basic and diluted earnings (loss) per share of Class A and Common Stock
Basic:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net income (loss)
Diluted:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net income (loss)
Dividends declared per common share
See accompanying notes
$ 1.12
$
(0.15)
$ 0.97
$
$
$
$
1.10
(0.15)
0.95
0.50
$
$
$
$
$
$
$
3.45
(0.18)
3.27
3.39
(0.18)
3.21
0.45
$ 1.36
(0.18)
$
1.18
$
$
$
$
$
1.34
(0.18)
1.16
0.35
39
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 40
Consolidated Statements of Comprehensive Income (Loss)
Net income (loss)
Other comprehensive income (loss), net:
Foreign currency translation adjustments
Pension and post-retirement adjustments:
Amortization of prior service credit
Amortization of unrecognized gains and losses included
in net periodic cost
Total other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2012
$102.4
(8.2)
(0.6)
(11.5)
$ (20.3)
$ 82.1
2011
$ 39.4
25.2
(0.7)
7.0
$ 31.5
$ 70.9
2013
$ 31.1
(2.6)
(0.4)
11.8
$ 8.8
$ 39.9
40
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 41
Consolidated Balance Sheets
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of
$19.3 at May 31, 2013 and $25.9 at May 31, 2012)
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Current assets of discontinued operations
Total current assets
Property, Plant and Equipment
Land
Buildings
Capitalized software
Furniture, fixtures and equipment
Leasehold improvements
Less accumulated depreciation and amortization
Net property, plant and equipment
Other Assets and Deferred Charges:
Prepublication costs
Royalty advances (less allowance for reserves of $81.5 at May 31, 2013 and $77.8 at
May 31, 2012)
Production costs
Goodwill
Other intangibles
Noncurrent deferred income taxes
Other assets and deferred charges
Total other assets and deferred charges
Total assets
See accompanying notes
(Amounts in millions, except share data)
Balances at May 31,
2013
2012
$ 87.4
$ 194.9
214.9
278.1
79.2
61.2
0.4
721.2
37.3
100.7
239.9
241.4
172.4
791.7
(480.1)
311.6
147.3
37.0
1.7
157.9
14.6
14.9
34.8
313.9
295.3
71.4
46.8
7.7
930.0
37.2
101.3
217.9
243.8
183.4
783.6
(456.4)
327.2
125.7
34.8
1.6
157.7
16.7
42.3
34.3
408.2
$ 1,441.0
413.1
$ 1,670.3
41
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 42
LIABILITIES AND STOCKHOLDERS’ EQUITY
2013
2012
(Amounts in millions, except share data)
Balances at May 31,
Current Liabilities:
Lines of credit and current portion of long-term debt
Capital lease obligations
Accounts payable
Accrued royalties
Deferred revenue
Other accrued expenses
Current liabilities of discontinued operations
Total current liabilities
Noncurrent Liabilities:
Long-term debt
Capital lease obligations
Other noncurrent liabilities
Total noncurrent liabilities
Commitments and Contingencies:
Stockholders’ Equity:
Preferred Stock, $1.00 par value Authorized - 2,000,000; Issued - None
Class A Stock, $.01 par value Authorized - 4,000,000; Issued and
Outstanding - 1,656,200 shares
Common Stock, $.01 par value Authorized - 70,000,000; Issued - 42,911,624 shares;
Outstanding - 30,105,479 shares (42,911,624 shares issued and 29,795,911 shares
outstanding at May 31, 2012)
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes
$ 2.0
0.2
156.2
34.4
48.1
179.5
1.3
421.7
$ 6.5
1.0
119.6
92.7
47.1
233.5
2.1
502.5
—
57.5
97.4
154.9
—
—
0.0
0.4
582.9
(65.4)
738.9
(392.4)
864.4
152.8
56.4
128.3
337.5
—
—
0.0
0.4
583.0
(74.2)
723.9
(402.8)
830.3
$ 1,441.0
$ 1,670.3
42
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 43
Consolidated Statement of Changes in Stockholders’
Equity and Comprehensive Income (Loss)
(Amounts in millions, except share data)
Class A Stock
Common Stock
Shares
Amount
Shares
Amount
Balance at May 31, 2010
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments
(net of tax of $4.0)
Stock-based compensation
Proceeds from issuance of common stock pursuant
to stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
Balance at May 31, 2011
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments (net of tax
of $(6.5))
Stock-based compensation
Proceeds from issuance of common stock pursuant to
stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
1,656,200
—
—
—
—
—
—
—
—
1,656,200
—
—
—
—
—
—
—
—
Balance at May 31, 2012
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments (net of tax of $8.4)
Stock-based compensation
Proceeds from issuance of common stock pursuant to
1,656,200
—
—
—
—
stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
—
—
—
—
$0.0
—
—
—
—
—
—
—
—
$0.0
—
—
—
—
—
—
—
—
$0.0
—
—
—
—
—
—
—
—
34,598,258
—
—
$0.4
—
—
—
—
104,100
(5,588,125)
202,458
—
29,316,691
—
—
—
—
724,613
(475,672)
230,279
—
29,795,911
—
—
—
—
507,197
(432,330)
234,701
—
—
—
—
—
—
—
$0.4
—
—
—
—
—
—
—
—
$0.4
—
—
—
—
—
—
—
—
Additional
Paid-in
Capital
$569.2
—
—
—
13.7
2.9
—
(9.2)
—
$576.6
—
—
—
12.2
22.4
—
(28.2)
—
$583.0
—
—
—
7.3
14.7
—
(22.1)
—
Balance at May 31, 2013
See accompanying notes
1,656,200
$0.0
30,105,479
$0.4
$582.9
$(65.4)
$(392.4)
$864.4
43
Accumulated
Other Comprehensive
Income (Loss)
Treasury
Stock
At Cost
$(261.6)
Total
Stockholders’
Equity
$830.4
$(85.4)
—
25.2
6.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$(53.9)
—
(8.2)
(12.1)
$(74.2)
—
(2.6)
11.4
Retained
Earnings
$607.8
39.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11.4)
$635.8
102.4
(14.3)
$723.9
31.1
(16.1)
$738.9
(166.9)
9.6
—
$(418.9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(13.1)
29.2
(11.8)
22.2
—
39.4
25.2
6.3
13.7
2.9
(166.9)
0.4
(11.4)
$740.0
102.4
(8.2)
(12.1)
12.2
22.4
(13.1)
1.0
(14.3)
31.1
(2.6)
11.4
7.3
14.7
(11.8)
0.1
(16.1)
$(402.8)
$830.3
Consolidated Statement of Changes in Stockholders’
Equity and Comprehensive Income (Loss)
(Amounts in millions, except share data)
Class A Stock
Common Stock
Shares
Amount
Shares
Amount
1,656,200
$0.0
34,598,258
$0.4
Additional
Paid-in
Capital
$569.2
1,656,200
$0.0
29,316,691
$0.4
$576.6
Balance at May 31, 2010
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments
(net of tax of $4.0)
Stock-based compensation
Proceeds from issuance of common stock pursuant
to stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
Balance at May 31, 2011
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments (net of tax
of $(6.5))
Stock-based compensation
Proceeds from issuance of common stock pursuant to
stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
Balance at May 31, 2012
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments (net of tax of $8.4)
Stock-based compensation
Proceeds from issuance of common stock pursuant to
stock-based compensation plans
Purchases of treasury stock at cost
Treasury stock issued pursuant to stock purchase plans
Dividends
Balance at May 31, 2013
See accompanying notes
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
104,100
(5,588,125)
202,458
—
—
—
—
—
—
—
—
—
—
—
—
—
—
724,613
(475,672)
230,279
507,197
(432,330)
234,701
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13.7
2.9
—
(9.2)
—
—
—
—
12.2
22.4
—
(28.2)
—
—
—
—
7.3
14.7
—
(22.1)
—
1,656,200
$0.0
29,795,911
$0.4
$583.0
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 44
Accumulated
Other Comprehensive
Income (Loss)
$(85.4)
—
25.2
6.3
—
—
—
—
—
$(53.9)
—
(8.2)
(12.1)
—
—
—
—
—
$(74.2)
—
(2.6)
11.4
—
—
—
—
—
Retained
Earnings
$607.8
39.4
—
—
—
—
—
—
(11.4)
$635.8
102.4
—
—
—
—
—
—
(14.3)
$723.9
31.1
—
—
—
—
—
—
(16.1)
Treasury
Stock
At Cost
$(261.6)
—
—
—
—
—
(166.9)
9.6
—
$(418.9)
—
—
—
—
—
(13.1)
29.2
—
$(402.8)
—
—
—
—
—
(11.8)
22.2
—
Total
Stockholders’
Equity
$830.4
39.4
25.2
6.3
13.7
2.9
(166.9)
0.4
(11.4)
$740.0
102.4
(8.2)
(12.1)
12.2
22.4
(13.1)
1.0
(14.3)
$830.3
31.1
(2.6)
11.4
7.3
14.7
(11.8)
0.1
(16.1)
1,656,200
$0.0
30,105,479
$0.4
$582.9
$(65.4)
$738.9
$(392.4)
$864.4
44
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 45
Consolidated Statements of Cash Flows
Cash flows – operating activities:
Net income (loss)
Earnings (loss) from discontinued operations, net of tax
Earnings (loss) from continuing operations
Adjustments to reconcile earnings (loss) from continuing operations to
net cash provided by (used in) operating activities of continuing operations:
2013
2012
2011
(Amounts in millions)
Years ended May 31,
$ 31.1
(4.7)
35.8
$ 102.4
(5.7)
108.1
$ 39.4
(5.9)
45.3
Provision for losses on accounts receivable
Provision for losses on inventory
Provision for losses on royalty advances
Loss on subleases
Amortization of prepublication and production costs
Depreciation and amortization
Deferred income taxes
Stock-based compensation
Non cash net gain on equity investments
Non cash write off related to asset impairment
Unrealized loss on investments
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Deferred promotion costs
Royalty advances
Accounts payable
Other accrued expenses
Accrued royalties
Deferred revenue
Pension and post-retirement liabilities
Other noncurrent liabilities
Other, net
Total adjustments
Net cash provided by (used in) operating activities of continuing operations
Net cash provided by (used in) operating activities of discontinued operations
Net cash provided by (used in) operating activities
Cash flows – investing activities:
Prepublication and production expenditures
Additions to property, plant and equipment
Acquisition related payments
Land acquisition
Other
Net cash provided by (used in) investing activities of continuing operations
Net cash provided by (used in) investing activities of discontinued operations
Net cash provided by (used in) investing activities
See accompanying notes
6.8
27.2
4.7
—
48.9
68.6
19.6
6.3
(2.3)
7.2
—
94.4
(9.9)
(14.2)
0.3
(7.0)
35.6
(53.4)
(58.5)
1.1
(16.0)
(3.6)
0.4
156.2
192.0
(2.9)
189.1
(73.8)
(54.6)
(0.3)
—
0.8
(127.9)
3.9
(124.0)
12.3
48.1
6.5
6.2
55.1
68.8
(37.5)
12.2
(1.3)
0.8
—
(108.7)
(40.4)
10.1
—
(6.2)
(0.3)
64.7
58.2
(1.7)
(7.0)
5.9
7.8
153.6
261.7
(1.5)
260.2
(58.8)
(53.7)
(9.5)
—
0.8
(121.2)
(0.1)
(121.3)
13.6
27.3
4.5
—
51.1
60.1
(2.8)
13.7
(1.7)
3.4
3.6
(12.6)
(9.8)
0.6
0.1
(1.2)
19.1
15.9
(8.3)
8.7
(11.3)
5.6
7.1
186.7
232.0
(3.6)
228.4
(57.9)
(50.0)
(10.1)
(24.3)
1.2
(141.1)
—
(141.1)
45
01_73994_Scholastic_AR 7/31/13 11:41 AM Page 46
Consolidated Statements of Cash Flows
Cash flows – financing activities:
Borrowings under credit agreement and revolving loan
Repayment of credit agreement and revolving loan
Repayment of term loan
Repayment of 5.00% notes
Borrowings under lines of credit
Repayments under lines of credit
Repayment of capital lease obligations
Reacquisition of common stock
Proceeds pursuant to stock-based compensation plans
Payment of dividends
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Information:
Income taxes payments (refunds), net
Interest paid
See accompanying notes
2013
2012
2011
(Amounts in millions)
Years ended May 31,
$ 153.0
(153.0)
—
(153.0)
23.2
(27.5)
(1.0)
(11.8)
13.9
(15.9)
(0.6)
(172.7)
0.1
(107.5)
194.9
$ 87.4
$ 30.0
15.1
$ 28.8
(28.8)
(50.2)
—
89.2
(80.6)
(0.7)
(13.1)
22.4
(13.2)
(1.2)
(47.4)
(1.9)
89.6
105.3
$ 194.9
$
61.0
15.3
$ 70.0
(70.0)
(42.8)
—
118.6
(128.2)
(2.0)
(166.9)
2.9
(10.8)
(1.3)
(230.5)
4.4
(138.8)
244.1
$ 105.3
$
31.5
15.4
46
02_73994_Scholastic_AR 7/31/13 11:44 AM Page 47
Notes to Consolidated Financial Statements
(Amounts in millions, except share and per
Discontinued Operations
share data)
1. DESCRIPTION OF THE BUSINESS,
BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of the business
Scholastic Corporation (the “Corporation” and together
with its subsidiaries, “Scholastic” or the “Company”) is
a global children’s publishing, education and media
company. Since its founding in 1920, Scholastic has
emphasized quality products and a dedication to
reading and learning. The Company is the world’s
largest publisher and distributor of children’s books. It
The Company closed or sold several operations during
fiscal 2009, 2010, 2012 and 2013. During the first
quarter of fiscal 2012, the Company ceased operations
in its direct-to-home catalog business specializing in
toys. In the fourth quarter of fiscal 2013, the Company
sold a facility that was previously classified as held for
sale. In the fourth quarter of fiscal 2013, the Company
also discontinued a computer club business which was
previously included in the Children’s Book Publishing
and Distributionsegment and a subscription-based
business which was previously reported in the Media,
Licensing and Advertisingsegment. All of these
businesses are classified as discontinued operations in
the Company’s financial statements for all periods
is also a leading developer of educational technology
products and ebooks for children. Scholastic also
presented.
creates quality educational and entertainment
Use of estimates
materials and products for use in school and at home,
The Company’s Consolidated Financial Statements
including magazines, ebooks, children’s reference and
have been prepared in accordance with accounting
non-fiction materials, teacher materials, television
principles generally accepted in the United States. The
programming and film. The Company is the leading
preparation of these financial statements involves the
operator of school-based book clubs and book fairs in
use of estimates and assumptions by management,
the United States. It distributes its products and
which affects the amounts reported in the
services through these proprietary channels, as well as
Consolidated Financial Statements and accompanying
directly to schools and libraries, through retail stores
notes. The Company bases its estimates on historical
and through the internet. The Company’s website,
experience, current business factors, and various other
scholastic.com, is a leading site for teachers,
assumptions believed to be reasonable under the
classrooms and parents and an award-winning
circumstances, all of which are necessary in order to
destination for children. In addition to its operations
form a basis for determining the carrying values of
in the United States, Scholastic has operations in
assets and liabilities. Actual results may differ from
Canada, the United Kingdom, Australia, New Zealand,
those estimates and assumptions.
