2013/2014 AnnuAl RepoR t
CREDO
Scholastic produces educational materials to assist and inspire students:
• To cultivate their minds to utmost capacity
• To become familiar with our cultural heritage
• To strive for excellence in creative expression in all fields of learning, literature, and art
• To seek effective ways to live a satisfying life
• To enlarge students’ concern for and understanding of today’s world
• To help build a society free of prejudice and hate, and dedicated to the highest
quality of life in community and nation
We strive to present the clearest explanation of current affairs and contemporary thought, and to encourage literary
appreciation and expression consistent with the understanding and interests of young people at all levels of learning.
We believe in:
• The worth and dignity of each individual
• Respect for the diverse groups in our multicultural society
• The right of each individual to live in a wholesome environment, and equally, the
personal responsibility of each individual to help gain and preserve a decent and healthful
environment, beginning with informed care of one’s own body and mind
• High moral and spiritual values
• The democratic way of life, with basic liberties — and responsibilities — for everyone
• Constitutional, representative government, and even-handed justice that maintains
equality of rights for all people
• Responsible competitive enterprise and responsible labor, with opportunities for all
• Cooperation and understanding among all people for the peace of the world
We pledge ourselves to uphold the basic freedoms of all individuals; we are unalterably opposed to any system of
government or society that denies these freedoms. We oppose discrimination of any kind on the basis of race, creed,
color, sex, sexual orientation or identity, age, or national origin.
Good citizens may honestly differ on important public questions. We believe that all sides of the issues of our times
should be fairly discussed — with deep respect for facts and logical thinking — in classroom magazines, books, and
other educational materials used in schools and homes.
Founded 1920
557 Broadway, New York, NY 10012 • 212-343-6100 • www.scholastic.com
2012/2014 ANNUAL REPORT
Fellow Shareholders,
Scholastic achieved our fiscal 2014 guidance with strong results in our core businesses, Children’s
Books and Education.
• 2014 EPS increased +43% to $1.36 on 2% revenue growth.
• Excluding special one-time items, 2014 EPS climbed +51% to $1.84.
• Book Clubs revenue rose +12% in the year on higher engagement levels and popular titles.
• Ed Tech sales grew +9% led by award-winning new MATH 180® intervention program.
• Minecraft books top bestseller lists with more releases planned for fiscal 2015.
Scholastic’s position as a global leader in education and literacy has never been stronger. Through all of our
contacts into the schools, we’ve seen that the shift to more rigorous standards designed to prepare all students for
college and career is widespread, despite the criticism of the term “Common Core” in some parts of the country.
Teachers are embracing higher standards, but are concerned about what it’s going to take to move all students to
those standards. They need additional resources that they are not sure will be forthcoming. With roughly two-
thirds of students performing below proficiency on national tests, our focus on results through comprehensive
instructional systems and professional development supports the drive for higher standards. We believe that
our educational technology business is recognized as the leader in intervention that helps all students to achieve
academic success, and we expect demand for our solutions to grow.
Also, use of our books and magazines is growing across all of our channels. Teachers understand that it’s going to
take broader reading experience by students to meet the new standards, and they are looking to us for high-quality
non-fiction and for great stories that spark independent reading, which, in turn, helps build vocabulary, content
knowledge and higher-level reading skills.
Growth in fiscal 2014 in our children’s book businesses attests to our critical role in schools and homes:
• Book Club revenue grew 12% with grade-specific mailings, as well as a broader range of offers and more
popular titles kids love.
• More than 129,000 Book Fairs were held nationwide, as schools use Fairs to create a reading culture in their
schools and in their communities.
• The Minecraft handbooks from our Trade Publishing group were major bestsellers, along with the Hunger
Games trilogy, and Trade continues to fuel our Club and Fair channels with the books kids love and that instill
a passion for reading.
• In Education, we started the year with the ambitious launch of five major new curriculum programs, and
customers responded positively to all. Ed tech revenue grew 9% and profits grew 34%, led by MATH 180®,
which sold into 47 states in just the first nine months.
• Classroom books, summer reading and other family and community engagement programs and Classroom
Magazines also saw significant growth, with Classroom Magazines now reaching 13 million users in print and
digital formats.
• Principal photography was completed for the Goosebumps™ movie starring Jack Black, and we will issue new
Goosebumps® books in anticipation of the film release in August 2015.
• In International, Book Clubs, Fairs and Trade did well in Canada, Australia and the U.K. We also expanded
our educational offerings in India, Malaysia, Australia, Latin America and the Middle East with PR1ME™
Mathematics and Scholastic Literacy Pro™ — programs that will help drive growth in International in fiscal
2015 and beyond.
In 2015, we expect continued improvement in our Clubs and Fairs businesses and look forward to some exciting
new trade releases. We also expect continued growth in Education as schools choose our proven-effective print
and digital programs, and teachers turn to us for professional support and resources to help prepare their students
for college and careers. Our expanded educational offerings and bestselling books are expected to drive growth in
international markets.
Even as we remain focused on our mission to encourage the academic and personal growth of all children, we
continue to drive toward increased efficiencies, revenue growth and margin expansion in all of our businesses.
Thank you for your ongoing support of our company.
Richard Robinson
Chairman, President and Chief Executive Officer
July 31, 2014
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, 2014 | 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
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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
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
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
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):
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
The aggregate market value of the Common Stock, par value $0.01, held by non-affiliates as of November 30, 2013, was approximately
$807,200,649. 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 30, 2014 was as follows: 30,613,339 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
Documents Incorporated By Reference
to be held September 24, 2014.
[This Page Intentionally Left Blank]
Table of Contents
Part I
Part II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statement of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Supplementary Financial Information
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits, Financial Statement Schedules
Signatures
Power of Attorney
Schedule II: Valuation and Qualifying Accounts and Reserves
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.
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Item 1 | Business
Overview
Part I
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 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, magazines, multi-media and other products that help
children learn both at school and at home. The Company is the leading operator of school-based book clubs and book fairs in
the United States. It distributes its products and services through these proprietary 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 more than 150 countries.
The Company currently employs approximately 7,500 people in the United States and approximately 2,200 people outside the
United States.
Operating Segments – Continuing Operations
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
(which collectively represent the Company’s domestic operations); and International. This classification reflects the nature of
products, services and distribution consistent with the method by which the Company’s chief operating decision-maker assesses
operating performance and allocates resources.
The following table sets forth revenues by operating segment for the three fiscal years ended May 31:
Children’s Book Publishing and Distribution
Educational Technology and Services
Classroom and Supplemental Materials Publishing
Media, Licensing and Advertising
International
Total
2014
2013
(Amounts in millions)
2012
873.5
248.7
229.6
56.2
414.3
1,822.3
$
$
846.9
227.7
218.0
58.7
441.1
1,792.4
$
$
1,111.3
254.7
208.2
75.3
489.6
2,139.1
$
$
Additional financial information relating to the Company’s operating segments is included in Note 4 of Notes to Consolidated
Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data,” which is included herein.
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
(48.0% of fiscal 2014 revenues)
General
The Company’s Children’s Book Publishing and Distribution segment includes the publication and distribution of children’s
books, media and interactive products in the United States through its book clubs and book fairs in its school channels and
through the trade channel.
The Company is the world’s largest publisher and distributor of children’s books and is the 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 distributed through the trade channel. Scholastic offers a broad range of children’s books, many of which have received
awards for excellence in children’s literature, including the Caldecott and Newbery Medals.
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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. In fiscal 2014, the Company launched its new school-based book
clubs consisting of reading clubs for grades pre-kindergarten ("pre-K") through grade 5 and middle school grades 6 to 8. In
addition to its regular book club reading club offerings, 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 reductions from list prices. The teacher aggregates the students’
orders and forwards them to the Company. The Company estimates that approximately 63% of all elementary school teachers in
the United States who received promotional materials in fiscal 2014 participated in the Company’s school-based book clubs. In
fiscal 2014, approximately 85% of total book club revenues were placed via the internet through COOL (Clubs Ordering On-
Line), the Company’s online ordering platform, which allows parents, as well as teachers, to order online. 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 number of second
and third fairs conducted by its 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 2013 hosted a fair in fiscal 2014.
Trade
Scholastic is a leading publisher of children’s books sold through bookstores, internet retailers and mass merchandisers in the
United States. The Company maintains approximately 6,100 titles for trade distribution. Scholastic’s original publications
include Harry Potter®, The Hunger Games, The 39 Clues®, Spirit Animals™, The Magic School Bus®, I Spy™, Captain
Underpants®, Goosebumps®
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 Charms, Nail Style Studio, and Pom-Pom Puppies.
and Clifford The Big Red Dog®, and licensed properties such as Star Wars®, Lego®, Minecraft®
The Company’s trade organization focuses on publishing, marketing and selling print and ebook properties to bookstores,
internet retailers, mass merchandisers, specialty sales outlets and other book retailers, and also supplies the Company’s
proprietary school channels. The Company maintains a talented and experienced creative staff that constantly seeks to attract,
develop and retain the best children’s authors and illustrators. The Company believes that its trade publishing staff, combined
with the Company’s reputation and proprietary school distribution channels, provides a significant competitive advantage,
evidenced by numerous bestsellers over the past decade. Print bestsellers in the trade division during fiscal 2014 included the
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Hunger Games trilogy by Suzanne Collins, which was also an ebook bestseller, the Harry Potter series, the Spirit Animal series,
the Wings of Fire series and the I Survived series, as well as other titles, such as Star Wars: Jedi Academy by Jeffrey Brown.
EDUCATIONAL TECHNOLOGY AND SERVICES
(13.6% of fiscal 2014 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 United States, primarily purchased through school and
district budgets, often with the help of federal and state funding, as well as local funding. These operations include reading and
math improvement programs and other educational technology products, as well as consulting and professional development
services.
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 reading and math. Significant technology-based reading
and math improvement programs that Scholastic offers include:
(cid:127) READ 180®, a reading intervention program for students in grades 4 to 12 reading at least two years below grade level,
READ 180 Next Generation, a substantially revised version of the original product; and Read 180 for iPad®, a
comprehensive reading program for iPad;
System 44®, a foundational reading intervention program for students in grades 4 to 12 who have not yet mastered the
44 sounds and 26 letters of the English language, and System 44 Next Generation, a revised version of the original
product;
Scholastic Reading Inventory, which is a research-based, computer-adaptive assessment for grades K to 12 that allows
educators to assess a student’s reading comprehension;
(cid:127)
(cid:127)
(cid:127) MATH 180®, a revolutionary math intervention program for students in grades 6 and up;
(cid:127)
(cid:127) Common Core Code X®, a middle school English Language Arts program with more complex texts required by the
iRead™, a digital foundational reading program for grades K-2; and
Common Core State Standards.
Other major programs include FASTT Math®, a technology-based program to improve math fact fluency developed with the
creator of READ 180, and Do The Math®, a mathematics intervention program created by Marilyn Burns, a nationally known
math educator and the founder of Math Solutions. The Company considers its educational technology products and related
services to be a growth driver and continues to focus on investment in its technology and services businesses. Significant recent
activity includes the expansion of the Company's offering to include its Math 180 intervention mathematics solutions. The
segment's consulting and professional development services focus on optimizing the utilization of the Scholastic products
described above, as well as helping teachers and school districts meet professional standards and implement new requirements
and standards, including the Common Core State Standards.
CLASSROOM AND SUPPLEMENTAL MATERIALS PUBLISHING
(12.6% of fiscal 2014 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, including the Phyllis C. Hunter and the Leveled Math Readers series. This segment often
customizes classroom library solutions for its customers, tailoring its offerings in some instances.
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The teaching resources business publishes and sells professional books and supplemental materials designed for and generally
purchased by teachers, both directly from the Company and through teacher stores and booksellers, including the Company’s
on-line Teacher store, which provides professional books and other educational materials to schools and teachers.
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 the United States. The Company’s products also include non-fiction/fiction books published
in the United States under the imprints Children’s Press® and Franklin Watts®.
Scholastic is a leading publisher of classroom magazines. Teachers in grades pre-K to 12 use the Company’s 31 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. These offerings provide schools with substantial non-fiction material, which is required to meet Common
Core State Standards. 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 2014 was approximately 13.1 million, with
approximately 75% 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 2014.
MEDIA, LICENSING AND ADVERTISING
(3.1% of fiscal 2014 revenues)
General
The Company’s Media, Licensing and Advertising segment includes the production and/or distribution of digital media, movie
production, consumer promotions and merchandising and advertising revenue, including sponsorship programs.
Production and Distribution
Through Scholastic Media, the Company creates and produces programming and digital content for all platforms, including
television, DVDs, audio, movies, interactive games, apps (applications) and websites. Scholastic Media builds consumer
awareness and value for the Company’s franchises by creating family-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-marketing campaigns that support the Company’s key franchises. Scholastic Media consists of Scholastic Entertainment
Inc. (SEI), Scholastic Audio, Soup2Nuts Inc. (S2N), Weston Woods Studios, Inc. and Scholastic Interactive L.L.C.
SEI has built a large television library of half-hour productions, including: Clifford The Big Red Dog®, Clifford’s Puppy Days®,
Dear America®, I Spy®, WordGirl®, Maya & Miguel™ , The Magic School Bus®, Goosebumps®, Turbo Dogs, Animorphs®,
Horrible Histories®, The Baby-sitters Club® and Sammy’s Storyshop™. These series have been sold in the United States and
throughout the world and have garnered major awards including Emmys, Peabodys and an Academy award.
S2N is an animation and audio production studio, supplying animation and audio services for the Company that supports audio
books and SEI programming, including the Emmy award-winning animated series Word Girl. Weston Woods Studios, Inc.
creates audio visual adaptations of classic children’s picture books, such as Where the Wild Things Are, Chrysanthemum and
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.
Scholastic Interactive designs and produces software, apps, games, etc., based on Scholastic properties, for grades pre-K to 8.
Its products are distributed through the Company’s school-based book clubs and book fairs, as well as to 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
Also included in this segment is Scholastic National Partnerships, which partners with non-profit organizations, government
agencies, associations and selected corporations to develop literacy, education and pro-social campaigns which are aligned to
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the Company’s corporate mission of supporting children’s reading and learning in classrooms and at home, and the Company’s
consumer magazines business, including Parent and Child and Instructor Magazines.
INTERNATIONAL
(22.7% of fiscal 2014 revenues)
General
The International segment 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. 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;
engage in direct sales in shopping malls and door to door; 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 children’s literature. In Asia, the Company also publishes and distributes reference products and provides services
under the Grolier name, engages in direct sales in shopping malls and door to door and operates tutorial centers that provide
English language training to students.
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 suppliers of original or licensed children’s books to the Canadian trade market. Since 1965, Scholastic Canada has also
produced quality Canadian-authored books and educational materials, including an early reading program sold to schools for
grades K to 6.
United Kingdom
Scholastic UK, founded in 1964, is the largest school-based book club and book fair operator in the United Kingdom and one of
the leading suppliers of original or licensed children’s books to the United Kingdom trade market. Scholastic UK also publishes
supplemental educational materials, including professional books for teachers.
Australia
Scholastic Australia, founded in 1968, is the largest school-based book club and book fair operation in Australia, reaching
approximately 90% of the country’s primary schools. Scholastic Australia also publishes quality children’s books supplying the
Australian trade market.
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 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 operates a chain of English language tutorial centers in China in cooperation with local
partners.
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Foreign Rights and Export
The Company licenses the rights to selected Scholastic titles in 45 languages to other publishing companies around the world.
The Company’s export business sells educational materials, software and children’s books to schools, libraries, bookstores and
other book distributors in over 150 countries that are not otherwise directly serviced by Scholastic subsidiaries. The Company
partners with governments and non-governmental agencies to create and distribute books to public schools in developing
countries.
PRODUCTION AND DISTRIBUTION
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.
In the United States, the Company mainly processes and fulfills orders for school-based book clubs, trade, curriculum
publishing, reference and non-fiction products and export orders from its primary warehouse and distribution facility in
Jefferson City, Missouri. In connection with its trade business, the Company sometimes will ship product directly from printers
to customers. Magazine orders are processed at the Jefferson City facility and are shipped directly from printers. Orders for
ebooks are fulfilled through a third party.
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.
CONTENT ACQUISITION
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:
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(cid:127)
(cid:127)
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 Distribution segment 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 Services segment 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.
Royalty advances. Royalty advances are incurred in all of the Company’s reportable segments, but are most
prevalent in the Children’s Book Publishing and Distribution segment and enable the Company to obtain
contractual commitments from authors to produce Content. The Company regularly provides authors with
advances against expected 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 both 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.
-6-
SEASONALITY
The Company’s Children’s Book Publishing and Distribution school-based book fair and book club channels and most of its
magazines operate on a school-year basis; therefore, the Company’s business is highly seasonal. As a result, the Company’s
revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters.
Typically, these school-based channel revenues are greatest in the second and fourth quarters of the fiscal year, while revenues
from the sale of instructional materials and educational technology products and services are highest in the first and fourth
quarters. The Company generally experiences a loss from operations in the first and third quarters of each fiscal year. Trade
sales can vary through the year due to varying release dates of published titles.
COMPETITION
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 other book, ebook,
textbook, library, reference material and supplementary text publishers, distributors and other resellers (including over the
internet) of children’s books and other educational materials, national publishers of classroom and professional magazines with
substantial circulation, numerous producers of television and film programming (many of which are substantially larger than
the Company), television and cable networks, publishers of computer software and interactive products, and distributors of
products and services on the internet. In the United States, competitors also include regional and local school-based book fair
operators, other fundraising activities in schools, and bookstores. In its educational technology business, additional competitive
factors include the demonstrated effectiveness of the products being offered, as well as available funding sources to school
districts, and, although the Company believes no other organization or company offers as comprehensive an offering as its suite
of reading and math intervention products and services, the Company faces competition from textbook publishers, distributors
of other technology-based programs addressing the subject areas of the Company’s offerings, such as reading, phonics and
mathematics, and, with respect to its consulting services, not-for-profit organizations providing consulting covering various
areas related to education. Competition may 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.
COPYRIGHT AND TRADEMARKS
As an international publisher and distributor of books, software and other media products, Scholastic aggressively utilizes the
intellectual property protections of the United States and other countries in order to maintain its exclusive rights to identify and
distribute many of its products. Accordingly, SCHOLASTIC is a trademark registered in the United States and in a number of
countries where the Company conducts business or otherwise distributes its products. The Corporation’s principal operating
subsidiary in the United States, Scholastic Inc., and the Corporation’s international subsidiaries, through Scholastic Inc., have
registered and/or have pending applications to register in relevant territories trademarks for important services and programs.
All of the Company’s publications, including books, magazines and software and interactive products, are subject to copyright
protection both in the United States and internationally. The Company also obtains domain name protection for its internet
domains. The Company seeks to obtain the broadest possible intellectual property rights for its products, and because
inadequate legal and technological protections for intellectual property and proprietary rights could adversely affect operating
results, the Company vigorously defends those rights against infringement.