Ireland, India, China, Singapore and other parts of
Asia, and, through its export business, sells products
in approximately 140 countries.
Basis of presentation
Principles of consolidation
The Consolidated Financial Statements include the
accounts of the Corporation and all wholly-owned and
majority-owned subsidiaries. All significant
intercompany transactions are eliminated in
consolidation.
The Company’s significant estimates include those
developed for:
• Accounts receivable, returns and allowances
• Pension and post-retirement obligations
• Uncertain tax positions
• Inventory reserves
• Gross profits for book fair operations during
interim periods
• Sales taxes
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 48
• Royalty advance reserves
A reserve for estimated returns is established at the
• Customer reward programs
• Impairment testing for goodwill, intangibles and
other long-lived assets
Summary of Significant Accounting
Policies
Revenue recognition
The Company’s revenue recognition policies for its
principal businesses are as follows:
School-Based Book Clubs – Revenue from school-
based book clubs is recognized upon shipment of the
products. For ebooks, revenue is recognized upon
electronic delivery to the customer.
time of sale and recorded as a reduction to revenue.
Actual returns are charged to the reserve as received.
The calculation of the reserve for estimated returns is
based on historical return rates, sales patterns, type of
product and expectations. Actual returns could differ
from the Company’s estimate. A reserve for estimated
bad debts is established at the time of sale and is based
on the aging of accounts receivable and specific
reserves on a customer-by-customer basis, where
applicable.
Educational Technology and Services – For
shipments to schools, revenue is recognized when
risks and benefits transfer to the customer. Shipments
to depositories are on consignment and revenue is
School-Based Book Fairs – Revenues associated with
recognized based on actual shipments from the
school-based book fairs are related to sales of product.
depositories to the schools. For certain software-based
Book fairs are typically run by schools and/or parent
products, the Company offers new customers
teacher organizations over a five business-day period.
installation, maintenance and training with these
The amount of revenue recognized for each fair
products and, in such cases, revenue is deferred and
represents the net amount of cash collected at the fair.
recognized as services are delivered or over the life of
Revenue is fully recognized at the completion of the
the contract. Revenues from contracts with multiple
fair. At the end of reporting periods, the Company
deliverables are recognized as each deliverable is
defers estimated revenue for those fairs that have not
earned, based on the relative selling price of each
been completed as of the period end based on the
deliverable, provided the deliverable has value to
number of fair days occurring after period end on a
customers on a standalone basis, the customer has full
straight-line calculation of the full fair’s revenue.
use of the deliverable and there is no further obligation
Trade – Revenue from the sale of children’s books for
distribution in the retail channel is primarily
recognized when risks and benefits transfer to the
customer, or when the product is on sale and available
from the Company. If there is a right of return,
revenue is recognized if delivery of the undelivered
items or services is probable and substantially in
control of the Company.
to the public. For newly published titles, the Company,
Classroom and Supplemental Materials
on occasion, contractually agrees with its customers
Publishing – Revenue from the sale of classroom and
when the publication may be first offered for sale to
supplemental materials is recognized upon shipment
the public, or an agreed upon “Strict Laydown Date.”
of the products.
For such titles, the risks and benefits of the
publication are not deemed to be transferred to the
customer until such time that the publication can
contractually be sold to the public, and the Company
defers revenue on sales of such titles until such time as
the customer is permitted to sell the product to the
public. Revenue for ebooks, which is the net amount
received from the retailer, is recognized upon
electronic delivery to the customer by the retailer.
Film Production and Licensing – Revenue from the
sale of film rights, principally for the home video and
domestic and foreign television markets, is recognized
when the film has been delivered and is available for
showing or exploitation. Licensing revenue is recorded
in accordance with royalty agreements at the time the
licensed materials are available to the licensee and
collections are reasonably assured.
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 49
Magazines – Revenue is deferred and recognized
Inventories
ratably over the subscription period, as the magazines
Inventories, consisting principally of books, are stated
are delivered.
Magazine Advertising – Revenue is recognized when
the magazine is for sale and available to the
subscribers.
Scholastic In-School Marketing – Revenue is
recognized when the Company has satisfied its
obligations under the program and the customer has
acknowledged acceptance of the product or service.
Certain revenues may be deferred pending future
deliverables.
Cash equivalents
Cash equivalents consist of short-term investments
with original maturities of three months or less. The
Consolidated Balance Sheets include restricted cash of
$1.0 at May 31, 2013 and at May 31, 2012, which is
reported in “Other current assets.”
Accounts receivable
at the lower of cost, using the first-in, first-out
method, or market. The Company records a reserve for
excess and obsolete inventory based upon a calculation
using the historical usage rates, sales patterns of its
products and specifically identified obsolete inventory.
In fiscal 2012, in response to changing trends in the
children’s book market, the Company changed its
estimate for inventory obsolescence and recorded an
increase in the reserve of $17.9.
Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation and amortization are recorded on a
straight-line basis, over the estimated useful lives of
the assets. Buildings have an estimated useful life, for
purposes of depreciation, of forty years. Capitalized
software, net of accumulated amortization, was $50.7
and $57.2 at May 31, 2013 and 2012, respectively.
Capitalized software is depreciated over a period of
three to seven years. Amortization expense for
Accounts receivable are recorded net of allowances for
capitalized software was $31.2, $27.6 and $25.8 for the
doubtful accounts and reserves for returns. In the
fiscal years ended May 31, 2013, 2012 and 2011,
normal course of business, the Company extends
respectively. Furniture, fixtures and equipment are
credit to customers that satisfy predefined credit
depreciated over periods not exceeding ten years.
criteria. The Company is required to estimate the
Leasehold improvements are amortized over the life of
collectability of its receivables. Reserves for returns are
the lease or the life of the assets, whichever is shorter.
based on historical return rates and sales patterns. The
The Company evaluates the depreciation periods of
Company’s return reserve balance was greater than
property, plant and equipment to determine whether
typical as of May 31, 2012 due to increased trade sales
events or circumstances indicate that the asset’s
in the second half of fiscal 2012. In order to develop
carrying value is not recoverable or warrant revised
the estimate of returns that will be received
estimates of useful lives. The Company recorded an
subsequent to fiscal year end, management considers
impairment of $4.0 in fiscal 2013 for certain assets.
patterns of sales and returns in the months preceding
the fiscal year end, as well as actual returns received
Leases
subsequent to year end, available sell-through
information and other return rate information that
management believes is relevant. Allowances for
doubtful accounts are established through the
evaluation of accounts receivable aging and prior
collection experience to estimate the ultimate
collectability of these receivables. At the time the
Company determines that a receivable balance, or any
portion thereof, is deemed to be permanently
uncollectable, the balance is then written off.
Lease agreements are evaluated to determine whether
they are capital or operating leases. When
substantially all of the risks and benefits of property
ownership have been transferred to the Company, as
determined by the test criteria in the current
authoritative guidance, the lease is recognized as a
capital lease.
Capital leases are capitalized at the lower of the net
present value of the total amount of rent payable
under the leasing agreement (excluding finance
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 50
charges) or the fair market value of the leased asset.
editorial staff regularly reviews its portfolio of royalty
Capital lease assets are depreciated on a straight-line
advances to determine if individual royalty advances
basis, over a period consistent with the Company’s
are not recoverable through earndowns for discrete
normal depreciation policy for tangible fixed assets,
reasons, such as the death of an author prior to
but not exceeding the lease term. Interest charges are
completion of a title or titles, a Company decision to
expensed over the period of the lease in relation to the
not publish a title, poor market demand or other
carrying value of the capital lease obligation.
relevant factors that could impact recoverability.
Rent expense for operating leases, which may include
Goodwill and intangible assets
free rent or fixed escalation amounts in addition to
minimum lease payments, is recognized on a straight-
line basis over the duration of each lease term.
Goodwill and other intangible assets with indefinite
lives are not amortized and are reviewed for
impairment annually or more frequently if
Sublease income is recognized on a straight-line basis
impairment indicators arise.
over the duration of each lease term. To the extent
expected sublease income is less than expected rental
payments the Company recognizes a current loss on
the difference between the fair values of the sublease
and the rental payments.
Prepublication costs
With regard to goodwill, the Company compares the
estimated fair value of its identified reporting units to
the carrying value of the net assets. The Company first
performs a qualitative assessment to determine
whether it is more likely than not that the fair value of
its identified reporting unit is less than its carrying
The Company capitalizes the art, prepress, editorial,
value. If it is more likely than not that the fair value of
digital conversion and enhancements and other costs
a reporting unit is less than its carrying amount the
incurred in the creation of the master copy of a book
Company performs the two-step test. For each of the
or other media (the “prepublication costs”).
reporting units, the estimated fair value is determined
Prepublication costs are amortized on a straight-line
utilizing the expected present value of the projected
basis over a three-to-seven-year period based on
future cash flows of the units, in addition to
expected future revenues. The Company regularly
comparisons to similar companies. The Company
reviews the recoverability of the capitalized costs based
reviews its definition of reporting units annually or
on expected future revenues.
more frequently if conditions indicate that the
Royalty advances
Royalty advances are initially capitalized and
subsequently expensed as related revenues are earned
or when the Company determines future recovery
through earndowns is not probable. The Company has
a long history of providing authors with royalty
advances, and it tracks each advance earned with
respect to the sale of the related publication. The
royalties earned are applied first against the
remaining unearned portion of the advance.
Historically, the longer the unearned portion of the
advance remains outstanding, the less likely it is that
the Company will recover the advance through the sale
of the publication. The Company applies this historical
experience to its existing outstanding royalty
advances to estimate the likelihood of recoveries
through earndowns. Additionally, the Company’s
reporting units may change. The Company evaluates
its operating segments to determine if there are
components one level below the operating segment. A
component is present if discrete financial information
is available, and segment management regularly
reviews the operating results of the business. If an
operating segment only contains a single component,
that component is determined to be a reporting unit
for goodwill impairment testing purposes. If an
operating segment contains multiple components, the
Company evaluates the economic characteristics of
these components. Any components within an
operating segment that share similar economic
characteristics are aggregated and deemed to be a
reporting unit for goodwill impairment testing
purposes. Components within the same operating
segment that do not share similar economic
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 51
characteristics are deemed to be individual reporting
projected taxable earnings indicates that realization is
units for goodwill impairment testing purposes. The
not likely, the Company establishes a valuation
Company has identified twelve separate reporting
allowance.
units for goodwill impairment testing purposes.
In assessing the need for a valuation allowance, the
With regard to other intangibles with indefinite lives,
Company estimates future taxable earnings, with
the Company determines the fair value by asset, which
consideration for the feasibility of on-going tax
is then compared to its carrying value. The Company
planning strategies and the realizability of tax benefit
first performs a qualitative assessment to determine
carryforwards, to determine which deferred tax assets
whether it is more likely than not that the fair value of
are more likely than not to be realized in the future.
its identified reporting unit is less than its carrying
Valuation allowances related to deferred tax assets can
value. If it is more likely than not that the fair value of
be impacted by changes to tax laws, changes to
a reporting unit is less than its carrying amount the
statutory tax rates and future taxable earnings. In the
Company performs a quantitative test. The estimated
event that actual results differ from these estimates in
fair value is determined utilizing the expected present
future periods, the Company may need to adjust the
value of the projected future cash flows of the asset,
valuation allowance.
market comparables for similar businesses and other
relevant information.
The Company accounts for uncertain tax positions
using a two-step method. Recognition occurs when an
Intangible assets with definite lives consist principally
entity concludes that a tax position, based solely on
of customer lists, covenants not to compete, and
technical merits, is more likely than not to be
certain other intellectual property assets and are
sustained upon examination. If a tax position is more
amortized over their expected useful lives. Customer
likely than not to be sustained upon examination, the
lists are amortized on a straight-line basis over a five-
amount recognized is the largest amount of benefit,
year period, while covenants not to compete are
determined on a cumulative probability basis, which is
amortized on a straight-line basis over their
more likely than not to be realized upon settlement.
contractual term. Other intellectual property assets are
The Company assesses all income tax positions and
amortized over their remaining useful lives which
adjusts its reserves against these positions periodically
range from five to twenty years.
based upon these criteria. The Company also assesses
Income taxes
The Company uses the asset and liability method of
accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based
on differences between the financial reporting and the
tax basis of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect
when the differences are expected to enter into the
determination of taxable income.
The Company believes that its taxable earnings,
during the periods when the temporary differences
giving rise to deferred tax assets become deductible or
when tax benefit carryforwards may be utilized,
should be sufficient to realize the related future income
tax benefits. For those jurisdictions where the
expiration date of the tax benefit carryforwards or the
potential penalties and interest associated with these
tax positions, and includes these amounts as a
component of income tax expense.
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. The Company’s effective tax
rate is based on expected income and statutory tax
rates and permanent differences between financial
statement and tax return income applicable to the
Company in the various jurisdictions in which the
Company operates.
The Company assesses foreign investment levels
periodically to determine if all or a portion of the
Company’s investments in foreign subsidiaries are
indefinitely invested. If foreign investments are not
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 52
expected to be indefinitely invested, the Company
Pension obligations – Scholastic Corporation and
provides for income taxes on the portion that is not
certain of its subsidiaries have defined benefit pension
indefinitely invested.
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 in respect to a jurisdiction is probable and
can be reliably estimated, the Company has made
accruals for these matters which are reflected in the
Company’s Consolidated Financial Statements. These
amounts are included in the Consolidated Financial
Statements in Selling, general and administrative
expenses. Future developments relating to the
foregoing could result in adjustments being made to
these accruals. In fiscal 2012, the Company recorded
accruals of $19.7 based on assessments related to sales
tax audits in two jurisdictions.
Unredeemed incentive credits
The Company employs incentive programs to
encourage sponsor participation in its book clubs and
book fairs. These programs allow the sponsors to
accumulate credits which can then be redeemed for
Company products or other items offered by the
Company. The Company recognizes a liability for the
estimated costs of providing these credits at the time of
the recognition of revenue for the underlying
purchases of Company product that resulted in the
granting of the credits. As the credits are redeemed,
such liability is reduced.
Other noncurrent liabilities
All of the rate assumptions discussed below impact the
Company’s calculations of its pension and post-
retirement obligations. The rates applied by the
Company are based on the portfolios’ past average
rates of return, discount rates and actuarial
information. Any change in market performance,
interest rate performance, assumed health care costs
trend rate or compensation rates could result in
significant changes in the Company’s pension and
post-retirement obligations.
plans covering the majority of their employees who
meet certain eligibility requirements. The Company’s
pension plans and other post-retirement benefits are
accounted for using actuarial valuations.
The Company’s pension calculations are based on three
primary actuarial assumptions: the discount rate, the
long-term expected rate of return on plan assets, and
the anticipated rate of compensation increases. The
discount rate is used in the measurement of the
projected, accumulated and vested benefit obligations
and the interest cost component of net periodic
pension costs. The long-term expected return on plan
assets is used to calculate the expected earnings from
the investment or reinvestment of plan assets. The
anticipated rate of compensation increase is used to
estimate the increase in compensation for participants
of the plan from their current age to their assumed
retirement age. The estimated compensation amounts
are used to determine the benefit obligations and the
service cost. Pension benefits in the cash balance plan
for employees located in the United States are based on
formulas in which the employees’ balances are credited
monthly with interest based on the average rate for one-
year United States Treasury Bills plus 1%. Contribution
credits are based on employees’ years of service and
compensation levels during their employment periods,
for the periods prior to June 1, 2009.
Other post-retirement benefits – The Company
provides post-retirement benefits, consisting of
healthcare and life insurance benefits, to eligible
retired United States-based employees. The post-
retirement medical plan benefits are funded on a pay-
as-you-go basis, with the Company paying a portion of
the premium and the employee paying the remainder.
The Company calculates the existing benefit
obligation, based on the discount rate and the assumed
health care cost trend rate. The discount rate is used in
the measurement of the projected and accumulated
benefit obligations and the interest cost component of
net periodic post-retirement benefit cost. The assumed
health care cost trend rate is used in the measurement
of the long-term expected increase in medical claims.
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 53
Foreign currency translation
values; and the anticipated costs involved in the selling
The Company’s non-United States dollar-denominated
process. The Company recognizes operations as
assets and liabilities are translated into United States
discontinued when the operations have either ceased
dollars at prevailing rates at the balance sheet date and
or are probable to be disposed of in a sale transaction
the revenues, costs and expenses are translated at the
in the near term, the operations and cash flows of all
weighted average rates prevailing during each
discontinued operations have been eliminated, or will
reporting period. Net gains or losses resulting from
be eliminated, upon consummation of the expected sale
the translation of the foreign financial statements and
transaction, and the Company will not have any
the effect of exchange rate changes on long-term
significant continuing involvement in the
intercompany balances are accumulated and charged
discontinued operations subsequent to the expected
directly to the foreign currency translation adjustment
sale transaction.
component of stockholders’ equity until such time as
the operations are substantially liquidated or sold. The
Company assesses foreign investment levels
periodically to determine if all or a portion of the
Company’s investments in foreign subsidiaries are
indefinitely invested.
Stock-based compensation
The Company recognizes the cost of services received
in exchange for any stock-based awards. The Company
recognizes the cost on a straight-line basis over an
award’s requisite service period, which is generally the
vesting period, based on the award’s fair value at the
Shipping and handling costs
date of grant.
Amounts billed to customers for shipping and
handling are classified as revenue. Costs incurred in
shipping and handling are recognized in Cost of goods
sold.
Advertising costs
The fair values of stock options granted by the
Company are estimated at the date of grant using the
Black-Scholes option-pricing model. The Company’s
determination of the fair value of stock-based payment
awards using this option-pricing model is affected by
The Company incurs costs for both direct-response and
the price of the Common Stock as well as by
non-direct-response advertising. The Company
assumptions regarding highly complex and subjective
capitalizes direct-response advertising costs for
variables, including, but not limited to, the expected
expenditures, primarily in its Classroom Magazines
price volatility of the Common Stock over the terms of
division. The asset is amortized on a cost-pool-by-cost-
the awards, the risk-free interest rate, and actual and
pool basis over the period during which the future
projected employee stock option exercise behaviors.
benefits are expected to be received. Included in
Estimates of fair value are not intended to predict
Prepaid expenses and other current assets on the
actual future events or the value that may ultimately
balance sheet is $4.5 and $4.8 of capitalized
be realized by those who receive these awards.
advertising costs as of May 31, 2013 and 2012,
respectively. The Company expenses non-direct-
response advertising costs as incurred.
Discontinued operations
Long-lived assets classified within discontinued
operations are recognized at the estimated fair value
less cost to sell those long-lived assets for assets held
for sale. The calculation of estimated fair value less
cost to sell includes significant estimates and
assumptions, including, but not limited to: operating
projections; excess working capital levels; real estate
Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods, if actual
forfeitures differ from those estimates, in order to
derive the Company’s best estimate of awards
ultimately expected to vest. In determining the
estimated forfeiture rates for stock-based awards, the
Company periodically conducts an assessment of the
actual number of equity awards that have been
forfeited previously. When estimating expected
forfeitures, the Company considers factors such as the
type of award, the employee class and historical
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 54
experience. The estimate of stock-based awards that
In July 2012, the FASB issued an update to the
will ultimately be forfeited requires significant
authoritative guidance related to the impairment
judgment and, to the extent that actual results or
testing of indefinite-lived intangible assets. Similar to
updated estimates differ from current estimates, such
the guidance for goodwill impairment testing,
amounts will be recorded as a cumulative adjustment
companies will have the option to first perform a
in the period such estimates are revised.
qualitative assessment to determine whether it is more
The table set forth below provides the estimated fair
value of options granted during fiscal years 2013,
2012 and 2011 and the significant weighted average
assumptions used in determining the fair value for
options granted by the Company under the Black-
Scholes option pricing model. The average expected
life represents an estimate of the period of time stock
options are expected to remain outstanding based on
the historical exercise behavior of the option grantees.
The risk-free interest rate was based on the U.S.
Treasury yield curve corresponding to the expected life
in effect at the time of the grant. The volatility was
estimated based on historical volatility corresponding
to the expected life.
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
Estimated fair value of stock options
granted
Assumptions:
2013
2012
2011
company may resume performing the qualitative
assessment in any subsequent period. The
$9.77
$9.30
$8.15
amendments are effective for annual and interim
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
1.6%
37.5%
0.9%
1.4%
36.7%
1.6%
Expected life of options
6 years
7 years
1.3%
37.3%
2.0%
6 years
New Accounting Pronouncements
impairment tests performed for fiscal years beginning
after September 15, 2012. Early adoption is permitted.
The Company adopted this guidance in the fourth
quarter of fiscal 2013.
2. ACQUISITIONS
In February 2013, the Financial Accounting Standards
On January 3, 2012, the Company acquired Learners
Board (the “FASB”) issued an update to the
Publishing, a Singapore-based publisher of
authoritative guidance related to the reporting of
supplemental learning materials for English-
amounts reclassified out of accumulated other
Language Learners, for $3.0, net of cash acquired. As
comprehensive income. This new requirement about
a result of this transaction, the Company recorded
presenting information about amounts reclassified out
$1.5 of goodwill. The results of operations of this
of accumulated other comprehensive income and their
business subsequent to the acquisition date are
corresponding effect on net income will present, in one
included in the Internationalsegment.
place, information about significant amounts
reclassified and, in some cases, cross-references to
related footnote disclosures. The disclosure
amendments in this update are effective prospectively
for reporting periods beginning after December 15,
2012 and early adoption is permitted. The Company
adopted this guidance in the fourth quarter of fiscal
2013.
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 were
fulfilled by the Company as of May 31, 2012. The
Company utilized internally-developed discounted cash
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02_73994_Scholastic_AR 7/31/13 11:44 AM Page 55
flow forecasts and market comparisons of royalty
The following table summarizes the operating results
rates to determine the fair value of the assets acquired
of the discontinued operations for the fiscal years
and the amount to be allocated to goodwill. As a result,
ended May 31:
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
Revenues
Gain (loss) on sale
included in the Classroom and Supplemental Materials
Earnings (loss) before income taxes
Publishingsegment, and certain assets will benefit the
Children’s Book Publishing and Distributionsegment.
3. 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.
2013
$
6.2
(1.1)
(7.2)
2.5
2012
$
9.8
—
(7.2)
1.5
2011
$ 28.5
0.3
(7.6)
1.7
Income tax benefit (provision)
Earnings (loss) from discontinued
operations, net of tax
$ (4.7)
$ (5.7)
$ (5.9)
The following table sets forth the assets and liabilities
of the discontinued operations included in the
Consolidated Balance Sheets of the Company as of
May 31:
Accounts receivable, net
Other assets
2013
$ 0.0
0.4
$ 0.4
1.3
2012
$ 0.2
7.5
$ 7.7
2.1
In the first quarter of fiscal 2012, the Company ceased
operations in its direct-to-home catalog business
Current assets of discontinued operations
Accrued expenses and other current liabilities
specializing in toys. This business was a separate
Current liabilities of discontinued operations
$ 1.3
$ 2.1
reporting unit included in the Media, Licensing and
Advertisingsegment. The prior fiscal year loss before
income taxes includes lease costs associated with a
vacant facility which formerly served the Company’s
direct-to-home toy catalog business.
In the fourth quarter of fiscal 2012, the Company
reviewed the estimate of the fair value less cost to sell
of its Maumelle facility and recognized an additional
charge of $2.2. The Company used market value
estimates of the property and an estimate of the
anticipated costs to sell the asset. The Company
subsequently sold the Maumelle facility during the
fourth quarter of fiscal 2013 for approximately $5.0,
recognizing a loss on the sale in the amount of $1.1.
In the fourth quarter of fiscal 2013, the Company
discontinued a computer club business which was
included in the Children’s Book Publishing and
Distributionsegment. In addition, the Company
discontinued a subscription-based business which was
previously reported in the Media, Licensing and
Advertisingsegment. All of these businesses are
classified as discontinued operations in the Company’s
Consolidated Financial Statements.
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4. 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 Distribution operates as an integrated business which includes the
publication and distribution of children’s books, media and interactive products in the United States through
school-based book clubs and book fairs and the trade channel. This segment is comprised of three operating
segments.
• Educational Technology and Services includes the production and distribution to schools of curriculum-
based learning technology and materials for grades pre-kindergarten to 12 in the United States, together with
related implementation and assessment services and school consulting services. This segment is comprised of
one operating segment.
• Classroom and Supplemental Materials Publishing includes the publication and distribution to schools
and libraries of children’s books, classroom magazines, supplemental classroom materials and print and on-line
reference and non-fiction products for grades pre-kindergarten to 12 in the United States. This segment is
comprised of two operating segments.
• Media, Licensing and Advertising includes 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.
• International includes the publication and distribution of products and services outside the United States by the
Company’s international operations, and its export and foreign rights businesses. This segment is comprised of
three operating segments.
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 57
The following table sets forth information for the Company’s segments for the three fiscal years ended May 31:
Children’s
Classroom &
Book Educational Supplemental
Materials
Total
Publishing(1)(2) Advertising(1) Overhead(1)(3) Domestic
Publishing & Technology
Distribution(1) & Services(1)
Media,
Licensing &
2013
Revenues
Bad debts
Depreciation and amortization(5)
Amortization(6)
Loss on leases and asset Impairments
Segment operating income (loss)
Segment assets at May 31, 2013
Goodwill at May 31, 2013
Expenditures for long-lived assets
$ 846.9
1.8
16.5
15.0
—
24.5
407.5
54.3
52.3
165.3
including royalty advances
Long-lived assets at May 31, 2013
2012
Revenues
Bad debts
Depreciation and amortization(5)
Amortization(6)
Loss on leases and asset Impairments
Segment operating income (loss)
Segment assets at May 31, 2012
Goodwill at May 31, 2012
Expenditures for long-lived assets
including royalty advances
Long-lived assets at May 31, 2012
2011
Revenues
Bad debts
Depreciation and amortization(5)
Amortization(6)
Loss on leases and asset Impairments
Segment operating income (loss)
Segment assets at May 31, 2011
Goodwill at May 31, 2011
Expenditures for long-lived assets
$1,111.3
6.4
20.6
12.5
0.5
152.2
543.5
54.3
44.4
167.5
$ 922.0
8.7
15.6
12.6
—
77.3
427.1
54.3
including royalty advances
Long-lived assets at May 31, 2011
40.4
175.9
$227.7
1.1
1.2
21.5
—
29.5
170.8
22.7
40.3
116.5
$254.7
0.7
1.3
20.9
—
49.2
168.5
22.7
26.2
101.1
$230.8
0.7
1.3
22.8
—
38.0
161.1
21.8
35.7
97.6
$218.0
1.4
1.4
8.0
—
29.6
168.6
65.4
10.9
91.4
$208.2
1.9
1.0
6.7
—
18.3
163.6
65.4
17.9
90.3
$197.2
1.2
1.3
5.0
3.4
13.6
150.8
64.0
9.1
80.2
$58.7
0.1
0.5
2.5
—
4.7
26.9
5.4
3.7
12.0
$75.3
0.1
0.5
12.3
—
(4.9)
38.1
5.4
6.3
11.6
$82.7
0.2
0.7
8.0
—
3.5
44.9
5.4
9.4
20.1
$ —
—
41.6
—
—
(60.2)
402.1
—
33.3
236.5
$ —
—
39.0
—
6.2
(87.1)
438.6
—
37.9
246.7
$ —
—
35.6
—
—
(67.0)
405.1
—
56.3
249.0
$1,351.3
4.4
61.2
47.0
—
28.1
1,175.9
147.8
140.5
621.7
$1,649.5
9.1
62.4
52.4
6.7
127.7
1,352.3
147.8
132.7
617.2
$1,432.7
10.8
54.5
48.4
3.4
65.4
1,189.0
145.5
150.9
622.8
International(1)(4)
Total
$441.1
2.4
5.3
1.9
—
39.8
264.7
10.1
$1,792.4
6.8
66.5
48.9
—
67.9
1,440.6
157.9
13.4
68.0
153.9
689.7
$489.6
3.2
6.4
2.7
0.3
57.6
310.3
9.9
$2,139.1
12.3
68.8
55.1
7.0
185.3
1,662.6
157.7
13.2
67.1
145.9
684.3
$444.9
2.8
5.6
2.7
—
38.3
287.5
8.7
$1,877.6
13.6
60.1
51.1
3.4
103.7
1,476.5
154.2
11.8
71.2
162.7
694.0
(1) As discussed in Note 3, “Discontinued Operations,” the Company closed or sold several operations during the first quarter of fiscal 2012 and the fourth quarter of fiscal
2013. All of these businesses are classified as discontinued operations in the Company’s financial statements and, as such, are not reflected in this table.