-7-
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
Maureen O’Connell
Margery W. Mayer
Judith A. Newman
Andrew S. Hedden
Alan Boyko
Available Information
Age
77
52
62
56
73
60
Employed by
Registrant Since
1962
2007
1990
1993
2008
1988
Position(s) for Past Five Years
Chairman of the Board (since 1982), President (since 1974) and
Chief Executive Officer (since 1975).
Executive Vice President, Chief Administrative Officer and Chief
Financial Officer (since 2007).
Executive Vice President (since 1990), and President, Scholastic
Education (since 2002); and Executive Vice President, Learning
Ventures (1998-2002).
Executive Vice President and President, Book Clubs (since 2014),
Book Clubs and eCommerce (2011-2014), Book Clubs (2005-2011)
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).
President, Scholastic Book Fairs, Inc. (since 2005).
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.
-8-
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 and media products and services, including digital
products and services, for its customers, as well as to adapt its print and other materials to new digital technologies, including
the internet, ebook readers, tablets and other devices 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 anticipates or has experienced historically. In particular, in the context of the Company’s current focus on key digital
opportunities, including ebooks for children and schools, the markets are continuing to develop 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 and schools, such as the nature of the relevant software and hardware, the size of the market,
relevant methods of delivery and relevant content, as well as pricing models, are still evolving and will, most likely, be subject
to change on a recurrent basis until a pattern develops and 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 ereading applications for
consumer and classroom markets, which could adversely affect the Company’s revenues and growth opportunities. In this
connection, the Company has determined that it will cease its support for its ereading applications offered to consumers through
its school and ecommerce channels in favor of concentrating its efforts towards the introduction of a universal cross-platform
streaming application, to be made available initially to the classroom market. There can be no assurance that the Company will
ultimately be successful in its redirected strategy of introducing a streaming model directed to the classroom market or the
subsequent development of a broader streaming model. In addition, the Company faces market risks associated with software
product development and service delivery in its evolving educational technology and ecommerce businesses as it extends to
new product lines focused on mathematics and providing services that assist school districts with meeting new standards,
including the Common Core State Standards.
Our financial results would suffer if we fail to successfully differentiate our offerings and meet market
needs in school-based book clubs and book fairs, two of our core businesses.
The Company’s school-based book clubs and book fairs are core businesses, which produce a substantial part 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. The Company differentiates itself from competitors by providing
curated offerings in its school-based book clubs and book fairs designed to make reading attractive for children, in furtherance
of its mission as a champion of literacy. Competition from mass market and on-line distributors could reduce this
differentiation, posing a risk to the Company's 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.
-9-
If we fail to adapt to new purchasing patterns or trends, our business and financial results could be
adversely affected.
The Company’s business is affected significantly by changes in customer purchasing patterns or trends in, as well as the
underlying strength of, the educational, trade and media markets for children. In particular, the Company’s educational
technology and services and educational publishing businesses may be adversely affected by budgetary restraints and other
changes in educational funding as a result of new legislation or regulatory actions, both at the federal and state level, as well as
changes in the 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 otherwise be successful in
continuing to obtain sales of its products from any available funding.
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.
Additionally, demand for many of the Company’s product offerings, particularly books sold through school channels, is subject
to price sensitivity. Failure to maintain a competitive pricing model could reduce revenues and profitability.
Our reputation is one of our most important assets, and any adverse publicity or adverse events, such as a
significant data privacy breach or violation of privacy laws or regulations, could cause significant
reputational damage and financial loss.
The businesses of the Company focus on children’s reading, 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 books and educational products appropriate for children. Negative
publicity, either through traditional media or through social media, could tarnish this relationship.
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 publicity stemming from a data breach, whether or not valid, could
reduce demand for the Company’s products or adversely affect its relationship with teachers or educators, impacting
participation in book clubs or book fairs or decisions to purchase educational technology or other products or services of the
Company’s educational technology business. Further, a failure to adequately protect personal data, including that of customers
or students, or other data security failure, such as cyber attacks from third parties, could lead to penalties, significant
remediation costs and reputational damage, including loss of future business.
The Company is subject to privacy laws and regulations in the conduct of its business in the United States and in the other
jurisdictions in which it conducts its international operations, many of which vary significantly, relating to use of information
obtained from customers of, and participants in, the Company’s on-line offerings. In addition, the Company is also subject to
the regulatory requirements of the Children’s Online Privacy Protection Act ("COPPA") in the United States relating to access
to, and the use of information received from, children in respect to the Company’s on-line offerings. Since the businesses of
the Company are primarily centered on children, failures of the Company to comply with the requirements of COPPA in
particular, as well as failures to comply generally with applicable privacy laws and regulations, could lead to significant
reputational damage and other penalties and costs, including loss of future business.
We maintain an experienced and dedicated employee base that executes the Company’s strategies. Failure
to attract, retain and develop this employee base could result in difficulty with executing our strategy.
The Company’s employees, notably its Chief Executive Officer, senior executives and other editorial staff members, have
substantial experience in the publishing and education markets. Inability to adequately maintain a workforce of this nature
could negatively impact the Company’s operations.
-10-
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 its 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 ability to implement and successfully market new product
introductions in its educational technology business, as well as through the Company's developing educational publishing
operation in Singapore, its ability to expand in the global markets that it serves, its ability to meet demand for content meeting
current standards, including the Common Core State Standards, and its continuing success in implementing on-going cost
containment and reduction programs. Difficulties, delays or failures experienced in connection with any of these factors could
materially affect the future growth of the Company.
Failure of one or more of our information technology platforms could affect our ability to execute our
operating strategy.
The Company relies on a variety of information technology platforms to execute its operations, including human resources,
payroll, finance, order-to-cash, procurement, vendor payment, inventory management, distribution and content management
systems. Many of these systems are integrated via internally developed interfaces and modifications. Failure of one or more
systems could lead to operating inefficiencies or disruptions and a resulting decline in revenue or profitability. As the Company
proceeds to develop an enterprise-wide platform in an effort to integrate its separate platforms into a cohesive system, there can
be no assurance that it will be successful in its efforts or that the implementation of its initiative will not involve disruptions
having a short term adverse impact on its operations.
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 Company’s major expense categories include employee compensation and printing, paper and distribution (such as postage,
shipping and fuel) costs. Compensation costs are influenced by 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 significant increase in paper costs, or in its
shipping or fuel costs, beyond those currently anticipated, which would generally be beyond the control of the Company, or if
the Company’s strategies to try to manage these costs, including additional cost savings initiatives, are ineffective, the
Company’s results of operations could be adversely affected.
Failure of third party providers to provide contracted outsourcing of business processes and information
technology services could cause business interruptions and could increase the costs of these services to
the Company.
The Company outsources business processes to reduce complexity and increase efficiency for activities such as distribution,
manufacturing, product development, transactional processing, information technologies and various administrative functions.
Increasingly, the Company is engaging third parties to provide software as a service (“SaaS”), which can reduce the Company’s
internal execution risk, but increases the Company’s dependency upon third parties to execute business critical information
technology tasks. If SaaS providers are unable to provide these services, or if outsource providers fail to execute their
contracted functionality, the Company could experience disruptions to its business activities and may incur higher costs.
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
impact the Company.
-11-
The loss of or failure to obtain rights to intellectual property material to our businesses would adversely
affect our financial results.
The Company’s products generally comprise intellectual property delivered through a variety of media. The ability to achieve
anticipated results depends in part on the Company’s ability to defend its intellectual property against infringement, as well as
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 jurisdictions, markets and media, as well as
by the costs of dealing with claims alleging infringement of the intellectual property rights of others, including claims involving
business method patents in the ecommerce and internet area, and the Company’s revenues could be constrained by limitations
on the rights that the Company is able to secure to exploit its intellectual property in different media and distribution channels,
as well as geographic limitations on the exploitation of such rights.
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 operating subsidiaries, and a significant portion of the
Company’s revenues are generated from outside of the 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 noncompliance with foreign laws, regulations
and policies, including those pertaining to foreign rights and exportation. The Company is also exposed to fluctuations in
foreign currency exchange rates and to business disruption caused by political, financial or economic instability or the
occurrence of natural disasters in foreign countries.
Failure to meet the demands of regulators, and the associated high cost of compliance with regulations, as
well as failure to enforce compliance with our Code of Ethics and other policies, could negatively impact
us.
The Company operates in multiple countries and is subject to different regulations throughout the world. In the U.S., the
Company is regulated by the Internal Revenue Service, the Securities and Exchange Commission, the Environmental Protection
Agency, the Federal Trade Commission and other regulating bodies. Failure to comply with these regulators, including
providing these regulators with accurate financial and statistical information that often is subject to estimates and assumptions,
or the high cost of complying with relevant regulations, could negatively impact the Company.
In addition, the decentralized and global nature of the Company’s operations makes it more difficult to communicate and
monitor compliance with the Company’s Code of Ethics and other material Company policies and to assure compliance with
applicable laws and regulations, some of which have global applicability, such as the Foreign Corrupt Practices Act in the
United States and the UK Bribery Act in the United Kingdom. Failures to comply with the Company’s Code of Ethics and
violations of such laws or regulations, including through employee misconduct, could result in significant liabilities for the
Company, including criminal liability, fines and civil litigation risk, and result in damage to the reputation of the Company.
Certain of our activities are subject to weather risks, which could disrupt our operations or otherwise
adversely affect our financial performance.
The Company conducts certain of its businesses and maintains warehouse and office facilities in locations that are at risk of
being negatively affected by severe weather events, such as hurricanes, tornadoes, floods or snowstorms. Notably, much of the
Company’s domestic distribution facilities are located in central Missouri. A disruption of these or other facilities could impact
the Company’s school-based book clubs, school-based book fairs and education businesses. Additionally, weather disruptions
could result in school closures, resulting in reduced demand for the Company’s products in its school channels during the
affected periods. Accordingly, the Company could be adversely affected by any future 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, except for the right of
the holders of Common Stock to elect one-fifth of the Board of Directors and except as otherwise provided by law or as may be
-12-
established in favor of any series of preferred stock that may be issued. Richard Robinson, the Chairman of the Board, 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 elect up to four-fifths of the Corporation’s Board of Directors and, without the approval of the
Corporation’s other stockholders, to effect or block other actions or transactions requiring stockholder approval, such as a
merger, sale of substantially all assets or similar transaction.
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.
Forward-Looking Statements:
This Annual Report on Form 10-K contains forward-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 or
expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future
business prospects, plans, ecommerce and digital initiatives, new product introductions, strategies, Common Core State
Standards, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, merit pay, operating
margins, working capital, liquidity, capital needs, interest costs, cash flows and income, are subject to risks and uncertainties
that could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors
including those noted in 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 otherwise.
Item 1B | Unresolved Staff Comments
None
Item 2 | Properties
The Company maintains its principal offices in the metropolitan New York area, where it owns or leases approximately 0.6
million square feet of space. On February 28, 2014, the Company acquired its headquarters space (including land, building,
fixtures and related personal property and leases) at 555 Broadway, New York, NY from its landlord under a purchase and sale
agreement. As a result of such purchase, the Company now owns the entirety of its principal headquarters space located at 557
and 555 Broadway in New York City.
The Company also owns or leases approximately 1.5 million square feet of office and warehouse space for its primary
warehouse and distribution facility located in the Jefferson City, Missouri area. In addition, the 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 book fairs.
Additionally, the Company owns or leases approximately 1.4 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 those claims and lawsuits where a loss is considered probable or reasonably possible, after taking into
-13-
account any amounts currently accrued, that the reasonably possible losses from such claims and lawsuits would have a
material adverse effect on the Company’s consolidated financial position or results of operations.
Item 4 | Mine Safety Disclosures
Not Applicable.
-14-
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 (the "Common Stock"), 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
For fiscal years ended May 31,
2014
2013
High
Low
High
Low
$
$
33.14
31.84
35.29
36.74
$
28.20
27.40
27.69
30.58
$
31.99
34.55
31.56
32.09
26.04
25.03
27.81
25.62
Holders: The number of holders of Class A Stock and Common Stock as of July 14, 2014 were 3 and approximately 10,000,
respectively.
Dividends: During fiscal 2013, the Company declared four regular quarterly dividends in the amount of $0.125 per Class A and
Common share, amounting to total dividends declared during fiscal 2013 of $0.50 per share. During the first quarter of fiscal
2014, the Company declared a regular quarterly dividend in the amount of $0.125 per Class A and Common share, which
dividend was increased to $0.15 per Class A and Common share in the second, third and fourth quarters of fiscal 2014.
Accordingly, the total dividends declared during fiscal 2014 were $0.575 per share. On July 23, 2014, the Board of Directors
declared a cash dividend of $0.15 per Class A and Common share in respect of the first quarter of fiscal 2015. This dividend is
payable on September 15, 2014 to shareholders of record on August 29, 2014. All dividends have been in compliance with the
Company’s debt covenants.
Share purchases: During fiscal 2014, the Company repurchased 215,484 Common shares on the open market at an average
price paid per share of $28.65 for a total of approximately $6.2 million, pursuant to a share buy-back program authorized by the
Board of Directors. During fiscal 2013, pursuant to the same share buy-back program, the Company repurchased 432,330
Common shares on the open market at an average price paid per share of $27.34, for a total cost of approximately $11.8
million. As of May 31, 2014, approximately $13.4 million remained available for future purchases of Common shares under
the current repurchase authorization of the Board of Directors.
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 three companies that includes Pearson PLC,
John Wiley & Sons Inc and Houghton Mifflin Harcourt. 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, 2009 to
May 31, 2014. Houghton Mifflin Harcourt was added to the peer group on November 14, 2013, which was the first day they
traded on the NASDAQ stock exchange.
-15-
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Scholastic Corporation, the NASDAQ Composite Index
and a Peer Group
*$100 invested on 5/31/09 in stock or index, including reinvestment of dividends.
Scholastic Corporation
NASDAQ Composite Index
Peer Group
Fiscal year ending May 31,
2009
2010
2011
2012
2013
2014
$ 100.00
100.00
100.00
$ 134.87
127.21
132.72
$ 142.27
159.80
186.92
$ 143.08
159.35
179.15
$ 163.18
194.77
190.39
$ 169.70
239.11
219.90
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
-16-
Item 6 | Selected Financial Data
Statement of Operations Data:
2014
2013
2012
2011
2010
(Amounts in millions, except per share data)
For fiscal years ended May 31,
Total revenues
$
1,822.3
$
1,792.4
$
2,139.1
$
1,877.6
$
1,882.0
Cost of goods sold (1)
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 expense, net
Loss on investments (6)
Earnings (loss) from continuing operations
before income taxes
Provision (benefit) for income taxes (7)
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
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
$
$
$
$
$
$
$
984.6
878.5
68.8
14.9
7.0
185.3
(0.1)
15.5
—
169.7
61.6
108.1
(5.7)
102.4
3.45
3.39
$
$
(0.18) $
(0.18) $
$
$
$
3.27
3.21
31.2
31.7
$0.450
427.5
194.9
1,670.3
152.8
159.3
56.4
57.4
830.3
869.0
834.7
60.1
6.7
3.4
103.7
(0.4)
15.6
(3.6)
84.1
38.8
45.3
(5.9)
39.4
1.36
1.34
$
$
(0.18) $
(0.18) $
$
$
$
1.18
1.16
33.1
33.6
$0.350
335.4
105.3
1,487.0
159.9
203.4
55.0
55.5
740.0
843.1
798.7
59.5
9.2
40.1
131.4
0.9
16.2
(1.5)
114.6
54.1
60.5
(4.4)
56.1
1.66
1.64
(0.12)
(0.12)
1.54
1.52
36.5
36.8
$0.300
493.6
244.1
1,600.4
202.5
252.8
55.0
55.9
830.4
829.6
815.0
66.5
13.4
0.0
67.9
0.0
14.5
—
53.4
17.6
35.8
(4.7)
31.1
1.12
1.10
$
$
(0.15) $
(0.15) $
$
$
$
0.97
0.95
31.8
32.4
$0.500
299.5
87.4
1,441.0
—
2.0
57.5
57.7
864.4
846.0
812.5
61.4
11.3
28.0
63.1
(0.0)
6.9
(5.8)
50.4
6.1
44.3
0.1
44.4
1.38
1.36
0.01
0.00
1.39
1.36
32.0
32.5
$0.575
233.7
20.9
1,528.5
120.0
135.8
0.0
0.0
915.4
$
$
$
$
$
$
$
-17-
(1)
(2)
(3)
(4)
(5)
(6)
(7)
In fiscal 2014, the Company recorded a pretax charge of $2.4 for royalties related to Storia® operating system-specific apps that will no longer be supported due to
the planned transition to a Storia streaming model.
In fiscal 2014, the Company recorded a pretax charge of $1.0 related to Storia operating system-specific apps that will no longer be supported due to the planned
transition to a Storia streaming model. 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 2012, the Company recorded a pretax charge of $4.9 for the impairment of intangible assets relating to certain publishing properties.
In fiscal 2014, the Company recorded pretax severance expense of $10.8 as part of a cost savings initiative. 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 2014, the Company recorded a pretax impairment charge of $14.6 for assets related to Storia operating system-specific apps that will no longer be
supported due to the planned transition to a Storia streaming model. In fiscal 2014, the Company recorded a pretax impairment charge of $13.4 related to goodwill
associated with the book clubs reporting unit in the Children's Book Publishing and Distribution segment. 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 2014, the Company recorded a pretax loss of $1.0 and $4.8 related to a US-based equity method investment and a UK-based cost-method investment,
respectively. 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 2014, the Company recognized previously unrecognized tax positions resulting in a benefit of $13.8, inclusive of interest, as a result of a settlement with
the Internal Revenue Service related to the audits for fiscal years ended May 31, 2007, 2008 and 2009.
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
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
(which collectively represent the Company’s domestic operations); and International. This classification reflects the nature of
products, services and distribution consistent with the method by which the Company’s chief operating decision-maker assesses
operating performance and 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
Revenues in 2014 were $1.82 billion, an increase of 2% from $1.79 billion in 2013, reflecting higher engagement levels in school-
based book clubs, buoyed by more popular titles and incentives and revamped marketing tools, the successful introduction of new
educational technology products, higher circulation in classroom magazines, and strong demand for the Company’s summer reading
programs, all partially offset by unfavorable foreign currency translation of $24.2 million. Consolidated earnings per diluted share
were $1.36 for the fiscal year ended May 31, 2014, compared to $0.95 in the prior fiscal year.
The Company began the year with the successful introduction of new innovative educational technology programs, including
the ground-breaking math intervention program, MATH 180, further strengthening the Company’s portfolio of offerings to
schools and classrooms. Book clubs operations improved significantly in the second half of the fiscal year, with new mailing
and incentive marketing strategies that, combined with an expanded line of popular and engaging titles, resulted in higher value
orders and increased ordering frequency. In addition to increased sales in the fiscal year, the Company achieved manufacturing
and distribution efficiencies across all businesses, which are expected to drive sustained margin expansion and strong operating
cash flows in fiscal 2015 and beyond.