(2)
Includes assets and results of operations acquired in a business acquisition as of February 8, 2012.
(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 Media,
Licensing and Advertising segment for the Company’s direct-to-home toy catalog business that was discontinued in the first quarter of fiscal 2012. 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)
(5)
(6)
Includes assets and results of operations acquired in a business acquisition as of January 3, 2012.
Includes depreciation of property, plant and equipment and amortization of intangible assets.
Includes amortization of prepublication and production costs.
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5. DEBT
The following table summarizes debt as of May 31:
Lines of Credit (weighted average interest
rates of 9.0% and 5.3%, respectively)
Loan Agreement:
Revolving Loan
Term Loan
5% Notes due 2013, net of discount
Total debt
Less lines of credit and current
portion of long-term debt
Total long-term debt
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
2013
2012
$ 2.0
$ 2.0
$
6.5
$
6.5
—
—
—
$ 2.0
(2.0)
$ —
—
—
—
$ 2.0
(2.0)
$ —
—
—
152.8
—
—
155.4
$ 159.3
$ 161.9
(6.5)
$ 152.8
(6.5)
$ 155.4
The short-term debt’s carrying value approximates its fair value. The fair values of the Notes were estimated based on market quotes, where available, or dealer quotes.
58
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The following table sets forth the maturities of the
carrying values of the Company’s debt obligations as of
May 31, 2013 for the fiscal years ending May 31:
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
2014
2015
2016
2017
2018
Thereafter
Total debt
$ 2.0
and ending on the last day of the period selected by the
—
—
—
—
—
$ 2.0
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:
Loan Agreement
On June 1, 2007, Scholastic Corporation and
Scholastic Inc. (each, a “Borrower” and together, the
“Borrowers”) entered into a $525.0 credit facility with
certain banks (the “Loan Agreement”), consisting of a
$325.0 revolving credit component (the “Revolving
Loan”) and a $200.0 amortizing term loan component
• 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.
(the “Term Loan”). The Loan Agreement was amended
– or –
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
• A Eurodollar Rate equal to the London interbank
offered rate (LIBOR) plus an applicable spread
ranging from 1.18% to 1.60%, as determined by
the Company’s prevailing consolidated debt to
total capital ratio.
As of May 31, 2013, the indicated spread on Base Rate
Advances was 0.18% and the indicated spread on
Eurodollar Rate Advances was 1.18%, both based on
the Company’s prevailing consolidated debt to total
capital ratio.
(iv) amend a covenant in the Loan Agreement to permit
The Loan Agreement also provides for the payment of
transactions between or among the Company and its
a facility fee ranging from 0.20% to 0.40% per annum
wholly-owned subsidiaries not involving any other
based upon the Company’s prevailing consolidated debt
affiliates. Additionally, this amendment added certain
to total capital ratio. At May 31, 2013, the facility fee
lenders to the Loan Agreement and other lenders exited
rate was 0.20%.
the Loan Agreement with no further obligation.
The Revolving Loan allows the Company to borrow,
Revolving Loan as of May 31, 2012 and May 31, 2013.
There were no outstanding borrowings under the
repay or prepay and reborrow at any time prior to the
maturity date, and the proceeds may be used for
general corporate purposes, including financing for
acquisitions and share repurchases. On April 15,
2013, the Company drew on this Revolving Loan to
fully repay the 5% Notes due April 2013. As of
May 31, 2013, the Company had fully paid down
the Revolving Loan.
At May 31, 2013, the Company had open standby
letters of credit totaling $6.6 issued under certain
credit lines, including $1.4 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.
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The Loan Agreement contains certain covenants,
April 2013. As of May 31, 2013, the Company had
including interest coverage and leverage ratio tests
fully paid down the Revolving Loan.
and certain limitations on the amount of dividends and
other distributions, and at May 31, 2013, the Company
was in compliance with these covenants.
Lines of Credit
As of May 31, 2013, the Company’s domestic credit
lines available under unsecured money market bid rate
credit lines totaled $14.8. There were no outstanding
borrowings under these credit lines at May 31, 2013
and 2012. All loans made under these credit lines are
at the sole discretion of the lender and at an interest
rate and term agreed to at the time each loan is made,
but not to exceed 365 days. These credit lines may be
renewed, if requested by the Company, at the option of
the lender.
6. COMMITMENTS AND
CONTINGENCIES
Lease obligations
The Company leases warehouse space, office space and
equipment under various capital and operating leases
over periods ranging from one to forty years. Certain
of these leases provide for scheduled rent increases
based on price-level factors. The Company generally
does not enter into leases that call for contingent rent.
In most cases, the Company expects that, in the
normal course of business, leases will be renewed or
replaced. Net rent expense relating to the Company’s
non-cancelable operating leases for the three fiscal
years ended May 31, 2013, 2012 and 2011 was $32.9,
As of May 31, 2013, the Company had various local
$38.9 and $47.2, respectively.
currency credit lines, with maximum available
borrowings in amounts equivalent to $27.0,
underwritten by banks primarily in the United States,
Canada and the United Kingdom. These credit lines
are typically available for overdraft borrowings or
loans up to 364 days and may be renewed, if requested
by the Company, at the sole option of the lender. There
were borrowings outstanding under these facilities
equivalent to $2.0 at May 31, 2013 at a weighted
average interest rate of 9.0%, compared to borrowings
outstanding equivalent to $6.5 at May 31, 2012 at a
weighted average interest rate of 5.3%.
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 of
5% Notes (the “5% Notes”). The 5% Notes were senior
unsecured obligations that matured on April 15, 2013.
Interest on the 5% Notes was payable semi-annually on
April 15 and October 15 of each year through
maturity.
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 of
the Revolving Loan to December 5, 2017. On April 15,
2013, the Company drew on the Revolving Loan to
satisfy its obligations to fully repay the 5% Notes due
Amortization of assets under capital leases covering
land, buildings and equipment was $1.1, $1.1 and $1.2
for the fiscal years ended May 31, 2013, 2012 and
2011, respectively, and is included in Depreciation and
amortization expense. The most significant of the
Company’s capital leases is for the New York office
where the Company’s headquarters are located. This
capital lease has an imputed interest rate of 7.9% and
the term ends July 2039.
The following table sets forth the composition of
capital leases reflected as Property, plant and equipment
in the Consolidated Balance Sheets at May 31:
Land
Buildings
Equipment
Accumulated amortization
Total
2013
$ —
39.0
1.0
40.0
(13.4)
2012
$ 3.5
39.0
1.0
43.5
(12.3)
$ 26.6
$ 31.2
The following table sets forth the aggregate minimum
future annual rental commitments at May 31, 2013
under all non-cancelable leases for the fiscal years
ending May 31:
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Operating Leases
$ 34.6
Capital Leases
$ 5.4
2014
2015
2016
2017
2018
Thereafter
Total minimum lease
payments
Less minimum sublease
income to be received
Minimum lease payments,
net of sublease income
30.2
24.6
18.8
14.5
41.8
$164.5
$ 13.9
$150.6
Less amount representing interest
Present value of net minimum capital lease payments
Less current maturities of capital lease obligations
Long-term capital lease obligations
Other Commitments
The following table sets forth the aggregate minimum
future contractual commitments at May 31, 2013
relating to royalty advances and minimum print
quantities for the fiscal years ending May 31:
Royalty Advances
$ 10.7
Minimum
Print Quantities
$ 58.8
2014
2015
2016
2017
2018
Thereafter
3.2
1.6
0.7
0.9
—
5.2
5.1
5.9
6.1
179.1
$ 206.8
$ 65.0
$ 141.8
149.1
57.7
0.2
$ 57.5
59.6
47.6
48.4
49.1
100.7
$364.2
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.
7. INVESTMENTS
Total commitments
$17.1
The Company had open standby letters of credit of
section of the Company’s Consolidated Balance Sheets
$6.6 issued under certain credit lines as of May 31,
were investments of $19.6 and $20.6 at May 31, 2013
2013 and 2012, respectively. These letters of credit are
and May 31, 2012, respectively.
Included in the Other assets and deferred charges
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.
Contingencies
The Company owns a 15.0% non-controlling interest
in a book distribution business located in the UK,
which is accounted for as a cost-basis investment. The
carrying value of these assets was $5.0 as of May 31,
2013.
Various claims and lawsuits arising in the normal
course of business are pending against the Company.
The Company’s 26.2% non-controlling interest in a
The Company accrues a liability for such matters
children’s book publishing business located in the UK
when it is probable that a liability has occurred and the
is accounted for using the equity method of
amount of such liability can be reasonably estimated.
accounting. The net value of this investment at
When only a range can be estimated, the most probable
May 31, 2013 was $14.6. The Company received $0.8
amount in the range is accrued unless no amount
of dividends in fiscal 2013 from this investment.
within the range is a better estimate than any other
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Income from equity investments totaled $2.3 for the
Publishingsegment, and certain assets will benefit the
year ended May 31, 2013, $2.6 for the year ended
Children’s Book Publishing and Distributionsegment.
May 31, 2012 and $1.8 for the year ended May 31,
2011.
On January 3, 2012, the Company acquired Learners
Publishing, a Singapore-based publisher of
The following table summarizes the Company’s
supplemental learning materials for English-
investments as of May 31:
Language Learners, for $3.0, net of cash acquired. The
2013
2012
Company utilized Level 3 fair value measurement
Cost method investments:
UK-based
Total cost method investments
Equity method investments:
UK-based
Total equity method investments
Total
$
$
5.0
5.0
$ 14.6
$ 14.6
$ 19.6
$
$
5.2
5.2
$ 15.4
$ 15.4
$ 20.6
8. GOODWILL AND OTHER
INTANGIBLES
Goodwill is reviewed for impairment annually or more
frequently if impairment indicators arise.
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 the International
segment.
The Company assesses goodwill annually or more
frequently if impairment indicators are such that the
The following table summarizes the activity in
goodwill is more likely than not impaired. The
Goodwill for the fiscal years ended May 31:
Company continues to monitor impairment indicators
Gross beginning balance
Accumulated impairment
Beginning balance
Additions due to acquisition
Impairment charge
Foreign currency translation
Other
Gross ending balance
Accumulated impairment
Ending balance
2013
$ 178.5
(20.8)
157.7
—
—
0.0
0.2
178.7
(20.8)
2012
$ 175.0
(20.8)
154.2
2.7
—
0.0
0.8
178.5
(20.8)
in light of reduced earnings, changes in market
conditions, near and long-term demand for the
Company’s products and other relevant factors.
Goodwill of $64.0 is attributed to a reporting unit
(Classroom and Community Group) within the
Classroom and Supplemental Materials Publishing
segment. During the third quarter of fiscal 2013, the
Company determined that this reporting unit had
impairment indicators. The Company performed an
$157.9
$157.7
interim impairment review of this reporting unit and
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 were
fulfilled by the Company as of May 31, 2012. The
Company utilized internally-developed discounted cash
flow forecasts and market comparisons of royalty
rates to determine the fair value of the assets acquired
and the amount to be allocated to goodwill. As a result,
the Company recognized $1.4 of goodwill and $5.4 of
intangible assets. The results of operations of this
business subsequent to the acquisition date are
included in the Classroom and Supplemental Materials
determined that the fair value exceeds the carrying
value by greater than 20% as of January 31, 2013. The
Company employed Level 3 valuation measures,
including expected discounted cash flow analysis and
market comparisons. Internal cash flow forecasts and
other assumptions were developed consistent with the
highest and best use of the reporting unit. A discount
rate of 16% was employed for the discounted cash flow
analysis and a factor of 4.5 times EBITDA was used to
compare to similar public companies. The discount
rate and EBITDA multiples utilized reflect risks
specific to the reporting unit, including forecast risk
and product diversity risk. Using a discount rate of
18% combined with a multiple of 3.8 times EBITDA
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 63
would not result in an impairment based upon the
In fiscal 2012, due to declining revenues associated
valuation methodology employed. A qualitative review
with certain publishing and trademark rights in the
was performed as of May 31, 2013 and no impairment
Children’s Book Publishing and Distributionsegment,
was noted.
The reporting unit associated with the Company’s
book clubs operations was the only reporting unit
valued using a quantitative analysis as of May 31,
2013, as changes in market conditions and declining
revenues in the period were indicative of a potential for
goodwill impairment. The fair value of the unit
declined from the prior year from $65.0 to $59.5, but
remained higher than the carrying value of $48.8.
This reporting unit has $13.4 of associated goodwill.
The Company used forecasted cash flows, and to a
lesser extent, observable revenue multiples for
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 this asset and
reduced the expected useful life of the asset. The
Company employed Level 3 fair value measurement
techniques to determine the fair value of these assets
as of May 31, 2012, including the relief from royalty
method. Amortization expense for Other intangibles
totaled $2.5, $6.5 and $1.4 for the fiscal years ended
May 31, 2013, 2012 and 2011, respectively.
comparable companies, consistent with determining
The following table reflects the estimated amortization
its fair value. A discount rate of 15% and a perpetual
expense for intangibles for the next five fiscal years
growth rate of 3% were employed for the discounted
ending May 31:
2014
2015
2016
2017
2018
$ 2.4
2.3
2.2
2.2
0.5
Intangible assets with definite lives consist principally
of customer lists, covenants not to compete and
trademarks. Intangible assets with definite lives are
amortized over their estimated useful lives. The
weighted-average remaining useful lives of all
amortizable intangible assets is 9 years.