In fiscal 2015, the Company expects revenue growth and enhanced profitability across the majority of its businesses and distribution
channels. The Company expects sales of its educational technology products to continue their positive trajectory as the Company
builds its sales organization and focuses on broadening the user base of its high-margin programs, including READ 180 and SYSTEM
44. This outlook also reflects the Company’s expectation for modest growth in its re-positioned book clubs and increased revenue
per fair in its book fairs unit as it continues to rebalance its fair mix towards schools that generate higher revenue per fair. The
Company expects growth in its International segment to be partially offset by increased investment in new products and the build-
out of the sales organization in Asia. The Company anticipates the recent success of Minecraft to continue, with two additional
titles and a boxed set scheduled for release later in 2014, and expects sales of the Hunger Games trilogy in its domestic trade and
international major markets to decrease in fiscal 2015.
-18-
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, current business factors, future expectations and various other assumptions believed to be
reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of
assets and liabilities. Actual results may differ from those estimates and assumptions. On an on-going basis, the Company
evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of
accounts receivable; sales returns; amortization periods; stock-based compensation expense; pension and other post-retirement
obligations; tax rates; recoverability of inventories, deferred income taxes and tax reserves, fixed assets, prepublication costs,
royalty advances and customer reward programs; and the fair value of goodwill and other intangibles. For a complete
description of the Company’s significant accounting 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.
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.
Trade –Revenue from the sale of children’s books for distribution in the retail channel is recognized when risks and benefits
transfer to the customer, or when the product is on sale and available to the public. For newly published titles, the Company, on
occasion, contractually agrees with its customers when the publication may be first offered for sale to the public, or an agreed
upon “Strict Laydown Date.” 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 generally recognized upon electronic delivery to the customer by the retailer.
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, 2014, management considers patterns of sales and returns in the
months preceding May 31, 2014, 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 reserve
for returns rate would have resulted in an increase or decrease in operating income for the year ended May 31, 2014 of
approximately $1.0 million. A 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.
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
depositories to the schools. For certain software-based 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
-19-
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.
Magazines – Revenue is deferred and recognized ratably over the subscription period, as the magazines 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.
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, 2014 of
approximately $3.0 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 resulted in an increase or decrease in operating income for the year ended May 31, 2014
of approximately $3.5 million.
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:
Goodwill and other intangible assets with indefinite lives are not amortized and are reviewed for impairment annually or more
frequently if impairment indicators arise.
-20-
With regard to goodwill, the Company compares the estimated fair values of its identified reporting units to the carrying values
of their net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the
fair values of its identified reporting units are less than their carrying values. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, the Company performs the two-step test. For each of the reporting units, the
estimated fair value is determined utilizing the expected present value of the projected future cash flows of the unit, in addition
to comparisons to similar companies. The Company reviews its definition of reporting units annually or more frequently if
conditions indicate that the 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 possible that
changes in assumptions and the performance of certain reporting units could lead to impairments in future periods,which may
be material.
With regard to other intangibles with indefinite lives, the Company determines the fair value by asset, which is then compared
to its carrying value. 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 value. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, the Company performs a quantitative test. The estimated fair value is determined
utilizing the expected present value of the projected future cash flows of the asset.
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 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 at the estimated cost 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.
Pension obligations – 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 interest cost components 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. 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, 2014 of approximately $0.2 million. 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, 2014 of approximately $1.7 million. 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
-21-
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 employee paying a portion of the premium and the Company paying the remainder of the medical cost.
The existing benefit obligation is 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, 2014 of approximately $0.6 million and $0.7 million respectively.
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, 2014 of approximately $0.1 million. 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, 2014 of approximately
$3.6 million and $3.1 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. Treasury rate in effect
on the date of grant with a term equal to the expected life. The expected term is determined based on historical employee
exercise and post-vesting termination behavior. The expected dividend yield is based on actual dividends paid or to be paid by
the Company. The volatility is estimated based on historical volatility corresponding to the expected life.
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 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.
-22-
Results of Operations
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2014
2013
2012
$
% (1)
$
% (1)
$
% (1)
Revenues:
Children’s Book Publishing and Distribution
$ 873.5
Educational Technology and Services
Classroom and Supplemental Materials Publishing
Media, Licensing and Advertising
International
Total revenues
Cost of goods sold (2)
Selling, general and administrative expenses (exclusive of
depreciation and amortization) (3)
Depreciation and amortization (4)
Severance (5)
Loss on leases and asset impairments (6)
Operating income
Interest income
Interest expense
Loss on investments and other(7)
Earnings (loss) from continuing operations before income
taxes
Provision (benefit) for income taxes (8)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
Earnings (loss) per share:
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)
48.0
13.6
12.6
3.1
22.7
$ 846.9
227.7
218.0
58.7
441.1
47.2
12.7
12.2
3.3
24.6
$ 1,111.3
254.7
208.2
75.3
489.6
248.7
229.6
56.2
414.3
1,822.3
846.0
100.0
46.4
1,792.4
829.6
100.0
46.3
2,139.1
984.6
52.0
11.9
9.7
3.5
22.9
100.0
46.0
812.5
44.6
815.0
45.5
878.5
41.1
61.4
11.3
28.0
63.1
0.6
(7.5)
(5.8)
50.4
6.1
44.3
0.1
44.4
1.38
0.01
1.39
1.36
0.00
1.36
$
$
$
$
$
$
$
3.4
0.6
1.5
3.5
0.0
(0.4)
(0.3)
2.8
0.4
2.4
0.0
2.4
$
$
$
$
$
$
$
66.5
13.4
0.0
67.9
1.2
(15.7)
—
53.4
17.6
35.8
(4.7)
31.1
1.12
(0.15)
0.97
1.10
(0.15)
0.95
3.7
0.7
0.0
3.8
0.1
(0.9)
—
3.0
1.0
2.0
(0.3)
1.7
68.8
14.9
7.0
185.3
1.0
(16.5)
(0.1)
169.7
61.6
108.1
(5.7)
$ 102.4
3.2
0.7
0.3
8.7
0.1
(0.8)
—
8.0
2.9
5.1
(0.3)
4.8
$
$
$
$
$
$
3.45
(0.18)
3.27
3.39
(0.18)
3.21
(1) Represents percentage of total revenues.
(2)
(3)
(4)
(5)
(6)
In fiscal 2014, the Company recorded a pretax charge of $2.4 for royalties related to Storia operating system-specific apps that will no longer be
supported due to the planned transition to a Storia streaming model.
In fiscal 2014, the Company recorded a pretax charge of $1.0 related to Storia operating system-specific apps that will no longer be supported due to
the planned transition to a Storia streaming model. 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 2012, the Company recorded a pretax charge of $4.9 for the impairment of intangible assets relating to certain publishing properties.
In fiscal 2014, the Company recorded pretax severance expense of $10.8 as part of a cost savings initiative. 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 2014, the Company recorded a pretax impairment charge of $14.6 for assets in the Children's Book Publishing and Distribution segment
related to Storia operating system-specific apps that will no longer be supported due to the planned transition to a Storia streaming model. In fiscal
2014, the Company recorded a pretax impairment charge of $13.4 related to goodwill associated with the book clubs reporting unit in the Children's
-23-
Book Publishing and Distribution segment. In fiscal 2012, the Company recorded a pretax impairment loss of $6.2 related to certain subleases in
lower Manhattan.
In fiscal 2014, the Company recorded a pretax loss of $1.0 and $4.8 related to a US-based equity-method investment and a UK-based cost-method
investment, respectively.
In fiscal 2014, the Company recognized previously unrecognized tax positions resulting in a benefit of $13.8, inclusive of interest, as a result of a
settlement with the Internal Revenue Service related to the audits for fiscal years ended May 31, 2007, 2008 and 2009.
(7)
(8)
Results of Operations – Consolidated
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 increased by $29.9 million, or 1.7%, to $1,822.3 million, compared to
$1,792.4 million in the prior fiscal year. The book clubs and book fairs channels of the Children’s Book Publishing and
Distribution segment experienced higher revenues of $24.7 million and $14.1 million, respectively, driven by changes in the
marketing strategies for these channels. Also contributing to the increase were strong results from new product offerings in the
Company’s Educational Technology and Services segment. MATH 180®, iRead™ and Common Core Code X®, all of which are
new product offerings successfully launched for the 2013-2014 school year, resulted in increased revenues of $28.3 million.
Classroom and Supplemental Materials Publishing segment revenues were also higher by $11.6 million, driven by higher
classroom magazine circulation. Offsetting the increase were lower revenues from the Hunger Games trilogy of $27.3 million
across the Children’s Book Publishing and Distribution segment, the International segment and the Media, Licensing and
Advertising segment. Lower International segment revenues also resulted from the adverse impact of foreign exchange rates of
$24.2 million in fiscal 2014 compared to fiscal 2013, and the absence of low margin software sales in Australia totaling $8.0
million.
Cost of goods sold as a percentage of revenue for the fiscal year ended May 31, 2014 remained relatively constant at 46.4%,
compared to the prior fiscal year, despite higher prepublication amortization costs of $9.5 million in fiscal 2014. In fiscal 2014,
13.6% of the Company’s revenues were from the Educational Technology and Services segment, compared to 12.7% in the
prior fiscal year. The Educational Technology and Services segment experiences significantly higher gross margins than
the Children’s Book Publishing and Distribution and the International segments. Royalty costs in the Children’s Book
Publishing and Distribution segment include $2.4 million related to Storia operating system-specific apps that will no longer be
supported due to the planned transition to a Storia streaming model.
Components of Cost of goods sold for fiscal years 2014, 2013 and 2012 are as follows:
2014
% of
revenue
2013
% of
revenue
2012
% of
revenue
($ amounts in millions)
Product, service and production costs
Royalty costs
Prepublication and production amortization
Postage, freight, shipping, fulfillment and all other
costs
Total cost of goods sold
$
$
459.7
94.0
61.2
231.1
846.0
25.2% $
5.2
3.4
12.6
46.4% $
456.0
90.7
51.7
231.2
829.6
25.4% $
5.1
2.9
12.9
46.3% $
536.2
157.4
56.1
234.9
984.6
25.0%
7.4
2.6
11.0
46.0%
Selling, general and administrative expenses for the fiscal year ended May 31, 2014 decreased modestly to $812.5 million,
compared to $815.0 million in the prior fiscal year. While the Company experienced lower salaries and benefits of $11.4
million, as well as lower promotional spending of $11.3 million, compared to fiscal 2013, as a result of prior cost savings
initiatives, the Company recognized higher incentive compensation of $17.8 million and higher stock based compensation of
$3.0 million in fiscal 2014. The Company recorded a charge of $1.0 related to Storia operating system-specific apps that will
no longer be supported due to the planned transition to a Storia streaming model.
Severance expense of $11.3 million in fiscal 2014 includes $10.8 million related to cost reduction initiatives as the Company
continues to focus on efficiency initiatives.
In fiscal 2014, the Company recorded an asset impairment of $14.6 million related to Storia operating system-specific apps that
will no longer be supported due to the planned transition to a Storia streaming model. In fiscal 2014, the Company recognized
a $13.4 million impairment of goodwill attributable to legacy acquisitions associated with the book club operations in
the Children’s Book Publishing and Distribution segment.
-24-
For the fiscal year ended May 31, 2014, net interest expense decreased to $6.9 million, compared to $14.5 million in the prior
fiscal year, primarily resulting from the April 2013 repayment of the Company’s 5% Notes. In addition, in fiscal 2014, the
Company increased its borrowings under the Loan Agreement (described under "Financing" below) by $175.0 million related to
the purchase of its 555 Broadway headquarters building, but simultaneously satisfied its obligation under its 555 Broadway
capital lease of $58.3 million. The net effect on interest expense prospectively is expected to be minimal, as the capital lease
had a substantially higher imputed interest rate than the current floating rate under the Loan Agreement.
In the fourth quarter of fiscal 2014, the Company recorded a loss of $1.0 million related to a US-based equity-method
investment. In the third quarter of fiscal 2014, the Company recorded a loss of $4.8 million related to a UK-based cost-method
investment.
The Company’s effective tax rate for the fiscal year ended May 31, 2014 was 12.1%, compared to 33.0% in the prior fiscal year.
The effective tax rate for fiscal 2014 was favorably impacted by a settlement with the Internal Revenue Service and the
associated recognition of $13.8 million of previously unrecognized income tax positions, including interest.
Earnings from continuing operations for fiscal 2014 increased by $8.5 million to $44.3 million, compared to $35.8 million in
fiscal 2013. The basic and diluted earnings from continuing operations per share of Class A Stock and Common Stock were
$1.38 and $1.36, respectively, in fiscal 2014, compared to $1.12 and $1.10, respectively, in fiscal 2013.
Earnings from discontinued operations, net of tax, for the fiscal year ended May 31, 2014 was $0.1 million, compared to a loss
from discontinued operations, net of tax, of $4.7 million in the prior fiscal year. The Company did not discontinue any
operations in fiscal 2014.
The resulting net income for fiscal 2014 was $44.4 million, or $1.39 and $1.36 per basic and diluted share, respectively,
compared to net income of $31.1 million, or $0.97 and $0.95 per basic and diluted share, respectively, in fiscal 2013.
Fiscal 2013 compared to fiscal 2012
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 Distribution segment, the Educational Technology and
Services segment, the International segment and the Media, Licensing and Advertising segment of $264.4 million, $27.0
million, $48.5 million and $16.6 million, respectively, partially offset by increased revenues of $9.8 million in the Classroom
and Supplemental Materials Publishing segment.
Cost of goods sold 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 relatively flat for the total Company, the
Children’s Book Publishing and Distribution segment 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 were largely offset by
improvements in the book fairs business. In the Company's educational segments, higher service revenues in the Educational
Technology and Services segment, which carry a higher relative cost, were offset by improved margins in the Classroom and
Supplemental Materials Publishing segment due to increased circulation of classroom magazines.
Selling, general and administrative expenses in fiscal 2013 decreased by $63.5 million to $815.0 million, compared to $878.5
million in the prior fiscal year. The decrease was driven by lower sales tax accrual in two jurisdictions in the Children’s Book
Publishing and Distribution segment resulting from sales tax assessments of $19.7 million recorded in fiscal 2012, and the
absence of employee bonuses and lower stock compensation expense in fiscal 2013.
Severance expense of $13.4 million in fiscal 2013 included $9.6 million related to cost reduction initiatives. Severance expense
was $14.9 million in fiscal 2012, 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 lower 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.
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.
-25-
The Company’s provision for income taxes with respect to continuing operations resulted in an effective tax rate of 33.0% and
36.3% for fiscal 2013 and 2012, respectively. The decrease in the effective tax rate for fiscal 2013 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.
Earnings from continuing operations for fiscal 2013 decreased by $72.3 million to $35.8 million compared to $108.1 million in
fiscal 2012. 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 and $3.45 and $3.39, respectively, in fiscal 2012.
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 included 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 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 $3.21 per basic and diluted share, respectively, in fiscal 2012.
Results of Operations – Segments
CHILDREN’S BOOK PUBLISHING AND DISTRIBUTION
($ amounts in millions)
Revenues
Cost of goods sold
Other operating expenses *
Asset impairments
Operating income (loss)
Operating margin
2014
$ 873.5
377.0
445.7
28.0
22.8
$
2013
$ 846.9
359.4
463.0
—
24.5
$
2012
$ 1,111.3
466.7
491.9
0.5
$ 152.2
2.6%
2.9%
13.7%
2014 compared to 2013
2013 compared to 2012
$ change
26.6
$
17.6
(17.3)
28.0
(1.7)
$
% change
$ change
% change
3.1 % $ (264.4)
(107.3)
4.9
(28.9)
(3.7)
(0.5)
100.0
(6.9)% $ (127.7)
(23.8)%
(23.0)
(5.9)
(100.0)
(83.9)%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses, depreciation and
amortization.
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 increased by $26.6 million to $873.5 million, compared to $846.9 million in
the prior fiscal year. The Company started to realize benefits from its marketing efforts to improve book clubs performance
during the spring promotional period which included sponsor targeted promotions, more kid friendly offerings and better
integration of the on-line and off-line ordering experiences. As a result, revenues from book clubs increased by $24.7 million in
fiscal 2014 compared to the prior fiscal year, with the improvement occurring in the second half of fiscal 2014. The Company’s
book fair revenues increased $14.1 million, primarily due to higher revenue per fair. The Company continues to direct greater
book fair resources and support to schools that generate higher revenue per fair. As a result of this focus, revenue per fair in
fiscal 2014 increased 4.0% compared to the prior fiscal year. Revenues in the trade channel decreased by $12.2 million in fiscal
2014 compared to the prior fiscal year. The prior fiscal year benefited from higher sales of Hunger Games trilogy titles of $9.8
million and the impact of favorable Hunger Games returns experience of $8.8 million compared to the current fiscal year.
Partially offsetting the trade channel declines were sales of new cover artwork Harry Potter titles of $8.1 million and higher
sales of other front list titles of $6.4 million, including Star Wars: Jedi Academy by Jeffrey Brown, Spirit Animals™ #1: Wild
Born by Brandon Mull and Spirit Animals™ #2 : Hunted by Maggie Stiefvater, The Finisher by David Baldacci, Tui
Sutherland’s Wings of Fire #4: The Dark Secrets and Minecraft: Essential Handbook and Mincraft: Redstone Handbook.
Cost of goods sold for the fiscal year ended May 31, 2014 was $377.0 million, or 43% of revenues, compared to $359.4
million, or 42% of revenues, in the prior fiscal year. Cost of goods sold as percentage of revenue remained relatively flat for this
segment, with modest improvements in the book fairs channel reflecting higher revenue per fair being offset by modest declines
in the trade channel. Trade channel gross margins can vary from period to period based upon the mix and volume of products
-26-
sold. Royalty expenses in fiscal 2014 include $2.4 million related to Storia operating system-specific apps that will no longer
be supported due to the planned transition to a Storia streaming model.
Other operating expenses were $445.7 million for the fiscal year ended May 31, 2014, compared to $463.0 million in the prior
fiscal year, as lower expenses of $19.7 million in the book club operations, driven by cost reduction efforts and lower digital
initiative costs, were partially offset by modestly higher salary and other costs in the book fair operations of $8.6 million.
Selling, general and administrative expenses for fiscal 2014 include $1.0 million related to Storia operating system-specific
apps that will no longer be supported due to the planned transition to a Storia streaming model.