9. TAXES
The components of earnings from continuing
operations before income taxes for the fiscal years
ended May 31 are:
United States
Non-United States
Total
2013
$ 34.6
18.8
2012
$ 145.4
24.3
2011
$ 77.0
7.1
$ 53.4
$169.7
$ 84.1
cash flow analysis and revenue multiples used were
between 0.4 times historical revenues and 0.5 times
future revenues. The value of the reporting unit is
largely dependent on the success of the Storia ereading
app which was launched in fiscal 2012. Should Storia
not achieve its projected revenue, and the Company is
unable to adjust its strategy to effectively compensate,
there is a potential for an impairment of goodwill in
this reporting unit in future periods.
The following table summarizes Other intangibles as
of May 31:
2013
$ 4.3
2012
$ 0.7
Beginning balance – Customer lists
Additions due to acquisition
Amortization expense
Foreign currency translation
Customer lists, net of accumulated
amortization of $2.3 and $1.3, respectively
Beginning balance – Other intangibles
Additions due to acquisition
Impairment charge
Amortization expense
Other
0.1
(1.0)
0.0
$ 3.4
$ 10.4
0.2
—
(1.5)
0.1
Other intangibles, net of accumulated
amortization of $12.0 and $10.5, respectively
$ 9.2
Total other intangibles subject to amortization
$12.6
Trademarks and other
$ 2.0
Total other intangibles not subject to amortization $ 2.0
Total other intangibles
$14.6
3.8
(0.2)
0.0
$ 4.3
$ 17.3
—
(5.4)
(1.4)
(0.1)
$ 10.4
$14.7
$ 2.0
$ 2.0
$16.7
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The provision for income taxes from continuing
unrecognized deferred tax liability related to those
operations for the fiscal years ended May 31 consists
investments in these non-U.S. subsidiaries is not
of the following components:
practicable. The Company assesses foreign investment
2013
2012
2011
levels periodically to determine if all or a portion of the
Company’s investments in foreign subsidiaries are
indefinitely invested.
Deferred Taxes
The significant components for deferred income taxes
for the fiscal years ended May 31, including deferred
income taxes related to discontinued operations, are as
follows:
Federal
Current
Deferred
State and local
Current
Deferred
International
Current
Deferred
Total
Current
Deferred
$ 4.5
2.4
$ 6.9
$ 0.5
2.2
$ 2.7
$ 7.8
0.2
$ 8.0
$ 12.8
4.8
$ 17.6
$ 49.1
(8.2)
$ 40.9
$ 12.0
(0.7)
$ 11.3
$ 12.8
(3.4)
$ 9.4
$ 73.9
(12.3)
$ 61.6
$ 10.2
9.1
$ 19.3
$ 3.8
2.2
$ 6.0
$ 12.5
1.0
$ 13.5
$ 26.5
12.3
$ 38.8
Deferred tax assets
Tax uniform capitalization
Inventory reserves
Allowance for doubtful accounts
Other reserves
Post-retirement, post-employment
and pension obligations
Tax carryforwards
Lease accounting
Other – net
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
2013
2012
$ 25.8
$ 16.8
29.2
5.4
26.3
12.6
47.8
11.7
32.7
29.8
7.8
41.2
23.1
40.3
10.1
34.2
191.5
(31.9)
203.3
(34.4)
$ 159.6
$ 168.9
(0.5)
(65.0)
(0.6)
(54.6)
$
(65.5)
$ 94.1
$ (55.2)
$ 113.7
Effective Tax Rate Reconciliation
A reconciliation of the significant differences between
the effective income tax rate and the federal statutory
Gross deferred tax assets
rate on earnings from continuing operations before
income taxes for the fiscal years ended May 31 is as
2013
2012
2011
Depreciation and amortization
35.0%
35.0%
35.0%
Total deferred tax liability
Total net deferred tax assets
net of federal income tax benefit
3.3%
4.3%
5.2%
follows:
Computed federal statutory
provision
State income tax provision,
Difference in effective tax rates on
earnings of foreign subsidiaries
Charitable contributions
Tax credits
Valuation allowances
Other – net
Effective tax rates
0.3%
-4.4%
-0.4%
2.4%
-3.2%
0.2%
-0.7%
-0.1%
-1.4%
-1.0%
-0.8%
-1.5%
-0.2%
5.9%
2.5%
Total net deferred tax assets of $94.1 at May 31, 2013
and $113.7 at May 31, 2012 include $79.2 and $71.4,
respectively, in current assets. Total noncurrent
deferred tax assets of $14.9 and $42.3 are reflected in
noncurrent assets at May 31, 2013 and 2012,
33.0%
36.3%
46.1%
respectively.
Total provision for income taxes
$ 17.6
$ 61.6
$ 38.8
Unremitted Earnings
For the year ended May 31, 2013, the valuation
allowance decreased by $2.5 and for the year ended
At May 31, 2013, the Company had not provided U.S.
May 31, 2012, the valuation allowance decreased by
income taxes on accumulated but undistributed
$2.4. The valuation allowance is based on the
earnings of its non-U.S. subsidiaries of approximately
Company’s assessment that it is more likely than not
$78.6, as substantially all of these undistributed
that certain deferred tax assets will not be realized in
earnings are expected to be permanently reinvested.
the foreseeable future. The valuation allowance at
However, if any portion were to be distributed, the
May 31, 2013 primarily relates to foreign operating
related U.S. tax liability may be reduced by foreign
loss carryforwards of $116.3, principally in the UK,
income taxes paid on those earnings. Determining the
which do not expire.
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The benefits of uncertain tax positions are recorded in
Gross unrecognized benefits at May 31, 2012
the financial statements only after determining a more
likely-than-not probability that the uncertain tax
positions will withstand challenge, if any, from taxing
Decreases related to prior year tax positions
Increase related to prior year tax positions
Increases related to current year tax positions
Settlements during the period
authorities. These uncertain tax positions are included
Lapse of statute of limitation
in long-term income taxes payable, reduced by the
Gross unrecognized benefits at May 31, 2013
$ 38.7
(7.2)
3.5
1.0
(0.5)
—
$ 35.5
associated federal deduction for state taxes and non-
U.S. tax credits, and may also include other long-term
tax liabilities that are not uncertain but have not yet been
paid. The interest and penalties related to these uncertain
tax positions are recorded as part of the Company’s
income tax expense and part of the income tax liability
on the Company’s Consolidated Balance Sheets.
Unrecognized tax benefits for the Company decreased
by $3.2 and increased by $7.9 for the years ended
May 31, 2013 and 2012, respectively. Although the
timing of the resolution and/or closure on audits is
highly uncertain, it is reasonably possible that the
balance of gross unrecognized tax benefits could
significantly change in the next twelve months.
The total amount of unrecognized tax benefits at
However, given the number of years remaining subject
May 31, 2013, 2012 and 2011 were $35.5, excluding
to examination and the number of matters being
$6.5 accrued for interest and penalties, $38.7,
examined, the Company is unable to estimate the full
excluding $7.1 accrued for interest and penalties, and
range of possible adjustments to the balance of gross
$30.8, excluding $5.9 for accrued interest and
unrecognized tax benefits.
penalties, respectively. Of the total amount of
unrecognized tax benefits at May 31, 2013, 2012 and
2011, $21.8, $18.1 and $19.2, respectively, would
impact the Company’s effective tax rate.
The Company, including subsidiaries, files income tax
returns in the U.S., various states and various foreign
jurisdictions. The Company is routinely audited by
various tax authorities. At May 31, 2013, the Company
During the years presented, the Company recognized
is currently under audit by the Internal Revenue
interest and penalties related to unrecognized tax
Service for its fiscal years ended May 31, 2007, 2008
benefits with the provision for taxes on the
and 2009. The Company is currently under audit by
consolidated financial statements. The Company
New York State for its fiscal years ended May 31,
recognized a benefit of $0.5, and expense of $2.4 and
2006, 2007 and 2008 and New York City for its fiscal
$1.0, for the years ended May 31, 2013, 2012 and
years ended May 31, 2005, 2006 and 2007. If any of
2011, respectively.
A reconciliation of the unrecognized tax benefits for
the fiscal years ended May 31 is as follows:
Gross unrecognized benefits at May 31, 2010
$ 30.6
Decreases related to prior year tax positions
Increase related to prior year tax positions
Increases related to current year tax positions
Settlements during the period
Lapse of statute of limitation
(2.9)
2.5
2.8
(2.2)
—
Gross unrecognized benefits at May 31, 2011
$ 30.8
Decreases related to prior year tax positions
Increase related to prior year tax positions
Increases related to current year tax positions
Settlements during the period
Lapse of statute of limitation
(0.8)
9.5
1.7
(2.4)
(0.1)
these tax examinations are concluded within the next
twelve months, the Company will make any necessary
adjustments to its unrecognized tax benefits.
Non-income Taxes
The Company is subject to tax examinations for sales-
based taxes. A number of these examinations are
ongoing and, in certain cases, have resulted in
assessments from taxing authorities. Where a sales
tax liability in respect to a jurisdiction is probable and
can be reliably estimable, for a particular jurisdiction,
the Company has made accruals for these matters
which are reflected in the Company’s Consolidated
Financial Statements. In the third quarter of fiscal
2012, the Company recorded accruals of $19.7 based
on the current status of sales tax assessments in two
jurisdictions. These amounts are included in the
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 66
Consolidated Financial Statements in Selling, general
with regard to the Common Stock: the Scholastic
and administrative expenses. During the fiscal year
Corporation 1995 Stock Option Plan (the “1995 Plan”),
2013, the Company made payments of $15.3 for these
under which no further awards can be made; the
prior assessments. Future developments relating to
Scholastic Corporation 2001 Stock Incentive Plan (the
the foregoing could result in adjustments being made
“2001 Plan”), under which no further awards can be
to these accruals.
10. CAPITAL STOCK AND STOCK-
BASED AWARDS
made; and the Scholastic Corporation 2011 Stock
Incentive Plan (the “2011 Plan”). The 2011 Plan was
adopted in July 2011 and provides for the issuance of
incentive stock options; options that are not so
Class A Stock and Common Stock
qualified, called non-qualified stock options; restricted
Capital stock consisted of the following as of May 31,
stock; and other stock-based awards.
2013:
Class A
Stock
Common
Stock
Preferred
Stock
Authorized
Reserved for Issuance
Outstanding
4,000,000
1,499,000
1,656,200
70,000,000
8,052,806
30,105,479
2,000,000
—
—
The Company’s stock-based compensation vests over
periods not exceeding four years. Provisions in the
Company’s stock-based compensation plans allow for
the acceleration of vesting for certain retirement-
eligible employees, as well as in certain other events.
The only voting rights vested in the holders of
Stock Options – At May 31, 2013, non-qualified stock
Common Stock, except as required by law, are the
options to purchase 174,500 shares, 1,646,897 shares
election of such number of directors as shall equal at
and 581,376 shares of Common Stock were
least one-fifth of the members of the Board. The Class
outstanding under the 1995 Plan, the 2001 Plan and
A Stockholders are entitled to elect all other directors
the 2011 Plan, respectively. During fiscal 2013, 45,907
and to vote on all other matters. The Class A
options were granted under the 2011 Plan at a
Stockholders and the holders of Common Stock are
weighted average exercise price of $31.96.
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 any 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.
Preferred Stock
At May 31, 2013, 1,253,908 shares of Common Stock
were available for additional awards under the 2011
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’
The Preferred Stock may be issued in one or more
meeting of non-qualified stock options to purchase
series, with the rights of each series, including voting
6,000 shares of Common Stock. At May 31, 2013,
rights, to be determined by the Board before each
options to purchase 132,000 shares of Common Stock
issuance. To date, no shares of Preferred Stock have
were outstanding under the 1997 Directors’ Plan.
been issued.
Stock-based awards
In September 2007, the Corporation adopted the
Scholastic Corporation 2007 Outside Directors’ Stock
At May 31, 2013, the Company maintained three
Incentive Plan (the “2007 Directors Plan”). From
stockholder-approved stock-based compensation plans
September 2007 through September 2011, the 2007
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 67
Directors Plan provided for the automatic grant to
outstanding under the Class A Plan, and no shares of
each non-employee director, on the date of each annual
Class A Stock remained available for additional awards
meeting of stockholders, of non-qualified stock options
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. The intrinsic value of these
stock options is deductible by the Company for tax
purposes upon exercise. The Company amortizes the
fair value of stock options as stock-based compensation
expense over the requisite service period on a straight-
line basis, or sooner if the employee effectively vests
upon termination of employment under certain
circumstances.
The following table sets forth the intrinsic value of
stock options exercised, pretax stock-based
compensation cost and related tax benefits for the
Class A Stock and Common Stock plans for the fiscal
years ended May 31:
Total intrinsic value of stock
options exercised
Stock-based compensation
cost (pretax)
Tax benefits related to stock-based
compensation cost
fair value per option
2013
2012
2011
$ 2.3
$ 6.3
$ 0.8
$9.77
$ 5.0
$12.2
$ 1.8
$9.30
$ 0.4
$13.7
$ 1.8
$8.15
As of May 31, 2013, the total pretax compensation cost
not yet recognized by the Company with regard to
outstanding unvested stock options was $1.7. The
weighted average period over which this compensation
cost is expected to be recognized is 2.2 years.
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 July 2012, the Board
approved an amended and restated 2007 Outside
Directors Plan (the “Amended 2007 Directors Plan”).
The Amended 2007 Directors Plan provides for the
automatic grant to each non-employee director, on the
date of each annual meeting of stockholders, of stock
options and restricted stock units with a value equal to
a fixed dollar amount. Such dollar amount, as well as
the split of such amount between stock options and
restricted stock units, will be determined annually by
the Board (or committee designated by the Board) in
advance of the grant date. The value of the stock
option portion of the annual grant is determined based
on the Black-Scholes option pricing method, with the
exercise price being the fair market value of the
Common Stock on the grant date, and the value of the
restricted stock unit portion is the fair market value of
the Common Stock on the grant date. In September
2012, stock options and restricted stock units with a
value of $70,000 for each non-employee director, with
the form of restricted stock units, were approved, and
an aggregate of 40,707 options at an exercise price of
$33.39 per share and 7,542 restricted stock units were
granted to the non-employee directors under the 2007
Directors Plan.
As of May 31, 2013, 151,707 options were outstanding
under the 2007 Directors Plan and 285,551 shares of
Common Stock remained available for additional
awards under the 2007 Directors Plan.
The Scholastic Corporation 2004 Class A Stock
Incentive Plan (the “Class A Plan”) provided 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”). As of May 31, 2013, there were
1,499,000 Class A Options granted to Mr. Robinson
67
40% of such value in the form of options and 60% in
Weighted average grant date
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 68
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, 2013:
Outstanding at May 31, 2012
Granted
Exercised
Expired
Cancellations and forfeitures
Outstanding at May 31, 2013
Exercisable at May 31, 2013
Weighted
Average
Exercise
Price
$29.69
$31.96
$27.29
$35.89
$32.72
$29.49
$30.25
Options
4,948,075
86,614
(475,432)
(348,840)
(24,937)
4,185,480
3,370,439
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
4.8
4.0
$9.7
$6.5
Restricted Stock Units – In addition to stock options,
Management Stock Purchase Plan – The Company
the Company has issued restricted stock units to
maintains a Management Stock Purchase Plan
certain officers and key executives under the 2011
(“MSPP”), which allows certain members of senior
Plan (“Stock Units”). The Stock Units automatically
management to defer up to 100% of their annual cash
convert to shares of Common Stock on a one-for-one
bonus payments in the form of Restricted Stock Units
basis as the award vests, which is typically over a four-
(“RSUs”) which are purchased by the employee at a
year period beginning thirteen months from the grant
25% discount from the lowest closing price of the
date and thereafter annually on the anniversary of the
Common Stock on NASDAQ on any day during the
grant date. There were 242,433 shares of Common
fiscal quarter in which such bonuses are payable. The
Stock issued upon vesting of Stock Units during fiscal
RSUs are converted into shares of Common Stock on a
2013. The Company measures the value of Stock Units
one-for-one basis at the end of the applicable deferral
at fair value based on the number of Stock Units
period. The Company measures the value of RSUs
granted and the price of the underlying Common
based on the number of RSUs granted and the price of
Stock on the grant date. The Company amortizes the
the underlying Common Stock on the grant date,
fair value of outstanding Stock Units as stock-based
giving effect to the 25% discount. The Company
compensation expense over the requisite service period
amortizes this discount as stock-based compensation
on a straight-line basis, or sooner if the employee
expense over the vesting term on a straight-line basis,
effectively vests upon termination of employment
or sooner if the employee effectively vests upon
under certain circumstances.
termination of employment under certain
The following table sets forth the RSU activity for the
circumstances.
fiscal years ended May 31:
The following table sets forth the MSPP RSU activity
RSUs granted
Weighted average grant
date price per unit
2013
125,584
2012
205,620
2011
141,600
$ 23.05
$ 27.92
$ 25.03
for the fiscal years ended May 31:
MSPP RSUs allocated
Purchase price per unit
2013
87,317
$ 19.73
2012
22,486
$ 17.78
As of May 31, 2013, the total pretax compensation cost
not yet recognized by the Company with regard to
unvested Stock Units was $3.2. The weighted average
period over which this compensation cost is expected
to be recognized is 2.4 years.
At May 31, 2013, there were 451,922 shares of
Common Stock remaining authorized for issuance
under the MSPP.
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 69
As of May 31, 2013, the total pretax compensation cost
11. TREASURY STOCK
not yet recognized by the Company with regard to
unvested RSUs under the MSPP was $0.3. The
weighted average period over which this compensation
cost is expected to be recognized is 2.0 years.
The following table sets forth Stock Unit and RSU
activity for the year ended May 31, 2013:
Stock
Units/
RSUs
710,895
125,584
(242,433)
(34,643)
559,403
Weighted
Average
grant date
fair value
$22.81
$23.05
$26.53
$26.85
$29.98
Nonvested as of May 31, 2012
Granted
Vested
Forfeited
Nonvested as of May 31, 2013
The total fair value of shares vested during the fiscal
years ended May 31, 2013, 2012 and 2011 was $6.4,
$6.0 and $4.1, respectively.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase
Plan (the “ESPP”), which is offered to eligible United
States employees. The ESPP permits participating
employees to purchase Common Stock, with after-tax
payroll deductions, on a quarterly basis at a 15%
discount from the closing price of the Common Stock
on NASDAQ. In fiscal 2012, the ESPP was amended to
provide that the purchase of Common Stock occurs on
the last business day of the calendar quarter. The
Company recognizes the discount on the Common
Stock issued under the ESPP as stock-based
compensation expense in the quarter in which the
employees participated in the plan.
The following table sets forth the ESPP share activity
for the fiscal years ended May 31:
Shares issued
Weighted average purchase price per share
2013
68,228
$ 24.78
2012
54,967
$ 23.45
The Company has authorizations from the Board of
Directors to repurchase Common Stock, from time to
time as conditions allow, on the open market or
through negotiated private transactions, as
summarized in the table below:
Authorization
December 2007
May 2008
November 2008
February 2009
December 2009
September 2010
Subtotal
Amount
$ 20.0
20.0
10.0
5.0
20.0
44.0(a)
$ 119.0
Less repurchases made from December 2007 through May 2013
(99.4)
Remaining Board authorization at May 31, 2013
$ 19.6
(a) Represents the remainder of a $200.0 authorization after giving effect to the
purchase of 5,199,699 shares at $30.00 per share pursuant to a large share
repurchase in the form of a modified Dutch auction tender offer that was
completed by the Company on November 3, 2010 for a total cost of $156.0,
excluding related fees and expenses.
During the twelve months ended May 31, 2013, the
Company repurchased approximately 0.4 million
shares on the open market for approximately $11.8 at
an average cost of $27.34 per share.
The Company’s repurchase program may be
suspended at any time without prior notice.
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. The Pension Plan is a defined benefit plan. It
is the Company’s policy to fund the minimum amount
required by the Employee Retirement Income Security
Act of 1974, as amended. Effective June 1, 2009, no
At May 31, 2013, there were 219,745 shares of
further benefits will accrue to employees under the
Common Stock remaining authorized for issuance
Pension Plan.
under the ESPP.
Scholastic Ltd., an indirect subsidiary of Scholastic
Corporation located in the United Kingdom, has a
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02_73994_Scholastic_AR 7/31/13 11:45 AM Page 70
defined benefit pension plan (the “UK Pension Plan”)
Benefits, effectively excluding a large percentage of
that covers its employees who meet various eligibility
employees from the plan.
requirements. Benefits are based on years of service
and on a percentage of compensation near retirement.
The UK Pension Plan is funded by contributions from
Scholastic Ltd. and its employees.
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
The Company’s pension plans have a measurement
sponsors of retiree health care benefit plans providing
date of May 31.
Post-Retirement Benefits
The Company provides post-retirement benefits to
eligible retired United States-based employees (the
“Post-Retirement Benefits”) consisting of certain
healthcare and life insurance benefits. Employees may
become eligible for these benefits after completing
certain minimum age and service requirements. At
May 31, 2013, the unrecognized prior service credit
remaining was $0.5. Effective June 1, 2009, the
Company modified the terms of the Post-Retirement
a benefit that is at least actuarially equivalent to
Medicare Part D. 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 Part D. As a result, in
fiscal 2013, 2012 and 2011, the Company recognized a
cumulative reduction of its accumulated post-
retirement benefit obligation of $3.1, $2.9 and $3.0,
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 and the UK Pension Plan (collectively the “Pension Plans”), including the Post-
Retirement Benefits, at May 31:
Pension Plans
2012
2013
2011
Post-Retirement
Benefits
2012
2011
2013
Weighted average assumptions used to determine
benefit obligations:
Discount rate
Rate of compensation increase
Weighted average assumptions used to
determine net periodic benefit cost:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
4.0%
4.4%
4.0%
7.3%
3.3%
4.0%
3.3%
5.1%
7.7%
4.3%
5.1%
4.3%
5.4%
7.5%
4.3%
3.9%
—
3.9%
—
—
3.9%
—
5.0%
—
—
5.0%
—
5.4%
—
—
To develop the expected long-term rate of return on assets assumption for the Pension Plans, the Company
considers historical returns and future expectations. 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 7.3%.
The following table sets forth the change in benefit obligation for the Pension Plans and Post-Retirement Benefits at
May 31:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial losses (gains)
Foreign currency translation
Benefits paid, including expenses
Pension Plans
2013
2012
$ 182.2
—
6.9
—
7.4
(0.8)
(10.1)
$ 173.9
—
8.4
—
11.1
(1.9)
(9.3)
Benefit obligation at end of year
$ 185.6
$ 182.2
Post-Retirement
Benefits
2013
2012
$ 39.6
0.0
1.4
0.4
(2.8)
—
(2.4)
$ 36.2
$ 38.3
0.0
1.7
0.4
1.7
—
(2.5)
$ 39.6
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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:
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid, including expenses
Plan participants’ contributions
Foreign currency translation
Pension Plans
2013
2012
$ 145.8
29.9
8.8
(10.1)
—
(0.6)
$ 146.7
(0.2)
9.9
(9.3)
—
(1.3)
Fair value of plan assets at end of year
$ 173.8
$ 145.8
Post-Retirement
Benefits
2013
2012
$ —
—
2.0
(2.4)
0.4
—
$ —
$ —
—
2.2
(2.6)
0.4
—
$ —
The following table sets forth the net underfunded status of the Pension Plans and Post-Retirement Benefits and the
related amounts recognized on the Company’s Consolidated Balance Sheets at May 31:
Current liabilities
Non-current liabilities
Net underfunded balance
Pension Plans
2013
$ —
11.8
$ 11.8
2012
$ —
36.4
$ 36.4
Post-Retirement
Benefits
2013
2012
$ 2.7
33.5
$ 36.2
$ 3.4
36.2
$ 39.6
The following amounts were recognized in Accumulated other comprehensive loss for the Pension Plans and Post-
Retirement Benefits in the Company’s Consolidated Balance Sheets at May 31:
2013
Post-
Retirement
Benefits
(13.4)
0.5
$
Pension
Plans
(62.1)
—
$
$
Total
(75.5)
0.5
Pension
Plans
(76.4)
—
$
2012
Post-
Retirement
Benefits
(19.2)
0.8
$
$
Total
(95.6)
0.8
$ (62.1)
$ (12.9)
$ (75.0)
$ (76.4)
$ (18.4)
$ (94.8)
Net actuarial gain (loss)
Net prior service credit
Net amount recognized
in Accumulated other
comprehensive income (loss)
The estimated net loss 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, 2014 is $1.8. The estimated net loss and
prior service credit 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, 2014 are $2.5 and $0.2, respectively. Income
tax expense of $8.4 and income tax benefit of $6.5 were recognized in Accumulated other comprehensive loss at
May 31, 2013 and 2012, respectively.
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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:
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
2013
$ 185.6
184.6
173.8
2012
$ 182.2
181.1
145.8
The following table sets forth the net periodic (benefit) cost for the Pension Plans and Post-Retirement Benefits for
the fiscal years ended May 31:
Pension Plans
2012
2011
2013
Post-Retirement Benefits
2011
2012
2013
Components of net periodic (benefit) cost:
Service cost
Interest cost
Expected return on assets
Net amortization and deferrals
Settlement
Recognized net actuarial loss
$ —
6.9
(10.5)
—
—
2.2
$ —
8.4
(10.8)
—
—
1.4
$
0.3
8.9
(9.4)
—
4.2
1.8
Net periodic (benefit) cost
$ (1.4)
$ (1.0)
$ 5.8
$ 0.0
1.4
—
(0.4)
—
3.0
$ 4.0
$
0.0
1.7
—
(0.6)
—
3.8
$ 4.9
$ —
1.9
—
(0.7)
—
2.6
$ 3.8
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:
Equity securities
Debt securities
Real estate
Other
2013
2012
69.5%
24.0%
1.0%
5.5%
63.5%
26.5%
1.0%
9.0%
100.0%
100.0%
The following table sets forth the targeted weighted average asset allocations for the Pension Plans included in the
Company’s investment policy:
Equity
Debt and cash equivalents
Real estate and other
US
Pension
Plan
70%
30%
0%
100%
UK
Pension
Plan
40%
30%
30%
100%
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The fair values of the Company’s Pension Plans’ assets are measured using Level 1, Level 2 and Level 3 fair value
measurements. The fair values of the Level 1 Pension Plans’ assets are determined based on quoted market prices in
active markets for identical assets. The fair values of the Level 2 and Level 3 Pension Plans’ assets are based on the
net asset values of the funds, which are based on quoted market prices of the underlying investments. For a more
complete description of fair value measurements see Note 18, “Fair Value Measurements.”
The following table sets forth the measurement of the Company’s Pension Plans’ assets at fair value by asset
category at the respective dates:
Cash and cash equivalents
Equity securities:
U.S.(1)
International(2)
Fixed Income(3)
Annuities
Real estate(4)
Total
Cash and cash equivalents
Equity securities:
U.S.(1)
International(2)
Fixed Income(3)
Annuities
Real estate(4)
Assets at Fair Value as of May 31, 2013
Level 1
Level 2
Level 3
$ 3.5
$ —
$ —
Total
$ 3.5
94.0
16.3
34.4
—
—
—
10.4
7.4
—
1.7
—
—
—
6.1
—
94.0
26.7
41.8
6.1
1.7
$ 148.2
$ 19.5
$ 6.1
$ 173.8
Assets at Fair Value as of May 31, 2012
Level 1
Level 2
Level 3
$ 7.4
$ —
$ —
Total
$ 7.4
73.0
11.2
32.2
—
—
—
8.3
6.4
—
1.5
—
—
—
5.8
—
73.0
19.5
38.6
5.8
1.5
$ 145.8
Total
(1) Funds which invest in a diversified portfolio of publicly traded U.S. common stocks of large-cap, medium-cap and small-cap companies. There are no restrictions on these
$ 123.8
$ 16.2
$ 5.8
investments.
(2) Funds which invest in a diversified portfolio of publicly traded common stock of non-U.S. companies, primarily in Europe and Asia. There are no restrictions on these
investments.
(3) Funds which invest in a diversified portfolio of publicly traded government bonds, corporate bonds and mortgage-backed securities. There are no restrictions on these
investments.