Segment operating income for the fiscal year ended May 31, 2014 was $22.8 million compared to $24.5 million in the prior
fiscal year. Results in fiscal year 2014 include charges of $18.0 million (inclusive of $14.6 million of asset impairments)
related to Storia operating system-specific apps that will no longer be supported due to the planned transition to a Storia
streaming model. and a $13.4 million goodwill impairment. The increase in operating income, when the impairment charges
are excluded, was a result of higher revenues and profitability in the book clubs channel, as the Company stabilized its sponsor
base in this channel during fiscal 2014, as well as higher revenues and profitability in the book fairs channel. Additionally, the
Company’s trade publishing efforts continue to produce popular new titles for the trade and other channels.
Fiscal 2013 compared to fiscal 2012
Revenues for fiscal 2013 decreased by $264.4 million to $846.9 million, compared to $1,111.3 million in fiscal 2012. Lower
net revenues in the Company’s trade channel of $213.0 million reflected decreased sales of the Hunger Games trilogy compared
to the trilogy’s strong results in fiscal 2012. Revenues from the Company’s book clubs channel declined $57.5 million, related
to lower revenue per event and decreased sponsorship. These decreases were partially offset by an increase in the Company’s
book fairs channel of $6.1 million in fiscal year 2013 over the prior fiscal year, driven by modest increases in the number of
fairs and revenue per fair.
Cost of goods sold for fiscal 2013 was $359.4 million, or 42% of revenues, compared to $466.7 million, or 42% of revenues, in
fiscal 2012. The absolute decrease in cost of goods sold of $107.3 million was due predominantly to the lower level of Hunger
Games trilogy sales in fiscal 2013. Cost of goods sold as a percentage of revenue remained flat, with higher relative costs for
free books and related fulfillment costs of $3.2 million in the book clubs channel and lower volumes in the trade channel being
offset by improved margins, primarily from the book fairs channel, but also the book clubs channel, driven by lower inventory
obsolescence in fiscal 2013.
Other operating expenses decreased by $28.9 million to $463.0 million in fiscal 2013, compared to $491.9 million in fiscal
2012. The decrease was primarily related to the presence of additional sales tax expense of $19.7 million in fiscal 2012 relating
to sales tax assessments in two jurisdictions in the Company’s book clubs channel, as well as the higher fiscal 2012 employee-
related expenses for incentive compensation, favorability in collections in the Company’s trade channel customer accounts in
fiscal 2013, and higher amortization expense of $4.9 million in fiscal 2012 for impairment of certain publishing and trademark
rights. These decreases were partially offset by higher promotional expense of $5.7 million in the book clubs channel in fiscal
2013.
Segment operating income for fiscal 2013 decreased by $127.7 million to $24.5 million, compared to $152.2 million in the
prior fiscal year. Fiscal 2012 benefited from the success of the Hunger Games trilogy, while fiscal 2013 experienced strong
results from the book fairs channel, offset by lower revenues and higher promotional expenses in the book clubs channel.
Operating income from trade channel sales was lower in fiscal 2013 compared to fiscal 2012 due to Hunger Games related
revenues, but remained strong from titles such as The 39 Clues® series and the Harry Potter series, as well as other titles, such
as Drama by Raina Telgemeier, The Raven Boys by Maggie Stiefvater, and Captain Underpants and the Revolting Revenge of
the Radioactive Robo-Boxers by Dav Pilkey.
-27-
EDUCATIONAL TECHNOLOGY AND SERVICES
($ amounts in millions)
2014 compared to 2013
2013 compared to 2012
2014
2013
2012
$ change
% change
$ change
% change
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$ 248.7
96.2
112.9
$ 227.7
88.7
109.5
$ 254.7
90.5
115.0
$
$
39.6
15.9%
$
29.5
13.0%
49.2
19.3%
$
$
21.0
7.5
3.4
10.1
9.2% $
8.5
3.1
34.2% $
(27.0)
(1.8)
(5.5)
(19.7)
(10.6)%
(2.0)
(4.8)
(40.0)%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and
amortization.
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 increased by $21.0 million to $248.7 million, compared to $227.7 million in
the prior fiscal year. Fiscal 2014 segment activity was highlighted by the successful launch of new products, including MATH
180®, iRead™ and Common Core Code X®. which accounted for $28.3 million of increased revenues. Most of these revenues
were recognized in the first half of fiscal 2014, as customer implementation of these new solutions coincided with the start of
the school year. Revenues from the Company’s established curriculum technology reading programs and services decreased
$1.2 million for fiscal 2014, as increased revenues from sales of System 44®Next Generation were largely offset by revenue
declines for Read 180®. During third quarter of fiscal 2014, a sales force realignment temporarily impacted the efforts of the
sales force, resulting in lower segment revenues for the third quarter, but revenues from product sales largely recovered in the
fourth quarter. Revenues from consulting services declined by $4.8 million in fiscal 2014 compared to fiscal 2013, primarily
due to lower renewals experience in fiscal 2014.
Cost of goods sold increased to $96.2 million, or 39% of revenues, in the fiscal year ended May 31, 2014, compared to $88.7
million, or 39% of revenues, in the prior fiscal year. Higher amortization of prepublication costs of $6.7 million for newly
launched products drove the absolute increase.
Other operating expenses for the fiscal year ended May 31, 2014 increased to $112.9 million, compared to $109.5 million in
fiscal 2013. The increase resulted from higher travel expenses of $2.4 million, most of which was associated with the sales
force realignment activities.
Segment operating income for the fiscal year ended May 31, 2014 increased by $10.1 million to $39.6 million, compared to
$29.5 million in the prior fiscal year. The segment benefited from the strong sales of the new products mentioned above, which
expanded the segment’s product offerings into areas such as math intervention and digital reading programs, complimenting
and leveraging the segment’s established market presence in reading intervention.
Fiscal 2013 compared to fiscal 2012
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 fiscal 2012. In
addition, fiscal 2012 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.
Cost of goods sold decreased to $88.7 million, or 39% of revenues, in fiscal 2013, compared to $90.5 million, or 36% 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 38% for fiscal 2013, compared to 31% for fiscal 2012. Fiscal 2013 included
accelerated prepublication costs of $2.0 million, while fiscal 2012 included accelerated amortization of $0.8 million.
Other operating expenses for fiscal 2013 decreased by $5.5 million, or 4.8%, to $109.5 million, compared to $115.0 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.
-28-
Segment operating income for fiscal 2013 decreased by $19.7 million, or 40.0%, to $29.5 million, compared to $49.2 million in
the prior fiscal year. In fiscal 2012, this segment benefited from the launch of READ 180 Next Generation, but did not have
similar new product launches in fiscal 2013.
CLASSROOM AND SUPPLEMENTAL MATERIALS PUBLISHING
($ amounts in millions)
2014 compared to 2013
2013 compared to 2012
2014
2013
2012
$ change
% change
$ change
% change
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$ 229.6
83.6
108.5
$ 218.0
83.9
104.5
$ 208.2
86.2
103.7
$
$
37.5
16.3%
$
29.6
13.6%
18.3
8.8%
$
$
11.6
(0.3)
4.0
7.9
5.3% $
(0.4)
3.8
9.8
(2.3)
0.8
26.7% $
11.3
4.7%
(2.7)
0.8
61.7%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and
amortization.
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 increased $11.6 million to $229.6 million, compared to $218.0 million in the
prior fiscal year. This increase partially resulted from higher circulation revenues of classroom magazines of $6.6 million,
increased sales of digital and customized print packages of $4.1 million, including increased revenues from Summer reading
programs of approximately $2.5 million, and modest increases in sales of teaching resource products of $1.2 million. While
sales of collections to classrooms were relatively flat to the prior fiscal year, the Company has enhanced its online store for
teachers, providing teachers and schools greater access to the Company’s offerings, resulting in improved ecommerce activity
from this source, and streamlining the segment’s distribution process. The success of the classroom magazines business
continues to reflect the increased classroom demand for current non-fiction content and the segment’s ability to deliver this
content in both print and digital formats.
Cost of goods sold for the fiscal year ended May 31, 2014 was $83.6 million, or 36% of revenue, compared to $83.9 million, or
38% of revenue, in the prior fiscal year, primarily due to higher volumes of classroom magazines, which carry relatively low
variable costs, and improved postage, freight and handling costs.
Other operating expenses increased by $4.0 million for the fiscal year ended May 31, 2014, due predominantly to higher
information technology costs for digital magazines, offset by cost savings in the teaching resource business.
Segment operating income for the fiscal year ended May 31, 2014 improved by $7.9 million. The classroom magazines
business continues to experience improved circulation, driving $4.6 million of this improvement, as customers seek
supplemental current content to meet Common Core State Standards. Reduced costs in the teaching resource business also
added to the improved results.
Fiscal 2013 compared to fiscal 2012
Revenues for fiscal 2013 increased by $9.8 million to $218.0 million, compared to $208.2 million in the prior fiscal year. This
increase was due to higher revenues from sales of classroom magazines of $16.8 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.
Cost of goods sold for the fiscal year ended May 31, 2013 was $83.9 million, or 38% of revenue, compared to $86.2 million, or
41% of revenue, in fiscal 2012. The absolute decrease in Cost of goods sold was the result of the lower sales volume of
classroom libraries. The improvement as a percentage of sales was 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. Other operating
expenses for fiscal 2013 were relatively consistent at $104.5 million, compared to $103.7 million in fiscal 2012.
Segment operating income for fiscal 2013 improved significantly to $29.6 million, compared to $18.3 million in fiscal 2012,
primarily due to growth in the classroom magazines business.
-29-
MEDIA, LICENSING AND ADVERTISING
($ amounts in millions)
2014 compared to 2013
2013 compared to 2012
2014
2013
2012
$ change
% change
$ change
% change
Revenues
Cost of goods sold
Other operating expenses *
Operating income (loss)
Operating margin
$
$
$
56.2
23.4
33.5
58.7
22.0
32.0
(0.7) $
—
4.7
8.0%
$
$
$
75.3
40.6
39.6
(4.9) $
—
(2.5)
1.4
1.5
(5.4)
(4.3)% $
6.4
4.7
**
$
(16.6)
(18.6)
(7.6)
9.6
(22.0)%
(45.8)
(19.2)
**
* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and
amortization.
** Not meaningful.
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 decreased by $2.5 million to $56.2 million, compared to $58.7 million in the
prior fiscal year. This decrease was due to lower sales of the Hunger Games trilogy audio books of $3.7 million, lower sales
of Leapster products of $2.1 million and decreased advertising revenues of $1.0 million. The strong prior year results of the
Hunger Games trilogy audio books corresponded to the same period success experienced in the trade channel of the Children’s
Book Publishing and Distribution segment. Revenues for Company programming increased by $4.6 million in fiscal 2014,
driven by the Company's agreement with Netflix for internet distribution rights of Clifford® and The Magic School Bus
programming, and an agreement with PBS for WordGirl programming.
Cost of goods sold increased to $23.4 million, or 42% of revenue, for the fiscal year ended May 31, 2014, compared to $22.0
million, or 37% of revenue, for the prior fiscal year. Higher amortization of production costs of $2.3 million and the higher
sales volumes of Hunger Games audio books in fiscal 2013, which carry a relatively low cost of goods sold, were responsible
for the increase as a percentage of sales.
Other operating expenses were $33.5 million for the fiscal year ended May 31, 2014, compared to $32.0 million for the prior
fiscal year. The prior fiscal year included $1.3 million of settlement income received from a former programming partner.
Segment operating loss for the fiscal year ended May 31, 2014 was $0.7 million, compared to operating income of $4.7 million
in the prior fiscal year. The decline in profitability was due to the substantially lower volumes of Hunger Games audio book
sales, combined with lower Leapster sales, and the prior year inclusion of settlement income from a former programming
partner, partially offset by the improvements in programming revenues. The segment is now focusing its efforts on repurposing
proprietary content for digital platforms, both internally and through distributors such as Netflix.
Fiscal 2013 compared to fiscal 2012
Revenues for fiscal 2013 decreased by $16.6 million to $58.7 million, compared to $75.3 million in fiscal 2012. This decrease
was primarily related to the absence of $9.9 million of revenues from sales of console games, as the Company reduced its focus
on interactive console products. Lower production revenues of $6.1 million, principally of Word Girl®, and lower advertising
and consumer magazine revenues of $1.3 million also contributed to the decline. Partially offsetting these declines were
increased sales of audio books, primarily of the Hunger Games trilogy, of $2.0 million.
Cost of goods sold was $22.0 million, or 37% of revenue, for fiscal 2013, compared to $40.6 million, or 54% of revenue, for
fiscal 2012. The improvement as a percentage of revenue was driven by the decrease in low-margin console game sales.
Contributing to the improvement was the prior year acceleration of amortization on certain owned properties.
Other operating expenses for fiscal 2013 decreased by $7.6 million to $32.0 million, compared to $39.6 million in the prior
fiscal year. The decrease was related to settlement income received from a former programming partner of $1.3 million, as well
as lower promotional, employee and other operating expenses in the Company’s consumer magazine business and Scholastic
Entertainment, Inc.
-30-
Segment operating income for fiscal 2013 was $4.7 million, compared to a loss of $4.9 million in the prior fiscal year. The
absence of accelerated amortization in the production business in fiscal 2012, and the success of the audio book business and
the return of the consumer magazines business to a profitable position in fiscal 2013, were responsible for the improvements in
fiscal 2013.
INTERNATIONAL
($ amounts in millions)
Revenues
Cost of goods sold
Other operating expenses *
Asset impairments
Operating income (loss)
Operating margin
2014
2013
2012
$ change
% change
$ change
% change
2014 compared to 2013
2013 compared to 2012
$ 414.3
202.8
180.7
—
$ 441.1
213.6
187.7
—
$
30.8
$
39.8
$
7.4%
9.0%
$ 489.6
242.5
189.2
0.3
57.6
11.8%
$
$
(26.8)
(10.8)
(7.0)
—
(9.0)
(6.1)% $
(5.1)
(3.7)
—
(22.6)% $
(48.5)
(28.9)
(1.5)
(0.3)
(17.8)
(9.9)%
(11.9)
(0.8)
(100.0)
(30.9)%
* Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation
and amortization.
Fiscal 2014 compared to fiscal 2013
Revenues for the fiscal year ended May 31, 2014 decreased by $26.8 million to $414.3 million, compared to $441.1 million in
the prior fiscal year. This decrease was due to the adverse impact of foreign exchange rates of $24.2 million and a decrease of
$8.0 million in an Australian low margin software business, as well as lower trade sales in the United Kingdom of $4.3 million
primarily due to a decline in the sales of Hunger Games titles. Decreased export sales of $1.8 million also contributed to the
segment’s decline in revenues. Partially offsetting these decreases were improved revenues from Asian markets of $10.0
million, as operations in India, Malaysia, the Philippines and Thailand all experienced improved revenues, mostly from the
Company’s direct sales of English language reference products, and the Company’s growing educational business in the region,
where it has established educational publishing operations locally in Singapore to serve the regional need for English language
materials and educational programs. Also, the Company's operations in Canada and the United Kingdom had higher revenues
from book fairs of $1.4 million and $1.0 million, respectively, as well as higher education-related revenues in the United
Kingdom of $1.5 million, compared to the prior fiscal year.
Cost of goods sold for the fiscal year ended May 31, 2014 was $202.8 million, or 49% of sales, compared to $213.6 million, or
48% of sales, in the prior fiscal year. The absolute decreases in both periods were attributable to the effect of foreign exchange.
No single factor was responsible for the increase of cost of goods sold as a percent of revenues.
For the fiscal year ended May 31, 2014, other operating expenses declined by $7.0 million, as increased costs paid by the U.S.
operations on behalf of foreign subsidiaries of $3.5 million and increased bad debt expense of $0.6 million were more than
offset by currency exchange and the impact of cost savings initiatives.
Segment operating income for fiscal 2014 decreased by $9.0 million to $30.8 million, compared to $39.8 million in the prior
fiscal year. Lower trade channel sales in major markets for the fiscal year ended May 31, 2014 were primarily due to the high
level of Hunger Games trilogy sales in the prior fiscal year, and had a corresponding impact on earnings. The decrease in sales
from the Australian software business did not significantly impact earnings, as these sales were low margin sales. The Company
continues to focus on English language educational businesses, based in Singapore, which it views as a future growth driver.
Demand from the Asian region continues to grow, and the Company is well positioned to meet this demand.
Fiscal 2013 compared to fiscal 2012
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
-31-
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.
Cost of goods sold decreased to $213.6 million in fiscal 2013 from $242.5 million in fiscal 2012, commensurate with the
revenue decline, but remained relatively consistent at 48% as a percentage of revenue, compared to 50% of revenue in fiscal
2012.
Other operating expenses decreased slightly to $187.7 million in fiscal 2013 from $189.2 million in fiscal 2012.
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. 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.
Overhead
Corporate overhead for fiscal 2014 increased by $6.7 million to $66.9 million, compared to $60.2 million in the prior fiscal
year, primarily due to reinstated bonus and higher stock compensation. Corporate overhead for fiscal 2013 decreased by $26.9
million to $60.2 million, compared to $87.1 million in the prior fiscal year, primarily due to lower employee-related expenses
and incentive compensation in fiscal 2013 compared to the prior year.
Liquidity and Capital Resources
Fiscal 2014 compared to fiscal 2013
The Company’s cash and cash equivalents totaled $20.9 million at May 31, 2014 and $87.4 million at May 31, 2013. Cash and
cash equivalents held by the Company’s U.S. operations totaled $2.1 million at May 31, 2014 and $60.0 million at May 31,
2013.
Cash provided by operating activities was $156.8 million for the fiscal year ended May 31, 2014, compared to cash provided by
operating activities of $189.1 million for the prior fiscal year, representing a decrease in cash provided by operating activities of
$32.3 million. In the fourth quarter of fiscal 2012, the Company experienced strong sales of the Hunger Games trilogy titles,
and subsequently collected significant cash from these customers in the first quarter of fiscal 2013. In fiscal 2014, the
Company experienced strong sales in its education and book fairs operations late in the fourth quarter, resulting in higher
receivable balances from these operations as of May 31, 2014. Partially offsetting this disparity in collections between the two
fiscal years were higher royalty payments in fiscal 2013 associated with the Hunger Games success, and higher payouts for
incentive compensation of $28.7 million in the first quarter of fiscal 2013. Lower net income tax payments of $28.0 million in
fiscal 2014 compared to fiscal 2013 also partially offset the decline.
Cash used in investing activities was $345.7 million for the fiscal year ended May 31, 2014, compared to $124.0 million in
fiscal 2013. In fiscal 2014, the Company purchased the land and building comprising the leased portion of the Company’s New
York City corporate headquarters, located in SoHo, for $253.9 million. In fiscal 2014, the Company also invested $1.0 million
for a 20% interest in a software development entity, and collected $1.3 million of proceeds from a sold asset. In fiscal 2013, the
Company incurred higher spending on technology assets of $19.9 million.