(4) Represents assets of a non-U.S. entity plan invested in a fund whose underlying investments are comprised of properties. The fund has publicly available quoted market
prices and there are no restrictions on these investments.
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The Company has purchased annuities to service fixed
Assumed health care cost trend rates at May 31:
payments to certain retired plan participants in the
UK. These annuities are purchased from investment
Health care cost trend rate assumed
grade counterparties. These annuities are not traded
for the next fiscal year
on open markets, and are therefore valued based upon
the actuarial determined valuation, and related
assumptions, of the underlying projected benefit
Rate to which the cost trend is assumed to
decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2013
2012
7.5%
5.0%
2021
7.5%
5.0%
2020
obligation, a Level 3 valuation technique. The fair
Assumed health care cost trend rates could have a
value of these assets was $6.1 and $5.8 at May 31,
significant effect on the amounts reported for the post-
2013 and May 31, 2012, respectively. The following
retirement health care plan. A one percentage point
table summarizes the changes in fair value of these
change in assumed health care cost trend rates would
Level 3 assets for the fiscal years ended May 31, 2013
have the following effects:
and 2012:
Balance at May 31, 2011
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2012
Relating to assets sold during the year
Purchases, sales and settlements, net
Transfers in and/or out of Level 3
Foreign currency translation
Balance at May 31, 2012
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2013
Relating to assets sold during the year
Purchases, sales and settlements, net
Transfers in and/or out of Level 3
Foreign currency translation
Balance at May 31, 2013
Contributions
$ 5.7
0.7
—
(0.3)
—
(0.3)
$ 5.8
0.7
—
(0.3)
—
(0.1)
$ 6.1
Total service and interest cost - 1% increase
Total service and interest cost - 1% decrease
Post-retirement benefit obligation - 1% increase
Post-retirement benefit obligation - 1% decrease
2013
$ 0.2
2012
$ 0.2
(0.1)
4.0
(3.4)
(0.2)
4.3
(3.7)
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 $8.0, $7.4 and $6.9 for fiscal 2013, 2012
and 2011, respectively.
13. ACCRUED SEVERANCE
The table below provides information regarding
Accrued severance, which is included in “Other
accrued expenses” on the Company’s Consolidated
In fiscal 2014, the Company expects to contribute $8.3
Balance Sheets.
to the Pension Plans.
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:
Beginning balance
Accruals
Payments
Ending balance
2013
2012
$ 2.7
13.4
(12.8)
$ 3.3
$ 1.9
14.9
(14.1)
$ 2.7
Post-Retirement
Pension
Benefits
$ 19.1
Benefit
Payments
$ 2.9
Medicare
Subsidy
Receipts
$ 0.3
11.5
11.6
10.9
10.7
51.1
2.9
2.9
2.9
2.8
13.2
0.3
0.3
0.3
0.3
1.6
2014
2015
2016
2017
2018
2019-2023
The Company implemented cost saving initiatives in
fiscal year 2013, recognizing expense of $9.6. The
Company implemented certain cost reduction
initiatives in fiscal 2012, and incurred severance
expense of $9.3 related to these initiatives.
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14. 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 fiscal years ended May 31:
Earnings (loss) from continuing operations attributable to
Class A and Common Shares
Earnings (loss) from discontinued operations attributable to
Class A and Common Shares, net of tax
Net income (loss) attributable to Class A and Common Shares
Weighted average Shares of Class A Stock and Common Stock
outstanding for basic earnings (loss) per share (in millions)
Dilutive effect of Class A Stock and Common Stock potentially
issuable pursuant to stock-based compensation plans (in millions)
Adjusted weighted average Shares of Class A Stock and Common Stock
outstanding for diluted earnings (loss) per share (in millions)
Earnings (loss) per share of Class A Stock and Common Stock:
Basic earnings (loss) per share:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
2013
2012
2011
$ 35.7
$ 107.6
$ 45.0
(4.7)
31.0
31.8
0.6
32.4
$ 1.12
$ (0.15)
$ 0.97
$ 1.10
$ (0.15)
$ 0.95
(5.7)
101.9
31.2
0.5
31.7
$ 3.45
$ (0.18)
$ 3.27
$ 3.39
$ (0.18)
$ 3.21
(5.9)
39.1
33.1
0.5
33.6
$ 1.36
$ (0.18)
$ 1.18
$ 1.34
$ (0.18)
$ 1.16
Earnings from continuing operations exclude earnings of $0.1, $0.5 and $0.3 for the years ended May 31, 2013,
2012 and 2011, respectively, for earnings attributable to participating restricted stock units.
In a period in which the Company reports a discontinued operation, Earnings (loss) from continuing operations is
used as the “control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive.
A portion of the Company’s restricted stock units granted to employees participates in earnings through
cumulative non-forfeitable dividends payable to the employees upon vesting of the restricted stock units.
Accordingly, the Company measures earnings per share based upon the two-class method.
Equity awards that were not included in the computation of diluted earnings per share because to do so would have
been anti-dilutive totaled: 2,083,054 at May 31, 2013; 3,962,650 at May 31, 2012; and 4,341,331 at May 31, 2011.
Options outstanding pursuant to compensation plans were 4.2 million and 4.9 million as of May 31, 2013 and
2012, respectively.
As of May 31, 2013, $19.6 remains available for future purchases of common shares under the current repurchase
authorization of the Board of Directors.
See Note 11, “Treasury Stock,” for a more complete description of the Company’s share buy-back program.
76
2013
$ 45.8
22.0
29.3
38.2
5.5
8.7
30.0
$ 179.5
2012
$ 145.0
127.3
55.1
0.7
2012
$ 48.1
57.3
42.8
36.1
10.2
8.4
30.6
$ 233.5
2011
$ 151.9
125.1
51.1
(1.3)
2013
$ 146.4
149.0
48.9
(0.5)
54.8
61.1
44.9
2013
2012
$ 9.5
2013
$ (13.5)
(51.9)
$ (65.4)
$ 9.2
2012
$ (10.9)
(63.3)
$ (74.2)
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 77
15. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following at May 31:
Accrued payroll, payroll taxes and benefits
Accrued bonus and commissions
Accrued other taxes
Accrued advertising and promotions
Accrued income taxes
Accrued insurance
Other accrued expenses
Total accrued expenses
16. OTHER FINANCIAL DATA
Other financial data consisted of the following for the fiscal years ended May 31:
Advertising expense
Prepublication and production costs
Amortization of prepublication and production costs
Foreign currency transaction gain (loss)
Purchases related to contractual commitments for minimum print quantities
during fiscal years
Unredeemed credits issued in conjunction with the Company’s school-based
book club and book fair operations (included in other accrued expenses)
Components of Accumulated other comprehensive income (loss):
Foreign Currency Translation
Pension Obligations (net of tax of $23.1 and $31.5)
Accumulated other comprehensive income (loss)
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17. DERIVATIVES AND HEDGING
• Level 3 Unobservable inputs in which there is little
The Company enters into foreign currency derivative
contracts to economically hedge the exposure to
foreign currency fluctuations associated with the
forecasted purchase of inventory and the foreign
exchange risk associated with certain receivables
denominated in foreign currencies. These derivative
contracts are economic hedges and are not designated
as cash flow hedges. The Company marks-to-market
these instruments and records the changes in the fair
value of these items in current earnings, and it
recognizes the unrealized gain or loss in other current
assets or liabilities. Unrealized gains of $0.5 were
recognized at May 31, 2013 and at May 31, 2012,
respectively.
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. For a more
complete description of fair value measurements
18. FAIR VALUE MEASUREMENTS
employed, see Note 5, “Debt.” The fair values of foreign
The Company determines the appropriate level in the
currency forward contracts, used by the Company to
fair value hierarchy for each fair value measurement
manage the impact of foreign exchange rate changes
of assets and liabilities carried at fair value on a
to the financial statements, are based on quotations
recurring basis in the Company’s financial statements.
from financial institutions, a Level 2 fair value
The fair value hierarchy prioritizes the inputs, which
measure.
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:
Non-financial assets and liabilities for which the
Company employs fair value measures on a non-
recurring basis include:
• Level 1 Unadjusted quoted prices in active markets
for identical assets or liabilities at the measurement
date.
• Long-lived assets
• Investments
• Level 2 Observable inputs other than unadjusted
quoted prices in active markets for identical assets
• Assets acquired in a business combination
or liabilities such as
• Goodwill and indefinite-lived intangible assets
• Quoted prices for similar assets or liabilities
• Long-lived assets held for sale
in active markets
• Quoted prices for identical or similar assets or
Company in the fair value measurement of these assets
Level 2 and Level 3 inputs are employed by the
liabilities in inactive markets
• Inputs other than quoted prices that are
observable for the asset or liability
• Inputs that are derived principally from or
corroborated by observable market data by
correlation or other means
and liabilities. The following tables present non-
financial assets that were measured and recorded at fair
value on a non-recurring basis and the total impairment
losses and additions recognized on those assets:
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Other Intangible assets
Property, plant and equipment, net
Prepublication assets
Net carrying
value as of
May 31, 2013
$ 0.3
—
—
Goodwill
Other intangible assets impairment
Other intangibles
Production assets
Prepublication assets
Investments
Net carrying
value as of
May 31, 2012
$ 2.7
4.9
5.4
0.6
—
—
Goodwill impairment
Goodwill
Other Intangible assets
Property, plant and equipment, net
Prepublication assets
Investments
Net carrying
value as of
May 31, 2011
$ —
1.0
5.6
—
—
5.7
19. SUBSEQUENT EVENTS
Fair value measured
and recorded using
Level 1
$ —
—
—
Level 2
$ —
—
—
Level 3
$ 0.3
—
—
Fair value measured
and recorded using
Level 1
$ —
—
—
—
—
—
Level 2
$ —
—
—
—
—
—
Level 3
$ 2.7
4.9
5.4
0.6
—
—
Fair value measured
and recorded using
Level 1
$ —
—
—
—
—
—
Level 2
$ —
—
—
—
—
—
Level 3
$ —
1.0
5.6
—
—
5.7
Impairment
losses for fiscal
year ended
May 31, 2013
$ —
5.2
2.0
Impairment
losses for fiscal
year ended
May 31, 2012
$ —
6.8
—
4.0
0.8
1.3
Impairment
losses for fiscal
year ended
May 31, 2011
$ 3.4
—
—
1.4
2.7
3.6
Additions
due to
acquisitions
$ 0.3
—
—
Additions
due to
acquisitions
$ 2.7
—
5.4
—
—
—
Additions
due to
acquisitions
$ —
1.0
5.6
—
—
—
On July 17, 2013, the Board of Directors declared a regular cash dividend of $0.125 per Class A and Common share
in respect of the first quarter of fiscal 2014. The dividend is payable on September 16, 2013 to shareholders of
record on August 30, 2013.
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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 as of May 31, 2013 and
2012, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’
equity and cash flows for each of the three years in the period ended May 31, 2013. Our audits also included the
financial statement schedule included in the Index at Item 15(a). These financial statements and the schedule are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements and the 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 at May 31, 2013 and 2012, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended May 31, 2013, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement 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.
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, 2013, 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 29, 2013 expressed an unqualified opinion thereon.
New York, New York
July 29, 2013
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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, 2013, 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, 2013, 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 as of May 31, 2013 and 2012, and the related
consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows
for each of the three years in the period ended May 31, 2013, and our report dated July 29, 2013 expressed an
unqualified opinion thereon.
New York, New York
July 29, 2013
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Supplementary Financial Information
Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data)
Fiscal
Year
Ended
May 31,
Third
Quarter
Fourth
Quarter
$378.6
190.0
(19.9)
(0.2)
(20.1)
(0.62)
(0.01)
(0.63)
(0.62)
(0.01)
(0.63)
$463.9
218.2
(10.3)
0.0
(10.3)
(0.33)
(0.00)
(0.33)
(0.33)
(0.00)
(0.33)
$506.9
226.8
24.8
(3.3)
21.5
$1,792.4
829.6
35.8
(4.7)
31.1
0.78
(0.11)
0.67
0.76
(0.10)
0.66
1.12
(0.15)
0.97
1.10
(0.15)
0.95
$676.6
322.6
60.3
(3.3)
57.0
$2,139.1
984.6
108.1
(5.7)
102.4
1.91
(0.11)
1.80
1.86
(0.10)
1.76
3.45
(0.18)
3.27
3.39
(0.18)
3.21
First
Quarter
Second
Quarter
2013
Revenues
Cost of Goods Sold
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
Earnings (loss) per share of Class A and Common Stock:
$293.4
150.8
(31.7)
(0.4)
(32.1)
Basic:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net income (loss)
Diluted:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net income (loss)
(1.01)
(0.01)
(1.02)
(1.01)
(0.01)
(1.02)
2012
Revenues
Cost of Goods Sold
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
Earnings (loss) per share of Class A and Common Stock:
$317.8
160.3
(25.0)
(2.1)
(27.1)
Basic:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net income (loss)
Diluted:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations,
net of tax
Net income (loss)
(0.80)
(0.07)
(0.87)
(0.80)
(0.07)
(0.87)
$613.5
262.0
62.6
(0.8)
61.8
1.95
(0.02)
1.93
1.91
(0.02)
1.89
$680.8
283.5
83.1
(0.3)
82.8
2.65
(0.01)
2.64
2.61
(0.01)
2.60
82
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 83
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A | Controls and Procedures
Evaluation of Disclosure 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, 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 (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 Corporation’s management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The management of the Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting for the Corporation. A corporation’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 Company’s management (with the participation of the Corporation’s Chief Executive Officer and
Chief Financial Officer), after conducting an evaluation 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 (1992), concluded that the Corporation’s
internal control over financial reporting was effective as of May 31, 2013.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the
Corporation’s internal control over financial reporting as of May 31, 2013, 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, 2013 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over
financial reporting.
Item 9B | Other Information
None.
83
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 84
Part III
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 18, 2013 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 18, 2013 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 18, 2013 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 18, 2013 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 18, 2013 to be filed pursuant to Regulation 14A under the Exchange Act.
84
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 85
Part IV
Item 15 | Exhibits, Financial Statement Schedules
(a)(1)
Financial Statements:
The following Consolidated Financial Statements are included in Part II, Item 8, “Consolidated
Financial Statements and Supplementary Data”:
Consolidated Statements of Operations for the years ended May 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2013,
2012 and 2011
Consolidated Balance Sheets at May 31, 2013 and 2012
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss) for
the years ended May 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended May 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
(a)(2)
Supplementary Financial Information - Summary of Quarterly Results of Operations Financial
Statement Schedule:
and (c)
The following consolidated financial statement schedule is included with this report: Schedule II-
Valuation and Qualifying Accounts and Reserves.
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.
(a)(3) and (b)
Exhibits:
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”).
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).
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”).
85
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 86
4.2
Amendment No. 1, dated as of August 16, 2010, to the Credit Agreement, dated as of June 1, 2007
(incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on
October 1, 2010, SEC file No. 000-19860) (the “August 30, 2010 10-Q”).
4.3
Amendment No. 2, dated as of October 25, 2011, to the Credit Agreement, dated as of June 1, 2007
(incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on
December 22, 2011, SEC file No. 000-19860) (the “November 30, 2011 10-Q”).
4.4
Amendment No. 3, dated as of December 5, 2012, to the Credit Agreement, dated as of June 1, 2007
(incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on
March 29, 2013, SEC File No. 000-19860) ( the “February 28, 2013 10-Q”).
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, SEC File No. 000-19860), 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, SEC File No. 000-19860, (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, SEC File No. 000-19860) (the “February 28, 2007 10-Q”) and Amendment No. 5,
dated as of May 20, 2008 (incorporated by reference to the Corporation’s Annual Report on Form 10-K
as filed with the SEC on July 30, 2008, SEC file No. 000-19860).
10.2**
Scholastic Corporation Management Stock Purchase Plan, amended and restated effective as of
September 23, 2008 (incorporated by reference to the Corporation’s Annual Report on Form 10-K as
filed with the SEC on July 30, 2009, SEC File No. 000-19860) (the “2009 10-K”), together with
Amendment No. 1 to the Scholastic Corporation Management Stock Purchase Plan, effective as of
September 21, 2011 (incorporated by reference to Appendix B to the Corporation’s definitive Proxy
Statement as filed with the SEC on August 9, 2011, SEC File No. 000-19860).
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, SEC File No. 000-19860), and Amendment No. 3,
effective as of May 25, 2006 (incorporated by reference to the 2006 10-K) and Amendment No. 4,
effective as of May 21, 2013, filed herewith.
10.4**
Scholastic Corporation Director’s Deferred Compensation Plan, amended and restated effective as of
September 23, 2008 (incorporated by reference to the 2009 10-K).
86
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 87
10.5**
Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (the “2007 Directors’ Plan”) effective
as of September 23, 2008 (incorporated by reference to the 2009 10-K) and the Amended and Restated
Scholastic Corporation 2007 Outside Directors Stock Incentive Plan (incorporated by reference to the
Corporation’s Quarterly Report on Form 10-Q as filed with the SEC on January 2, 2013, SEC File No.
000-19860) (“the November 30, 2012 10-Q”), and Amendment No. 4, effective as of May 21, 2013, filed
herewith.
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”) and the Form of Stock Option Agreement under the 2007
Directors’ Plan, effective as of September 19, 2012 (incorporated by reference to the November 30, 2012
10-Q).
10.7**
Form of Restricted Stock Unit Agreement under the 2007 Directors’ Plan effective as of September 23,
2008 (incorporated by reference to the 2009 10-K) and the Form of Restricted Stock Unit Agreement,
effective as of September 19, 2012 (incorporated by reference to the November 30, 2012 10-Q).
10.8**
Scholastic Corporation Executive Performance Incentive Plan, effective as of May 21, 2008 (incorporated
by reference to Appendix B to the Corporation’s definitive Proxy Statement as filed with the SEC on
August 15, 2008, SEC File No. 000-19860).
10.9**
Scholastic Corporation 2001 Stock Incentive Plan, amended and restated as of July 21, 2009 (the “2001
Plan”) (incorporated by reference to the Corporation’s Quarterly Report on Form 10-Q as filed with the
SEC on October 10, 2009, SEC File No. 000-19860) (the “August 31, 2009 10-Q”), and Amendment No. 1
to the Amended and Restated Scholastic Corporation 2001 Stock Incentive Plan, filed herewith.
10.10**
Form of Stock Unit Agreement under the 2001 Plan (incorporated by reference to the August 31, 2009
10-Q).
10.11**
Amended and Restated Guidelines for Stock Units granted under the 2001 Plan, amended and restated
as of July 21, 2009 (incorporated by reference to the August 31, 2009 10-Q).
10.12**
Form of Non-Qualified Stock Option Agreement under the 2001 Plan (incorporated by reference to the
August 31, 2009 10-Q).
10.13**
Scholastic Corporation 2004 Class A Stock Incentive Plan (the “Class A Plan”) (incorporated by reference
to Appendix A to the Corporation’s definitive Proxy Statement as filed with the SEC on August 2, 2004,
SEC File No. 000-19860), 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, SEC File
No. 000-19860), and Amendment No. 3, dated as of March 20, 2007 (incorporated by reference to the
February 28, 2007 10-Q).
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,
SEC File No. 000-19860).
10.15**
Scholastic Corporation 2011 Stock Incentive Plan (incorporated by reference to the November 30, 2011
10-Q) and Amendment No. 1 to the Scholastic Corporation 2011 Stock Incentive Plan, filed herewith.
87
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 88
10.17**
Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the November 30, 2011 10-Q).
10.18**
Form of Stock Option Agreement under the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the November 30, 2011 10-Q).
10.19
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).
10.20
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).
21
23
Subsidiaries of the Corporation, as of July 16, 2013.
Consent of Ernst & Young LLP.
31.1
Certification of the Chief Executive Officer of the Corporation filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer of the Corporation filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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.
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 ***
*
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.
** The 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 Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.”
88
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 89
Signatures
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.
Dated: July 29, 2013
Power of Attorney
SCHOLASTIC CORPORATION
By: /s/ Richard Robinson
_____________________________________
Richard Robinson, Chairman of the Board,
President and Chief Executive Officer
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.
Signature
Title
/s/ Richard Robinson
_________________________
Richard Robinson
Chairman of the Board, President and
Chief Executive Officer and Director
(principal executive officer)
/s/ Maureen O’Connell
_________________________
Maureen O’Connell
Executive Vice President, Chief Administrative
Officer and Chief Financial Officer
(principal financial officer)
/s/ Robert M. Gibney
_________________________
Robert M. Gibney
Senior Vice President, Chief Accounting
Officer
(principal accounting officer)
/s/ James W. Barge
_________________________
James W. Barge
/s/ Marianne Caponnetto
_________________________
Marianne Caponnetto
/s/ John L. Davies
_________________________
John L. Davies
/s/ Andrew S. Hedden
_________________________
Andrew S. Hedden
Director
Director
Director
Director
89
Date
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
02_73994_Scholastic_AR 7/31/13 11:45 AM Page 90
Signature
/s/ Mae C. Jemison
_________________________
Mae C. Jemison
/s/ Peter M. Mayer
_________________________
Peter M. Mayer
/s/ John G. McDonald
_________________________
John G. McDonald
/s/ Augustus K. Oliver
_________________________
Augustus K. Oliver
/s/ Richard M. Spaulding
_________________________
Richard M. Spaulding
/s/ Margaret A. Williams
_________________________
Margaret A. Williams
Title
Director
Director
Director
Director
Director
Director
Date
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
July 29, 2013
90
02_73994_Scholastic_AR 7/31/13 11:45 AM Page S-1
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED MAY 31, 2013
ITEM 15(c)
S-1
02_73994_Scholastic_AR 7/31/13 11:45 AM Page S-2
Schedule II
Valuation and Qualifying Accounts and Reserves
Balance at
Beginning
of Year
Expensed
Write-Offs
and Other
Balance at
End of Year
(Amounts in millions)
Years ended May 31,
$ 25.9
57.5
90.8
77.8
$ 22.3
33.0
82.2
71.8
$ 18.5
30.9
78.1
68.9
$ 6.8
50.2
27.2
4.7
$ 12.3
81.8
48.1
6.5
$ 13.6
69.6
27.3
4.5
$ 13.4
81.3(1)
27.7
1.0
$ 8.7
57.3(1)
39.5
0.5
$ 9.8
67.5(1)
23.2
1.6
$ 19.3
26.4
90.3
81.5
$ 25.9
57.5
90.8
77.8
$ 22.3
33.0
82.2
71.8
2013
Allowance for doubtful accounts
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances
2012
Allowance for doubtful accounts
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances
2011
Allowance for doubtful accounts
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances
(1) Represents actual returns charged to the reserve
S-2
02_73994_Scholastic_AR 7/31/13 11:45 AM Page S-3
[This Page Intentionally Left Blank]
02_73994_Scholastic_AR 7/31/13 11:45 AM Page S-4
Offices and Corporate Information
U.S. Offices
Scholastic Corporation Accounting Services
and Information Systems Center
100 Plaza Drive, 4th floor
Secaucus, NJ 07094
201-633-2400
National Service Organization;
Scholastic Book Clubs, Inc.
2931 East McCarty Street
Jefferson City, MO 65101
573-636-5271
International Offices
Malaysia
Grolier (Malaysia) SDN. BHD.
60 3 2688 1688
New Zealand
Scholastic New Zealand Ltd.
64 9 274 8112
Philippines
Grolier International, Inc.
63 2 944 7323
Puerto Rico
Scholastic
787 724 2590
China
Scholastic Education Information
Consulting Co., Ltd.
86 2164264555
Stockholder Information
Media Relations and Inquiries
The news media and others seeking
information about the Company should
contact:
Scholastic Corporation
Media Relations
212-343-4563
news@scholastic.com
Stock Listing
Scholastic Corporation common stock is
traded on The NASDAQ Stock Market
under the symbol SCHL.
Stock Transfer Agent, Registrar, and
Dividend Disbursement Agent
Computershare
1-877-272-1580
1-201-680-6578 (International)
TDD hearing impaired telephone numbers:
1-800-231-5469
1-201-680-6610 (International)
www.bnymellon.com/shareowner/
equityaccess
Scholastic Book Fairs, Inc.
1080 Greenwood Boulevard
Lake Mary, FL 32746
407-829-7300
Customer Service
1-800-SCHOLASTIC
(1-800-724-6527)
www.scholastic.com/custsupport
Singapore
Grolier International, Inc.
65 6922 9555
Scholastic Education International
(Singapore) Private Limited
65 6922 9589
Taiwan
Grolier International, Inc.
886 2 2719 2188
Thailand
Grolier International, Inc.
66 2 233 9450
United Kingdom and Ireland
Scholastic Ltd.
44 207 756 7756
Scholastic Ireland Ltd.
353 1830 6798
Registered stockholders who need to
change their address or transfer
shares should send instructions to:
By Mail:
Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015
By Overnight Delivery:
Computershare
480 Washington Boulevard
Jersey City, NJ 07310-1900
Independent Accountants
Ernst & Young LLP
5 Times Square
New York, NY 10036-6530
General Counsel
Baker & McKenzie LLP
452 Fifth Avenue
New York, NY 10018
Scholastic Corporation, Scholastic Inc.,
Corporate and Editorial Offices
557 Broadway
New York, NY 10012
212-343-6100
www.scholastic.com
Scholastic Library Publishing, Inc.
90 Sherman Turnpike
Danbury, CT 06816
203-797-3500
Australia
Scholastic Australia Pty. Ltd.
61 2 4328 3555
Canada
Scholastic Canada Ltd.
905 887 7323
Hong Kong
Scholastic Hong Kong Ltd.
852 2722 6161
India
Scholastic India Private Ltd.
91 124 484 2800
Grolier International Private Limited
91 11 4611 8118
Indonesia
Grolier International, Inc.
62 21 392 3042
2013 Annual Stockholders’ Meeting
2013 Annual Meeting of Stockholders
will be held at 9:00 a.m. on Wednesday,
September 18, 2013, at Scholastic’s
Corporate Headquarters, 557 Broadway,
New York, NY 10012.
Investor Relations and Information
Copies of Scholastic Corporation’s report
on Form 10-K as filed with the Securities
and Exchange Commission as well as
other financial reports and news from
Scholastic may be read and downloaded at
investor.scholastic.com.
If you do not have access to the Internet,
you may request free printed material
upon written request to the Company.
Stockholders and analysts seeking
information about the Company should
contact:
Scholastic Corporation
Investor Relations
212-343-6741
investor_relations@scholastic.com
The Company announces the dates/times
of all upcoming earnings releases and
teleconferences in advance. These calls are
open to the public and are also available as
a simultaneous webcast via the Company’s
website.
DIRECTORS AND OFFICERS
Directors of the Corporation
Richard Robinson (E)
Chairman of the Board, President
and Chief Executive Officer,
Scholastic Corporation
Andrew S. Hedden (R)
Executive Vice President,
General Counsel and Secretary,
Scholastic Corporation
John G. McDonald (H, R)
The Stanford Investors Professor,
Graduate School of Business,
Stanford University
James W. Barge (A, N)
Independent Financial Consultant
Mae C. Jemison (N, P, R)
President and Founder,
The Jemison Group, Inc.
Augustus K. Oliver (A, E, P)
Managing Member,
Oliver Press Partners, LLC
Marianne Caponnetto (H, P)
President and Founder,
MCW Group, Inc.
John L. Davies (A, H)
Private Investor
Peter M. Mayer (E, H, P)
President, The Overlook Press/
Peter Mayer Publishers, Inc.
Richard M. Spaulding (E, N, P, R)
Former Executive Vice President,
Scholastic Corporation
Margaret A. Williams (P)
Partner, Griffin Williams LLC
A: Audit Committee
E: Executive Committee
H: Human Resources and
Compensation Committee
N: Nominating and
Governance Committee
P: Strategic Planning Committee
R: Retirement Plan Committee
Corporate Executive Officers
Richard Robinson
Chairman of the Board, President
and Chief Executive Officer
Andrew S. Hedden
Executive Vice President,
General Counsel and Secretary
Judith A. Newman
Executive Vice President and President,
Book Clubs and E-Commerce
Maureen O’Connell
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
Margery W. Mayer
Executive Vice President and President,
Scholastic Education
Alan Boyko
President,
Scholastic Book Fairs, Inc.
557 Broadway, New York, NY 10012 212-343-6100
www.scholastic.com
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557 Broadway, New York, NY 10012 212-343-6100
www.scholastic.com