Cash provided by financing activities was $122.5 million for the fiscal year ended May 31, 2014, compared to cash used in
financing activities of $172.7 million for the prior fiscal year. To finance the purchase of the SoHo land and building in the third
quarter of fiscal 2014, the Company used existing cash and incurred borrowings under its Loan Agreement of $175.0 million.
Other fiscal 2014 net short-term repayments totaled $41.1 million, which includes a fourth quarter repayment of $55.0 million
under the Loan Agreement, compared to net repayments of $4.3 million in the prior fiscal year. Proceeds pursuant to employee
stock plans declined $2.7 million in the fiscal year ended May 31, 2014 compared to the prior fiscal year, while dividend
payments increased by $1.9 million due to an increase in the Company's quarterly dividend.
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
-32-
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. 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 expenditures.
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 million. In fiscal 2012, the
Company paid $50.2 million in scheduled payments on the 5% Notes. Dividend payouts increased by $2.7 million, as the
Company implemented a higher per share dividend rate. Contributing to the higher use of cash were lower net borrowings
under lines of credit of $12.9 million and a decrease in proceeds pursuant to stock-based compensation plans of $8.5 million in
fiscal 2013 compared to the prior fiscal year.
Due to the seasonal nature of its business as discussed under “Seasonality” above, the Company usually experiences negative
cash flows in the June through October time period. As a result of the Company’s business cycle, borrowings have historically
increased during June, July and August, have generally peaked in September or October, and have been at their lowest point in
May. In recent years, the Company had fixed debt in the form of the 5% Notes, which, while providing liquidity, resulted in
high cash balances throughout the year.
The Company’s operating philosophy is to use cash provided by operating activities to create value by paying down debt,
reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses
or acquiring other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or
dividend declarations. During the fiscal year ended May 31, 2014, the Company purchased $6.2 million of Company shares on
the open market compared to $11.8 million of share purchases in the prior fiscal year.
The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing
operations, including working capital requirements, pension contributions, dividends, currently authorized common share
repurchases, debt service, planned capital expenditures and other investments. As of May 31, 2014, the Company’s primary
sources of liquidity consisted of cash and cash equivalents of $20.9 million, cash from operations, and funding available under
the Loan Agreement totaling approximately $305.0 million. Additionally, the Company has short-term credit facilities of $33.9
million, net of current borrowings of $15.8 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 Loan Agreement 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.
-33-
The following table summarizes, as of May 31, 2014, 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”):
Payments Due By Period
$ amounts in millions
Contractual Obligations
1 Year or Less
Years 2-3
Years 4-5
After Year 5
Total
Minimum print quantities
$
Royalty advances
Lines of credit and short-term debt
Debt
Capital leases (1)
Pension and post-retirement plans (2)
Operating leases
47.6
10.4
15.8
—
0.0
18.4
32.1
$
93.1
$
91.8
$
143.4
$
3.6
—
—
—
28.5
44.9
0.8
—
120.0
—
27.1
22.6
—
—
—
—
63.2
14.1
Total
$
124.3
$
170.1
$
262.3
$
220.7
$
375.9
14.8
15.8
120.0
0.0
137.2
113.7
777.4
Includes principal and interest.
(1)
(2) Excludes expected Medicare Part D subsidy receipts.
Financing
Loan Agreement
The Company is party to the Loan Agreement with various banks as described in Note 5 of Notes to Consolidated Financial
Statements in Item 8, “Consolidated Financial Statements and Supplementary Data.” Outstanding borrowings under the Loan
Agreement were $120.0 million as of May 31, 2014. For a more complete description of the Loan Agreement, as well as the
Company's other debt obligations, reference is made to Note 5 of Notes to Consolidated Financial Statements in Item 8,
“Consolidated Financial Statements and Supplementary Data.”
Acquisitions
In the ordinary course of business, the Company explores domestic and international expansion opportunities, including
potential niche and strategic acquisitions. As part of this process, the Company engages with interested parties in discussions
concerning possible transactions. On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher
of supplemental learning materials for English-Language Learners. The Company has integrated this business into its
International segment. 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. The Company has fully
integrated this business in its Classroom and Supplemental Materials Publishing segment (see Note 2 of Notes to Consolidated
Financial Statements in Item 8, “Consolidated Financial Statements and 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 subject to
fluctuations from changes in foreign currency exchange rates. The Company sells products from its domestic operations to its
foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through
internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts
which were not significant as of May 31, 2014. The Company does not enter into derivative transactions or use other financial
instruments for trading or speculative purposes.
Market risks relating to the Company’s operations result primarily from changes in interest rates in its variable-rate borrowings.
The Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the
interest charged under its variable-rate debt.
-34-
Additional information relating to the Company’s outstanding financial instruments is included in Note 5 of Notes to
Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data,” which is included
herein.
The following table sets forth information about the Company’s debt instruments as of May 31, 2014 (see Note 5 of Notes to
Consolidated Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data”):
2015
2016
2017
2018
2019
Thereafter
Total
Fiscal Year Maturity
Fair
Value
2014
$ amounts in millions
Debt Obligations
Lines of credit and current portion of
long-term debt
Average interest rate
Long-term debt
Average interest rate
$ 15.8
$ — $ — $
— $ — $
— $
15.8
$
15.8
2.3%
—
—
—
—
—
$ — $ — $ — $
120.0
various (1)
$ — $
— $ 120.0
$ 120.0
(1) The average rate is variable and is anticipated to be that under the Company’s Loan Agreement as discussed in Note 5 of Notes to Consolidated
Financial Statements in Item 8, “Consolidated Financial Statements and Supplementary Data."
-35-
[This Page Intentionally Left Blank]
-36-
Item 8 | Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations for the years ended May 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2014, 2013 and
2012
Consolidated Balance Sheets at May 31, 2014 and 2013
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2014, 2013 and
2012
Consolidated Statements of Cash Flows for the years ended May 31, 2014, 2013 and 2012
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, 2014, 2013 and
2012 is filed with this annual report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves
Page
38
39
40
42
44
46
79
81
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.
-37-
Consolidated Statements of Operations
Revenues
Operating costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Depreciation and amortization
Severance
Loss on leases and asset impairments
Total operating costs and expenses
Operating income
Interest income
Interest expense
Loss on investments and other
Earnings (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net income (loss)
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
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2014
2013
2012
$
1,822.3
$
1,792.4
$
2,139.1
846.0
812.5
61.4
11.3
28.0
1,759.2
63.1
0.6
(7.5)
(5.8)
50.4
6.1
44.3
0.1
44.4
1.38
0.01
1.39
1.36
0.00
1.36
0.575
$
$
$
$
$
$
$
$
829.6
815.0
66.5
13.4
0.0
1,724.5
67.9
1.2
(15.7)
0.0
53.4
17.6
35.8
(4.7)
31.1
$
$
1.12
(0.15) $
$
0.97
$
1.10
(0.15) $
$
0.95
0.50
$
984.6
878.5
68.8
14.9
7.0
1,953.8
185.3
1.0
(16.5)
(0.1)
169.7
61.6
108.1
(5.7)
102.4
3.45
(0.18)
3.27
3.39
(0.18)
3.21
0.45
$
$
$
$
$
$
$
$
-38-
(Amounts in millions, except per share data)
For fiscal years ended May 31,
2014
2013
2012
$
44.4
$
31.1
$
102.4
(3.1)
(0.2)
13.5
10.2
54.6
$
$
(2.6)
(0.4)
11.8
8.8
39.9
$
$
(8.2)
(0.6)
(11.5)
(20.3)
82.1
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
-39-
(Amounts in millions, except share data)
Balances at May 31,
2014
2013
$
20.9
$
253.3
272.7
81.0
35.1
0.4
663.4
77.4
243.3
214.0
225.1
171.6
931.4
(464.4)
467.0
143.1
38.5
4.5
144.5
12.2
4.1
51.2
398.1
87.4
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
408.2
$
1,528.5
$
1,441.0
Consolidated Balance Sheets
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of $17.3 at May 31, 2014
and $19.3 at May 31, 2013)
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 $87.0 at May 31, 2014 and $81.5
at May 31, 2013)
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
-40-
(Amounts in millions, except share data)
Balances at May 31,
2014
2013
$
$
$
15.8
0.0
145.3
34.1
48.7
184.7
1.1
429.7
120.0
0.0
63.4
183.4
—
—
0.0
2.0
0.2
156.2
34.4
48.1
179.5
1.3
421.7
—
57.5
97.4
154.9
—
—
0.0
0.4
580.8
(55.2)
765.1
(375.7)
915.4
1,528.5
$
0.4
582.9
(65.4)
738.9
(392.4)
864.4
1,441.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
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 - 30,605,978 shares at May 31, 2014 (42,911,624 shares issued and
30,105,479 shares outstanding at May 31, 2013)
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
-41-
Consolidated Statement of Changes in Stockholders’ Equity
Class A Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
(Amounts in millions, except share data)
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
1,656,200
$
—
—
—
—
—
—
—
Dividends
Balance at May 31, 2012
—
1,656,200
$
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
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments
(net of tax of $5.0)
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, 2014
See accompanying notes
—
—
—
—
—
—
—
—
1,656,200
$
—
—
—
—
—
—
—
—
1,656,200
$
0.0
—
—
—
—
—
—
—
—
0.0
—
—
—
—
—
—
—
—
0.0
—
—
—
—
—
—
—
—
0.0
29,316,691
$
0.4
$
576.6
—
—
—
—
724,613
(475,672)
230,279
—
29,795,911
$
—
—
—
—
507,197
(432,330)
234,701
—
30,105,479
$
—
—
—
—
473,827
(215,484)
242,156
—
30,605,978
$
—
—
—
—
—
—
—
—
0.4
—
—
—
—
—
—
—
—
0.4
—
—
—
—
—
—
—
—
0.4
$
$
$
—
—
—
12.2
22.4
—
(28.2)
—
583.0
—
—
—
7.3
14.7
—
(22.1)
—
582.9
—
—
—
9.3
12.9
—
(24.3)
—
580.8
-42-
Accumulated
Other Comprehensive
Income (Loss)
Retained
Earnings
Treasury Stock
At Cost
Total
Stockholders'
Equity
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
Net Income (loss)
Foreign currency translation adjustment
Pension and postretirement adjustments
(net of tax of $5.0)
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, 2014
See accompanying notes
$
$
$
$
(53.9) $
—
(8.2)
(12.1)
—
—
—
—
—
(74.2) $
—
(2.6)
11.4
—
—
—
—
—
(65.4) $
—
(3.1)
13.3
—
—
—
635.8
$
102.4
(418.9) $
—
—
—
—
—
—
—
(14.3)
723.9
31.1
$
—
—
—
—
—
—
(16.1)
738.9
44.4
$
—
—
—
—
—
—
—
—
—
(13.1)
29.2
—
(402.8) $
—
—
—
—
—
(11.8)
22.2
—
(392.4) $
—
—
—
—
—
(6.2)
—
—
(55.2) $
—
(18.2)
765.1
$
22.9
—
(375.7) $
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)
864.4
44.4
(3.1)
13.3
9.3
12.9
(6.2)
(1.4)
(18.2)
915.4
-43-
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:
$
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
Amortization of pension and post-retirement actuarial gains and losses
Deferred income taxes
Stock-based compensation
Income from 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
Purchase of Building - 555 Broadway
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
-44-
(Amounts in millions)
Years ended May 31,
2014
2013
2012
$
44.4
0.1
44.3
$
31.1
(4.7)
35.8
102.4
(5.7)
108.1
8.2
25.1
6.5
—
60.4
62.7
5.6
8.9
9.3
(2.6)
28.0
5.8
(48.5)
(21.3)
24.9
(0.1)
(7.6)
(11.2)
7.6
(0.3)
0.7
(16.2)
(29.4)
(3.9)
112.6
156.9
(0.1)
156.8
(66.1)
(27.0)
(1.0)
(253.9)
2.3
(345.7)
—
(345.7)
6.8
27.2
4.7
—
48.9
68.6
4.8
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
(20.8)
(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
4.6
(37.5)
12.2
(1.3)
0.8
—
(108.7)
(40.4)
10.1
(0.0)
(6.2)
(0.3)
64.7
58.2
(1.7)
(7.0)
5.9
3.2
153.6
261.7
(1.5)
260.2
(58.8)
(53.7)
(9.5)
—
0.8
(121.2)
(0.1)
(121.3)
Consolidated Statements of Cash Flows
Cash flows - financing activities:
Net borrowings under credit agreement and revolving loan
Repayment of term loan
Repayment of 5.00% notes
Borrowings under lines of credit
Repayments of 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
(Amounts in millions)
Years ended May 31,
2014
2013
2012
120.0
—
—
207.4
(193.5)
(0.2)
(6.2)
11.2
(17.8)
1.6
122.5
(0.1)
(66.5)
87.4
20.9
2014
2.0
7.1
$
$
—
—
(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
2013
30.0
15.1
$
$
—
(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
2012
61.0
15.3
$
$
-45-
Notes to Consolidated Financial Statements
(Amounts in millions, except share and per 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 is
also a leading developer of educational technology products and ebooks for children. Scholastic also creates quality educational
and entertainment materials and products for use in school and at home, including magazines, ebooks, children’s reference and
non-fiction materials, teacher materials, television programming and film. The Company is the leading operator of school-based
book clubs and book fairs in the United States. It distributes its products and services through these proprietary 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. In addition to its operations
in the United States, Scholastic has operations in Canada, the United Kingdom, Australia, New Zealand, Ireland, India, China,
Singapore and other parts of Asia, and, through its export business, sells products in more than 150 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.
Discontinued Operations
The Company closed or sold several operations during fiscal 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 and also discontinued a computer club business which
was previously included in the Children’s Book Publishing and Distribution segment and 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 for all periods presented.
Use of estimates
The Company’s Consolidated Financial Statements 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, current business factors, and various other assumptions believed to be
reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of
assets and liabilities. Actual results may differ from those estimates and assumptions.
The Company’s significant estimates include those developed for:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
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
Royalty advance reserves
Customer reward programs
Impairment testing for goodwill for assessment and measurement, intangibles and other long-lived
assets and investments
-46-
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.
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 revenue.
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 to the public. For newly published titles, the
Company, on occasion, contractually agrees with its customers when the publication may be first offered for sale to the public,
or an agreed upon “Strict Laydown Date.” 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.
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. 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 recognized based on actual shipments from the
depositories to the schools. For certain software-based 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.
Magazines – Revenue is deferred and recognized ratably over the subscription period, as the magazines 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.
-47-
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 $0.3 at May 31, 2014 and $1.0 at May 31, 2013, which is reported in “Other current assets.”
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. The Company is required to estimate
the collectability of its receivables. Reserves for returns are based on historical return rates and sales patterns. In order to
develop the estimate of returns that will be received subsequent to fiscal year end, management considers patterns of sales and
returns in the months preceding the fiscal year end, as well as actual returns received 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 uncollectible, the balance is then written off.
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, sales
patterns of its products and specifically identified obsolete inventory.
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 $33.4 and $50.7 at May 31, 2014 and 2013, respectively.
Capitalized software is depreciated over a period of three to seven years. Amortization expense for capitalized software was
$28.8, $31.2 and $27.6 for the fiscal years ended May 31, 2014, 2013 and 2012, respectively. Furniture, fixtures and equipment
are depreciated over periods not exceeding ten years. Leasehold improvements are amortized over the life of the lease or the life
of the assets, whichever is shorter. The Company evaluates the depreciation periods of property, plant and equipment to
determine whether events or circumstances indicate that the asset’s carrying value is not recoverable or warrant revised
estimates of useful lives. In fiscal 2014, the Company recognized an impairment charge of $7.6 for assets related to Storia
operating system-specific apps that will no longer be supported due to the planned transition to a Storia streaming model.
The Company acquired its headquarters space (including land, building, fixtures and related personal property and leases) at
555 Broadway, New York, NY (the "Property") from its landlord, ISE 555 Broadway, LLC ("Landlord") under a Purchase and
Sale Agreement (the "Purchase Agreement") on February 28, 2014. The acquisition price under the Purchase Agreement was
consideration of $255.7 (net $253.9 in cash), including closing costs. Prior to the acquisition, the Property was recorded by the
Company as a capital lease. The Company recorded the difference between the purchase price and the carrying amount of the
capital lease obligation as an adjustment to the carrying amount of the asset.
Leases
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 charges) or the fair market value of the leased asset. Capital lease assets are depreciated on a
straight-line basis, over a period consistent with the Company’s normal depreciation policy for tangible fixed assets, but not
exceeding the lease term. Interest charges are expensed over the period of the lease in relation to the carrying value of the
capital lease obligation.
Rent expense for operating leases, which may include 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. Sublease income is recognized on a
-48-
straight-line basis 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
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 Distribution segment 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 Services segment are often in excess of $1 for an individual program, as the development of
intellectual property or content for complex intervention and educational programs requires significant resources and
investment.
Prepublication costs are amortized on a straight-line basis over a three-to-seven-year period based on expected future revenues.
The Company regularly reviews the recoverability of the capitalized costs based on expected future revenues.
Royalty advances
Royalty advances are incurred in all of the Company’s reportable segments, but are most prevalent in the Children’s Book
Publishing and Distribution segment and enable the Company to obtain contractual commitments from authors to produce
content. The Company regularly provides authors with advances against expected 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.
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 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
Goodwill and other intangible assets with indefinite lives are not amortized and are reviewed for impairment annually or more
frequently if impairment indicators arise.
With regard to goodwill, the Company compares the estimated fair values of its identified reporting units to the carrying values
of their net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the
fair values of its identified reporting units are less than their carrying value. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount the Company performs the two-step test. For each of the reporting units, the
estimated fair value is determined utilizing the expected present value of the projected future cash flows of the units, in addition
to comparisons to similar companies. The Company reviews its definition of reporting units annually or more frequently if
conditions indicate that the 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 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.
-49-
With regard to other intangibles with indefinite lives, the Company determines the fair value by asset, which is then compared
to its carrying value. 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 value. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount the Company performs a quantitative test. The estimated fair value is determined
utilizing the expected present value of the projected future cash flows of the asset, market comparables for similar businesses
and other relevant information.
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.
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 projected taxable
earnings indicates 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 accounts for uncertain tax positions using a two-step method. Recognition occurs when an entity concludes that a
tax position, based solely on technical merits, is more likely than not to be sustained upon examination. If a tax position is more
likely than not to be sustained upon examination, the amount recognized is the largest amount of benefit, determined on a
cumulative probability basis, which is more likely than not to be realized upon settlement. The Company assesses all income
tax positions and adjusts its reserves against these positions periodically based upon these criteria. The Company also assesses
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 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 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, which resulted in payments of $15.3 in fiscal 2013.
-50-
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.
Pension obligations – Scholastic Corporation and certain of its subsidiaries have defined benefit pension 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. In fiscal year 2014, the Company
recorded a pretax settlement charge of $1.7 related to lump sum benefits paid for certain US pension obligations.
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.
Foreign currency translation
The Company’s non-United States dollar-denominated assets and liabilities are translated into United States dollars at
prevailing rates at the balance sheet date and the revenues, costs and expenses are translated at the weighted average rates
prevailing during each reporting period. Net gains or losses resulting from the translation of the foreign financial statements and
the effect of exchange rate changes on long-term intercompany balances are accumulated and charged directly to the foreign
currency translation adjustment 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.
Shipping and handling costs
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.
-51-
Advertising costs
The Company incurs costs for both direct-response and non-direct-response advertising. The Company capitalizes direct-
response advertising costs for expenditures, primarily in its Classroom Magazines division. The asset is amortized on a cost-
pool-by-cost-pool basis over the period during which the future benefits are expected to be received. Included in Prepaid
expenses and other current assets on the balance sheet is $4.6 and $4.5 of capitalized advertising costs as of May 31, 2014 and
2013, respectively. The Company expenses non-direct-response advertising costs as incurred.
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 date of grant.
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 price of the Common Stock as well as by assumptions regarding highly complex and subjective variables,
including, but not limited to, the expected price volatility of the Common Stock over the terms of the awards, the risk-free
interest rate, and actual and projected employee stock option exercise behaviors. Estimates of fair value are not intended to
predict actual future events or the value that may ultimately be realized by those who receive these awards.
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 annually 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 experience. The estimate of stock-based awards that will ultimately be forfeited
requires significant judgment and, to the extent that actual results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the period such estimates are revised.
The table set forth below provides the estimated fair value of options granted by the Company during fiscal years 2014, 2013
and 2012 and the significant weighted average assumptions used in determining such fair value 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.
Estimated fair value of stock options granted
Assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options
NEW ACCOUNTING PRONOUNCEMENTS
2014
2013
2012
$
10.37
$
9.77
$
9.30
1.7%
38.6%
2.2%
6 years
1.6%
37.5%
0.9%
6 years
1.4%
36.7%
1.6%
7 years
In June 2014, the Financial Accounting Standards Board (the "FASB") issued an update to the authoritative guidance related to
stock compensation to resolve diverse accounting treatments of awards linked to performance targets and how to account for
share-based payment awards that require a specific performance target to be achieved for employees to become eligible to vest
in the awards.
The amendments require that a performance target that affects vesting, and that could be achieved after the requisite service
period, be treated as a performance condition. A reporting entity should apply existing guidance as it relates to awards with
performance conditions that affect vesting to account for such awards. The performance target should not be reflected in
estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes
probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for
-52-
which the service has already been rendered. If it becomes probable that the performance target will be achieved before the end
of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the
remaining requisite service period. The total amount of compensation should reflect the number of awards that are expected to
vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee
can cease rendering service and still be eligible to vest in the award if the performance target is achieved.
The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015. Earlier adoption is permitted. The Company is evaluating the impact that this update will have on its
consolidated financial position, results of operations and cash flows.
In May 2014, the FASB announced that it is amending the FASB Accounting Standards Codification by issuing Topic 606,
Revenue from Contracts with Customers, at the same time as the International Accounting Standards Board (the "IASB") is
issuing International Financial Reporting Standards 15, Revenue from Contracts with Customers. The issuance of this
authoritative guidance completes the joint effort by the FASB and the IASB to clarify the principles for recognizing revenue
and improve financial reporting by creating common revenue recognition guidance.
The authoritative guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.
To achieve that core principle, an entity should apply the following steps:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature,
amount, timing, and uncertainty of revenue that is recognized. The update provides guidance for transactions that are not
otherwise addressed comprehensively in authoritative guidance (for example, service revenue, contract modifications, and
licenses of intellectual property). The amendments in this update are to be applied on a retrospective basis, utilizing one of two
different methodologies. The amendments in this update are effective for annual reporting periods beginning after December
15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is evaluating
the impact of this update on its consolidated financial position, results of operations and cash flows.
In April 2014, the FASB issued an update to the authoritative guidance related to the reporting of discontinued operations. The
amendments in this update address the criteria for reporting discontinued operations and enhance convergence of the FASB’s
and the IASB's reporting requirements for discontinued operations. The amendments revise the definition of discontinued
operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts
that have (or will have) a major effect on an entity’s operations and financial results. The amendments also require expanded
disclosures for discontinued operations. The amendments are to be applied prospectively to all disposals (or classifications as
held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim
periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not
been reported in financial statements previously issued or available for issuance. The Company is evaluating the impact of this
update on its consolidated financial position, results of operations and cash flows.
In July 2013, the FASB issued an update to the authoritative guidance related to the financial statement presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists to
address diversity in practice in the presentation of unrecognized tax benefits. An unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should generally be presented in the financial statements as a reduction to a deferred tax asset for a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward.
2. ACQUISITIONS
On January 3, 2012, the Company acquired Learners Publishing, a Singapore-based publisher of supplemental learning
materials for English-Language Learners, for $3.0, net of cash acquired. As a result of this transaction, the Company recorded
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$1.5 of goodwill. The results of operations of this business subsequent to the acquisition date are included in the International
segment.
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
Publishing segment, and certain assets will benefit the Children’s Book Publishing and Distribution segment.
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.
In the first quarter of fiscal 2012, the Company ceased operations in its direct-to-home catalog business specializing in toys.
This business was a separate reporting unit included in the Media, Licensing and Advertising segment. 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 Distribution segment. In addition, the Company 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 Consolidated Financial Statements.
The following table summarizes the operating results of the discontinued operations for the fiscal years ended May 31:
Revenues
Gain (loss) on sale
Earnings (loss) before income taxes
Income tax benefit (provision)
Earnings (loss) from discontinued operations, net of tax
2014
2013
2012
$
$
0.0
$
—
0.2
(0.1)
0.1
$
$
6.2
(1.1)
(7.2)
2.5
(4.7) $
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
Current assets of discontinued operations
Accrued expenses and other current liabilities
Current liabilities of discontinued operations
2014
2013
$
$
$
— $
0.4
0.4
$
1.1
1.1
$
9.8
—
(7.2)
1.5
(5.7)
0.0
0.4
0.4
1.3
1.3
-54-
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.
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
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.
-55-
The following table sets forth information for the Company’s segments for the three fiscal years ended May 31:
2014
Revenues
Bad debts
Depreciation and
amortization (3)
Asset Impairments
Segment operating income
(loss)
Segment assets at May 31,
2014
Goodwill at May 31, 2014
Expenditures for long-lived
assets including royalty
advances
Long-lived assets at May
31, 2014
2013
Revenues
Bad debts
Depreciation and
amortization (3)
Segment operating income
(loss)
Segment assets at May 31,
2013
Goodwill at May 31, 2013
Expenditures for long-lived
assets including royalty
advances
Long-lived assets at May
31, 2013
2012
Revenues
Bad debts
Depreciation and
amortization (3)
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
Children's
Book
Publishing &
Distribution (1)
Educational
Technology
& Services
Classroom &
Supplemental
Materials
Publishing
Media,
Licensing &
Advertising (1)
Overhead (1) (2)
Total
Domestic
International
Total
$
$
873.5
2.6
$
248.7
0.9
$
229.6
1.6
$
56.2
0.1
— $1,408.0
5.2
—
$
414.3
3.0
$ 1,822.3
8.2
31.9
28.0
22.8
371.3
40.9
28.0
—
39.6
173.7
22.7
43.4
30.7
135.3
119.0
10.5
—
37.5
166.8
65.4
10.2
90.1
$
$
846.9
1.8
$
227.7
1.1
$
218.0
1.4
31.5
24.5
407.5
54.3
22.7
29.5
170.8
22.7
52.3
40.3
165.3
116.5
9.4
29.6
168.6
65.4
10.9
91.4
$
$
1,111.3
6.4
$
254.7
0.7
$
208.2
1.9
33.1
0.5
152.2
543.5
54.3
22.2
—
49.2
168.5
22.7
44.4
26.2
167.5
101.1
7.7
—
18.3
163.6
65.4
17.9
90.3
5.3
—
39.0
—
114.7
28.0
7.1
—
121.8
28.0
(0.7)
(66.9)
32.3
30.8
63.1
30.7
5.4
8.1
14.1
58.7
0.1
3.0
4.7
26.9
5.4
3.7
12.0
75.3
0.1
12.8
—
532.9
1,275.4
252.7
1,528.1
—
134.4
10.1
144.5
269.6
362.0
406.1
764.6
11.7
63.6
373.7
828.2
$
— $1,351.3
4.4
—
$
441.1
2.4
$ 1,792.4
6.8
41.6
108.2
7.2
115.4
(60.2)
28.1
39.8
67.9
402.1
1,175.9
264.7
1,440.6
—
147.8
10.1
157.9
33.3
140.5
13.4
153.9
236.5
621.7
68.0
689.7
$
— $1,649.5
9.1
—
$
489.6
3.2
$ 2,139.1
12.3
39.0
6.2
114.8
6.7
9.1
0.3
123.9
7.0
(4.9)
(87.1)
127.7
57.6
185.3
38.1
5.4
6.3
11.6
438.6
1,352.3
310.3
1,662.6
—
147.8
9.9
157.7
37.9
132.7
13.2
145.9
246.7
617.2
67.1
684.3
(1)
(2)
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.
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 and amounts previously allocated to
-56-
the Children’s Book Publishing and Distribution segment for the computer club business that was discontinued in the fourth quarter of fiscal
2013.
Includes depreciation of property, plant and equipment and amortization of intangible assets and prepublication and production costs.
(3)
5. DEBT
The following table summarizes debt as of May 31:
Loan Agreement:
Revolving Loan (interest rate of 1.3%)
Unsecured Lines of Credit (weighted average interest
rates of 2.3% and 9.0%, respectively)
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
2014
120.0
15.8
135.8
(15.8)
120.0
$
$
$
$
120.0
15.8
135.8
(15.8)
120.0
$
$
$
$
2013
— $
2.0
2.0
$
$
(2.0)
— $
—
2.0
2.0
(2.0)
—
The short-term debt’s carrying value approximates its fair value. The fair values of the 5% Notes were estimated based on
market quotes, where available, or dealer quotes.
The following table sets forth the maturities of the carrying values of the Company’s debt obligations as of May 31, 2014 for
the fiscal years ending May 31:
2015
2016
2017
2018
2019
Thereafter
Total debt
Loan Agreement
$
$
15.8
—
—
120.0
—
—
135.8
Scholastic Corporation and Scholastic Inc. (each, a “Borrower” and together, the “Borrowers”) are parties to a $425.0 credit
facility with certain banks (as amended, the “Loan Agreement”), which allows the Company to borrow, repay or prepay and
reborrow at any time prior to the December 5, 2017 maturity date. Under the Loan Agreement, interest on amounts borrowed
thereunder is due and payable in arrears on the last day of the interest period (defined as the period commencing on the date of
the advance and ending on the last day of the period selected by the Borrower at the time each advance is made). The interest
pricing under the Loan Agreement is dependent upon the Borrower’s election of a rate that is either:
(cid:127)
(cid:127)
A Base Rate equal to the higher of (i) the prime rate, (ii) the prevailing Federal Funds rate plus 0.500% or (iii)
the Eurodollar Rate for a one month interest period plus 1% plus, in each case, an applicable spread ranging
from 0.18% to 0.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.
-or-
A Eurodollar Rate equal to the London interbank offered rate (LIBOR) plus an applicable spread ranging
from 1.18% to 1.60%, as determined by the Company’s prevailing consolidated debt to total capital ratio.
As of May 31, 2014, 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.
-57-
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, 2014, the facility fee rate was 0.20%.
As of May 31, 2014, the Company’s outstanding borrowings under the Loan Agreement totaled $120.0. The Company incurred
this obligation in the third quarter of fiscal 2014 to partially finance the purchase of the land and building comprising a
previously leased property at 555 Broadway in New York City. While this obligation is not due until the December 5, 2017
maturity date, the Company may, from time to time, make payments to reduce this obligation when cash from operations
becomes available for this purpose.
No borrowings were outstanding under the Loan Agreement as of May 31, 2013.
At May 31, 2014, the Company had open standby letters of credit totaling $5.3 issued under certain credit lines, including $0.4
under the Loan Agreement discussed above and $4.9 under the domestic credit lines discussed below. A $1.0 standby letter of
credit under the Loan Agreement was canceled on February 28, 2014 due to the purchase of the building mentioned 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 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, 2014, the Company was in compliance with these covenants.
Lines of Credit
As of May 31, 2014, the Company’s domestic credit lines available under unsecured money market bid rate credit lines totaled
$5.1. There was $10.0 of outstanding borrowings under these credit lines at May 31, 2014, and no outstanding borrowings as
of May 31, 2013. The weighted average interest rate on these outstanding borrowings is 1.2%. All loans made under these
credit lines are at the sole discretion of the lender and at an interest rate and term agreed to at the time each loan is made, but
not to exceed 365 days. These credit lines may be renewed, if requested by the Company, at the option of the lender.
As of May 31, 2014, the Company had various local currency credit lines, with maximum available borrowings in amounts
equivalent to $34.6, 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 $5.8 at May 31, 2014 at a
weighted average interest rate of 4.3%, compared to borrowings outstanding equivalent to $2.0 at May 31, 2013 at a weighted
average interest rate of 9.0%.
5% Notes due 2013
In April 2003, Scholastic Corporation issued $175.0 of 5% Notes due April 2013 (the “5% Notes”). The Company amended its
existing Loan Agreement, which was scheduled to mature on June 1, 2014, to extend the maturity date to December 5, 2017,
and on April 15, 2013, the Company drew under the Loan Agreement to satisfy its obligations to fully repay the 5% Notes. As
of May 31, 2013, the Company had fully paid down its borrowing under the Loan Agreement.
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, 2014, 2013 and 2012 was $27.6, $32.9 and $38.9, respectively.
Amortization of assets under capital leases covering land, buildings and equipment was $0.8, $1.1 and $1.1 for the fiscal years
ended May 31, 2014, 2013 and 2012, respectively, and is included in Depreciation and amortization expense.
-58-
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
2014
2013
— $
—
0.0
0.0
0.0
0.0
$
—
39.0
1.0
40.0
(13.4)
26.6
$
$
The following table sets forth the aggregate minimum future annual rental commitments at May 31, 2014 under all non-
cancelable leases for the fiscal years ending May 31:
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
Less minimum sublease income to be received
Minimum lease payments, net of sublease income
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
Operating Leases
32.1
$
25.7
19.2
14.5
8.1
14.1
113.7
69.9
43.8
$
$
$
$
$
$
$
$
Capital Leases
0.0
—
—
—
—
—
0.0
—
0.0
0.0
0.0
—
0.0
The following table sets forth the aggregate minimum future contractual commitments at May 31, 2014 relating to royalty
advances and minimum print quantities for the fiscal years ending May 31:
2015
2016
2017
2018
2019
Thereafter
Total commitments
Royalty Advances
10.4
$
2.7
0.9
0.8
0.0
—
14.8
$
Minimum Print
Quantities
$
$
47.6
48.3
44.8
45.5
46.3
143.4
375.9
The Company had open standby letters of credit of $5.3 and $6.6 issued under certain credit lines as of May 31, 2014 and 2013,
respectively. 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.
Contingencies
Various claims and lawsuits arising in the normal course of business are pending against the Company. The Company accrues a
liability for such matters when it is probable that a liability has occurred and the amount of such liability can be reasonably
estimated. When only a range can be estimated, the most probable amount in the range is accrued unless no amount within the
range is a better estimate than any other amount, in which case the minimum amount in the range is accrued. Legal costs
associated with litigation loss contingencies are expensed in the period in which they are incurred. The Company does not
-59-
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
Included in the Other assets and deferred charges section of the Company’s Consolidated Balance Sheets were investments of
$18.4 and $19.6 at May 31, 2014 and May 31, 2013, respectively.
In the first quarter of fiscal 2014, the Company acquired a 20% interest in a software development business for $1.0 in cash,
which was accounted for using the equity method of accounting. The investment was determined to be other than temporarily
impaired in the fourth quarter of fiscal 2014, and the Company recognized a loss of $1.0.
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. A decline in results for this operation in the last quarter of the fiscal year ended December 31, 2013
led management to determine that this investment was other than temporarily impaired as of February 28, 2014. Accordingly,
the Company recognized a loss of $4.8 in respect of this investment in the fiscal year ended May 31, 2014.
The Company’s 26.2% non-controlling interest in a children’s book publishing business located in the UK is accounted for
using the equity method of accounting. The net value of this investment at May 31, 2014 was $18.3. The Company received
$1.0 of dividends in fiscal 2014 from this investment.
Income from equity investments totaled $2.6 for the year ended May 31, 2014, $2.3 for the year ended May 31, 2013 and $2.6
for the year ended May 31, 2012.
The following table summarizes the Company’s investments as of May 31:
Cost method investments:
UK-based
Total cost method investments
Equity method investments:
UK-based
Other
Total equity method investments
Total
2014
2013
$
$
$
$
$
— $
— $
18.3
0.1
18.4
18.4
$
$
$
5.0
5.0
14.6
0.0
14.6
19.6
8. GOODWILL AND OTHER INTANGIBLES
In fiscal 2014, the Company recognized an impairment of $13.4 of goodwill associated with the book clubs reporting unit in the
Children’s Book Publishing and Distribution segment. In the second quarter of fiscal 2014, expected revenues for the reporting
unit declined, resulting in an impairment indicator. Revenues in the first quarter were not significant for this reporting unit as
schools are not in session. As of November 30, 2013, the fair value of the reporting unit was approximately $13.0 less than the
carrying value of $66.9. The Company used forecasted cash flows, which were adjusted from those used in the latest annual
valuation to reflect the revised outlook for the reporting unit, in determining its fair value. Management revised its outlook for
the reporting unit as revenues did not meet expectations during the period, and future revenue expectations were revised
consistent with the current period decline. A discount rate of 15.5% and a perpetual growth rate of 3.0% were employed for the
discounted cash flow analysis . The reporting unit is dependent upon internally developed intangible assets including trade
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names and customer lists which have no carrying value, but have substantial fair value. In the third quarter of fiscal 2014, the
Company completed step two of the goodwill impairment process, and determined that the fair value of the reporting unit's
inventory and internally developed intangible assets rendered 100% of the goodwill impaired, consistent with the Company's
initial estimates.
The following table summarizes the activity in Goodwill for the fiscal years ended May 31:
Gross beginning balance
Accumulated impairment
Beginning balance
Impairment charge
Foreign currency translation
Other
Gross ending balance
Accumulated impairment
Ending balance
The following table summarizes Other intangibles as of May 31:
Beginning balance-Customer lists
Additions due to acquisition
Amortization expense
Foreign currency translation
Customer lists, net of accumulated amortization of $3.3 and $2.3, respectively
Beginning balance-Other intangibles
Additions due to acquisition
Amortization expense
Other
Other intangibles, net of accumulated amortization of $13.4 and $12.0, respectively
Total other intangibles subject to amortization
Trademarks and other
Total other intangibles not subject to amortization
Total other intangibles
2014
2013
2014
178.7
(20.8)
157.9
(13.4)
0.0
—
178.7
(34.2)
144.5
3.4
—
(1.0)
0.0
2.4
9.2
—
(1.4)
(0.2)
7.6
10.0
2.2
2.2
12.2
$
$
$
$
$
$
$
$
$
$
2013
178.5
(20.8)
157.7
—
0.0
0.2
178.7
(20.8)
157.9
4.3
0.1
(1.0)
0.0
3.4
10.4
0.2
(1.5)
0.1
9.2
12.6
2.0
2.0
14.6
$
$
$
$
$
$
$
$
$
$
Amortization expense for Other intangibles totaled $2.4, $2.5 and $6.5 for the fiscal years ended May 31, 2014, 2013 and
2012, respectively.
The following table reflects the estimated amortization expense for intangibles for the next five fiscal years ending May 31:
2015
2016
2017
2018
2019
$
2.3
2.2
2.2
0.5
0.4
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 approximately 7 years.
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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
2014
2013
2012
$
$
43.5
6.9
50.4
$
$
34.6
18.8
53.4
$
$
145.4
24.3
169.7
The provision for income taxes from continuing operations for the fiscal years ended May 31 consists of the following
components:
2014
2013
2012
Federal
Current
Deferred
State and local
Current
Deferred
Non-United States
Current
Deferred
Total
Current
Deferred
$
$
$
$
$
$
$
$
$
6.5
(8.2)
(1.7) $
6.8
(2.6)
4.2
5.8
(2.2)
3.6
19.1
(13.0)
6.1
$
$
$
$
$
$
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
Effective Tax Rate Reconciliation
A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on earnings
from continuing operations before income taxes for the fiscal years ended May 31 is as follows:
2014
2013
2012
Computed federal statutory provision
State income tax provision, net of federal income tax benefit
Difference in effective tax rates on earnings of foreign subsidiaries
Charitable contributions
Tax credits
Valuation allowances
Uncertain Positions
Other - net
Effective tax rates
Total provision for income taxes
$
35.0 %
3.6 %
3.7 %
-1.1 %
-0.3 %
0.7 %
-27.1 %
-2.4 %
12.1%
6.1
$
35.0 %
3.3 %
0.3 %
-4.4 %
-0.4 %
2.4 %
— %
-3.2 %
33.0%
17.6
$
35.0 %
4.3 %
0.2 %
-0.7 %
-0.1 %
-1.4 %
— %
-1.0 %
36.3%
61.6
The tax provision for the fiscal year ended May 31, 2014 was favorably impacted by a settlement with the Internal Revenue
Service. During the third quarter of fiscal 2014, the Company reached a settlement with the Internal Revenue Service for fiscal
years ended May 31, 2007, 2008 and 2009, and the Company recognized previously unrecognized tax benefits of $13.8,
inclusive of interest, as a result of this settlement.
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Unremitted Earnings
At May 31, 2014, the Company had not provided U.S. income taxes on accumulated but undistributed earnings of its non-U.S.
subsidiaries of approximately $73.6 to the extent that such earnings are expected to be indefinitely reinvested. In the current
fiscal year, the Company provided U.S. deferred income taxes on $2.0 of undistributed earnings. However, if any portion were
to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings. Determining the
unrecognized deferred tax liability related to those investments in these non-U.S. subsidiaries is not practicable. 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.
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:
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
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
Depreciation and amortization
Total deferred tax liability
Total net deferred tax assets
2014
2013
$
$
$
$
26.6
29.5
4.9
26.4
15.5
33.4
(0.3)
20.4
156.4
(30.0)
126.4
$
$
(1.0)
(40.3)
(41.3) $
$
85.1
25.8
29.2
5.4
26.3
12.6
47.8
11.7
32.7
191.5
(31.9)
159.6
(0.5)
(65.0)
(65.5)
94.1
Total net deferred tax assets of $85.1 at May 31, 2014 and $94.1 at May 31, 2013 include $81.0 and $79.2, respectively, in
current assets. Total noncurrent deferred tax assets of $4.1 and $14.9 are reflected in noncurrent assets at May 31, 2014 and
2013, respectively.
For the year ended May 31, 2014, the valuation allowance decreased by $1.9 and for the year ended May 31, 2013, the
valuation allowance decreased by $2.5. The valuation allowance is based on the Company’s assessment that it is more likely
than not that certain deferred tax assets will not be realized in the foreseeable future. The valuation allowance at May 31, 2014
primarily relates to foreign operating loss carryforwards of $109.6, principally in the UK, which do not expire. The benefits of
uncertain tax positions are recorded in the financial statements only after determining a more likely-than-not probability that the
uncertain tax positions will withstand challenge, if any, from taxing authorities, in which case such benefits are included in
long-term income taxes payable, reduced by the 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 constitute part of the income tax
liability on the Company’s Consolidated Balance Sheets.
The total amount of unrecognized tax benefits at May 31, 2014, 2013 and 2012 were $14.4, excluding $1.1 accrued for interest
and penalties, $35.5, excluding $6.5 accrued for interest and penalties, and $38.7, excluding $7.1 for accrued interest and
penalties, respectively. Of the total amount of unrecognized tax benefits at May 31, 2014, 2013 and 2012, $11.7, $21.8 and
$18.1, respectively, would impact the Company’s effective tax rate.
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During the years presented, the Company recognized interest and penalties related to unrecognized tax benefits in the provision
for taxes in the Consolidated Financial Statements. The Company recognized benefits of $5.3 and $0.5 and an expense of $2.4
for the years ended May 31, 2014, 2013 and 2012, respectively.
A reconciliation of the unrecognized tax benefits for the fiscal years ended May 31 is as follows:
Gross unrecognized benefits at May 31, 2011
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
Gross unrecognized benefits at May 31, 2012
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
Gross unrecognized benefits at May 31, 2013
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
Gross unrecognized benefits at May 31, 2014
$
$
$
$
30.8
(0.8)
9.5
1.7
(2.4)
(0.1)
38.7
(7.2)
3.5
1.0
(0.5)
—
35.5
(20.4)
2.8
2.6
(1.8)
(4.3)
14.4
Unrecognized tax benefits for the Company decreased by $21.1 and $3.2 for the years ended May 31, 2014 and 2013,
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. However, given the number of
years remaining subject to examination and the number of matters being examined, the Company is unable to estimate the full
range of possible adjustments to the balance of gross unrecognized tax benefits.
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. The Company is currently under audit by the Internal Revenue Service
for its fiscal years ended May 31, 2011 and 2012. The Company is currently under audit by New York State for its fiscal years
ended May 31, 2009, 2010, 2011, and 2012 and New York City for its fiscal years ended May 31, 2008, 2009 and 2010. If any
of these tax examinations are concluded within the next twelve months, the Company will make any necessary adjustments to
its unrecognized tax benefits.
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 for such jurisdiction, 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.
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10. CAPITAL STOCK AND STOCK-BASED AWARDS
Class A Stock and Common Stock
Capital stock consisted of the following as of May 31, 2014:
Authorized
Reserved for Issuance
Outstanding
Class A Stock
Common Stock
Preferred Stock
4,000,000
1,499,000
1,656,200
70,000,000
7,245,021
30,605,978
2,000,000
—
—
The only voting rights vested in the holders of Common Stock, except as required by law, are the election of such number of
directors as shall equal at least one-fifth of the members of the Board. The Class A Stockholders are entitled to elect all other
directors and to vote on all other matters. The Class A Stockholders and the holders of Common Stock are entitled to one vote
per share on matters on which they are entitled to vote. The Class A Stockholders have the right, at their option, to convert
shares of Class A Stock into shares of Common Stock on a share-for-share basis. With the exception of voting rights and
conversion rights, and as to 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
The Preferred Stock may be issued in one or more series, with the rights of each series, including voting rights, to be
determined by the Board before each issuance. To date, no shares of Preferred Stock have been issued.
Stock-based awards
At May 31, 2014, the Company maintained three stockholder-approved stock-based compensation plans with regard to the
Common Stock: the Scholastic Corporation 1995 Stock Option Plan (the “1995 Plan”), under which no further awards can be
made; the Scholastic Corporation 2001 Stock Incentive Plan (the “2001 Plan”), under which no further awards can be 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 qualified, called non-qualified stock options;
restricted stock; and other stock-based awards.
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.
Stock Options – At May 31, 2014, non-qualified stock options to purchase 161,500 shares, 1,135,360 shares and 1,300,640
shares of Common Stock were outstanding under the 1995 Plan, the 2001 Plan and the 2011 Plan, respectively. During fiscal
2014, 753,720 options were granted under the 2011 Plan at a weighted average exercise price of $30.11.
At May 31, 2014, 464,873 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’ meeting of
non-qualified stock options to purchase 6,000 shares of Common Stock. At May 31, 2014, options to purchase 96,000 shares of
Common Stock were outstanding under the 1997 Directors Plan.
In September 2007, the Corporation adopted the stockholder-approved Scholastic Corporation 2007 Outside Directors Stock
Incentive Plan (the “2007 Directors Plan”). From September 2007 through September 2011, the 2007 Directors Plan provided
for the automatic grant to each non-employee director, on the date of each annual meeting of stockholders, of non-qualified
stock options to purchase 3,000 shares of Common Stock at a purchase price per share equal to the fair market value of a share
of Common Stock on the date of grant and 1,200 restricted stock units. In July 2012, the Board approved an amended and
restated 2007 Outside Directors stock incentive Plan (the “Amended 2007 Directors Plan”), which was approved by the
stockholders in September 2012. 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
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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 2013, stock options and restricted stock units with a
value of $70,000 for each non-employee director, with 40% of such value in the form of options and 60% in the form of
restricted stock units, were approved, and an aggregate of 24,714 options at an exercise price of $30.56 per share and 12,366
restricted stock units were granted to the non-employee directors under the amended 2007 Directors Plan.
As of May 31, 2014, 162,867 options were outstanding under the Amended 2007 Directors Plan and 274,391 shares of
Common Stock remained available for additional awards under the Amended 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, 2014, there were 1,499,000 Class A Options granted to Mr. Robinson outstanding under
the Class A Plan, and no shares of Class A Stock remained available for additional awards under the Class A Plan.
Generally, options granted under the various plans may not be exercised for a minimum of one year after the date of grant and
expire approximately ten years after the date of grant. 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
Weighted average grant date fair value per option
2014
2013
2012
$
$
$
$
4.6
9.3
1.7
10.37
$
$
$
$
2.3
6.3
0.8
9.77
$
$
$
$
5.0
12.2
1.8
9.30
As of May 31, 2014, the total pretax compensation cost not yet recognized by the Company with regard to outstanding unvested
stock options was $3.3. The weighted average period over which this compensation cost is expected to be recognized is 2.3
years.
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, 2014:
Outstanding at May 31, 2013
Granted
Exercised
Expired
Cancellations and forfeitures
Outstanding at May 31, 2014
Exercisable at May 31, 2014
Options
$
4,185,480
778,434
$
(506,380) $
(41,000) $
(61,167) $
$
$
4,355,367
3,156,844
Weighted
Average
Exercise Price
Average Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
29.49
30.12
23.94
31.43
28.82
30.23
30.70
4.8
3.3
$
$
12.3
8.8
Restricted Stock Units – In addition to stock options, the Company has issued restricted stock units to certain officers and key
executives under the 2011 Plan (“RSUs”). The RSUs automatically convert to shares of Common Stock on a one-for-one basis
as the award vests, which is typically over a four-year period beginning thirteen months from the grant date and thereafter
annually on the anniversary of the grant date. There were 121,860 shares of Common Stock issued upon vesting of RSUs
during fiscal 2014. The Company measures the value of RSUs at fair value based on the number of RSUs granted and the price
of the underlying Common Stock on the grant date. The Company amortizes the fair value of outstanding Stock Units as stock-
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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 RSU award activity for the fiscal years ended May 31:
RSUs granted
67,670
125,584
Weighted average grant date price per unit
$
30.34
$
23.05
$
205,620
27.92
2014
2013
2012
As of May 31, 2014, the total pretax compensation cost not yet recognized by the Company with regard to unvested RSUs was
$2.5. The weighted average period over which this compensation cost is expected to be recognized is 1.9 years.
Management Stock Purchase Plan - The Company maintains a Management Stock Purchase Plan (“MSPP”), which allows
certain members of senior management to defer up to 100% of their annual cash bonus payments in the form of restricted stock
units (“MSPP Stock Units”) which are purchased by the employee at a 25% discount from the lowest closing price of the
Common Stock on NASDAQ on any day during the fiscal quarter in which such bonuses are payable. The MSPP Stock Units
are converted into shares of Common Stock on a one-for-one basis at the end of the applicable deferral period. The Company
measures the value of MSPP Stock Units based on the number of awards granted and the price of the underlying Common
Stock on the grant date, giving effect to the 25% discount. The Company amortizes this discount as stock-based compensation
expense over the vesting term 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 MSPP Stock Unit activity for the fiscal years ended May 31:
MSPP Stock Units allocated
Purchase price per unit
2014
2013
827
21.15
$
87,317
19.73
$
At May 31, 2014, there were 331,453 shares of Common Stock remaining authorized for issuance under the MSPP.
As of May 31, 2014, the total pretax compensation cost not yet recognized by the Company with regard to unvested MSPP
Stock Units under the MSPP was $0.1. The weighted average period over which this compensation cost is expected to be
recognized is 1.2 years.
The following table sets forth the RSU and MSPP Stock Unit activity for the year ended May 31, 2014:
Nonvested as of May 31, 2013
Granted
Vested
Forfeited
Nonvested as of May 31, 2014
Stock Units/RSUs
Weighted
Average grant
date fair value
$
559,403
68,497
$
(295,572) $
(9,834) $
$
322,494
29.98
30.07
16.84
28.90
21.33
The total fair value of shares vested during the fiscal years ended May 31, 2014, 2013 and 2012 was $5.0, $6.4 and $6.0,
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.
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The following table sets forth the ESPP share activity for the fiscal years ended May 31:
Shares issued
Weighted average purchase price per share
2014
2013
57,835
$
26.92
$
68,228
24.78
At May 31, 2014, there were 161,910 shares of Common Stock remaining authorized for issuance under the ESPP.
11. TREASURY STOCK
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
September 2010
Less repurchases
Remaining Board authorization at May 31, 2014
Amount
$44.0 (a)
(30.6)
13.4
$
(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, 2014, the Company repurchased approximately 0.2 million shares on the open
market for approximately $6.2 at an average cost of $28.65 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
further benefits will accrue to employees under the Pension Plan.
Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom, has a defined benefit pension
plan (the “UK Pension Plan”) that covers its employees who meet various eligibility requirements. Benefits are based on years
of service and on a percentage of compensation near retirement. The UK Pension Plan is funded by contributions from
Scholastic Ltd. and its employees.
The Company’s pension plans have a measurement 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. Effective June 1, 2009, the Company modified the terms of the
Post-Retirement Benefits, effectively excluding a large percentage of employees from the plan. At May 31, 2014, the
unrecognized prior service credit remaining was $0.3.
The Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Act”) introduced a prescription drug
benefit under Medicare (“Medicare Part D”) as well as a Federal subsidy of 28% to sponsors of retiree health care benefit plans
providing a benefit that is at least actuarially equivalent to Medicare Part D. The Company has determined that the Post-
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Retirement Benefits provided to its retiree population are in aggregate the actuarial equivalent of the benefits under Medicare
Part D. As a result, in fiscal 2014, 2013 and 2012, the Company recognized a cumulative reduction of its accumulated post-
retirement benefit obligation of $3.1, $3.1 and $2.9, respectively, due to the Federal subsidy under the Medicare Act.
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:
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
Pension Plans
Post-Retirement Benefits
2014
2013
2012
2014
2013
2012
4.1%
4.2%
4.0%
7.5%
4.4%
4.0%
4.4%
4.0%
7.3%
3.3%
4.0%
3.3%
5.1%
7.7%
4.3%
4.0%
—
3.9%
—
3.9%
—
3.9%
3.9%
5.0%
—
—
—
—
—
—
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 7.5%.
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
Settlement
Benefits paid, including expenses
Benefit obligation at end of year
Pension Plans
Post-Retirement Benefits
2014
2013
2014
2013
$
$
185.6
—
7.2
—
(2.5)
3.7
(6.4)
(7.1)
180.5
$
$
182.2
—
6.9
—
7.4
(0.8)
—
(10.1)
185.6
$
$
36.2
0.0
1.3
0.4
(1.9)
—
—
(2.6)
33.4
$
$
39.6
0.0
1.4
0.4
(2.8)
—
—
(2.4)
36.2
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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:
Pension Plans
Post-Retirement Benefits
2014
2013
2014
2013
Change in plan assets:
Fair value of plan assets at beginning of year
$
173.8
$
145.8
$
— $
Actual return on plan assets
Employer contributions
Settlement
Benefits paid, including expenses
Plan participants’ contributions
Foreign currency translation
Fair value of plan assets at end of year
21.1
4.6
(6.4)
(7.1)
—
2.6
188.6
$
$
29.9
8.8
—
(10.1)
—
(0.6)
173.8
—
2.2
—
(2.6)
0.4
—
$
— $
—
—
2.0
—
(2.4)
0.4
—
—
In fiscal 2014, the Company recorded a pretax charge of $1.7 related to the lump sump settlement of certain US pension
obligations.
The following table sets forth the net funded status of the Pension Plans and Post-Retirement Benefits and the related amounts
recognized on the Company’s Consolidated Balance Sheets at May 31:
Non-current assets
Current liabilities
Non-current liabilities
Net funded balance
Pension Plans
Post-Retirement Benefits
2014
2013
2014
2013
$
19.4
$
— $
— $
—
(11.4)
8.0
$
—
(11.8)
(11.8) $
(2.6)
(30.8)
(33.4) $
$
—
(2.7)
(33.5)
(36.2)
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:
Net actuarial gain (loss)
Net prior service credit
Net amount recognized in Accumulated other
comprehensive income (loss)
2014
Post -
Retirement
Benefits
Pension
Plans
Total
Pension
Plans
2013
Post -
Retirement
Benefits
Total
$
(47.6) $
—
(9.3) $
0.3
(56.9) $
0.3
(62.1) $
—
(13.4) $
0.5
(75.5)
0.5
$
(47.6) $
(9.0) $
(56.6) $
(62.1) $
(12.9) $
(75.0)
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, 2015 is $1.4. 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, 2015 are $1.6 and $0.2, respectively. Income tax expense of $5.0 and income
tax expense of $8.4 were recognized in Accumulated other comprehensive loss at May 31, 2014 and 2013, 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
2014
2013
$
180.5
$
179.5
188.6
185.6
184.6
173.8
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:
Components of net periodic (benefit) cost:
Service cost
Interest cost
Expected return on assets
Net amortization and deferrals
Lump sum settlement charge
Recognized net actuarial loss
Net periodic (benefit) cost
Plan Assets
Pension Plans
Post - Retirement Benefits
2014
2013
2012
2014
2013
2012
$
— $
— $
— $
7.2
(12.7)
—
1.7
6.9
(10.5)
—
—
8.4
(10.8)
—
—
1.8
(2.0) $
2.2
(1.4) $
1.4
(1.0) $
$
0.0
1.3
—
(0.2)
—
2.2
3.3
$
$
0.0
1.4
—
(0.4)
—
3.0
4.0
$
$
0.0
1.7
—
(0.6)
—
3.8
4.9
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
2014
2013
33.0%
58.8%
1.1%
7.1%
100.0%
69.5%
24.0%
1.0%
5.5%
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
UK
Pension
Plan
30 %
70 %
0 %
100%
40 %
30 %
30 %
100%
The fair values of the Company’s Pension Plans’ assets are measured using Level 1, Level 2 and Level 3 fair value
measurements. For a more complete description of fair value measurements see Note 18, “Fair Value Measurements.”
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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
$
7.1
$
— $
— $
7.1
Assets at Fair Value as of May 31, 2014
Level 1
Level 2
Level 3
Total
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)
Total
39.8
10.3
—
—
—
101.3
12.1
9.7
—
2.1
57.2
$
125.2
$
—
—
—
6.2
—
6.2
141.1
22.4
9.7
6.2
2.1
$
188.6
$
$
Assets at Fair Value as of May 31, 2013
Level 1
Level 2
Level 3
Total
3.5
$
— $
— $
94.0
16.3
34.4
—
—
—
10.4
7.4
—
1.7
$
148.2
$
19.5
$
—
—
—
6.1
—
6.1
3.5
94.0
26.7
41.8
6.1
1.7
$
173.8
(1)
(2)
(3)
(4)
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 investments.
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.
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.
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.
The Company has purchased annuities to service fixed payments to certain retired plan participants in the UK. These annuities
are purchased from investment grade counterparties. These annuities are not traded on open markets, and are therefore valued
based upon the actuarial determined valuation, and related assumptions, of the underlying projected benefit obligation, a Level
3 valuation technique. The fair value of these assets was $6.2 and $6.1 at May 31, 2014 and May 31, 2013, respectively.
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The following table summarizes the changes in fair value of these Level 3 assets for the fiscal years ended May 31, 2014 and
2013:
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
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2014
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, 2014
Contributions
$
$
$
5.8
0.7
—
(0.3)
—
(0.1)
6.1
(0.1)
—
(0.3)
—
0.5
6.2
In fiscal 2015, the Company expects to contribute $1.4 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:
2015
2016
2017
2018
2019
2020-2024
Post - Retirement
$
Pension
Benefits
Benefit
Payments
$
15.5
11.8
11.1
10.8
11.0
50.7
2.9
2.8
2.8
2.7
2.6
12.5
Medicare
Subsidy
Receipts
$
0.3
0.3
0.3
0.3
0.3
1.6
Assumed health care cost trend rates at May 31:
Health care cost trend rate assumed for the next fiscal year
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2014
2013
7.0%
5.0%
2021
7.5%
5.0%
2021
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Assumed health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care
plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
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
Defined contribution plans
$
2014
2013
$
0.1
(0.1)
3.6
(3.1)
0.2
(0.1)
4.0
(3.4)
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 $7.5, $8.0 and $7.4 for fiscal 2014, 2013 and 2012, respectively.
13. ACCRUED SEVERANCE
The table below provides information regarding Accrued severance, which is included in “Other accrued expenses” on the
Company’s Consolidated Balance Sheets.
Beginning balance
Accruals
Payments
Ending balance
2014
2013
3.3
11.3
(13.4)
1.2
$
$
2.7
13.4
(12.8)
3.3
$
$
The Company implemented cost saving initiatives in fiscal 2014, recognizing severance expense of $10.8. The Company also
implemented cost saving initiatives in fiscal 2013, recognizing severance expense of $9.6.
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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)
$
$
$
$
$
$
2014
2013
2012
44.2
$
35.7
$
107.6
0.1
44.3
32.0
0.5
32.5
1.38
0.01
1.39
1.36
0.00
1.36
$
$
$
$
$
$
(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
Earnings from continuing operations exclude earnings of $0.1, $0.1 and $0.5 for the years ended May 31, 2014, 2013 and 2012,
respectively, for earnings attributable to participating RSUs.
In a period in which the Company reports a discontinued operation, Earnings (loss) from continuing operations is used as the
“control number” in determining whether potentially dilutive common shares are dilutive or anti-dilutive. Potentially dilutive
shares outstanding pursuant to compensation plans that were not included in the diluted earnings per share calculation because
they were anti-dilutive were 1.3 million as of May 31, 2014.
A portion of the Company’s RSUs granted to employees participates in earnings through cumulative non-forfeitable dividends
payable to the employees upon vesting of the RSUs. Accordingly, the Company measures earnings per share based upon
the lower of the Two-class method or the Treasury Stock method.
Options outstanding pursuant to compensation plans were 4.4 million and 4.2 million as of May 31, 2014 and 2013,
respectively.
As of May 31, 2014, $13.4 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.
-75-
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
2014
2013
$
$
41.7
36.9
27.5
35.6
4.7
8.3
30.0
$
184.7
$
45.8
22.0
29.3
38.2
5.5
8.7
30.0
179.5
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
$
$
133.1
147.6
60.4
(1.0)
62.8
$
146.4
149.0
48.9
(0.5)
54.8
145.0
127.3
55.1
0.7
61.1
2014
2013
2012
Unredeemed credits issued in conjunction with the Company’s school-based book club
and book fair operations (included in other accrued expenses)
$
10.4
$
9.5
2014
2013
Components of Accumulated other comprehensive income (loss):
Foreign Currency Translation
Pension Obligations (net of tax of $18.1 and $23.1)
Accumulated other comprehensive income (loss)
17. DERIVATIVES AND HEDGING
2014
2013
(16.6)
(38.6)
(55.2) $
(13.5)
(51.9)
(65.4)
$
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 losses of $0.3 and
unrealized gains of $0.5 were recognized at May 31, 2014 and at May 31, 2013, respectively.
18. FAIR VALUE MEASUREMENTS
The Company determines the appropriate level in the fair value hierarchy for each fair value measurement of assets and
liabilities carried at fair value on a recurring basis in the Company’s financial statements. The fair value hierarchy prioritizes the
inputs, which refer to assumptions that market participants would use in pricing an asset or liability, based upon the highest and
best use, into three levels as follows:
(cid:127)
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
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(cid:127)
Level 2 Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities such as
Quoted prices for similar assets or liabilities in active markets
Quoted prices for identical or similar assets or 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
(cid:127)
Level 3 Unobservable inputs in which there is little or no market data available, which are significant to the fair value
measurement and require the Company to develop its own assumptions.
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 employed, see Note 5, “Debt.” The fair values of foreign currency
forward contracts, used by the Company to manage the impact of foreign exchange rate changes to the financial statements, are
based on quotations from financial institutions, a Level 2 fair value measure.
Non-financial assets and liabilities for which the Company employs fair value measures on a non-recurring basis include:
(cid:127) Long-lived assets
(cid:127)
Investments
(cid:127) Assets acquired in a business combination
(cid:127) Goodwill and indefinite-lived intangible assets
(cid:127) Long-lived assets held for sale
Level 2 and Level 3 inputs are employed by the Company in the fair value measurement of these assets and liabilities. 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:
Investments
Property, plant and equipment, net
Goodwill
Prepublication assets
Other intangible assets
Property, plant and equipment, net
Prepublication assets
Net carrying
value as of
Fair value measured and
recorded using
Impairment losses
for fiscal year
ended
May 31, 2014
Level 1
Level 2
Level 3
May 31, 2014
Additions due to
acquisitions
— $ — $ — $ — $
5.8
$
—
—
—
—
—
—
—
—
—
—
—
—
7.6
13.4
5.7
1.0
—
—
—
Net carrying
value as of
Fair value measured and
recorded using
Impairment losses
for fiscal year
ended
May 31, 2013
Level 1
Level 2
Level 3
May 31, 2013
Additions due to
acquisitions
0.3
—
—
$ — $ — $
—
—
—
—
$
0.3
—
—
— $
5.2
2.0
0.3
—
—
$
$
-77-
Net carrying
value as of
Fair value measured and
recorded using
Impairment losses
for fiscal year
ended
May 31, 2012
Level 1
Level 2
Level 3
May 31, 2012
Additions due to
acquisitions
2.7
4.9
5.4
0.6
—
—
$ — $ — $
—
—
—
—
—
—
—
—
—
—
2.7
4.9
5.4
0.6
—
—
$
— $
6.8
—
4.0
0.8
1.3
2.7
—
5.4
—
—
—
Goodwill
$
Other intangible assets impairment
Other intangibles
Production assets
Prepublication assets
Investments
19. SUBSEQUENT EVENTS
On July 23, 2014, the Board of Directors declared a regular cash dividend of $0.150 per Class A and Common share in respect
of the first quarter of fiscal 2015. The dividend is payable on September15, 2014 to shareholders of record on August 29, 2014.
-78-
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended May 31, 2014, 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, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework), and our report dated July 29, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
July 29, 2014
-79-
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, 2014, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (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, 2014, 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, 2014 and 2013, 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, 2014, and our report dated July 29, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
July 29, 2014
-80-
Supplementary Financial Information
2014
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:
Basic:
Earnings (loss) from continuing operations (1)
Earnings (loss) from discontinued operations,
net of tax (1)
Net income (loss) (1)
Diluted:
Earnings (loss) from continuing operations (1)
Earnings (loss) from discontinued operations,
net of tax (1)
Net income (loss) (1)
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:
Basic:
Earnings (loss) from continuing operations (1)
Earnings (loss) from discontinued operations,
net of tax (1)
Net income (loss) (1)
Diluted:
Earnings (loss) from continuing operations (1)
Earnings (loss) from discontinued operations,
net of tax (1)
Net income (loss) (1)
Summary of Quarterly Results of Operations
(Unaudited, amounts in millions except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Ended
May 31,
$
$
276.3
137.9
(30.1)
0.2
(29.9)
(0.94)
0.00
(0.94)
(0.94)
0.00
(0.94)
623.2
264.8
58.3
0.0
58.3
1.82
0.00
1.82
1.80
0.00
1.80
$
$
373.5
190.7
(12.1)
$
549.3
252.6
28.2
1,822.3
846.0
44.3
0.0
(12.1)
(0.1)
28.1
(0.38)
0.00
(0.38)
(0.38)
0.00
(0.38)
0.87
(0.00)
0.87
0.86
(0.01)
0.85
0.1
44.4
1.38
0.01
1.39
1.36
0.00
1.36
$
$
293.4
150.8
(31.7)
$
613.5
262.0
62.6
$
378.6
190.0
(19.9)
$
506.9
226.8
24.8
1,792.4
829.6
35.8
(0.4)
(32.1)
(0.8)
61.8
(0.2)
(20.1)
(3.3)
21.5
(4.7)
31.1
(1.01)
(0.01)
(1.02)
(1.01)
(0.01)
(1.02)
1.95
(0.02)
1.93
1.91
(0.02)
1.89
(0.62)
(0.01)
(0.63)
(0.62)
(0.01)
(0.63)
0.78
(0.11)
0.67
0.76
(0.10)
0.66
1.12
(0.15)
0.97
1.10
(0.15)
0.95
(1) The sum of the quarters may not equal the full year basic and diluted earnings per share since each quarter is calculated separately.
-81-
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, 2014, 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, 2014.
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, 2014, 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, 2014 that materially
affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Item 9B | Other Information
None.
-82-
Item 10 | Directors, Executive Officers and Corporate Governance
Part III
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 24, 2014 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 24, 2014 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 24, 2014 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 24, 2014 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 24, 2014 to be filed pursuant to Regulation 14A under the Exchange Act.
-83-
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, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2014, 2013 and 2012
Consolidated Balance Sheets at May 31, 2014 and 2013
Consolidated Statement of Changes in Stockholders’ Equity for the years ended May 31, 2014, 2013 and
2012
Consolidated Statements of Cash Flows for the years ended May 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Supplementary Financial Information - Summary of Quarterly Results of Operations Financial Statement
Schedule.
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)(2)
and (c)
(a)(3) and (b)
Exhibits:
3.1
3.2
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”).
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).
-84-
4.1
4.2
4.3
4.4
10.1*
10.2*
10.3*
10.4*
10.5*
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”).
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”).
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”).
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”).
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).
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).
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, (incorporated by reference to the
Corporation’s Annual Report on Form 10-K as filed with the SEC on July 29, 2013, SEC File No. 000-19860) (the
“2013 10-K”).
Scholastic Corporation Director’s Deferred Compensation Plan, amended and restated effective as of September
23, 2008 (incorporated by reference to the 2009 10-K).
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 (incorporated by reference to
the 2013 10-K).
-85-
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
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).
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).
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).
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 (incorporated by reference to the 2013 10-K).
Form of Stock Unit Agreement under the 2001 Plan (incorporated by reference to the August 31, 2009 10-Q).
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).
Form of Non-Qualified Stock Option Agreement under the 2001 Plan (incorporated by reference to the August 31,
2009 10-Q).
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).
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).
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 (incorporated by reference to the 2013
10-K).
10.16*
Form of Restricted Stock Unit Agreement under the Scholastic Corporation 2011 Stock Incentive Plan
(incorporated by reference to the November 30, 2011 10-Q).
10.17*
10.18*
10.19*
Form of Stock Option Agreement under the Scholastic Corporation 2011 Stock Incentive Plan (incorporated by
reference to the November 30, 2011 10-Q).
Severance Agreement, dated September 26, 2013, between Scholastic Corporation and Maureen O’Connell
(incorporated by reference to the Corporation’s Form 10-Q as filed with the SEC on December 19, 2013, SEC File
No. 000-19860)(the “November 30, 2013 Form 10-Q”).
Scholastic Corporation 2013 Executive Performance Incentive Plan (incorporated by reference to the November
30, 2013 Form 10-Q).
-86-
10.20
10.21
21
23
31.1
31.2
32
Landlord’s Offer Notice dated October 16, 2013 and Company’s Acceptance Letter dated December 13, 2013
(incorporated by reference to the Corporation’s Current Report on Form 8-K as filed with the SEC on December
19, 2013, SEC File No. 000-19860).
Purchase and Sale Agreement between ISE 555 Broadway, LLC (as Seller) and Scholastic Inc. (as Purchaser)
dated January 21, 2014 (incorporated by reference to the Corporation’s Form 10-Q as filed with the SEC on
March 27, 2014, SEC File No. 000-19860).
Subsidiaries of the Corporation, as of July 22, 2014.
Consent of Ernst & Young LLP.
Certification of the Chief Executive Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of the Chief Financial Officer of the Corporation filed pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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 **
*
**
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.”
-87-
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, 2014
SCHOLASTIC CORPORATION
By: /s/ Richard Robinson
Richard Robinson, Chairman of the Board,
President and Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard
Robinson his or her true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-
K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every
act and thing necessary and requisite to be done, as fully and to all the intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
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
Director
/s/ Marianne Caponnetto
Director
Marianne Caponnetto
/s/ John L. Davies
John L. Davies
/s/ Andrew S. Hedden
Andrew S. Hedden
Director
Director
-88-
Date
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
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, 2014
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
July 29, 2014
-89-
Scholastic Corporation
Financial Statement Schedule
ANNUAL REPORT ON FORM 10-K
YEAR ENDED MAY 31, 2014
ITEM 15(c)
S-1
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,
2014
Allowance for doubtful accounts
Reserve for returns
Reserves for obsolescence
Reserve for royalty advances
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
$
$
$
(1) Represents actual returns charged to the reserve
$
$
$
19.3
26.4
90.3
81.5
25.9
57.5
90.8
77.8
22.3
33.0
82.2
71.8
$
$
$
8.2
58.0
25.1
6.5
6.8
50.2
27.2
4.7
12.3
81.8
48.1
6.5
$
$
$
10.2
57.0 (1)
28.3
1.0
13.4
81.3 (1)
27.7
1.0
8.7
57.3 (1)
39.5
0.5
17.3
27.4
87.1
87.0
19.3
26.4
90.3
81.5
25.9
57.5
90.8
77.8
S-2
[This Page Intentionally Left Blank]
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
787 999 5551
China
Scholastic Education Information
Consulting Co., Ltd.
86 2164264555
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
Scholastic Education International
(Singapore) Private Limited
65 6922 9589
Taiwan
Grolier International, Inc.
886 2719 2188
Thailand
Grolier International, Inc.
66 2 631 0110
United Kingdom and Ireland
Scholastic Ltd.
44 207 756 7756
Scholastic Ireland Ltd.
353 1830 6798
Stockholder Information
Media Relations and Inquiries
The news media and others seeking information
about the Company should contact:
Registered stockholders who need to
change their address or transfer shares
should send instructions to:
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
By Mail:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
By Overnight Delivery:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
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
Indonesia
Grolier International, Inc.
62 21 3983 0012
2014 Annual Stockholders’ Meeting
2014 Annual Meeting of Stockholders
will be held at 9:00 a.m. on Wednesday,
September 24, 2014, 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
(As of July 31, 2014)
Directors of the Corporation
Richard Robinson (E)
Chairman of the Board, President
and Chief Executive Officer,
Scholastic Corporation
James W. Barge (A, N)
Chief Financial Officer,
Lionsgate Entertainment Corp.
Marianne Caponnetto (H, P)
President and Founder,
MCW Group, Inc.
John L. Davies (A, H)
Private Investor
Andrew S. Hedden (R)
Executive Vice President,
General Counsel and Secretary,
Scholastic Corporation
Mae C. Jemison (N, P, R)
President and Founder,
The Jemison Group, Inc.
Peter M. Mayer (E, H, P)
President, The Overlook Press/
Peter Mayer Publishers, Inc.
John G. McDonald (H, R)
The Stanford Investors Professor,
Graduate School of Business,
Stanford University
Augustus K. Oliver (A, E, P)
Managing Member,
Oliver Press Partners, LLC
Richard M. Spaulding (E, N, P, R)
Former Executive Vice President,
Scholastic Corporation
Margaret A. Williams (N, P)
Director of the Institute of
Politics at the John F. Kennedy
School of Government at
Harvard University, Cambridge, MA
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
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
AR2014_FINALv3_UG.indd 4
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“ Once I began to read,
I began to exist.
I am what I read
—all the books,
all the papers,
all the stories.”
—Walter Dean Myers (1937-2014)
557 Broadway, New York, NY 10012 • 212-343-6100 • www.scholastic.com